<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SECURITY EQUITY FUND
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
SECURITY EQUITY FUND
TO BE HELD JANUARY 26, 2000
700 SW HARRISON ST., TOPEKA, KANSAS 66636-0001
TELEPHONE 1-800-888-2461
TO THE STOCKHOLDERS OF
> SECURITY EQUITY FUND
Notice is hereby given that an annual meeting of the stockholders of Security
Equity Fund (the "Fund"), a Kansas corporation, will be held at the offices of
Security Equity Fund, Security Benefit Group Building, 700 SW Harrison Street,
Topeka, Kansas 66636-0001, on January 26, 2000 at 9:30 a.m. local time
("Meeting"), for the following purposes:
1. To elect six directors to serve on the Board of Directors of the Fund
until the next annual meeting, or until their successors shall have been
duly elected and qualified.
2. To ratify or reject the selection of the firm of Ernst & Young LLP as
independent accountants for the Fund's fiscal year 2000.
3. a. To amend the Fund's fundamental investment limitation concerning
diversification.
b. To amend the Fund's fundamental investment limitation concerning
share ownership of any one issuer.
c. To eliminate the Fund's fundamental investment limitation concerning
investing for control of portfolio companies.
d. To amend the Fund's fundamental investment limitation concerning
underwriting.
e. To amend the Fund's fundamental investment limitation concerning
borrowing.
f. To amend the Fund's fundamental investment limitation concerning
lending.
g. To eliminate the Fund's fundamental investment limitation concerning
short sales and margin purchases of securities.
h. To amend the Fund's fundamental investment limitation concerning
senior securities.
i. To eliminate the Fund's fundamental investment limitation concerning
investment in other investment companies.
j. To eliminate the Fund's fundamental investment limitation concerning
investment in companies with less than three years' operating
history.
k. To eliminate the Fund's fundamental investment limitation concerning
purchasing securities of an issuer in which the officers and
directors of the Fund, investment manager or underwriter own more
than 5% of the outstanding securities of such issuer.
l. To eliminate the Fund's fundamental investment limitation concerning
the officers or directors of the Fund, the Underwriter or Manager
purchasing shares of the Fund, except at current net asset value.
m. To amend the Fund's fundamental investment limitation concerning
buying or selling real estate.
n. To amend the Fund's fundamental investment limitation concerning
buying or selling commodities or commodity contracts.
o. To eliminate the Fund's fundamental investment limitation concerning
investment in warrants.
p. To eliminate the Fund's fundamental investment limitation concerning
restricted securities.
q. To eliminate the Fund's fundamental investment limitation concerning
investment in puts, calls, straddles or spreads.
r. To eliminate the Fund's fundamental investment limitation concerning
investment in oil, gas, mineral leases or other mineral exploration
or development programs.
4. To approve or disapprove an arrangement and new investment advisory
contract that would permit Security Management Company, LLC, the Fund's
investment adviser, with Board approval, to enter into or amend
sub-advisory agreements without stockholder approval.
5. To approve or disapprove a Brokerage Enhancement Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, and a new investment
advisory contract that would permit the implementation of the Plan.
6. To transact such other business as may properly come before the Meeting
or any adjournments thereof, and to adjourn the Meeting from time to
time.
The Board of Directors of Security Equity Fund has fixed the close of
business on November 30, 1999, as the record date for the determination of
stockholders of the Fund entitled to notice of and to vote at the Meeting.
THERE IS ENCLOSED A PROXY FORM SOLICITED BY THE BOARD OF DIRECTORS OF
SECURITY EQUITY FUND. ANY FORM OF PROXY THAT IS EXECUTED AND RETURNED,
NEVERTHELESS MAY BE REVOKED PRIOR TO ITS USE. ALL SUCH PROXIES PROPERLY EXECUTED
AND RECEIVED IN TIME WILL BE VOTED AT THE MEETING.
By order of the Board of Directors of
Security Equity Fund,
Topeka, Kansas AMY J. LEE
December 28, 1999 Secretary
- --------------------------------------------------------------------------------
IMPORTANT: STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING
ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) TO THE
FUND, OR OTHERWISE VOTE THEIR SHARES, AS EARLY AS POSSIBLE.
<PAGE>
SECURITY EQUITY FUND
MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KANSAS 66636-0001
ANNUAL MEETING OF STOCKHOLDERS, JANUARY 26, 2000
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of
Security Equity Fund (the "Fund"). You may vote in person at the annual Meeting,
by telephone, by Internet, or by returning your completed proxy card in the
postage-paid envelope provided. Details can be found on the enclosed proxy
insert. Do not return your proxy card if you are voting by telephone or
Internet. You may revoke your proxy by submitting another proxy or a notice of
revocation of your proxy in proper form to the Secretary of the Fund, or by
voting the shares in person at the Meeting. A second proxy form may be obtained
from the Secretary of the Fund. Each Series of the Fund, except Equity Series
and Global Series will bear the cost of soliciting proxies. Security Management
Company, LLC, 700 SW Harrison Street, Topeka, Kansas 66636-0001 ("SMC" or the
"Investment Manager") will bear the cost of soliciting proxies for Equity Series
and Global Series. SMC is the investment adviser and administrator of the Fund.
In addition to solicitations by mail, some of the Investment Manager's officers
and employees, without extra remuneration, may conduct additional solicitation
by telephone, telegraph and personal interviews. To ensure that sufficient
shares of common stock are represented at the Meeting to permit approval of the
proposals set forth herein, the Fund may retain the services of a proxy
solicitor to assist in soliciting proxies for a fee, plus reimbursement of
out-of-pocket expenses. Proxies are expected to be mailed to the Fund's
stockholders on or about December 28, 1999.
VOTING SECURITIES
Only Fund stockholders of record at the close of business on November 30,
1999, are entitled to vote at the annual Meeting. On that date, the outstanding
number of voting securities of each Series of common stock of the Fund (each a
"Series" and collectively the "Series") was as follows:
- --------------------------------------------------------------------------------
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT CONTAINING
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999, TO A
STOCKHOLDER UPON REQUEST. SUCH REQUESTS SHOULD BE DIRECTED TO THE FUND, BY
WRITING THE FUND AT 700 SW HARRISON STREET, TOPEKA, KANSAS 66636-0001, OR BY
CALLING THE FUND'S TOLL-FREE TELEPHONE NUMBER 1-800-888-2461, EXTENSION 3127.
<PAGE>
- --------------------------------------------------------------------------------
SERIES OF COMMON STOCK SHARES OUTSTANDING
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
Equity Series ............ 90,977,079.584 17,423,102.082 570,366.584
Global Series ............ 1,873,939.738 1,338,081.347 18,352.444
Total Return Series ...... 308,117.826 316,161.719 826.587
Social Awareness Series .. 607,729.550 411,266.688 18,864.451
Value Series ............. 1,350,123.015 544,572.672 69,044.939
Small Company Series ..... 1,211,077.489 84,219.562 84,304.837
Enhanced Index Series .... 786,221.006 1,006,019.736 526,115.582
International Series ..... 303,211.824 212,063.370 264,890.409
Select 25 Series ......... 1,390,636.947 1,252,722.081 385,283.807
- --------------------------------------------------------------------------------
As of the Record Date, the following persons owned beneficially more than 5%
of a Series.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
NUMBER OF % OF SERIES'
SERIES NAME* SHARES OWNED OUTSTANDING SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Security Benefit Life Insurance Co. 5,168,191.155 5.68
Equity -------------------------------------------------------------------------------
Security Benefit Life Ins. Co. Trste.
Agent for Security Benefit Life 11,234,502.136 12.34
- -------------------------------------------------------------------------------------------------
Total Return Security Benefit Group, Inc. 318,048.469 50.88
- -------------------------------------------------------------------------------------------------
Security Benefit Life Ins. Co. Trste.
Value SBG Pension Plan 68,778.522 5.09
-------------------------------------------------------------------------------
Security Benefit Life Insurance Co. 465,271.319 34.46
- -------------------------------------------------------------------------------------------------
Small Company Security Benefit Life Ins. Co. 994,537.758 82.12
- -------------------------------------------------------------------------------------------------
Enhanced Index Security Benefit Life
Seed Account 1,000,000.000 43.13
- -------------------------------------------------------------------------------------------------
Security Benefit Life
SBL Employee Pension Plan 51,975.052 17.14
International -------------------------------------------------------------------------------
Security Benefit Life
Seed Account 500,000.000 64.09
- -------------------------------------------------------------------------------------------------
<FN>
*All located at 700 SW Harrison Street, Topeka, Kansas 66636-0001 unless otherwise noted.
</FN>
- -------------------------------------------------------------------------------------------------
</TABLE>
Each Series of the Fund's common stock has a par value of $1.00 per share.
Each share is entitled to one vote and shares of the Series will be voted
together with respect to Proposal Nos. 1 and 2. Shares of each Series will be
voted separately with respect to Proposal Nos. 3, 4, and 5 as set forth in the
table below.
- --------------------------------------------------------------------------------
PROPOSAL SERIES AFFECTED
- --------------------------------------------------------------------------------
1. To elect six (6) directors to the Board of All Series of the Fund
Directors.
- --------------------------------------------------------------------------------
2. To ratify or reject the selection of Ernst & All Series of the Fund
Young LLP as independent accountants of the
Fund for fiscal year 2000.
- --------------------------------------------------------------------------------
3a. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning diversification. except Global, Enhanced
Index, International and
Select 25
- --------------------------------------------------------------------------------
3b. To amend the Fund's fundamental investment All Series of the Fund
limitation concerning share ownership of any
one issuer.
- --------------------------------------------------------------------------------
3c. To eliminate the Fund's fundamental All Series of the Fund
investment limitation concerning investing
for control of portfolio companies.
- --------------------------------------------------------------------------------
3d. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning underwriting. except Global, Enhanced
Index, International and
Select 25
- --------------------------------------------------------------------------------
3e. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning borrowing. except Global, Enhanced
Index, International and
Select 25
- --------------------------------------------------------------------------------
3f. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning lending. except Global, Enhanced
Index, International and
Select 25
- --------------------------------------------------------------------------------
3g. To eliminate the Fund's fundamental All Series of the Fund,
investment limitation concerning short sales except Global, Enhanced
and margin purchases of securities. Index, International,
Select 25 and Small
Company
- --------------------------------------------------------------------------------
3h. To amend the Fund's fundamental investment Only Equity Series
limitation concerning senior securities. of the Fund
- --------------------------------------------------------------------------------
3i. To eliminate the Fund's fundamental Only Equity Series
investment limitation concerning investment of the Fund
in other investment companies.
- --------------------------------------------------------------------------------
3j. To eliminate the Fund's fundamental Only Equity Series
investment limitation concerning investment of the Fund
in companies with less than three years'
operating history.
- --------------------------------------------------------------------------------
3k. To eliminate the Fund's fundamental All Series of the Fund,
investment limitation concerning purchasing except Global, Enhanced
securities of an issuer in which the officers Index, International,
and directors of the Fund, investment manager Select 25 and Small
or underwriter own more than 5% of the Company
outstanding securities of such issuer.
- --------------------------------------------------------------------------------
3l. To eliminate the Fund's fundamental All Series of the Fund
investment limitation concerning the officers
or directors of the Fund, the Underwriter or
Investment Manager purchasing shares of the
Fund, except at current net asset value.
- --------------------------------------------------------------------------------
3m. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning buying or selling real except Global, Enhanced
estate. Index, International and
Select 25
- --------------------------------------------------------------------------------
3n. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning commodities or except Global, Enhanced
commodity contracts. Index, International and
Select 25
- --------------------------------------------------------------------------------
3o. To eliminate the Fund's fundamental Only Equity Series
investment limitation concerning investment of the Fund
in warrants.
- --------------------------------------------------------------------------------
3p. To eliminate the Fund's fundamental Only Equity Series
investment limitation concerning restricted of the Fund
securities.
- --------------------------------------------------------------------------------
3q. To eliminate the Fund's fundamental Only Equity Series
investment limitation concerning investment of the Fund
in puts, calls, straddles or spreads.
- --------------------------------------------------------------------------------
3r. To eliminate the Fund's fundamental All Series of the Fund,
investment limitation concerning investment except Global, Enhanced
in oil, gas, mineral leases or other mineral Index, International,
exploration development programs. Select 25 and Small
Company
- --------------------------------------------------------------------------------
4. To approve or disapprove an arrangement and All Series of the Fund
new investment advisory contract that would
permit Security Management Company, LLC, the
Fund's investment adviser, with Board
approval, to enter into or amend sub-advisory
agreements without stockholder approval.
- --------------------------------------------------------------------------------
5. To approve or disapprove a Brokerage All Series of the Fund
Enhancement Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, and a new
investment advisory contract that would
permit the implementation of the Plan.
- --------------------------------------------------------------------------------
The presence, in person or by proxy, of more than 50% of the outstanding
shares of the Fund will be sufficient to establish a quorum for the conduct of
business at the Meeting. Shares held by stockholders present in person or
represented by proxy at the Meeting will be counted both for the purpose of
determining the presence of a quorum and for calculating the votes cast on the
proposals before the Meeting. Shares represented by timely and properly executed
proxies will be voted as specified. Executed proxies that are unmarked will be
voted in favor of the proposals presented at the Meeting.
If a proxy represents a broker "non-vote" (that is, a proxy from a broker or
nominee indicating that such a person has not received instructions from the
beneficial owner or other person entitled to vote shares of the Fund on a
particular matter with respect to which the broker or nominee has discretionary
power) or is marked with an abstention (collectively "abstentions"), the Fund's
shares represented thereby will be considered to be present at the meeting for
purposes of determining the existence of a quorum for the transaction of
business. Abstentions, however, will have the effect of a "no" vote for the
purpose of obtaining requisite approval for the proposals described herein and
any other proposal that may come before the Meeting.
In the event that a sufficient number of votes to approve a proposal were not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of voting instructions, or for any
other purpose. A vote may be taken on any proposal prior to an adjournment if
sufficient votes have been received for approval. Any adjournment will require
the affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. Unless otherwise instructed, proxies will be voted in favor
of any adjournment. At any subsequent reconvening of the Meeting, proxies
(unless previously revoked) will be voted in the same manner as they would have
been voted at the Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors has proposed a slate of six persons for election as
directors of the Fund, each to hold office until the next annual meeting (if
any) or until his or her successor is duly elected and qualified. Each nominee
is currently a director of the Fund and has consented to his or her nomination
and agreed to serve if elected. Each director was elected by stockholders,
except James R. Schmank, who was elected by the other directors on December 10,
1997, and Maynard F. Oliverius, who was so elected on February 6, 1998. If any
of the nominees is not available for election, the persons named as proxies (or
their substitutes) may vote for other persons in their discretion. Management
has no reason to believe that any nominee will be unavailable for election.
The names of the nominees to the Fund's Board of Directors and their
respective offices and principal occupations are set forth below.
NOMINEES TO THE FUND'S BOARD OF DIRECTORS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FUND SHARES
BENEFICIALLY OWNED, ALL OTHER SECURITY FUNDS' SHARES
DIRECTLY OR INDIRECTLY, OWNED, DIRECTLY OR INDIRECTLY
NAME, AGE, ADDRESS, AS OF 11/30/99 AS OF 11/30/99 DATE FIRST
POSITION ON FUND BOARD --------------------------- -------------------------------- BECAME A
AND PRINCIPAL OCCUPATIONS FUND SHARES FUND SHARES DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DONALD A. CHUBB, JR., 53, Equity 5,700.224 Growth and Income 196.768 1994
2222 SW 29th Street, Topeka, Kansas 66611, Global 512.299 Ultra 831.414
POSITION ON FUND BOARD: Director of the Fund Total Return 909.027 Corporate Bond 532.618
PRINCIPAL OCCUPATIONS: Business broker, Griffith & Select 25 4,425.873 Cash 1,020.170
Blair Realtors. Prior to 1997, President, Neon SBL Fund - Series A 881.954
Tube Light Company, Inc. SBL Fund - Series B 44.228
SBL Fund - Series S 318.674
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN D. CLELAND*, 63, Equity 6,846.142 Growth and Income 1,612.813 1991
700 SW Harrison Street, Topeka, Kansas 66636-0001, Small Company 2,716.133 Cash 404.780
POSITION ON FUND BOARD: President and Director of Select 25 7,703.274 SBL Series - A 30.484
the Fund Value 2,820.012
PRINCIPAL OCCUPATIONS: Senior Vice President and
Managing Member Representative, Security
Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit
Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
PENNY A. LUMPKIN, 60, Equity 1,698.384 Growth and Income 1,193.708 1993
3616 Canterbury Town Road, Topeka, Kansas 66610 Value 297.442 Ultra 837.332
POSITION ON FUND BOARD: Director of the Fund Global 1,403.881 Corporate Bond 711.457
PRINCIPAL OCCUPATIONS: President, Vivians Cash 661.040
(Corporate Sales); Vice President, Palmer Municipal Bond 659.633
Companies (Wholesalers, Retailers and Developers); U.S. Government 214.332
Vice President, Bellairre Shopping Center (Leasing
and Shopping Center Management)
- ------------------------------------------------------------------------------------------------------------------------------------
MARK L. MORRIS, JR., DVM, PhD, 65, Equity 14,065.363 Corporate Bond 3,571.388 1991
5500 SW 7th Street, Topeka, Kansas 66606
POSITION ON FUND BOARD: Director of the Fund
PRINCIPAL OCCUPATIONS: Veterinary Nutrition
Consultant; Independent Investor, Morris Co.
(Personal Investments)
- ------------------------------------------------------------------------------------------------------------------------------------
MAYNARD F. OLIVERIUS, 56, Equity 3,060.812 Cash 13,382.390 1998
1500 SW 10th Avenue, Topeka, Kansas 66604 SBL Fund - Series A 3,585.162
POSITION ON FUND BOARD: Director of the Fund
PRINCIPAL OCCUPATIONS: President and Chief
Executive Officer, Stormont-Vail Health Care
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES R. SCHMANK*, 46, Equity 41,882.827 Growth and Income 761.420 1997
700 SW Harrison Street, Topeka, Kansas 66636-0001 Global 1,147.632 Ultra 5,329.636
POSITION ON FUND BOARD: Vice President and Select 25 4,060.116 High Yield 626.208
Director of the Fund Value 226.862 Cash 28,203.720
PRINCIPAL OCCUPATIONS: President and Managing Small Company 308.080
Member Representative of Security Management
Company, LLC; Senior Vice President, Security
Benefit Group, Inc. and Security Benefit Life
Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Nominees who are considered "interested persons" of Security Management Company, LLC by reason of their respective positions with
Security Management Company, LLC, the Fund's investment adviser, and Security Distributors, Inc., the Fund's principal underwriter.
</FN>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The directors are responsible for general oversight of the Fund's business
and for assuring that the Fund is managed in the best interests of its
stockholders. The Board of Directors held six meetings during fiscal year 1999
and each director standing for reelection has attended all of the meetings,
except Mr. Cleland and Ms. Lumpkin who have attended five of the six meetings.
The Board of Directors currently has one committee, the Joint Audit Committee,
which also serves as the Nominating Committee.
The following directors are members of the Fund's Joint Audit Committee: Ms.
Lumpkin, Chairperson; Dr. Morris; and Mr. Chubb. The Joint Audit Committee holds
at least one regular meeting each year, at which time it meets with the Fund's
independent accountants to review: (1) the services provided; (2) the findings
of the most recent audit; (3) management's response to the findings of the most
recent audit; (4) the scope of the audit performed; and (5) any questions or
concerns about the Fund's operations. The Joint Audit Committee met once in 1998
and has met twice so far in 1999. All members of the committee participated in
the meetings.
The Nominating Committee meets on an as-needed basis. The committee did not
meet in fiscal year 1999. The purpose of the committee is to review and
recommend to the full Board of Directors candidates for election as independent
directors to fill vacancies on the Fund's Board. The Nominating Committee will
consider written recommendations from stockholders for possible nominees.
Stockholders should submit their written recommendations to the Secretary of the
Fund.
The Fund's directors, except Mr. Cleland and Mr. Schmank who are "interested
persons" of the Investment Manager, receive from the Fund an annual retainer of
$1,667 and a fee of $1,000 per meeting, plus reasonable travel costs, for each
meeting of the Board of Directors attended. In addition, those directors who are
members of the Fund's joint audit committee receive a fee of $1,000 per meeting
and reasonable travel costs for each meeting of the Fund's audit committee
attended. The meeting fee (including the audit committee meeting) and travel
costs are paid proportionately by each of the 35 funds to which the Adviser
provides investment advisory services (collectively, the "Security Fund
Complex") based on each fund's relative net assets.
The Fund does not pay any fees to, or reimburse expenses of, its directors
who are considered "interested persons" of the Investment Manager. The aggregate
compensation paid by the Fund to each of the directors during the fiscal year
ended September 30,1999, and the aggregate compensation paid to each of the
directors during fiscal year 1999 by the Security Fund Complex, are set forth in
the accompanying chart. Each of the directors is a director of each of the other
registered investment companies in the Security Fund Complex.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED AS ESTIMATED TOTAL COMPENSATION
COMPENSATION PART OF FUND EXPENSES ANNUAL FROM THE SECURITY
NAME OF DIRECTOR ------------ --------------------- BENEFITS UPON FUND COMPLEX,
OF THE FUND EQUITY FUND EQUITY FUND RETIREMENT INCLUDING THE FUNDS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald A. Chubb, Jr. $2,249 $0 $0 $27,000
John D. Cleland 0 0 0 0
Penny A. Lumpkin 2,166 0 0 26,000
Mark L. Morris, Jr. 2,249 0 0 27,000
Maynard Oliverius* 2,166 0 0 26,000
James R. Schmank 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
REQUIRED VOTE
In the election of directors, each stockholder is entitled to vote that
number of shares owned as of the record date multiplied by the number of
directors to be elected. A stockholder may cast all such votes for a single
director or distribute them among two or more directors. This method of voting
for the election of directors is commonly known as "cumulative voting."
A plurality of the combined votes cast at the meeting by the stockholders of
all Series of the Fund is sufficient to approve the election of a director. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF THE NOMINEES TO
THE FUND'S BOARD OF DIRECTORS.
PROPOSAL NO. 2
SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by the Fund's Board of Directors of the firm of Ernst & Young
LLP as the independent accountants for the Fund for the fiscal year end is to be
submitted for ratification or rejection by stockholders at the annual meeting.
The firm of Ernst & Young LLP, including a predecessor firm, Arthur Young and
Company, has served the Fund as independent accountants since its inception. The
independent accountants have no direct or material indirect financial interest
in the Fund. Representatives of the firm of Ernst & Young LLP are not expected
to be present at the annual meeting. Approval of this Proposal No. 2 requires
the affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THIS PROPOSAL.
PROPOSAL NO. 3
TO APPROVE CHANGES TO THE FUNDAMENTAL INVESTMENT LIMITATIONS OF THE FUND
Certain investment limitations of each Series of the Fund are matters of
fundamental policy and may not be changed without the approval of the Series'
stockholders. The Investment Manager has recommended to the Board of Directors
that certain fundamental investment limitations of the Series be amended or
eliminated as set forth below. The Investment Manager believes that the proposed
changes reflect more modern investment practices and will more closely conform
the investment policies of the Series to those of other mutual funds managed by
the Investment Manager. The changes will allow the Investment Manager to manage
each Series' investments in a more streamlined and efficient manner. The
Investment Manager plans to make conforming changes to the fundamental
investment policies and limitations of the other funds under its management to
further streamline its investment and compliance processes. The Board of
Directors believes that the proposal is in the best interests of the Series'
stockholders.
The Investment Manager believes that increased standardization of fundamental
investment policies and limitations will promote operational efficiencies and
facilitate monitoring of compliance with fundamental policies. Adoption of the
revised limitations, in some cases, also will give the Series the flexibility to
change its investment methods in the future without a stockholder vote, provided
that the Board of Directors approves any such change. Set forth below is each of
the proposed changes. Stockholders have the option to approve all, some or none
of the proposed changes.
PROPOSAL NO. 3(A)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING DIVERSIFICATION
Each Series of the Fund is currently subject to a fundamental limitation
concerning the diversification of its assets among issuers, and the Investment
Manager recommends a change in the fundamental limitation. The current and
proposed fundamental investment limitations are set forth below (the proposed
fundamental limitation is currently in place for Global, Enhanced Index,
International, and Select 25 Series of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest more than 5% of its Not to invest more than 5% of its
total assets in the securities of any total assets in the securities of any
one issuer; provided, however, that one issuer (other than obligations of,
for Total Return, Social Awareness, or guaranteed by, the U.S. Government,
Value and Small Company Series, this its agencies or instrumentalities);
limitation applies only with respect provided that this limitation applies
to 75% of its total assets. only with respect to 75% of a Series'
total assets.
- -------------------------------------- --------------------------------------
The proposed fundamental investment limitation would conform each Series'
investment limitation to Section 5(b)(1) of the Investment Company Act of 1940
and would allow each Series of the Fund to invest a greater percentage of its
assets in a single issuer. If the proposed investment limitation were adopted, a
Series would be limited, with respect to 75% of its total assets, to investing
no more than 5% of its total assets in the securities of any one issuer. No such
limitation would apply, however, to the remaining 25% of the Series' total
assets. The proposed fundamental investment limitation, if adopted, could
increase the risk to a Series by permitting it to invest a greater percentage of
its assets in a single issuer and correspondingly to have greater exposure in
the event of adverse developments with respect to such an issuer.
The Series interpret this proposed limitation to require that any positions
in a single issuer in excess of 5%, in total must not exceed 25%, of the Series'
total assets. For example, a Series would not invest 30% of its total assets in
the securities of a single issuer on the basis that 25% was allocated to the
non-diversified 25% of total assets and 5% was allocated to the diversified 75%
of total assets.
The Board of Directors believes that adoption of the amended limitation is
in the best interests of stockholders because a standardized fundamental
investment limitation will facilitate investment compliance efforts and will
give the Series the flexibility to take a larger position in the securities of a
single issuer if the Investment Manager believes that such a position is
advisable and is consistent with the investment objective and policies of the
Series. While the Series have no present intention of taking large positions in
the securities of a single issuer, the flexibility to do so may be beneficial to
the Series at a future date. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(A).
PROPOSAL NO. 3(B)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING SHARE OWNERSHIP OF ANY ONE ISSUER
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning limits on investment in the outstanding voting securities
of any one issuer, and the Investment Manager recommends a change in the
fundamental limitation. The current and proposed fundamental investment
limitations are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to purchase more than 10% of the Not to purchase a security if, as a
outstanding voting securities of any result, with respect to 75% of the
one issuer. value of a Series' total assets, more
than 10% of the outstanding voting
securities of any issuer would be held
by the Series (other than obligations
issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities).
- -------------------------------------- --------------------------------------
The proposed fundamental investment limitation would conform the Series'
investment limitation to Section 5(b)(1) of the Investment Company Act of 1940
and would allow each Series of the Fund to invest a greater percentage of its
assets in a single issuer. If the proposed investment limitation were adopted, a
Series would be limited, with respect to 75% of its total assets, to purchasing
no more than 10% of the outstanding voting securities of any one issuer. No such
limitation would apply, however, to the remaining 25% of the Series' total
assets. The proposed fundamental investment limitation, if adopted, could
increase the risk to the Series by permitting it to invest a greater percentage
of its assets in a single issuer and correspondingly to have greater exposure in
the event of adverse developments with respect to such an issuer. While the
Series have no present intention of investing greater percentages of their
assets in any single issuer, the flexibility to do so may be beneficial to the
Series at a future date.
The Board of Directors believes that adoption of the amended limitation is in
the best interests of stockholders because a standardized fundamental investment
limitation will facilitate investment compliance efforts and will give the
Series the flexibility to take a larger position in the securities of a single
issuer if the Investment Manager believes that such a position is advisable and
is consistent with the investment objective and policies of the Series. THE
BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL NO. 3(B).
PROPOSAL NO. 3(C)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTING FOR CONTROL OF PORTFOLIO COMPANIES
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investing for control of portfolio companies. The
Investment Manager recommends eliminating the fundamental limitation and
replacing it with an operating policy that may be changed by the directors
without a vote of stockholders. The current fundamental limitation and proposed
operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to purchase securities for the As an operating policy, the Series may
purpose of exercising control over the not invest in companies for the
issuers thereof. purpose of exercising management or
control.
- -------------------------------------- --------------------------------------
Elimination of this fundamental investment limitation is unlikely to affect
the Series' investment techniques as it has no present intention of investing
for control of portfolio companies. The Board of Directors believes that
eliminating this fundamental limitation and replacing it with an operating
policy is in the best interests of stockholders, because a standardized
fundamental investment limitation will facilitate investment compliance efforts.
THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 3(C).
PROPOSAL NO. 3(D)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING UNDERWRITING
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning underwriting, and the Investment Manager recommends a
change in the fundamental limitation. The current and proposed fundamental
investment limitations are set forth below (the proposed fundamental investment
limitation is currently in place for the Global, Enhanced Index, International,
and Select 25 Series of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to underwrite securities of other Not to act as underwriter of
issuers; provided that this policy securities issued by others, except to
shall not be construed to prevent or the extent that a Series may be
limit in any manner the right of the considered an underwriter within the
fund to purchase securities for meaning of the Securities Act of 1933
investment purposes. in the disposition of restricted
securities.
- -------------------------------------- --------------------------------------
The primary purpose of the proposed change is to clarify that the Series are
not prohibited from selling restricted securities if, as a result of such sale,
a Series would be considered an underwriter under federal securities laws.
Approval of this Proposal may subject the Series to additional risk of liability
in that underwriters have heightened obligations to purchasers in connection
with sales of securities. The Series do not intend to invest in restricted
securities in a manner that would cause a Series to be deemed an underwriter
and, as a result, consider the risk to be remote. A secondary purpose of this
Proposal is to revise the Series' fundamental limitation on underwriting so that
it conforms to a limitation that is expected to become standard for all funds
managed by the Investment Manager. While the proposed change will have no
current impact on the Series, adoption of the proposed standardized fundamental
investment limitation will advance the goals of standardization discussed above.
THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 3(D).
PROPOSAL NO. 3(E)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING BORROWING
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning borrowing, and the Investment Manager recommends a change
in the fundamental investment limitation and adoption of an operating policy
that may be changed without a vote of stockholders. The current and proposed
fundamental investment limitations and proposed operating policy are set forth
below (the proposed fundamental investment limitation is currently in place for
the Global, Enhanced Index, International and Select 25 Series of the Fund; and
the proposed operating policy is currently in place for the Global Series of the
Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
With respect to Equity Series, not to Not to borrow in excess of 33 1/3% of
borrow money or securities for any a Series' total assets.
purpose except to the extent that
borrowing up to 10% of the Series' As an operating policy, the Series may
total assets is permitted for not borrow money or securities for any
emergency purposes on a temporary purposes except that borrowing up to
basis from banks and will not be made 10% of a Series' total assets from
for investment purposes. Total Return, commercial banks is permitted for
Social Awareness, Value and Small emergency or temporary purposes.
Company Series may borrow up to 33
1/3% of total assets and may borrow
for emergency, temporary or investment
purposes from a variety of sources,
including banks. Each of the Series
may also obtain such short-term
credits as are necessary for the
clearance of portfolio transactions.
- -------------------------------------- --------------------------------------
The primary purpose of the proposed change to the fundamental investment
limitation concerning borrowing is to conform it to a limitation that is
expected to become standard for all funds managed by the Investment Manager. If
the proposal is approved, the amended fundamental borrowing limitation cannot be
changed without a future vote of stockholders. The operating policy could be
changed upon the vote of the Board of Directors.
Adoption of the proposed amendment is not expected to affect the way the
Series are managed, the investment performance of the Series, or the securities
or instruments in which the Series invest.
The increase in the permissible level of borrowing would allow the Board of
Directors to amend the operating policy in the future to allow the Series to
engage in leveraging. Leveraging is a speculative investment technique that
consists of purchasing securities with borrowed funds. There are risks
associated with purchasing securities while borrowings are outstanding,
including a possible reduction of income and increased fluctuation of net asset
value per share. Interest on money borrowed is an expense the Series would not
otherwise incur, so that it may have little or no net investment income during
periods of substantial borrowings. Borrowing for investment therefore increases
both investment opportunity and risk. While the Series have no current intention
of purchasing securities while borrowings equal to 5% of its total assets are
outstanding, the flexibility to do so may be beneficial to the Series at a
future date.
The proposed change will have no current impact on the Series. However,
adoption of a standardized fundamental investment policy will facilitate
investment compliance efforts and will enable the Series to respond more
promptly if circumstances suggest such a change in the future. THE BOARD OF
DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(E).
PROPOSAL NO. 3(F)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING LENDING
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning lending, and the Investment Manager recommends a change in
the fundamental investment limitation and adoption of an operating policy that
may be changed without a vote of stockholders. The current and proposed
fundamental investment limitations and proposed operating policy are set forth
below (the proposed fundamental investment limitation is currently in place for
the Global, Enhanced Index, International, and Select 25 Series of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to make loans to other persons Not to lend any security or make any
other than for the purchase of other loan if, as a result, more than
publicly distributed debt which are 33 1/3% of a Series' total assets
not considered loans, or by entry into would be lent to other parties, except
repurchase agreements. (i) through the purchase of a portion
of an issue of debt securities in
accordance with its investment
objective and policies, or (ii) by
engaging in repurchase agreements with
respect to portfolio securities.
As an operating policy, the Series do
not currently intend to lend assets
other than securities to other
parties. (This limitation does not
apply to purchases of debt securities
or to repurchase agreements.)
- -------------------------------------- --------------------------------------
This proposal if adopted would affect the way in which the Series are managed
in that it would allow the Series to engage in securities lending. Securities
loans are made to broker-dealers or institutional investors or other persons,
pursuant to agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the value of the securities lent
marked to market on a daily basis. The collateral received would consist of
cash, U.S. government securities, letters of credit or such other collateral as
may be permitted under the Series' investment program. While the securities
loans are outstanding, the Series would continue to receive the equivalent of
the interest or dividends paid by the issuer of the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Series would have a right to call each loan and obtain the securities within the
period of time that coincides with the normal settlement time period for
purchases and sales of such securities in their respective markets. The Series
would not have the right to vote securities while they are being lent, but it
would call a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans would be made only to firms deemed
by the Investment Manager or the Series' sub-adviser to be of good standing and
would not be made unless, in the judgment of the Investment Manager or relevant
sub-adviser, the consideration to be earned from such loans would justify the
risk.
In addition to the potential benefits of securities lending, the adoption of
standardized investment policies as proposed will advance the goals of
investment limitation standardization. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(F).
PROPOSAL NO. 3(G)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
SHORT SALES AND MARGIN PURCHASES OF SECURITIES RESTRICTED SECURITIES
Each Series of the Fund, except Global, Enhanced Index, International, Select
25, and Small Company Series, currently is subject to a fundamental investment
limitation concerning margin purchases of securities and short sales of
securities. The Investment Manager recommends that stockholders approve the
elimination of this fundamental investment limitation. If the proposal is
approved, the Directors intend to replace the current fundamental investment
limitation with an operating policy that could be changed without a vote of
stockholders. The current fundamental investment limitation and proposed
operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to buy securities on margin or As an operating policy, the Series of
effect short sales of securities; the Fund do not currently intend to
provided, however, that Total Return sell securities short, unless the
Fund, Social Awareness Fund and Value Series owns or has the right to obtain
Fund may make margin deposits in securities equivalent in kind and
connection with transactions in amount to the securities sold short,
options, futures, and options on and provided that transactions in
futures. futures contracts and options are not
deemed to constitute selling
securities short. In addition, the
Series of the Fund do not currently
intend to purchase securities on
margin, except that a Series may
obtain such short-term credits as are
necessary for the clearance of
transactions, and provided that margin
payments in connection with futures
contracts and options on futures
contracts shall not constitute
purchasing securities on margin.
- -------------------------------------- --------------------------------------
In a short sale, an investor sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. In an
investment technique known as a short sale "against the box," an investor sells
short while owning the same securities in the same amount, or having the right
to obtain equivalent securities. The investor could have the right to obtain
equivalent securities, for example, through its ownership of warrants, options,
or convertible bonds.
Margin purchases involve the purchase of securities with money borrowed from
a broker. "Margin" is the cash or eligible securities that the borrower places
with a broker as collateral against the loan. The Series current fundamental
investment limitation prohibits a Series from purchasing securities on margin.
Policies of the Securities and Exchange Commission (SEC) allow mutual funds to
purchase securities on margin for initial and variation margin payments made in
connection with the purchase and sale of futures contracts and options on
futures contracts. With these exceptions, mutual funds are prohibited from
entering into most types of margin purchases by applicable policies of the SEC.
The proposed non-fundamental operating policy includes these exceptions.
Elimination of the Series' fundamental investment limitation on margin
purchases and short sales is unlikely to affect the Series' investment
techniques at this time. If the proposal is approved, however, the Board of
Directors would be able to change the proposed operating policy in the future,
without a vote of stockholders. In the event of a change in state or federal
regulatory requirements, a Series may change its investment practices in the
future. The Board of Directors believes that efforts to standardize operating
policies will facilitate the Investment Manager's investment compliance and are
in the best interest of stockholders. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(G).
PROPOSAL NO. 3(H)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING SENIOR SECURITIES
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning senior securities, and the Investment Manager recommends
that stockholders approve the amendment of this fundamental investment
limitation. The current and proposed fundamental investment limitations are set
forth below (the proposed fundamental investment limitation is currently in
place for all Series of the Fund, except Equity Series).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to issue senior securities. Not to issue senior securities, except
as permitted under the Investment
Company Act of 1940.
- -------------------------------------- --------------------------------------
The primary purpose of this proposed change is to revise the Series'
fundamental investment limitation to conform to a limitation that is expected to
become standard for all funds managed by the Investment Manager. If the proposal
is adopted, the new limitation concerning senior securities could not be changed
without a vote of stockholders.
The proposed limitation allows the Series to issue senior securities to the
full extent permitted under the Investment Company Act of 1940 (the "1940 Act").
Although the definition of "senior security" involves complex statutory and
regulatory concepts, a senior security is generally an obligation of a fund that
has claim to the fund's assets or earnings that takes precedence over the claims
of the fund's stockholders. The 1940 Act generally prohibits mutual funds from
issuing senior securities; however, mutual funds are permitted to engage in
certain types of transactions that might be considered "senior securities"
provided certain conditions are satisfied. For example, a transaction which
obligates a fund to pay money at a future date, such as the purchase of
securities to be settled on a date that is further in the future than the normal
settlement period, may be considered a "senior security." A mutual fund is
permitted to enter into this type of transaction if it maintains a segregated
account containing liquid securities in an amount equal to its obligation to pay
cash for the securities at a future date. The Series would utilize transactions
that may be considered "senior securities" only in accordance with applicable
requirements under the 1940 Act.
Adoption of the proposed limitation on senior securities is not expected to
affect the way in which the Series is managed, its investment performance or the
securities or instruments in which the Series invests. The Board of Directors
believes, however, that adoption of a standardized fundamental investment
limitation is in the best interests of stockholders because it will facilitate
the Investment Manager's compliance efforts. In addition, the Board believes
that the proposed limitation will allow the Series to respond to developments in
the mutual fund industry and the 1940 Act which may make the use of senior
securities advantageous. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(H).
PROPOSAL NO. 3(I)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN OTHER INVESTMENT COMPANIES
Equity Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in securities of other investment companies,
and the Investment Manager recommends that stockholders approve the elimination
of this fundamental investment limitation. If the proposal is approved, the
Directors intend to replace the current fundamental investment limitation with
an operating policy that could be changed without a vote of stockholders. The
current fundamental investment limitation and proposed operating policy are set
forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest in the securities of As an operating policy, the Series may
other investment companies. not, except in connection with a
merger, consolidation, acquisition, or
reorganization, invest in the
securities of other investment
companies, except in compliance with
the Investment Company Act of 1940.
- -------------------------------------- --------------------------------------
Elimination of the above fundamental limitation is not expected to have a
significant impact on the Series' investment practices, because the Series
currently does not expect to invest in shares of other investment companies.
However, investment in shares of money market mutual funds may from time to time
offer a convenient way to invest the Series' idle cash. To the extent that the a
Series invests in shares of other investment companies, it will have the effect
of requiring stockholders to pay the operating expenses of two mutual funds. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(I).
PROPOSAL NO. 3(J)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
INVESTMENT IN COMPANIES WITH LESS THAN THREE YEARS' OPERATING HISTORY
Equity Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in companies having a record of less than three
years' continuous operation, and the Investment Manager recommends that
stockholders approve the elimination of this fundamental investment limitation.
If the proposal is approved, the Directors intend to replace the current
fundamental investment limitation with an operating policy that could be changed
without a vote of stockholders. The current fundamental investment limitation
and proposed operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest in companies having a As an operating policy, the Series may
record of less than three years' not invest in securities of an issuer
continuous operation, which may that, together with any predecessor,
include the operations of predecessor has been in operation for less than
companies. three years if, as a result, more than
5% of the total assets of the Series
would then be invested in such
securities.
- -------------------------------------- --------------------------------------
Adoption of the proposed standardized operating policy would facilitate the
Investment Manager's compliance program and would enable the Series to respond
more promptly if purchase of the securities of unseasoned issuers becomes more
desirable in the future. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(J).
PROPOSAL NO. 3(K)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
PURCHASING SECURITIES OF AN ISSUER IN WHICH THE OFFICERS AND DIRECTORS
OWN MORE THAN 5% OF THE OUTSTANDING SECURITIES OF SUCH ISSUER
Each Series of the Fund, except Global, Enhanced Index, International, Select
25 and Small Company Series, currently is subject to a fundamental investment
limitation concerning purchasing the securities of an issuer if the officers and
directors of the Fund, Underwriter, or Investment Manager own more than 1/2 of
1% of such securities, or if all such persons together own more than 5% of such
securities. The Investment Manager recommends that stockholders approve the
elimination of this fundamental investment limitation.
This limitation was originally adopted to address state or "Blue Sky"
requirements in connection with the registration of shares of the Series for
sale. The Series are no longer subject to such requirements. The Investment
Manager recommends that this fundamental investment limitation be eliminated
because, while it has not precluded investments in the past, its elimination
could increase the Series' flexibility when choosing investments in the future.
THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 3(K).
PROPOSAL NO. 3(L)
TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING THE OFFICERS OR DIRECTORS OF THE FUND,
THE UNDERWRITER OR MANAGER PURCHASING SHARES OF
THE FUND, EXCEPT AT CURRENT NET ASSET VALUE
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning officers and directors of the Fund, the Underwriter or
Manager purchasing shares of the Fund, except at current net asset value. The
current fundamental investment limitation is as follows: "Not to allow officers
or directors of the Fund, the Underwriter or Investment Manager to purchase
shares of the Fund except for investment at current net asset value."
The Investment Manager recommends eliminating this fundamental limitation
primarily in the interests of making it conform to limitations that are expected
to become standard for all funds managed by the Investment Manager. The
Investment Manager further believes that this limitation is not necessary as
purchases of the Fund at other than the current net asset value, next computed
after receipt of an order to purchase, are not permitted under the Investment
Company Act of 1940. As a result, eliminating this fundamental investment
limitation is unlikely to affect the Fund's operations. The Board of Directors
believes that efforts to standardize operating policies will facilitate the
Investment Manager's investment compliance and are in the best interests of
stockholders. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(L).
PROPOSAL NO. 3(M)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING BUYING OR SELLING REAL ESTATE
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in real estate, and the Investment Manager
recommends a change in the fundamental investment limitation. The current and
proposed fundamental investment limitations are set forth below (the proposed
fundamental investment limitation is currently in place for the Global, Enhanced
Index, International, and Select 25 Series of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to own, buy or sell real estate. Not to purchase or sell real estate
(This policy shall not prevent any of unless acquired as a result of
the Series from investing in ownership of securities or other
securities or other instruments backed instruments (but this shall not
by real estate or in securities of prevent a Series from investment in
companies engaged in the real estate securities or other instruments backed
business.) by real estate or securities of
companies engaged in the real estate
business).
- -------------------------------------- --------------------------------------
The Series have interpreted this fundamental investment limitation to allow
the purchase of securities or other instruments backed by real estate or
securities of companies engaged in the real estate business. The proposed
investment limitation makes explicit this interpretation and also specifically
permits the Series to sell real estate acquired as a result of ownership of
securities or other instruments. The Investment Manager considers direct
ownership of real estate as a result of ownership of securities or other
instruments to be a remote possibility. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(M).
PROPOSAL NO. 3(N)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING COMMODITIES OR COMMODITIES CONTRACTS
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in commodities or commodity contracts, and the
Investment Manager recommends a change in the fundamental investment limitation.
The current and proposed fundamental investment limitations are set forth below
(the proposed fundamental investment limitation is currently in place for the
Global, Enhanced Index, International, and Select 25 Series of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to own, buy or sell commodities or Not to purchase or sell physical
commodity contracts. commodities, except that the Series
may enter into futures contracts and
options thereon.
- -------------------------------------- --------------------------------------
The Series have interpreted the fundamental policy limitation concerning
commodities to allow investment in financial futures contracts and options
thereon. The proposed amendment of this fundamental policy limitation modernizes
the language to reflect this interpretation but does not change the Series'
approach to investing in commodities. The Series do not intend to engage in the
buying or selling of physical commodities such as pork, corn and wheat futures
or related commodity contracts other than financial instruments. THE BOARD OF
DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(N).
PROPOSAL NO. 3(O)
TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN WARRANTS.
Equity Series of the Fund currently is subject to a fundamental investment
limitation concerning warrants, and the Investment Manager recommends that
stockholders approve elimination of this fundamental investment limitation. If
the Proposal is approved, the Directors intend to replace the current
fundamental investment limitation with an operating policy that could be changed
without a vote of stockholders. The current fundamental investment limitation
and proposed operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest in warrants unless As an operating policy, the Series may
acquired as a unit or attached to not invest more than 5% of the value
other securities. of the Series' total assets in
warrants, valued at the lower of cost
or market. Included within that amount
(but not to exceed 2% of the value of
the Series' total assets) may be
warrants which are not listed on the
New York or American Stock Exchanges.
Warrants acquired by the Series in
units or attached to securities may be
deemed to be without value.
- -------------------------------------- --------------------------------------
Elimination of this fundamental investment limitation is unlikely to affect
the Fund's investment techniques at this time. If approved, the Board of
Directors, however, could amend the operating policy in the future to permit the
Fund to invest a greater portion of its assets in warrants. Investment in
warrants is pure speculation in that they have no voting rights, pay no
dividends, and have no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase equity securities at a
specific price valid for a specific period of time. They do not represent
ownership of the securities but only the right to buy them. A warrant ceases to
have value if it is not exercised prior to its expiration date.
The Investment Manager recommends eliminating this fundamental limitation
primarily in the interests of making the Fund's limitations conform to those
that are expected to become standard for all funds managed by the Investment
Manager. The Board of Directors believes that efforts to standardize investment
limitations will facilitate the Investment Manager's investment compliance and
are in the best interests of stockholders. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(O).
PROPOSAL NO. 3(P)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING RESTRICTED SECURITIES
Equity Series of the Fund currently is subject to a fundamental investment
limitation concerning restricted securities, and the Investment Manager
recommends that stockholders approve the elimination of this fundamental
investment limitation. If the proposal is approved, the Directors intend to
replace the current fundamental investment limitation with an operating policy
that could be changed without a vote of stockholders. The current fundamental
investment limitation and proposed operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest more than 10% of its As an operating policy, the Series may
total assets in restricted securities. not invest more than 10% of its total
assets in securities which are
restricted as to disposition under the
federal securities laws, except that
the Series may purchase without regard
to this limitation restricted
securities which are eligible for
resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933
Act").
- -------------------------------------- --------------------------------------
The Series' current fundamental limitation limits investment in restricted
securities. Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the 1933 Act. Where registration is required, the
Series may be obligated to pay all or part of the registration expenses, and a
considerable period of time may elapse between the time of the decision to sell
and the time the Series may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Series might obtain a less favorable price than prevailed when
it decided to sell.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED OPERATING POLICY IS IN THE
BEST INTERESTS OF STOCKHOLDERS BECAUSE OF THE BENEFITS OF STANDARDIZED
LIMITATIONS AND THE FLEXIBILITY TO RESPOND MORE PROMPTLY IF INCREASED INVESTMENT
IN RESTRICTED SECURITIES WOULD BE BENEFICIAL TO THE SERIES IN THE FUTURE. The
Board of Directors proposes to limit investment in restricted securities to 10%
of the Series' total assets, provided that there would be no limit on investment
in securities that are eligible for resale pursuant to Rule 144A. Rule 144A
permits certain qualified institutional buyers, such as the Series, to trade in
privately placed securities even though such securities are not registered under
the 1933 Act. The Investment Manager under the direction of the Board of
Directors would determine whether securities purchased under Rule 144A are
illiquid and therefore subject to the Series' restriction of investing no more
than 15% of its total assets in illiquid securities. Increased investment in
restricted securities could have the effect of increasing the amount of the
Series' assets invested in illiquid securities. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(P).
PROPOSAL NO. 3(Q)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN PUTS, CALLS, STRADDLES OR SPREADS
Equity Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in puts, calls, straddles, spreads or a
combination thereof, and the Investment Manager recommends that stockholders
approve the elimination of this fundamental investment limitation. If the
proposal is approved, the directors intend to replace the current fundamental
investment limitation with an operating policy that could be changed without a
vote of stockholders. The current fundamental investment limitation and proposed
operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest more than 2% of its As an operating policy, the Series may
total assets in puts, calls, buy and sell exchange-traded and
straddles, spreads, or any combination over-the-counter put and call options,
thereof. including index options, securities
options, currency options and options
on futures, provided that a call or
put may be purchased only if after
such purchase, the value of all call
and put options held by a Series will
not exceed 5% of the Series' total
assets. The Series may write only
covered put and call options.
- -------------------------------------- --------------------------------------
A call option on a security gives the purchaser of the option, in return for
a premium paid to the writer (seller), the right to buy the underlying security
at the exercise price at any time during the option period. Upon exercise by the
purchaser, the writer (seller) of a call option has the obligation to sell the
underlying security at the exercise price. When a Series purchases a call
option, it will pay a premium to the party writing the option and a commission
to the broker selling the option. If the option is exercised by the Series, the
amount of the premium and the commission paid may be greater than the amount of
the brokerage commission that would be charged if the security were to be
purchased directly. By writing a call option, the Series assumes the risk that
it may be required to deliver the security having a market value higher than its
market value at the time the option was written. The Series will write call
options in order to obtain a return on its investments from the premiums
received and will retain the premiums whether or not the options are exercised.
Any decline in the market value of the Series' portfolio securities will be
offset to the extent of the premiums received (net of transaction costs). If an
option is exercised, the premium received on the option will effectively
increase the exercise price.
The Series will write only covered call options. This means that the Series
will own the security or currency subject to the option or an option to purchase
the same underlying security or currency, having an exercise price equal to or
less than the exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an account consisting of
cash or liquid securities having a value equal to the fluctuating market value
of the optioned securities or currencies. During the option period, the writer
of a call option has given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase, but
has retained the risk of loss should the price of the underlying security
decline. Writing call options also involves the risk relating to the Series'
ability to close out options it has written.
A put option on a security gives the purchaser of the option, in return for
premium paid to the writer (seller), the right to sell the underlying security
at the exercise price at any time during the option period. Upon exercise by the
purchaser, the writer of a put option has the obligation to purchase the
underlying security at the exercise price. The Series will write only covered
put options, which means that a Series will maintain in a segregated account
cash or liquid securities in an amount not less than the exercise price or the
Series will own an option to sell the underlying security or currency subject to
the option having an exercise price equal to or greater than the exercise price
of the "covered" option at all times in which the put option is outstanding. By
writing a put option, the Series will assume the risk that it may be required to
purchase the underlying security at a price in excess of its current market
value.
Options can be highly volatile and could result in reduction of the Series'
total return, and the Series' attempt to use such investments for hedging
purposes may not be successful. Losses from options could be significant if the
Series were unable to close out its position due to distortions in the market or
lack of liquidity.
The use of options involves investment risks and transaction costs to which
the Series would not be subject absent the use of options. If the Investment
Manager seeks to protect the Series against potential adverse movements in the
securities, currency or interest rate markets using options, and such markets do
not move in a direction adverse to the Series, the Series could be left in a
less favorable position than if such strategies had not been used. Risks
inherent in the use of options include: (a) the risk that interest rates,
securities prices and currency markets will not move in the directions
anticipated; (b) imperfect correlation between the price of options and
movements in the prices of the securities or currencies being hedged; (c) the
fact that skills needed to use options strategies are different from those
needed to select portfolio securities; (d) the possible absence of a liquid
secondary market for any particular instrument at any time; and (e) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences. The Series' ability to terminate option positions established in
the over-the-counter market may be more limited than in the case of
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund.
The Board of Directors has considered the risks associated with investment in
options and believes that the use of options may be beneficial to the Series
under certain circumstances. The Board of Directors further believes that
adoption of standardized operating policies will contribute to the overall
objectives of standardization. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(Q).
PROPOSAL NO. 3(R)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN OIL, GAS, MINERAL LEASES OR
OTHER MINERAL EXPLORATION DEVELOPMENT PROGRAMS
Each Series of the Fund, except Global, Enhanced Index, International, Select
25, and Small Company Series, currently is subject to a fundamental investment
limitation concerning investment in limited partnerships or similar interests in
oil, gas, mineral leases or mineral exploration or development programs, and the
Investment Manager recommends that stockholders approve the elimination of this
fundamental investment limitation. If the proposal is approved, the directors
intend to replace the current fundamental investment limitation with an
operating policy that could be changed without a vote of stockholders. The
current fundamental investment limitation and proposed operating policy are set
forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest in limited partnerships As an operating policy, the Series do
or similar interests in oil, gas, not currently intend to invest in oil,
mineral leases or other mineral gas, mineral leases or other mineral
exploration development programs; exploration or development programs.
provided, however, that the Series may
invest in the securities of other
corporations whose activities include
such exploration and development.
- -------------------------------------- --------------------------------------
The proposed change would not currently affect the Series. Adoption of a
standardized operating policy would, however, facilitate the Investment
Manager's compliance efforts and would enable the Series to respond more
promptly in the future. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(R).
REQUIRED VOTE
Each of Proposal Nos. 3(a) through 3(r) will be adopted with respect to a
Series of the Fund if it is approved by the vote of a majority of outstanding
shares of that Series, as defined in the 1940 Act. A "majority vote" is defined
as the lesser of (a) a vote of 67% or more of the Series shares whose holders
are present or represented by proxy at the meeting if the holders of more than
50% of all outstanding Series shares are present in person or represented by
proxy at the meeting, or (b) a vote of more than 50% of all outstanding Series
shares.
Each change that is approved by stockholders will become effective upon the
conclusion of the Meeting and the investment limitations will be as described
above and set forth in Exhibit A. For any change that is not approved by a
majority vote of a Series shares, the Series' current investment limitation, as
set forth in the applicable sub-portion of Proposal 3, would remain unchanged
with respect to that Series. The Board of Directors believes that all of the
proposed changes to the fundamental investment limitations of the Series, as set
forth in Proposal No. 3, are in the best interests of stockholders. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR ALL OF THE CHANGES SET FORTH IN
PROPOSAL NO. 3.
PROPOSAL NO. 4
APPROVAL OF AN ARRANGEMENT AND NEW INVESTMENT ADVISORY
CONTRACT THAT WOULD PERMIT SECURITY MANAGEMENT COMPANY, LLC,
WITH BOARD APPROVAL, TO ENTER INTO OR AMEND SUB-ADVISORY
AGREEMENTS WITHOUT STOCKHOLDER APPROVAL
The Board of Directors of the Fund recommends the approval of an arrangement,
along with a new Investment Advisory Contract, that together would permit SMC,
subject to Board approval, to enter into and/or amend sub-advisory agreements
without obtaining the approval of Fund stockholders.
The Fund currently issues its shares in nine separate series (each a
"Series"). If the proposal were approved, SMC on behalf of the Fund, would be
provided with greater flexibility in retaining the services of one or more
sub-advisers, replacing sub-advisers or materially amending the terms of a
sub-advisory contract; including the Fund's sub-advisers for the following
Series:
-------------------------------------------------------
SERIES SUB-ADVISER
-------------------------------------------------------
OppenheimerFunds, Inc.
Global Two World Trade Center
New York, New York 10048
-------------------------------------------------------
Bankers Trust Company
Enhanced Index and One Bankers Trust Plaza
International New York, New York 10006
-------------------------------------------------------
Strong Capital Management, Inc.
Small Company 900 Heritage Reserve
Menomonee Falls, Wisconsin 53051
-------------------------------------------------------
SMC has engaged each of the above-named Sub-Advisers to provide investment
advisory services to the Fund pursuant to sub-advisory agreements entered
individually with each Sub-Adviser. SMC has no present intention to change any
of the Series' sub-advisers or its current sub-advisory agreements.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which
persons serve as investment advisers to investment companies be approved by
stockholders. As interpreted, this requirement would apply to the appointment of
sub-advisers to the Fund, should SMC and the Board determine to appoint one or
more sub-advisers in the future. In order to obtain stockholder approval in
accordance with Section 15(a) of the 1940 Act, the Fund would have to prepare
and distribute proxy materials and hold a special meeting of stockholders,
causing it to incur costs and delays in implementing contracts with
sub-advisers. The United States Securities and Exchange Commission (the "SEC"),
however, has granted conditional exemptions from the stockholder approval
requirements. SMC and the Fund have applied for such an exemption. If the
exemption is granted and the proposal is approved, any sub-advisory agreement
entered into would continue to require the approval of a majority of the Board,
including a majority of the Directors who are not "interested persons" of the
Fund or SMC (as defined in the 1940 Act). Thus, the Board could, if it
determined it to be in the best interests of the Fund and its investors,
authorize SMC to hire or replace one or more sub-advisers, or change the terms
of sub-advisory agreements without the approval of stockholders.
The Board has approved the submission of an application to the SEC for an
order exempting the Fund from the requirement of the 1940 Act that stockholders
approve sub-advisory agreements or amendments thereto. On November 30, 1999, the
Board met to consider placing this proposal on the agenda for the stockholder
meeting. After consideration of information about the proposal that was provided
by SMC (including the information contained in the exemptive application), the
Board concluded that the proposal is reasonable, fair, and in the best interest
of the Fund and its stockholders. Accordingly, the Board unanimously approved
the proposal and voted to recommend its approval by stockholders. As noted
above, this proposal also involves the consideration of a new Investment
Advisory Contract between the Fund and SMC. Proposal No. 5, the Brokerage
Enhancement Plan, if approved, would also necessitate certain changes to the
existing investment advisory contract. Refer to Proposal No. 5 for specific
changes which would be made to the Investment Advisory Contract in connection
with the Brokerage Enhancement Plan. The new contract recognizes the fact that
SMC may , with Board approval, retain the services of one or more sub-advisers,
replace sub-advisers or amend sub-advisory contracts as contemplated in this
proposal. The new Investment Advisory Contract does NOT provide for any increase
in the investment advisory fee paid to SMC. However, if this proposal were
adopted, it would permit SMC to re-negotiate the fees it pays to sub-advisers so
that a larger portion of the fee under the Investment Advisory Contract would be
retained by SMC. Re-negotiating fees with sub-advisers in such a situation would
not require approval of stockholders, but would require approval of the Board.
The existing and new Investment Advisory Contracts are described in more detail
below under the headings "Existing Investment Advisory Contract" and "New
Investment Advisory Contract," respectively.
The Board now seeks the approval of Fund stockholders which would: (i)
authorize SMC on behalf of the Fund to enter into sub-advisory agreements or
amend such agreements without obtaining stockholder approval; and (ii) approve
the new Investment Advisory Contract between the Fund, with respect to all
Series, except Capital Preservation Series, and SMC. The Fund's use of the
authority that would be granted by this proposal is contingent upon the SEC's
issuance of an order permitting the Fund to do so.
BOARD CONSIDERATION OF PROPOSAL NO. 4
At its November 30, 1999 meeting, the Board considered various information
provided by SMC, including the information contained in the exemptive
application submitted to the SEC. Based on this information, the Board concluded
that approval of the proposal is in the best interests of the Fund and its
investors. Among the things considered by the Board in reaching this conclusion
was that (i) the proposal would permit each Series of the Fund, other than
Equity and Global Series, to avoid the costs and would permit all Series of the
Fund to avoid the administrative burden and delays that would be incurred if the
Fund was compelled to conduct a proxy solicitation each time SMC and the Board
determine to hire a sub-adviser or amend a sub-advisory agreement; (ii) to the
extent that SMC retains the services of a sub-adviser on behalf of the Fund, the
sub-adviser plays a role analogous to that of an individual portfolio manager,
thus making approval of the sub-advisory agreement less important to Fund
stockholders; and (iii) the proposal would maintain important safeguards and
protections for Fund stockholders. The information considered by the Board is
discussed in greater detail below.
Currently, in order to approve a sub-advisory agreement (including the
requirement to re-approve a sub-advisory agreement that has been terminated as a
result of an "assignment"), to substitute one sub-adviser for another, or to
amend a sub-advisory agreement, the Fund must obtain the approval of
stockholders. Seeking this approval imposes costs on the Fund (except with
respect to the Equity and Global Series where the cost is borne by SMC).. Some
of these costs include printing costs for the proxy statements, proxy cards, and
return envelopes; postage (including return postage); tabulation of proxy cards;
if necessary, solicitation and other expenses incurred in order to obtain a
quorum; and the costs of the meeting itself. Accordingly, the Board considered
that the proposal would permit the Fund to minimize these expenses and
administrative burdens. With respect to the Equity and Global Series, the Board
considered the fact that approval of the proposal would relieve those Series of
the administrative burden of calling and holding a stockholder meeting and
soliciting stockholders in order to obtain a quorum.
In addition, under the current arrangement, once SMC and the Board determine
that using the services of one or more sub-advisers (or replacing or eliminating
a sub-adviser, or amending a sub-advisory agreement once a sub-adviser is
retained) is in the best interest of stockholders, a delay may occur until the
Fund can obtain the necessary approval of stockholders. Typically, it requires
approximately three months to prepare a proxy solicitation, send it to
stockholders, receive and tabulate the result, and hold the meeting. During this
period, the Fund loses the benefit of the addition or replacement of the
sub-adviser, or the amendment to the sub-advisory agreement. Approval of the
proposal would permit the Board and SMC to reduce or eliminate this delay.
The second factor considered by the Board was the fact that, to the extent a
Fund uses the services of one or more sub-advisers, the sub-adviser plays a role
analogous to that of an individual portfolio manager employed by a typical
mutual fund's investment adviser, making approval of sub-advisory agreements
less important. In the case of a mutual fund that does not use a sub-adviser,
the fund's investment adviser provides corporate management and administrative
services, along with portfolio management services. Typically, the investment
adviser chooses an individual or individuals on its staff to perform the actual
day-to-day management of the portfolio. Although the investment adviser
discloses to stockholders the individual's identity, the company is not required
to, and does not, submit approval of the choice of individual to the
stockholders. Rather, accountability lies with the investment adviser itself,
which has the responsibility of monitoring the individual's investment
performance and replacing the individual if doing so is in the best interest of
stockholders.
Under a structure where sub-advisers are used, the sub-adviser takes the
place of the individual portfolio manager. The investment adviser has ultimate
accountability for the performance of the sub-advisers. The Board believes that,
should the Fund use the services of a sub-adviser, stockholders will expect SMC
to select and retain sub-advisers who successfully meet the Fund's objectives
and policies and replace those who do not. The Board further believes that, in
such cases, stockholders will determine to rely on SMC's ability to select,
monitor, and terminate sub-advisers.
The third factor considered by the Board was that the proposal preserves
certain protections and safeguards for the Fund and its stockholders. For
example, although the proposal would authorize SMC on behalf of the Fund to
enter into or amend sub-advisory agreements, any change in the investment
advisory contract between the Fund and SMC , or the replacement of SMC itself,
would continue to require approval of Fund stockholders. In addition,
stockholders would receive the same information about sub-advisers as they
currently would. In the event SMC, with the approval of the Board, determines to
use the services of a sub-adviser or to replace a sub-adviser , stockholders
would receive, within ninety days of the change, the same information about the
sub-adviser and sub-advisory agreement they would receive in a proxy statement
if their approval were required.
APPROVAL BY SEC
As noted above, the Board has approved the submission of an application to
the SEC for an order of exemption from certain requirements of the 1940 Act in
order to permit the Fund to use the authority to enter into or amend
sub-advisory agreements as contemplated by this proposal. Any use of that
authority is contingent upon obtaining the requested order from the SEC. The
application for exemption contains conditions to which the order would be
subject. The conditions are set forth in Exhibit B. It is possible that the SEC
may require certain changes to the application or impose additional conditions
prior to granting the order. The Fund will agree to such changes if the Board
and SMC determine that it is in the best interests of the Fund and its
stockholders to do so. It is also possible that the SEC may refuse to grant the
order entirely, although the SEC has granted similar exemptions to other mutual
fund companies under similar circumstances in the past. In that case, the Board
will take what further actions it deems to be in the best interests of the Fund
and its stockholders.
REQUIRED VOTE
The proposal will be adopted with respect to a Series of the Fund if it is
approved by the vote of a majority of outstanding shares of that Series, as
defined in the 1940 Act, which is the lesser of (a) a vote of 67% or more of the
Series shares whose holders are present or represented by proxy at the meeting
if the holders of more than 50% of all outstanding Series shares are present in
person or represented by proxy at the meeting, or (b) a vote of more than 50% of
all outstanding Series shares. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR PROPOSAL NO. 4.
EXISTING INVESTMENT ADVISORY CONTRACT
SMC currently serves as the investment adviser to the Series of the Fund
pursuant to the terms of an Investment Advisory Contract dated January 31 ,
1989, as amended (the "Existing Contract"). The Existing Contract was last
approved by the Board of Directors of the Fund on November 30, 1999 and was last
approved by Fund stockholders on December 8, 1988 and was last approved by Fund
stockholders on the following dates:
-------------------------------------------------------------------
SERIES DATE
-------------------------------------------------------------------
Equity ......................................... December 8, 1988
Global ......................................... October 1, 1993
Total Return ................................... April 18, 1995
Social Awareness ............................... October 31, 1996
Value .......................................... April 29, 1997
Small Company .................................. October 14, 1997
Enhanced Index, International, and Select 25 ... January 27, 1999
-------------------------------------------------------------------
The Existing Contract has not been submitted to stockholders for approval
since the dates referenced above. Unless superseded by the proposed new
Investment Advisory Contract, in connection with either this Proposal or
Proposal No. 5, the Existing Contract will continue in effect until January 1,
2001, and from year to year thereafter providing such continuance is
specifically approved by the vote of a majority of the Board of Directors of the
Fund (including a majority of such directors who are not parties to the contract
or interested persons of any such party) cast in person at a meeting
specifically called for voting on such renewal.
Under the Existing Contract, SMC furnishes the Equity Series and the Global
Series of the Fund with investment research and advice and an investment program
as well as general administrative, fund accounting, transfer agency and dividend
disbursing services, services of independent accountants, legal counsel,
custodial services and printing (the "Bundled Services") all for a single fee.
With respect to the other Series of the Fund, SMC provides investment research,
investment advice and an investment program (collectively, "Investment Advice")
for one fee, and charges another fee for general administrative, fund
accounting, transfer agency and dividend disbursing services. In addition, with
respect to all Series of the Fund SMC provides for the compilation and
maintenance of records relating to its duties as required by the rules and
regulations of the SEC. Under the terms of the Existing Contract, SMC is not
subject to any liability for any errors of judgment or mistake of law or for any
loss sustained by reason of the adoption of any investment policy so long as
such recommendation shall have been made with due care and in good faith.
Nothing in the Existing Contract, however, shall protect SMC against any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under the agreement.
Under the Existing Contract SMC has agreed that, if the total annual expenses
of any Series of the Fund, exclusive of interest, taxes, distribution fees paid
under the Fund's Class B or Class C distribution plans, brokerage fees and
extraordinary expenses, but inclusive of its own investment advisory fee,
exceeds any expense limitation imposed by state securities law or regulation in
any state in which shares are offered, SMC will contribute to such Series such
funds or waive such portion of its fee as may be necessary to insure that the
annual expenses of such Series will not exceed any such limitation. SMC has also
agreed that if the total annual expenses of the Enhanced Index or Select 25
Series exceeds 1.75%, or if the total annual expenses of the International
Series exceeds 2.25%, in each case exclusive of interest, taxes, distribution
fees paid under those Series' Class A, B or C distribution plans, extraordinary
expenses and brokerage fees and commissions, but inclusive of SMC's own advisory
fee, then SMC will waive or reimburse expenses in order to keep those Series'
expenses at the specified level.
In exchange for providing the Bundled Services to the Equity Series of the
Fund, SMC receives a fee, equal on an annual basis to 2% of the first $10
million of the Series' average net assets, 1.5 % of the next $20 million of the
average net assets and 1% of the remaining average net assets, determined daily
and payable monthly. In exchange for providing the Bundled Services to the
Global Series of the Fund, SMC receives a fee, equal on an annual basis to 2% of
the first $70 million of the Series' average net assets and 1.5 % of the
remaining average net assets, determined daily and payable monthly. In exchange
for providing Investment Advice under the Existing Contract, SMC receives from:
(i) the Social Awareness, Value and Small Company Series of the Fund a fee,
equal on an annual basis to 1% of those Series average daily net assets; (ii)
the Total Return, Enhanced Index and Select 25 Series of the Fund a fee, equal
on an annual basis to .75% of those Series average daily net assets; and (iii)
the International Series of the Fund a fee, equal on an annual basis to 1.10% of
the Series average daily net assets. These fees are computed daily and payable
monthly. For these services, in the fiscal year ended September 30, 1999, SMC
received from the Fund fees of $11,048,439 with respect to the Equity Series,
$835,806 with respect to the Global Series, $67,956 with respect to the Total
Return Series, $189,229 with respect to the Social Awareness Series, $258,906
with respect to the Value Series, $0 with respect to the Small Company Series,
$82,418 with respect to the Enhanced Index Series, $95,115 with respect to the
Select 25 Series and $44,906 with respect to the International Series. No
brokerage commissions were paid by the Fund to an affiliated broker for the
fiscal year ended September 30, 1999.
The Existing Contract may be terminated without penalty at any time upon
sixty days' notice by the Board of Directors of the Fund, by vote of the holders
of a majority of the outstanding voting securities of the Fund, or by SMC. The
Existing Contract is terminated automatically in the event of its assignment (as
such term is defined in the Investment Company Act of 1940).
For the administrative and transfer agency services provided to the Total
Return, Social Awareness, Value, Small Company, Enhanced Index and International
Series of the Fund, SMC received, in the aggregate, $141,804 for administrative
services and $103,641 for transfer agency services during the fiscal year ended
September 30, 1999.
PROPOSED INVESTMENT ADVISORY CONTRACT
SMC proposes to enter into a new Investment Advisory Contract (the "New
Contract") with the Fund. The form of the New Contract is attached hereto as
Exhibit C. The form of the New Contract was proposed by SMC and was approved on
November 30, 1999, by the Board of Directors of the Fund (including a majority
of such directors who are not parties to such contract or interested persons of
any such party). Other than the provisions relating to sub-advisory
arrangements, and the provision relating to the ability of SMC to place the
Fund's purchase and sale of portfolio securities with SMC's broker-dealer
affiliate as discussed in connection with Proposal No. 5, there are no material
differences between the Existing Contract and the New Contract. In particular,
the New Contract does NOT provide for any increase in the investment advisory
fee paid to SMC. It is expected that the New Contract will become effective on
January 27, 2000, provided that on the Meeting date it is approved by a majority
vote of the holders of the outstanding voting securities of the Fund. If
Proposal No. 4 is approved by stockholders, but Proposal No. 5 is not approved,
the New Contract will be implemented without the provision allowing SMC to place
purchase and sale transactions of portfolio securities with its affiliated
broker-dealer. If Proposal No. 4 is not approved, but Proposal No. 5 is
approved, the New Contract without the provision relating to sub-advisers, but
with the provision allowing SMC to place securities transactions with its
affiliated broker-dealer will be implemented. If neither Proposal is adopted,
the Existing Contract will continue in effect in accordance with its terms.
In approving the New Contract, and in recommending that stockholders approve
the New Contract, the Board considered such factors as it deemed reasonably
necessary and appropriate, including (1) the nature, extent and quality of the
services expected to be provided to the Fund by SMC; (2) SMC's past investment
performance with respect to the Fund; (3) the costs of services to be provided
by SMC; (4) the fact that the compensation payable to SMC by the Fund is the
same under the New Contract as it is under the Existing Contract; (5) other
sources of revenue accruing to SMC and its affiliates as a result of its
relationship with the Fund, including any intangible benefits that accrue to SMC
and its affiliates; (6) the Fund's expenses compared to other funds; and (7)
such other factors as the Board deemed relevant. The Board gave equal weight to
each of the above factors when considering approval of the New Contract. Based
on the considerations above, the Board determined that the New Contract is in
the best interests of the Fund and its stockholders.
MORE INFORMATION ABOUT THE INVESTMENT MANAGER AND DISTRIBUTOR
Security Distributors, Inc. ("SDI") is principal underwriter of the Fund. SDI
is a wholly-owned subsidiary of Security Benefit Group, Inc. ("SBG"), a holding
company wholly owned by Security Benefit Life Insurance Company ("SBL"). SMC is
a limited liability company owned by its members, SBL and SBG. SBL is wholly
owned by Security Benefit Corp. (except for shares held by the Directors of SBL
as required by Kansas law) and Security Benefit Corp. is wholly owned by
Security Benefit Mutual Holding Company. The address of each of the foregoing
companies is 700 SW Harrison Street, Topeka, Kansas 66636-0001. For the fiscal
year ended September 30, 1999, the Fund paid $381,542 in Class A sales
commissions to SDI.
The principal occupations, and positions with SMC and the Fund, of the
principal executive officer and each officer and director of SMC are as follows:
EXECUTIVE OFFICERS OF THE FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS* PRINCIPAL OCCUPATION POSITION WITH SMC POSITION WITH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James R. Schmank, 46** President and Managing Member Representative, SMC; President and Managing Vice President
Senior Vice President, Security Benefit Group, Member Representative and Director
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
John D. Cleland, 63 Senior Vice President and Managing Member Senior Vice President President and
Representative, SMC; Senior Vice President, and Managing Member Director
Security Benefit Group, Inc. and Security Benefit Representative
Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Terry Milberger, 51 Senior Vice President and Senior Portfolio Senior Vice President Senior Vice
Manager, SMC; Senior Vice President, Security and Senior Portfolio President
Benefit Group, Inc. and Security Benefit Life Manager
Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Amy J. Lee, 38 Secretary, SMC; Vice President, Associate General Secretary Secretary
Counsel and Assistant Secretary, Security Benefit
Group, Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Brenda M. Harwood, 36 Assistant Vice President and Treasurer, SMC; Assistant Vice Treasurer
Assistant Vice President, Security Benefit Group, President and Treasurer
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Cindy L. Shields, 32 Second Vice President and Portfolio Manager, SMC; Second Vice President Second Vice
Second Vice President, Security Benefit Group, and Portfolio Manager President
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
James P. Schier, 42 Second Vice President and Portfolio Manager, SMC; Second Vice President Vice President
Second Vice President, Security Benefit Group, and Portfolio Manager
Inc. and Security Benefit Life Insurance Company.
Prior to February 1997, Assistant Vice President
and Senior Research Analyst, SMC; Prior to August
1995, Portfolio Manager, Mitchell Capital
Management. Prior to March 1993, Vice President
and Portfolio Manager, Fourth Financial
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher D. Swickard, 34 Assistant Secretary, SMC; Assistant Vice President Assistant Secretary Assistant Secretary
and Assistant Counsel, Security Benefit Group,
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*All located at 700 SW Harrison Street, Topeka, KS 66636-0001 unless otherwise noted.
**Principal executive officer
</FN>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SMC acts as investment adviser for certain other mutual funds with investment
objectives similar to the investment objectives of certain Series of the Fund.
Set forth below are the names of the applicable Series of the Fund, the name of
the other similar mutual fund, information concerning the similar funds' net
assets as of November 30, 1999 and the fees paid to SMC for its services to the
other mutual fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
ANNUAL RATE OF
NET ASSETS OF COMPENSATION
SERIES OF FUND NAME NAME OF SIMILAR FUND SIMILAR FUND FOR SIMILAR FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Series SBL Fund, Series A $1,353,624,837.02 0.75%
Global Series SBL Fund, Series D 452,679,711.17 1.00%
Value Series SBL Fund, Series V 38,976,424.12 0.75%
Social Awareness Series SBL Fund, Series S 221,331,397.14 0.75%
Small Company Series SBL Fund, Series X 28,256,800.23 1.00%
Enhanced Index Series SBL Fund, Series H 21,359,220.10 0.75%
Select 25 Series SBL Fund, Series Y 23,158,991.31 0.75%
International Series SBL Fund, Series I 8,047,096.23 1.10%
- -------------------------------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following chart shows the shares of common stock of the Fund beneficially
owned by directors and executive officers of the Fund.
- --------------------------------------------------------------------------------
NUMBER OF SHARES BENEFICIALLY OWNED AS
OF NOVEMBER 30, 1999 BY ALL DIRECTORS PERCENTAGE
SERIES AND EXECUTIVE OFFICERS AS A GROUP OF CLASS
- --------------------------------------------------------------------------------
CLASS A CLASS A
Equity Series ............. 211,484.203 0.232%
Global Series ............. 9,128.71 0.487%
Value Series .............. 11,513.244 0.852%
Social Awareness Series ... 1,084.892 0.178%
Small Company Series ...... 5,144.427 0.424%
Enhanced Index Series ..... 392.317 0.050%
Select 25 Series .......... 17,951.474 1.290%
International Series ...... 231.55 0.076%
Total Return Series ....... 909.027 0.295%
- --------------------------------------------------------------------------------
*No director or "named executive officer" of the Fund beneficially owned any
shares of common stock of the Fund as of November 30, 1999, except as shown in
the above chart.
- --------------------------------------------------------------------------------
PROPOSAL NO. 5
TO APPROVE OR DISAPPROVE A BROKERAGE ENHANCEMENT PLAN
PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT
OF 1940, AND A NEW INVESTMENT ADVISORY CONTRACT THAT
WOULD PERMIT THE IMPLEMENTATION OF THE PLAN.
INTRODUCTION AND RECOMMENDATION OF THE BOARD OF DIRECTORS
At a meeting of the Board of Directors of the Fund (the "Board") held on
November 30, 1999, the Board, including the Directors who are not "interested
persons" of the Fund (as defined in the Investment Company Act of 1940) (the
"Independent Directors") and who have no direct or indirect financial interest
in the operation of the Plan, unanimously voted to approve a Brokerage
Enhancement Plan (the "Plan") and a new investment advisory contract that would
permit the implementation of the Plan. The Plan is intended to assist in
promoting the sale of the Fund's shares by providing the Fund's distributor,
Security Distributors, Inc. (the "Distributor") with further resources. The
Board recommends that the stockholders of the Fund approve the Plan. A copy of
the Plan may be found in Exhibit D.
DESCRIPTION OF THE PLAN
-----------------------
In summary, the Plan would authorize the Fund to place orders for the
purchase or sale of portfolio securities or other assets with: (i)
broker-dealers that have agreed to direct a portion of their brokerage
commissions to the Distributor, or other introducing brokers ("Brokerage
Payments") to be used to finance activities that are primarily intended to
result in the sale of Fund shares; and (ii) broker-dealers that, in addition to
executing the trade, will provide brokerage credits, benefits or other services
("Brokerage Credits") to be used to promote the distribution of Fund shares. The
brokerage commission rates and commission amounts paid by the various Series of
the Fund are not expected to increase as a result of the implementation of the
Plan. The Distributor, an affiliate of SMC, is the principal underwriter of the
Fund.
Under the Plan, the Distributor would be authorized to direct that the
Investment Manager or a Sub-Advisor, if any, subject to the requirement to seek
best price and execution, effect brokerage transactions in portfolio securities
through broker-dealers in a manner that will help promote the sale of the Fund's
shares. It is anticipated that activities or services which will be procured
through the expenditure of Brokerage Payments and Brokerage Credits will
include:
* Developing, preparing, printing, and mailing of advertisements, sales
literature and other promotional material describing and/or relating to the
Fund or its Series.
* Printing and mailing of Fund prospectuses, statements of additional
information, any supplements thereto and shareholder reports for existing and
prospective stockholders.
* Holding or participating in seminars and sales meetings designed to promote
the distribution of shares of the Fund or the Series, including materials
intended either for broker-dealer only use or for retail use.
* Providing information about the Fund, its Series or mutual funds in general,
to registered representatives of broker-dealers.
* Providing assistance to broker-dealers that are conducting due diligence on
the Fund or any of its Series.
* Payment of Marketing Fees requested by broker-dealers who sell shares of the
Fund.
* Obtaining information and providing explanations to stockholders regarding
the Series' investments and policies and other information about the Fund and
its Series, including the performance of the Series.
* Training sales personnel regarding sales of the Fund and its Series.
* Personal service and/or maintenance of stockholder accounts.
* Payment of commissions to broker-dealers who sell shares of the Fund.
* Financing any other activity that is intended to result in the sale of Fund
shares.
The Distributor may also use amounts generated under the Plan to defray legal
and administrative costs associated with implementation of the Plan.
The Plan permits Brokerage Payments and Brokerage Credits generated by
securities transactions from one Series to inure to the benefit of that Series,
any other Series, or to the Fund as a whole. However, amounts generated under
the Plan and amounts expended under the Plan will be tracked separately for each
Series of the Fund.
The Distributor will be obligated to use all of the Brokerage Payments and
Brokerage Credits generated under the Plan for distribution expenses, except for
a small amount which may be used to defray the costs associated with
implementing the Plan, including the Distributor's costs associated with
becoming and acting as an introducing broker-dealer under the Plan. Accordingly,
the Distributor will not make any profit from the operation of the Plan.
However, the Distributor could indirectly benefit from the Plan in that
Brokerage Payments and Brokerage Credits generated under the Plan may help
defray, in whole or in part, distribution expenses that may otherwise be borne
by the Distributor in distributing the Fund.
The Distributor, on behalf of the Fund, may take appropriate actions to
effect the purposes of the Plan, including, but not limited to, directing the
Investment Manager or a Sub-Advisor, if any, to allocate transactions for the
purchase or sale of portfolio securities to particular broker-dealers, including
the Distributor or other affiliated broker-dealers, in the manner described in
the Plan. The Distributor does not currently provide brokerage services, but in
connection with the implementation of the Plan is taking steps to become an
introducing broker. When directing the Investment Manager to allocate purchase
or sale transactions to broker-dealers under the Plan, the Fund will continue to
be subject to those standards of best price and best execution set forth in the
Fund's registration statement.
The Plan requires that it be approved, with respect to each Series, by a vote
of at least a majority of the outstanding voting securities of that Series. The
Plan also provides that it is subject to an annual renewal by the Board,
including the Independent Directors who do not have any direct or indirect
financial interest in the operation of the Plan (the "Plan Directors"). The Plan
also provides that the Distributor provide the Board with a written report of
securities transactions directed under the Plan, currently on a quarterly basis.
The Plan may be terminated at any time by a vote of the Board, by the vote of a
majority of the Plan Directors or, with respect to a Series, by a vote of a
majority of the outstanding voting securities of such Series. All material Plan
amendments must be approved by a majority vote of the Board, including a
majority of the Plan Directors.
EXPENSE INFORMATION
-------------------
The brokerage commission rates and amounts paid by the various Series of the
Fund are not expected to increase as a result of the implementation of the
proposed Plan. Nor are the total returns of the Series expected to be affected
adversely. However, the staff of the Securities and Exchange Commission recently
has taken the position that amounts received by the Distributor as an
introducing broker under the Plan should be reflected in the expenses of the
Series of the Fund.
Therefore, the table below estimates what each Series' distribution fee, and
its resulting total and net expenses, will be deemed to be as a result of the
implementation of the Plan. The distribution fee estimates are derived from data
regarding each Series' year-to-date brokerage transactions ended November 30,
1999. However, it is not possible to determine with accuracy actual amounts that
will be received by the Distributor under the Plan. The amount will vary based
upon the level of a Series' brokerage activity, the proportion of such activity
directed under the Plan, and other factors. Unless otherwise indicated below,
expenses other than the distribution fee estimates are based on amounts paid for
the year ending September 30, 1999.
FEES AND EXPENSES OF THE FUND
SHAREHOLDER FEES (ALL SERIES OF THE FUND) (fees paid directly from your
investment). This table describes the fees and expenses that you may pay if you
buy and hold shares of the Funds under the current arrangement.
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES(1) SHARES
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases 5.75% None None
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a None(2) 5%(3) 1%(4)
percentage of original purchase price or
redemption proceeds, whichever is lower)
- --------------------------------------------------------------------------------
1 Class B shares convert tax-free to Class A shares automatically after eight
years.
2 Purchases of Class A shares in amounts of $1,000,000 or more are not subject
to an initial sales load; however, a deferred sales charge of 1% is imposed
in the event of redemption within one year of purchase.
3 5% during the first year, decreasing to 0% in the sixth and following years.
4 A deferred sales charge of 1% is imposed in the event of redemption within
one year of purchase.
- --------------------------------------------------------------------------------
CURRENT ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets).
- --------------------------------------------------------------------------------
TOTAL
ANNUAL FUND
MANAGEMENT DISTRIBUTION OTHER OPERATING
FEES (12B-1) FEES EXPENSES EXPENSES
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
Equity Fund ......... 1.02% None 0.00% 1.02%
Global Fund ......... 2.00% None 0.00% 2.00%
Total Return Fund ... 0.75%(5) None 1.35% 2.29%(6)
Value Fund .......... 1.00% None 0.33% 1.33%
Small Company Fund .. 1.00% 0.25% 0.49% 1.74%(6)
Enhanced Index Fund . 0.75% 0.25% 0.48% 1.48%
International Fund .. 1.10% 0.25% 3.34% 4.69%(6)
Select 25 Fund ...... 0.75% 0.25% 0.48% 1.48%
Social Awareness Fund 1.00% None 0.42% 1.42%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
Equity Fund ......... 1.02% 1.00% 0.00% 2.02%
Global Fund ......... 2.00% 1.00% 0.00% 3.00%
Total Return Fund ... 0.75%(5) 1.00% 1.30% 3.23%(6)
Value Fund .......... 1.00% 1.00% 0.37% 2.37%
Small Company Fund .. 1.00% 1.00% 0.94% 2.94%(6)
Enhanced Index Fund . 0.75% 1.00% 0.45% 2.20%
International Fund .. 1.10% 1.00% 3.27% 5.37%(6)
Select 25 Fund ...... 0.75% 1.00% 0.44% 2.19%
Social Awareness Fund 1.00% 1.00% 0.51% 2.51%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... 1.02% 1.00% 0.00% 2.02%
Global Fund ......... 2.00% 1.00% 0.00% 3.00%
Total Return Fund ... 0.75%(5) 1.00% 1.18% 3.23%(6)
Value Fund .......... 1.00% 1.00% 0.38% 2.38%
Small Company Fund .. 1.00% 1.00% 0.47% 2.47%(6)
Enhanced Index Fund . 0.75% 1.00% 0.30% 2.05%
International Fund .. 1.10% 1.00% 2.87% 4.97%(6)
Select 25 Fund ...... 0.75% 1.00% 0.32% 2.07%
Social Awareness Fund 1.00% 1.00% 0.66% 2.66%
- --------------------------------------------------------------------------------
5 Effective as of July 23, 1999 the Investment Manager agreed to reduce its
investment advisory fee from 1.00% to 0.75% of the Total Return Fund's
average daily net assets.
6 Each of these Fund's total annual operating expenses for the most recent
fiscal year were less than the amount shown because of fee waivers and/or
reimbursement of expenses by the Funds' Investment Manager. The Investment
Manager waives a portion of its management fee and/or reimburses expenses in
order to keep each Fund's total operating expenses at or below a specified
level. The Investment Manager has agreed to limit the total annual expenses
of Total Return Series and the Small Company Series to 2.00% of the average
daily net assets of those Funds, and the International Series to 2.25% of its
average daily net assets, in each case exclusive of interest, taxes,
extraordinary expenses, brokerage fees and commissions and 12b-1 fees. The
expense limits, other than the expense limits for the International Fund, are
voluntary limits which may be eliminated at any time without notice to
shareholders. With the fee waiver and/or reimbursement, the Funds' actual
total annual fund operating expenses for the year ended September 30, 1999,
were as follows:
------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------------------------------------
Total Return Fund 2.00% 2.94% 2.93%
Small Company Fund 0.49% 1.94% 1.47%
International Fund 2.50% 3.19% 2.78%
------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from
Fund assets). The following table describes the fees and expenses that you would
pay if the Plan were adopted.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
TOTAL
ESTIMATED ANNUAL FUND
MANAGEMENT DISTRIBUTION DISTRIBUTION OTHER OPERATING
FEES (12B-1) FEES (12B-1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A
- ---------------------------------------------------------------------------------------------------
Equity Fund ......... 1.02% 0.01% None 0.00% 1.03%
Global Fund ......... 2.00% 0.00% None 0.00% 2.00%
Total Return Fund ... 0.75%(5) 0.02% None 1.35% 2.31%(6)
Value Fund .......... 1.00% 0.04% None 0.33% 1.37%
Small Company Fund .. 1.00% 0.00% 0.25% 0.49% 1.74%(6)
Enhanced Index Fund . 0.75% 0.00% 0.25% 0.48% 1.48%
International Fund .. 1.10% 0.00% 0.25% 3.34% 4.69%(6)
Select 25 Fund ...... 0.75% 0.01% 0.25% 0.48% 1.49%
Social Awareness Fund 1.00% 0.01% None 0.42% 1.43%
- ---------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------
Equity Fund 1.02% 0.01% 1.00% 0.00% 2.03%
Global Fund 2.00% 0.00% 1.00% 0.00% 3.00%
Total Return Fund 0.75%(5) 0.02% 1.00% 1.30% 3.25%(6)
Value Fund 1.00% 0.04% 1.00% 0.37% 2.41%
Small Company Fund 1.00% 0.00% 1.00% 0.94% 2.94%(6)
Enhanced Index Fund 0.75% 0.00% 1.00% 0.45% 2.20%
International Fund 1.10% 0.00% 1.00% 3.27% 5.37%(6)
Select 25 Fund 0.75% 0.01% 1.00% 0.44% 2.20%
Social Awareness Fund 1.00% 0.01% 1.00% 0.51% 2.52%
- ---------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------
Equity Fund 1.02% 0.01% 1.00% 0.00% 2.03%
Global Fund 2.00% 0.00% 1.00% 0.00% 3.00%
Total Return Fund 0.75%(5) 0.02% 1.00% 1.18% 3.25%(6)
Value Fund 1.00% 0.04% 1.00% 0.38% 2.42%
Small Company Fund 1.00% 0.00% 1.00% 0.47% 2.47%(6)
Enhanced Index Fund 0.75% 0.00% 1.00% 0.30% 2.05%
International Fund 1.10% 0.00% 1.00% 2.87% 4.97%(6)
Select 25 Fund 0.75% 0.01% 1.00% 0.32% 2.08%
Social Awareness Fund 1.00% 0.01% 1.00% 0.66% 2.67%
- ---------------------------------------------------------------------------------------------------
<FN>
5 Effective as of July 23, 1999 the Investment Manager agreed to reduce its investment advisory
fee from 1.00% to 0.75% of the Total Return Fund's average daily net assets.
6 Each of these Fund's total annual operating expenses for the most recent fiscal year were less
than the amount shown because of fee waivers and/or reimbursement of expenses by the Funds'
Investment Manager. The Investment Manager waives a portion of its management fee and/or
reimburses expenses in order to keep each Fund's total operating expenses at or below a
specified level. The Investment Manager has agreed to limit the total annual expenses of Total
Return Series and the Small Company Series to 2.00% of the average daily net assets of those
Funds, and the International Series to 2.25% of its average daily net assets, in each case
exclusive of interest, taxes, extraordinary expenses, brokerage fees and commissions and 12b-1
fees. The expense limits, other than the expense limits for the International Fund, are
voluntary limits which may be eliminated at any time without notice to shareholders. With the
fee waiver and/or reimbursement, the Funds' actual total annual fund operating expenses for the
year ended September 30, 1999, were as follows:
------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------------------------------------
Total Return Fund 2.00% 2.94% 2.93%
Small Company Fund 0.49% 1.94% 1.47%
International Fund 2.50% 3.19% 2.78%
------------------------------------------------------
</FN>
- ---------------------------------------------------------------------------------------------------
</TABLE>
EXPENSE EXAMPLES. These Examples assumes that you invest $10,000 in a Series
for the time periods indicated and that your investment has a 5% return each
year. The first table assumes that the Series' total operating expenses remain
at current levels. The second table reflects the effect of the imputed
distribution fees as discussed above. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
CURRENT. You would pay the following expenses if you redeemed your shares at
the end of each period.
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $ 673 $ 705 $305 $ 881 $ 934 $ 634
Global Fund ......... 766 803 403 1,166 1,227 927
Total Return Fund ... 794 826 426 1,249 1,295 995
Value Fund .......... 703 740 341 972 1,039 742
Small Company Fund .. 742 797 350 1,092 1,210 770
Enhanced Index Fund . 717 723 308 1,016 988 643
International Fund .. 1,018 1,036 597 1,907 1,902 1,492
Select 25 Fund ...... 717 722 310 1,016 985 649
Social Awareness Fund 711 754 369 998 1,082 826
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5 YEARS 10 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $1,106 $1,288 $1,088 $1,751 $2,090 $2,348
Global Fund ......... 1,591 1,777 1,577 2,768 3,083 3,318
Total Return Fund ... 1,730 1,888 1,688 3,050 3,316 3,531
Value Fund .......... 1,262 1,465 1,270 2,084 2,447 2,716
Small Company Fund .. 1,465 1,748 1,316 2,509 2,978 2,806
Enhanced Index Fund . --- --- --- --- --- ---
International Fund .. --- --- --- --- --- ---
Select 25 Fund ...... --- --- --- --- --- ---
Social Awareness Fund 1,307 1,535 1,410 2,179 2,578 2,993
- --------------------------------------------------------------------------------
You would pay the following expenses if you did not redeem your shares.
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $ 673 $205 $205 $ 881 $ 634 $ 634
Global Fund ......... 766 303 303 1,166 927 927
Total Return Fund ... 794 326 326 1,249 995 995
Value Fund .......... 703 240 241 972 739 742
Small Company Fund .. 742 297 250 1,092 910 770
Enhanced Index Fund . 717 223 208 1,016 688 643
International Fund .. 1,018 536 497 1,907 1,602 1,492
Select 25 Fund ...... 717 222 210 1,016 685 649
Social Awareness Fund 711 254 269 998 782 826
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5 YEARS 10 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $1,106 $1,088 $1,088 $1,751 $2,090 $2,348
Global Fund ......... 1,591 1,577 1,577 2,768 3,083 3,318
Total Return Fund ... 1,730 1,688 1,688 3,050 3,316 3,531
Value Fund .......... 1,262 1,265 1,270 2,084 2,447 2,716
Small Company Fund .. 1,465 1,548 1,316 2,509 2,978 2,806
Enhanced Index Fund . --- --- --- --- --- ---
International Fund .. --- --- --- --- --- ---
Select 25 Fund ...... --- --- --- --- --- ---
Social Awareness Fund 1,307 1,335 1,410 2,179 2,578 2,993
- --------------------------------------------------------------------------------
ESTIMATED. You would pay the following expenses if you redeemed your shares
at the end of each period
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $ 674 $ 706 $306 $ 884 $ 937 $ 637
Global Fund ......... 766 803 403 1,166 1,227 927
Total Return Fund ... 796 828 428 1,255 1,301 1,001
Value Fund .......... 706 744 345 984 1,051 755
Small Company Fund .. 742 797 350 1,092 1,210 770
Enhanced Index Fund . 717 723 308 1,016 988 643
International Fund .. 1,018 1,036 597 1,097 1,903 1,492
Select 25 Fund ...... 718 723 311 1,019 988 652
Social Awareness Fund 712 755 370 1,001 1,085 829
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5 YEARS 10 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $1,111 $1,293 $1,093 $1,762 $2,101 $2,358
Global Fund ......... 1,591 1,777 1,577 2,768 3,083 3,318
Total Return Fund ... 1,739 1,898 1,698 3,069 3,334 3,549
Value Fund .......... 1,282 1,485 1,291 2,127 2,488 2,756
Small Company Fund .. 1,465 1,748 1,316 2,509 2,978 2,806
Enhanced Index Fund . --- --- --- --- --- ---
International Fund .. --- --- --- --- --- ---
Select 25 Fund ...... --- --- --- --- --- ---
Social Awareness Fund 1,312 1,540 1,415 2,190 2,588 3,003
- --------------------------------------------------------------------------------
You would pay the following expenses if you did not redeem your shares.
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $ 674 $206 $206 $ 884 $ 637 $ 637
Global Fund ......... 766 303 303 1,166 927 927
Total Return Fund ... 796 328 328 1,255 1,001 1,001
Value Fund .......... 706 244 245 984 751 755
Small Company Fund .. 742 297 250 1,092 910 770
Enhanced Index Fund . 717 223 208 1,016 688 643
International Fund .. 1,018 536 497 1,907 1,603 1,492
Select 25 Fund ...... 718 223 211 1,019 688 652
Social Awareness Fund 712 255 270 1,001 785 829
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5 YEARS 10 YEARS
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Equity Fund ......... $1,111 $1,093 $1,093 $1,762 $2,101 $2,358
Global Fund ......... 1,591 1,577 1,577 2,768 3,083 3,318
Total Return Fund ... 1,739 1,698 1,698 3,069 3,334 3,549
Value Fund .......... 1,282 1,285 1,291 2,127 2,488 2,756
Small Company Fund .. 1,465 1,548 1,316 2,509 2,978 2,806
Enhanced Index Fund . --- --- --- --- --- ---
International Fund .. --- --- --- --- --- ---
Select 25 Fund ...... --- --- --- --- --- ---
Social Awareness Fund 1,312 1,340 1,415 2,190 2,588 3,003
- --------------------------------------------------------------------------------
BOARD CONSIDERATION OF THE PLAN
The Board, including all of the Plan Directors, has voted to approve the Plan
and to recommend to stockholders that they vote to approve the Plan.
The Board has determined that adoption of the Plan is in the best interests
of the Fund and its stockholders and that there is a reasonable likelihood that
the Plan will benefit the Fund and its stockholders. In making these
determinations, the Board considered a number of factors. The Board noted that
the Plan would help promote the sale of the Fund's shares without the Fund or
its Series bearing any direct expenses of the type normally associated with
distribution plans for mutual funds. Moreover, the Board considered that the
Series of the Fund will continue to incur expenses for securities transactions,
including commissions, regardless of whether the Plan is adopted. In general,
apart from the execution provided, the brokerage expenses incurred by the Series
currently do not directly benefit the Series, except to the extent that
executing brokers provide research services to the Investment Manager. Under the
Plan, the Series could benefit from its brokerage if it helps generate increased
assets.
The Board also considered that the Plan could help the Distributor to
maintain or enhance the distribution system in place for the Fund. The Board
considered a report from the Investment Manager that implementation of the Plan
is not likely to increase the brokerage expenses of the Series. The Board noted
that further promotion of the Fund could result in an increase in the Fund's
assets, thereby promoting greater economies of scale and decreasing the Series'
per-share operating expenses.
The Board also considered the benefits of the Plan to the Investment Manager
and the Distributor. In particular, the Board considered that an increase in the
Series' assets would increase the advisory fees paid to the Investment Manager,
and that payment of distribution expenses with Brokerage Payments and Brokerage
Credits could reduce the need for the Distributor to pay such expenses out of
its own resources.
THE INVESTMENT ADVISORY CONTRACT
The successful implementation of the Plan as recommended by the Board also
necessitates certain changes to the Fund's Investment Advisory Contract with the
Investment Manager. Moreover, as noted in connection with the discussion of
Proposal No. 4, that Proposal also requires that certain changes be made to the
Investment Advisory Contract. For a discussion of the Existing Contract, the New
Contract, the Investment Manager and Distributor, refer to Proposal No. 4. A
form of the New Contract is attached hereto as Exhibit C.
The Existing Contract contains a provision which provides that, if the
Investment Manager or any affiliate (which would include the Distributor)
receives any cash credits, commissions or tender fees in connection with
transactions in portfolio securities of the Fund, the Investment Manager must
immediately pay such amounts to the Fund in cash or as a credit against the
Investment Manager's fee. As noted above, under the terms of the Plan, the
Distributor may receive brokerage commissions as an introducing broker in
connection with the Fund's portfolio transactions. Accordingly, in order to
permit the Plan to operate in the manner contemplated, the provision of the
Existing Contract stating that commissions must be paid to the Fund or used to
reduce the advisory fee, must be removed. Removing this provision from the
Contract effectively means that the Fund will forego the opportunity to reduce
its expenses under the Investment Advisory Contract. Brokerage commission which
would have been used to offset fees under the Investment Advisory Contract would
be directed to the Plan.
If Proposal No. 5 is approved by stockholders, the New Contract without the
provision relating to brokerage commissions reducing the advisory fee will be
adopted. If Proposal No. 5 is not approved by stockholders, but Proposal No. 4
is approved, the New Contract will be adopted, but the above-referenced
provision will remain a part of the New Contract. If neither Proposal is
approved by stockholders, the Existing Contract will continue in effect
according to its terms. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR PROPOSAL NO. 5.
REQUIRED VOTE
Approval of the Plan with respect to a Series requires the vote of a majority
of the outstanding shares of that Series that are eligible to vote at the
meeting. For purposes of this proposal, with respect to each Series, majority
means the lesser of (a) 67% or more of the shares of that Series present at the
meeting, if 50% or more of the shares of the Fund are represented in person or
by proxy; or (b) 50% or more of the shares of such Series.
STOCKHOLDER PROPOSALS
Unless otherwise required under the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
stockholders. Stockholder proposals must be received at least 120 days prior to
the next meeting of stockholders, whenever held.
OTHER MATTERS
The audited financial statements of the Fund are found in the Annual Report
for the fiscal year ended September 30, 1999.
The Board of Directors of the Fund is not aware of any other matters to come
before the Meeting or any adjournments thereof other than those specified
herein. If any other matters should come before the Meeting, it is intended that
the persons named as proxies in the enclosed form(s) of proxy, or their
substitutes, will vote the proxy in accordance with their best judgment on such
matters.
By order of the Board of Directors of
Security Equity Fund,
AMY J. LEE
Secretary
<PAGE>
EXHIBIT A
PROPOSED FUNDAMENTAL INVESTMENT LIMITATIONS FOR SECURITY EQUITY FUND
1. Not to invest more than 5% of its total assets in the securities of any one
issuer (other than obligations of, or guaranteed by, the U.S. Government,
its agencies or instrumentalities); provided that this limitation applies
only with respect to 75% of a Series' total assets.
2. Not to purchase a security if, as a result, with respect to 75% of the value
of a Series' total assets, more than 10% of the outstanding voting
securities of any issuer would be held by the Series (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
3. Not to act as underwriter of securities issued by others, except to the
extent that a Series may be considered an underwriter within the meaning of
the Securities Act of 1933 in the disposition of restricted securities.
4. Not to borrow in excess of 33 1/3% of a Series' total assets.
5. Not to lend any security or make any other loan if, as a result, more than
33 1/3% of a Series' total assets would be lent to other parties, except (i)
through the purchase of a portion of an issue of debt securities in
accordance with its investment objective and policies, or (ii) by engaging
in repurchase agreements with respect to portfolio securities.
6. Not to issue senior securities, except as permitted under the Investment
Company Act of 1940.
7. Not to purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Series from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
8. Not to purchase or sell physical commodities, except that a Series may enter
into futures contracts and options thereon.
9. Not to invest 25% or more of a Series' total assets in a particular
industry.
<PAGE>
EXHIBIT B
CONDITIONS PROPOSED BY THE FUND AND SMC TO THE SEC
AS PART OF THEIR APPLICATION FOR EXEMPTIVE RELIEF
1. No Fund will enter into a subadvisory agreement with an Affiliated
Subadviser without such agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the Fund (or, if the Fund
serves as a funding medium for any sub-account of a registered separate
account, then pursuant to voting instructions by the unitholders of the
sub-account).
2. At all times, a majority of each Funds' Board will be persons who are
Independent Directors, and the nomination of new or additional Independent
Directors will be at the discretion of the then-existing Independent
Directors.
3. When a change of Subadviser is proposed for a Fund with an Affiliated
Subadviser, the Fund's Board, including a majority of the Independent
Directors, will make a separate finding, reflected in the Fund's Board
minutes, that such change of Subadviser is in the best interests of the Fund
and its shareholders (or, if the Fund serves as a funding medium for any
sub-account of a registered separate account, in the best interests of the
Fund and the unitholders of any sub-account) and that the change does not
involve a conflict of interest from which SMC or the Affiliated Subadviser
derives an inappropriate advantage.
4. SMC will provide management services to the Funds, including overall
supervisory responsibility for the general management and investment of each
Fund, and, subject to review and approval by the applicable Fund's Board
will (a) set each Fund's overall investment strategies; (b) evaluate, select
and recommend Subadvisers to manage all or a part of a Fund's assets; (c)
when appropriate, allocate and reallocate a Fund's assets among multiple
Subadvisers; (d) monitor and evaluate the investment performance of
Subadvisers; and (e) implement procedures reasonably designed to ensure that
the Subadvisers comply with the relevant Fund's investment objectives,
policies, and restrictions.
5. Within 90 days of the hiring of any new Subadviser, SMC will furnish
shareholders (or, if the Fund serves as a funding medium for any sub-account
of a registered separate account, SMC will furnish the unit holders of the
sub-account) with respect to the appropriate Fund with all information about
the new Subadviser that would be included in a proxy statement. Such
information will include any changes caused by the addition of a new
Subadviser. To meet this condition, SMC will provide shareholders (or, if
the Fund serves as a funding medium for any sub-account of a registered
separate account, then by providing unitholders of the sub-account) with an
information statement meeting the requirements of Regulation 14C, Schedule
14C, and Item 22 of Schedule 14A under the Securities Exchange Act of 1934.
6. Any Fund relying on the requested relief will disclose in its prospectus the
existence, substance and effect of any order granted pursuant to this
application. In addition, any such Fund will hold itself out as employing
the management structure described in the application. The prospectus will
prominently disclose that SMC has ultimate responsibility to oversee the
Subadvisers and recommend their hiring, termination, and replacement.
7. Before a Fund may rely on the order, the operation of the Fund in the manner
described in the application will be approved by a majority of the Fund's
outstanding voting securities (or, if the Fund serves as a funding medium
for any sub-account of a registered separate account, pursuant to voting
instructions provided by the unitholders of the sub-account), as defined in
the Act, or in the case of a Fund whose public shareholders (or variable
contract owners through a separate account) purchase shares on the basis of
a prospectus containing the disclosure contemplated by Condition 6 above, by
the sole initial shareholder(s) before the shares of such Fund are offered
to the public (or the variable contract owners through a separate account).
8. No director or officer of the Funds or director or officer of SMC will own
directly or indirectly (other than through a pooled investment vehicle that
is not controlled by such director or officer) any interest in a Subadviser
except for (a) ownership of interests in SMC or any entity that controls, is
controlled by, or is under common control with SMC; or (b) ownership of less
than 1% of the outstanding securities of any class of equity or debt
securities of a publicly-traded company that is either a Subadviser or
controls, is controlled by, or is under common control with a Subadviser.
<PAGE>
EXHIBIT C
INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
This Agreement, made and entered into this 27th day of January, 2000, by and
between SECURITY EQUITY FUND, a Kansas corporation (hereinafter referred to as
the "Fund"), and SECURITY MANAGEMENT COMPANY, LLC, a Kansas limited liability
company (hereinafter referred to as "SMC");
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end, management
investment company registered under the Investment Company Act of 1940 ("1940
Act"); and
WHEREAS, SMC is willing to provide investment research and advice, general
administrative, fund accounting, transfer agency, and dividend disbursing
services to the Fund on the terms and conditions hereinafter set forth and to
arrange for the provision of all other services (except for those services
specifically excluded in this Agreement) required by the Fund, including
custodial, legal, auditing and printing;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties agree as follows:
1. EMPLOYMENT OF SMC. The Fund hereby employs SMC to (a) act as investment
adviser to the Fund with respect to the investment of its assets and to
supervise and arrange for the purchase of securities of the Fund and the sales
of securities held in the portfolio of the Fund, subject always to the
supervision of the Board of Directors of the Fund (or a duly appointed committee
thereof), during the period and upon and subject to the terms and conditions
described herein; (b) 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; and (c) arrange for, and monitor, the provision to the Fund of all
other services required by the Fund, including but not limited to services of
independent accountants, legal counsel, custodial services and printing. SMC
may, in accordance with all applicable legal requirements, engage the services
of other persons or entities, regardless of any affiliation with SMC, to provide
services to the Fund under this Agreement. SMC shall bear the expense of
providing such other services to the Equity and Global Series. Total Return
Series, Social Awareness Series, Value Series, Small Company Series,
International Series, Enhanced Index Series and Select 25 Series shall bear the
expense of such other services and all other expenses of the Series. SMC agrees
to maintain sufficient trained personnel and equipment and supplies to perform
its responsibilities under this Agreement and 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 shall use reasonable care in selecting
and monitoring the performance of third parties, who perform services for the
Fund. SMC shall not guarantee the performance of such persons.
SMC hereby accepts such employment and agrees to perform the services
required by this Agreement for the compensation herein provided.
2. ALLOCATION OF EXPENSES AND CHARGES.
(a) EXPENSES OF SMC. SMC shall pay all expenses in connection with the
performance of its services under this Agreement, including with respect to
the Equity and Global Series, all fees and charges of third parties providing
services to the Fund, whether or not such expenses are billed to SMC or the
Fund, except as provided otherwise herein.
(b) EXPENSES OF THE FUND. 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 whether or not billed to the Fund,
SMC or any related entity:
(i) brokerage fees and commissions;
(ii) taxes;
(iii) interest expenses;
(iv) any extraordinary expenses approved by the Board of Directors
of the Fund; and
(v) distribution fees paid under the Fund's Class A, Class B and
Class C Distribution Plans.
and, in addition to those expenses set forth above, Total Return Series,
Social Awareness Series, Value Series, Small Company Series, International
Series, Enhanced Index Series and Select 25 Series shall pay all expenses of
the Series whether or not billed to the Fund, SMC or any related entity,
including, but not limited to the following: Board of Directors' fees; legal,
auditing and accounting expenses; insurance premiums; broker's commissions;
taxes and governmental fees and any membership dues; fees of custodian;
expenses of obtaining quotations on the Fund's portfolio securities and
pricing of the Fund's shares; costs and expenses in connection with the
registration of the Fund's capital stock under the Securities Act of 1933 and
qualification of the Fund's capital stock under the Blue Sky laws of the
states where such stock is offered; costs and expenses in connection with the
registration of the Fund under the Investment Company Act of 1940 and all
periodic and other reports required thereunder; expenses of preparing,
printing and distributing reports, proxy statements, prospectuses, statements
of additional information, notices and distributions to stockholders; costs
of stockholder and other meetings; and expenses of maintaining the Fund's
corporate existence. Notwithstanding the foregoing, SMC shall pay all
expenses related to the initial registration and qualification of the Class C
shares of Total Return Series, Social Awareness Series, Value Series, Small
Company Series, International Series, Enhanced Index Series and Select 25
Series, under the Blue Sky laws of the states where such class of stock is
offered.
(c) EXPENSE CAP. For each of the Fund's full fiscal years this Agreement
remains in force, SMC agrees that if total annual expenses of each Series of
the Fund identified below, exclusive of interest, taxes, extraordinary
expenses (such as litigation), brokerage fees and commissions, and 12b-1 fees
paid under a Fund's Class A, Class B or Class C Distribution Plans, but
inclusive of SMC's compensation, exceeds the amount set forth below (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
Agreement shall be effective for only a portion of a Series' fiscal year,
then the maximum annual expenses shall be prorated for such portion.
Expense Cap
International Series, Class A, B and C shares - 2.25%
Enhanced Index Series, Class A, B and C shares - 1.75%
Select 25 Series, Class A, B and C shares - 1.75%
3. COMPENSATION OF SMC.
(a) As compensation for the services to be rendered by SMC to Equity
Series and Global Series as provided for herein, for each of the years this
Agreement is in effect, the Fund shall pay SMC an annual fee equal to (1) 2
percent of the first $10 million of the average daily net assets, 1 1/2
percent of the next $20 million of the average daily net assets, and 1
percent of the remaining average daily net assets of the Equity Series of the
Fund for any fiscal year, and (2) 2 percent of the first $70 million of the
average daily net assets and 1 1/2 percent of the remaining average daily net
assets of the Global Series of the Fund for any fiscal year. Such fees shall
be determined daily and payable monthly. As compensation for the investment
advisory services to be rendered by SMC to Social Awareness Series, Value
Series and Small Company Series, for each of the years this Agreement is in
effect, the Social Awareness Series, Value Series and Small Company Series
shall each pay SMC an annual fee equal to 1% of their respective average
daily net assets. Such fee shall be calculated daily and payable monthly. As
compensation for the investment advisory services to be rendered by SMC to
International Series for each of the years this Agreement is in effect, the
International Series shall pay SMC an annual fee equal to 1.10% of its
average daily net assets. Such fee shall be calculated daily and payable
monthly. As compensation for the investment advisory services to be rendered
by SMC to Total Return Series, Enhanced Index Series and Select 25 Series for
each of the years this Agreement is in effect, the Total Return Series,
Enhanced Index Series and Select 25 Series shall each pay SMC an annual fee
equal to .75% of their respective average daily net assets. Such fee shall be
calculated daily and payable monthly. As compensation for the administrative
services to be rendered by SMC to International Series, the International
Series shall pay SMC an annual fee equal to .05% of the average daily net
assets of International Series, plus the greater of .10% of its average daily
net assets or (i) $30,000 in the year ended January 31, 2000; (ii) $45,000 in
the year ending January 31, 2001 and (iii) $60,000 thereafter. Such fees
shall be calculated daily and payable monthly. As compensation for the
administrative services to be rendered by SMC to Total Return Series, Social
Awareness Series, Value Series, Small Company Series, Enhanced Index Series
and Select 25 Series, each such Series shall pay SMC an annual fee equal to
.09% of their respective average daily net assets. Such fees shall be
calculated daily and payable monthly. If this Agreement shall be effective
for only a portion of a year, then SMC's compensation for said year shall be
prorated for such portion. For purposes of this Section 3, the value of the
net assets of each Series shall be computed in the same manner at the end of
the business day as the value of such net assets is computed in connection
with the determination of the net asset value of the Fund's shares as
described in the Fund's prospectus.
For transfer agency services provided by SMC to Total Return Series,
Social Awareness Series, Value Series, Small Company Series, International
Series, Enhanced Index Series, and Select 25 Series, each such Series shall
pay a Maintenance Fee of $8.00 per account, a Transaction Fee of $1.00 per
account and a Dividend Fee of $1.00 per account.
(b) For each of the Fund's fiscal years this Agreement remains in force,
SMC agrees that if total annual expenses of any Series of the Fund, exclusive
of interest and taxes, extraordinary expenses (such as litigation) and
distribution fees paid under the Fund's Class A, Class B and Class C
Distribution Plans, but inclusive of SMC's compensation, exceed any expense
limitation imposed by state securities law or regulation in any state in
which shares of such Series of the Fund are then qualified for sale, as such
regulations may be amended from time to time, SMC will contribute to such
Series such funds or waive such portion of its fee, adjusted monthly, as may
be requisite to insure that such annual expenses will not exceed any such
limitation. If this Agreement shall be effective for only a portion of any
Series' fiscal year, then the maximum annual expenses shall be prorated for
such portion. Brokerage fees and commissions incurred in connection with the
purchase or sale of any securities by a Series shall not be deemed to be
expenses within the meaning of this paragraph (b).
4. INVESTMENT ADVISORY DUTIES.
(a) INVESTMENT ADVICE. SMC shall regularly provide the Fund with
investment research, advice and supervision, continuously furnish an
investment program, recommend which securities shall be purchased and sold
and what portion of the assets of the Fund shall be held uninvested and
arrange for the purchase of securities and other investments for the Fund and
the sale of securities and other investments held in the portfolio of the
Fund. All investment advice furnished by SMC to the Fund under this paragraph
4 shall at all times conform to any requirements imposed by the provisions of
the Fund's Articles of Incorporation and Bylaws, the 1940 Act, the Investment
Advisors Act of 1940 and the rules and regulations promulgated thereunder,
and other applicable provisions of law, and the terms of the registration
statements of the Fund under the Securities Act of 1933 ("1933 Act") and/or
the 1940 Act, as may be applicable at the time, all as from time to time
amended. SMC shall advise and assist the officers or other agents of the Fund
in taking such steps as are necessary or appropriate to carry out the
decisions of the Board of Directors of the Fund (and any duly appointed
committee thereof) with regard to the foregoing matters and the general
account of the Fund's business.
(b) SUBADVISERS. Subject to the provisions of the 1940 Act and any
applicable exemptions thereto, SMC is authorized, but is under no obligation,
to enter into sub-advisory agreements (the "Sub-Advisory Agreements") with
one or more subadvisers (each a "Subadviser") to provide investment advisory
services to any series of the Fund. Each Subadviser shall have investment
discretion with respect to the assets of the series assigned to that
Subadviser by SMC. Consistent with the provisions of the 1940 Act and any
applicable exemption thereto, SMC may enter into Sub-Advisory Agreements or
amend Sub-Advisory Agreements without the approval of the shareholders of the
effected series.
(c) PORTFOLIO TRANSACTIONS AND BROKERAGE.
(i) Transactions in portfolio securities shall be effected by SMC,
through brokers or otherwise (including affiliated brokers), in the
manner permitted in this paragraph 4 and in such manner as SMC shall deem
to be in the best interests of the Fund after consideration is given to
all relevant factors.
(ii) In reaching a judgment relative to the qualification of a
broker to obtain the best execution of a particular transaction, SMC may
take into account all relevant factors and circumstances, including the
size of any contemporaneous market in such securities; the importance to
the Fund of speed and efficiency of execution; whether the particular
transaction is part of a larger intended change of portfolio position in
the same securities; the execution capabilities required by the
circumstances of the particular transaction; the capital required by the
transaction; the overall capital strength of the broker; the broker's
apparent knowledge of or familiarity with sources from or to whom such
securities may be purchased or sold; as well as the efficiency,
reliability and confidentiality with which the broker has handled the
execution of prior similar transactions.
(iii) Subject to any statements concerning the allocation of
brokerage contained in the Fund's Prospectus or Statement of Additional
Information, SMC is authorized to direct the execution of portfolio
transactions for the Fund to brokers who furnish investment information
or research service to the SMC. Such allocations shall be in such amounts
and proportions as SMC may determine. If the transaction is directed to a
broker providing brokerage and research services to SMC, the commission
paid for such transaction may be in excess of the commission another
broker would have charged for effecting that transaction, if SMC shall
have determined in good faith that the commission is reasonable in
relation to the value of the brokerage and research services provided,
viewed in terms of either that particular transaction or the overall
responsibilities of SMC with respect to all accounts as to which it now
or hereafter exercises investment discretion. For purposes of the
immediately preceding sentence, "providing brokerage and research
services" shall have the meaning generally given such terms or similar
terms under Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended.
(iv) In the selection of a broker for the execution of any
transaction not subject to fixed commission rates, SMC shall have no duty
or obligation to seek advance competitive bidding for the most favorable
negotiated commission rate to be applicable to such transaction, or to
select any broker solely on the basis of its purported or "posted"
commission rates.
(v) In connection with transactions on markets other than national
or regional securities exchanges, the Fund will deal directly with the
selling principal or market maker without incurring charges for the
services of a broker on its behalf unless, in the best judgment of SMC,
better price or execution can be obtained by utilizing the services of a
broker.
(d) LIMITATION OF LIABILITY OF SMC WITH RESPECT TO RENDERING INVESTMENT
ADVISORY SERVICES. So long as SMC shall give the Fund the benefit of its best
judgment and effort in rendering investment advisory services hereunder, SMC
shall not be liable for any errors of judgment or mistake of law, or for any
loss sustained by reason of the adoption of any investment policy or the
purchase, sale or retention of any security on its recommendation shall have
been based upon its own investigation and research or upon investigation and
research made by any other individual, firm or corporation, if such
recommendation shall have been made and such other individual, firm or
corporation shall have been selected with due care and in good faith. Nothing
herein contained shall, however, be construed to protect SMC against any
liability to the Fund or its shareholders by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason
of its reckless disregard of its obligations and duties under this paragraph
4. As used in this paragraph 4, "SMC" shall include directors, officers and
employees of SMC, as well as SMC itself.
5. ADMINISTRATIVE AND TRANSFER AGENCY SERVICES.
(a) RESPONSIBILITIES OF SMC. 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 perform such services in an accurate, timely, and efficient manner.
(b) 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
adviser 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 1940 Act, in the amounts and with such
deductibles as may be agreed upon from time to time. SMC shall be solely
responsible for the payment of premiums due for such policies.
(c) REGISTRATION AND COMPLIANCE.
(i) 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.
(ii) The Fund represents that it is a diversified management
investment company registered with the SEC in accordance with the 1940
Act and the rules and regulations thereunder, and authorized to sell its
shares pursuant to said Act, the 1933 Act and the rules and regulations
thereunder.
(d) LIABILITY AND INDEMNIFICATION WITH RESPECT TO RENDERING
ADMINISTRATIVE AND TRANSFER AGENCY SERVICES. 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 Section 5.
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:
(i) The bad faith, willful misfeasance, reckless disregard of its
duties or negligence by the Board of Directors of the Fund, or SMC's
acting upon any instructions properly executed or and authorized by the
Board of Directors of the Fund;
(ii) 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 damage) arising from
its obligations and the services provided under this paragraph 5, 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 paragraph 5 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.
(e) DELEGATION OF DUTIES. SMC may, at its discretion, delegate, assign or
subcontract any of the duties, responsibilities and services governed by this
agreement, to an affiliated company, 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. 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.
6. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent
SMC or any officer thereof from acting as investment adviser, administrator or
transfer agent for any other person, firm or corporation, nor shall it in any
way limit or restrict SMC or any of its directors, officers, stockholders or
employees from buying, selling, or trading any securities for its own accounts
or for the accounts of others for whom it may be acting; provided, however, that
SMC expressly represents that it will undertake no activities which, in its
judgment, will conflict with the performance of its obligations to the Fund
under this Agreement. The Fund acknowledges that SMC acts as investment adviser,
administrator and transfer agent to other investment companies, and it expressly
consents to SMC acting as such; provided, however, that if in the opinion of
SMC, particular securities are consistent with the investment objectives of, and
desirable purchases or sales for the portfolios of one or more of such other
investment companies or series of such companies at approximately the same time,
such purchases or sales will be made on a proportionate basis if feasible, and
if not feasible, then on a rotating or other equitable basis.
7. AMENDMENT. This Agreement and the schedules forming a part hereof may be
amended at any time, without shareholder approval to the extent permitted by
applicable law, by a writing signed by each of the parties hereto. Any change in
the Fund's registration 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.
8. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective on January 27, 2000, provided that on or before that date it has been
approved by the holders of a majority of the outstanding voting securities of
each series of the Fund. This Agreement shall continue in force until January
27, 2002, and for successive 12-month periods thereafter, unless terminated,
provided each such continuance is specifically approved at least annually by (a)
the vote of a majority of the entire Board of Directors of the Fund, and the
vote of a majority of the directors of the Fund who are not parties to this
Agreement or interested persons (as such terms are defined in the Investment
Company Act of 1940) of any such party cast in person at a meeting of such
directors called for the purpose of voting upon such approval, or (b) by the
vote of the holders of a majority of the outstanding voting securities of each
series of the Fund (as defined in the 1940 Act). In the event a majority of the
outstanding shares of one series vote for continuance of the Agreement, it will
be continued for that series even though the Agreement is not approved by either
a majority of the outstanding shares of any other series or by a majority of
outstanding shares of the Fund.
Upon this Agreement becoming effective, any previous Agreement between the
Fund and SMC providing for investment advisory, administrative or transfer
agency services shall concurrently terminate, except that such termination shall
not affect any fees accrued and guarantees of expenses with respect to any
period prior to termination.
This Agreement may be terminated at any time as to any series of the Fund
without payment of any penalty, by the Fund upon the vote of a majority of the
Fund's Board of Directors or, by a majority of the outstanding voting securities
of the applicable series of the Fund, or by SMC, in each case on sixty (60)
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment (as such term is defined in the 1940
Act).
9. 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.
10. APPLICABLE LAW. This Agreement shall be subject to and construed in
accordance with the laws of the State of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereto duly authorized on the day, month
and year first above written.
SECURITY EQUITY FUND
By:
----------------------------
Title:
ATTEST:
- ----------------------------------
Secretary
SECURITY MANAGEMENT COMPANY, LLC
By:
----------------------------
Title:
ATTEST:
- ----------------------------------
Secretary
<PAGE>
SCHEDULE A
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
SCHEDULE OF ADMINISTRATIVE AND FUND ACCOUNTING FACILITIES AND SERVICES
Security Management Company, LLC 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 any 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. Reports 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 the Board meetings.
f. Draft, review and maintain contractual agreements between Fund and
Investment Adviser, Custodian, Distributor and Transfer Agent.
g. Oversee printing of proxy statements, financial reports to
shareholders, prospectus 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.
SCHEDULE OF SHARE TRANSFER AND DIVIDEND DISBURSING SERVICES
Security Management Company, LLC agrees to provide the Fund the following
transfer agency and dividend disbursing service.
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; and
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; and
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 on-line statistical performance of unit; and
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; and
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; and
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 an affidavit of mailing.
c. Furnish certified list of shareholders (hard copy or microfilm) and
inspectors of elections.
15. Report and remit as necessary for state escheat requirements.
Approved: Fund SMC
---------------------------- ----------------------------
<PAGE>
EXHIBIT D
SECURITY EQUITY FUND
BROKERAGE ENHANCEMENT PLAN
WHEREAS, Security Equity Fund (the "Fund") engages in business as an open-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Fund are currently divided into series,
listed on Schedule A hereto (the "Series"), which Schedule can be amended to add
or remove a series by an amended schedule;
WHEREAS, shares of common stock of the Series are divided into multiple classes
of shares, and this Plan applies to the Fund and the Series and the effect of
the Plan does not vary based upon a class of a Series;
WHEREAS, the Fund employs Security Distributors, Inc. (the "Distributor") as
distributor of the securities of which the Fund is the issuer;
WHEREAS, the Board of Directors of the Fund (the "Board") has determined that,
subject to the requirement to seek best price and execution, it is appropriate
and desirable for the Fund to use certain brokerage commissions generated on the
purchase and sale of portfolio securities to finance activities that are
primarily intended to result in the sale of its shares (the "Brokerage
Enhancement Plan" or the "Plan");
WHEREAS, any benefits that may be obtained from brokerage commissions are assets
of the Fund, and the Fund wishes, pursuant to Rule 12b-1 under the Act, to
utilize such assets in furtherance of the distribution of the Fund's shares; and
WHEREAS, the Board has determined that, to the extent that the use of these
benefits earned by a Series under this Plan results in the increased
distribution of the Fund's shares, a benefit in the form of potential economies
of scale should inure to that Series and to the other Series offered by the
Fund;
NOW, THEREFORE, this Brokerage Enhancement Plan is adopted by the Fund on behalf
of the Series, in accordance with Rule 12b-l under the Act, on the following
terms and conditions:
1. The Fund is authorized to enter into agreements or arrangements pursuant to
which the Fund may direct Security Management Company, LLC ("SMC"), in its
capacity as the Fund's investment adviser, and each of the sub-advisors
retained by SMC (and approved by the Fund) to manage certain of the Series
(each a "Sub-Advisor"), acting as agents for the Fund or its Series:
a. To place orders for the purchase or sale of portfolio securities with
the Distributor or other introducing broker-dealers who will receive a
portion of the brokerage commission paid by the Series from
broker-dealers executing such portfolio transactions for the benefit of
the Series ("Brokerage Payments") that can be used directly or
indirectly to finance the distribution of the Fund's shares; or
b. To allocate transactions for the purchase or sale of portfolio
securities or other assets to broker-dealers, and receive, in addition
to execution of the brokerage transaction, credits, benefits or other
services from the broker-dealer ("Brokerage Credits") that can be used
directly or indirectly to promote the distribution of the Fund's
shares;
in each case, provided that SMC or the Sub-Advisor must reasonably believe
that the Distributor or broker-dealer (or the clearing broker of either)
will execute the transaction in a manner consistent with standards of best
execution, as described in the Registration Statement for the Fund, as
amended from time to time.
2. The Fund is authorized to expend Brokerage Credits and Brokerage Payments
to compensate the Distributor and other broker-dealers for the cost and
expense of certain distribution-related activities or to procure from, or
otherwise induce, the Distributor and other broker-dealers to provide
services, where such activities or services are intended to promote the
sale of the Fund's shares. Such activities or services may be provided by
the Distributor or broker-dealer to which a purchase or sale transaction
has been allocated (the directed broker-dealer) or by another broker-dealer
or other party at the direction of the Distributor or directed
broker-dealer. The activities or services which may be procured with
Brokerage Credits and Brokerage Payments include, but are not limited to
(i) developing, preparing, printing, and mailing of advertisements, sales
literature and other promotional material describing and/or relating to the
Fund or the Series; (ii) printing and mailing of Fund prospectuses,
statements of additional information, any supplements thereto and
shareholder reports for existing and prospective shareholders; (iii)
holding or participating in seminars and sales meetings designed to promote
the distribution of shares of the Fund or the Series, including materials
intended either for broker-dealer only use or for retail use; (iv)
providing information about the Fund, its Series, or mutual funds in
general, to registered representatives of broker-dealers; (v) providing
assistance to broker-dealers that are conducting due diligence on the Fund
or its Series; (vi) payment or reimbursement of legal and administrative
costs associated with implementing the Plan; (vii) marketing fees requested
by broker-dealers who sell shares of the Fund; (viii) obtaining information
and providing explanations to shareholders regarding the Series'
investments and policies and other information about the Fund and its
Series, including the performance of the Series; (ix) training sales
personnel; (x) personal service and/or maintenance of the shareholder
accounts; (xi) payment of commissions to broker-dealers who sell shares of
the Fund; and (xii) financing any other activity that is intended to result
in the sale of Fund shares.
3. The Fund may direct the Distributor to take appropriate actions to effect
the purposes of this Plan, including, but not limited to, (a) directing on
behalf of the Fund or a Series and subject to the standards described
above, SMC or a Sub-Advisor to allocate transactions for the purchase or
sale of portfolio securities in the manner described in the Plan; (b)
compensating a broker-dealer for the cost and expense of certain
distribution-related activities or procuring from a broker-dealer or
otherwise inducing a broker-dealer to provide services, where such
activities or services are intended to promote the sale of shares of the
Fund or a Series, all on behalf of the Fund or a Series. Subject to the
standards set forth in Section 1, and subject to applicable law, SMC and a
Sub-Advisor may also direct brokerage transactions to a broker-dealer that
is an affiliated person of the Distributor, SMC or a Sub-Advisor. Provided
that any Brokerage Credits or Brokerage Payments directly or indirectly
inure to the benefit of those Series which generated the particular
Brokerage Credit or Brokerage Payment, any such credits or payments may
also inure to the benefit of other Series of the Fund.
4. This Plan shall not take effect with respect to a Series until it has been
approved by (a) a vote of a majority of the outstanding voting securities
of that Series; and, together with any related agreements, has been
approved by (a) the Fund's Board of Directors, and (b) those Directors of
the Fund who are not "interested persons" of the Fund (as defined in the
Act) and who have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-l Directors"),
cast in person at a meeting (or meetings) called, at least in part, for the
purpose of voting on this Plan and such related agreements. As additional
Series of the Fund are established, this Plan shall not take effect with
respect to such Series until the Plan, together with any related
agreements, has been approved by votes of a majority of both (a) the Fund's
Board of Directors and (b) the Rule 12b-1 Directors cast in person at a
meeting called, at least in part, for the purpose of voting on such
approval.
5. After approval as set forth in paragraph 4, and any other approvals
required pursuant to the Act and Rule 12b-1 thereunder, this Plan shall
take effect at the time specified by the Fund's Board of Directors, or, if
no such time is specified by the Directors, at the time that all approvals
necessary have been obtained. The Plan shall continue in full force and
effect as to a Series for so long as such continuance is specifically
approved at least annually by votes of a majority of both (a) the Board of
Directors and (b) the Rule 12b-1 Directors of the Fund, cast in person at a
meeting called, at least in part, for the purpose of voting on this Plan.
6. The Distributor shall provide to the Directors of the Fund a written report
of the amounts expended or benefits received and the purposes for which
such expenditures were made at such frequency as may be required under Rule
12b-1 of the Act.
7. This Plan may be terminated as to the Fund or each Series at any time,
without payment of any penalty, by vote of the Directors of the Fund, by
vote of a majority of the Rule 12b-l Directors, or by a vote of a majority
of the outstanding voting securities of the Series on not more than 30
days' written notice to any other party to the Plan. In addition, all
Agreements shall provide that such Agreement shall terminate automatically
in the event of its assignment.
8. This Plan may not be amended in any material respect unless such amendment
is approved by a vote of a majority of both (a) the Fund's Board of
Directors and (b) the Rule 12b-1 Directors cast in person at a meeting
called, at least in part, for the purpose of voting on such approval. The
Plan may not be amended to increase materially the amount to be spent for
distribution unless such amendment is approved by a majority of the
outstanding voting securities of the pertinent Series and by a majority of
both (a) the Fund's Board of Directors and (b) the Rule 12b-1 Directors
cast in person at a meeting called, at least in part, for the purpose of
voting on such approval; PROVIDED HOWEVER, that increases in amounts spent
for distribution by virtue of a greater amount of Brokerage Credits or
Brokerage Payments generated by the Fund shall not be deemed to constitute
a material increase in the amount to be spent for distribution.
9. While this Plan is in effect, the selection and nomination of Directors who
are not "interested persons" (as defined in the Act) of the Fund shall be
committed to the discretion of the Directors who are not interested
persons.
10. The Fund shall preserve copies of this Plan and related agreements for a
period of not less than six years from the date of termination of the Plan
or related agreements, the first two years in an easily accessible place;
and shall preserve all reports made pursuant to paragraph 6 hereof for a
period of not less than six, the first two years in an easily accessible
place.
11. The provisions of this Plan are severable as to each Series, and any action
to be taken with respect to this Plan shall be taken separately for each
Series affected by the matter.
Date: January __, 2000
<PAGE>
SCHEDULE A
Equity Series
Global Series
Total Return Series
Value Series
Social Awareness Series
Small Company Series
Enhanced Index Series
International Series
Select 25 Series
<PAGE>
www.securitybenefit.com
[SBG LOGO]
The Security Benefit
Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
SECURITY EQUITY FUND
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 26, 2000
The undersigned hereby appoints John D. Cleland, Donald A. Chubb, Jr., and James
R. Schmank, and each of them, with full power of substitution, as proxies of the
undersigned to vote at the above-stated annual meeting, and at all adjournments
thereof, all shares of SECURITY EQUITY FUND held by the undersigned at the
Annual Meeting of Stockholders of the Fund to be held at 9:30 AM, local time, on
January 26, 2000, at Security Benefit Group Building, 700 SW Harrison Street,
Topeka, Kansas 66636-0001, and at any adjournment thereof, in the manner
directed below with respect to the matters referred to in the proxy statement
for the meeting, receipt of which is hereby acknowledged, and in the proxies'
discretion, upon such other matters as may properly come before the meeting or
any adjournment thereof.
In order to avoid the additional expense of further solicitation to your Fund,
we strongly urge you to review, complete, and return your ballot as soon as
possible. Your vote is important regardless of the number of shares you own. The
Board of Directors recommends a vote for each of the following proposals. These
voting instructions will be voted as specified and in the absence of
specification will be treated as granting authority to vote "FOR" each proposal.
PLEASE EXECUTE, SIGN, DATE, AND
RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
Date
--------------------------------
--------------------------------
Signatures(s) (If joint owners)
NOTE: Please sign exactly as the
name appears on this card. EACH
joint owner must sign the proxy.
When signing as executor,
administrator, attorney, trustee
or guardian, or as custodian for
a minor, please give the FULL
title of such. If a corporation,
please give the FULL corporate
name and indicate the signer's
office. If a partner, please
sign in the partnership name.
<PAGE>
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
- --------------------------------------------------------------------------------
PLEASE REFER TO THE TABLE ON PAGES 3-5 OF THE PROXY STATEMENT
TO DETERMINE WHICH PROPOSALS ARE APPLICABLE TO YOUR SERIES
- --------------------------------------------------------------------------------
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW.
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
1. Elect six directors to serve on the Board of |_| |_| |_| 1.
Directors of the Fund until the next annual
meeting, if any, or until their successors shall
have been duly elected and qualified. (ALL SERIES)
01) Donald A. Chubb, Jr., 02) John D. Cleland,
03) Penny A. Lumpkin, 04) Mark L. Morris, Jr.,
05) Maynard F. Oliverius and 06) James R. Schmank
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, MARK THE "FOR ALL EXCEPT" AND PRINT THE
NAME OF THE NOMINEE(S) ON THE LINE BELOW.
__________________________________________________
FOR AGAINST ABSTAIN
2. Ratify the selection of independent accountants. |_| |_| |_| 2.
(All Series)
3. Changes to the investment policies: FOR AGAINST ABSTAIN
(See pages 3 - 5) ALL ALL ALL
3a. Diversification. |_| |_| |_| 3.
3b. Share ownership of any one issuer.
3c. Investing for control of portfolio companies.
3d. Underwriting.
3e. Borrowing.
3f. Lending.
3g. Short sales and margin purchases of
securities.
3h. Senior securities.
3i. Investment in other investment companies.
3j. Purchasing companies with less than three
years operating history.
3k. Purchasing securities of an issuer in which
the officers and directors of the Fund,
Investment Manager or Underwriter own more
than 5% of the outstanding securities of such
issuer.
3l. Officers or directors of the Fund, the
Underwriter or Manager purchasing shares of
the Fund, except at current net asset value.
3m. Buying or selling real estate.
3n. Buying or selling commodities or commodity
contracts.
3o. Investment in warrants.
3p. Investment in restricted securities.
3q. Investment in puts, calls, straddles or
spreads.
3r. Investment in oil, gas, or mineral
exploration or development programs.
IF YOU WISH TO VOTE AGAINST OR ABSTAIN ON A
PARTICULAR INVESTMENT POLICY CHANGE, APPLICABLE
TO YOUR SERIES, WRITE THE NUMBER(S) OF THE
SUB-PROPOSAL(S) ON THE LINE BELOW.
-------------------------------------------------
FOR AGAINST ABSTAIN
4. Approve a new investment advisory contract that |_| |_| |_| 4.
would permit Security Management Company, LLC, the
Fund's investment adviser, with Board approval, to
enter into or amend sub-advisory agreements
without stockholder approval. (ALL SERIES)
5. Approve a Brokerage Enhancement Plan pursuant to |_| |_| |_| 5.
Rule 12b-1 under the Investment Company Act of
1940, and a new investment advisory contract that
would permit the implementation of the Plan. (ALL
SERIES)
To transact such other business as may properly come before the Meeting or any
adjournments thereof, and to adjourn the Meeting from time to time.
