<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SECURITY GROWTH AND INCOME FUND
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
SECURITY GROWTH AND INCOME 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 GROWTH AND INCOME FUND
Notice is hereby given that an annual meeting of the stockholders of Security
Growth and Income Fund (the "Fund"), a Kansas corporation, will be held at the
offices of Security Growth and Income 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 eliminate the Fund's fundamental investment limitation concerning
mortgaging, pledging or hypothecating its assets.
i. To eliminate the Fund's fundamental investment limitation concerning
purchasing securities that are not traded on an exchange or actively
traded over-the-counter.
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
investment in other investment companies.
m. To eliminate the Fund's fundamental investment limitation concerning
the officers or directors of the Fund, the Underwriter or Investment
Manager purchasing shares of the Fund, except at net asset value.
n. To amend the Fund's fundamental investment limitation concerning
buying or selling real estate and commodities or commodity contracts.
o. To eliminate the Fund's fundamental investment limitation concerning
investment in puts, calls, straddles or spreads.
p. To eliminate the Fund's fundamental investment limitation concerning
investment in limited partnerships or similar interests in oil, gas,
mineral leases or other mineral exploration 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 Growth and Income 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 GROWTH AND INCOME 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 Growth and Income Fund,
Topeka, Kansas AMY J. LEE
December ____, 1999 Secretary
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IMPORTANT: STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING
ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) TO THE
FUND, OR OTHERWISE VOTE THEIR SHARES, AS EARLY AS POSSIBLE.
<PAGE>
SECURITY GROWTH AND INCOME 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 Growth and Income Fund (the "Fund"). You may vote in person at the
Meeting, by telephone, by Internet, or by returning your completed proxy card in
the postage-paid envelope provided. Details can be found on the enclosed proxy
insert. Do not return your proxy card if you are voting by telephone or
Internet. You may revoke your proxy by submitting another proxy or a notice of
revocation of your proxy in proper form to the Secretary of the Fund, or by
voting the shares in person at the Meeting. A second proxy form may be obtained
from the Secretary of the Fund. The cost of soliciting proxies will be borne by
Security Management Company, LLC, 700 SW Harrison Street, Topeka, Kansas
66636-0001 ("SMC" or the "Investment Manager"). 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 ______, 1999.
VOTING SECURITIES
Only stockholders of record at the close of business on November 30, 1999,
are entitled to vote at the Meeting. On that date, the outstanding number of
voting securities of common stock of the Fund was ____ shares.
As of the Record Date, the following persons owned beneficially more than 5%
of the Fund.
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% OF FUND'S
NUMBER OF OUTSTANDING
NAME SHARES OWNED SHARES
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THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT CONTAINING
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED 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>
Each share 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 Fund will be voted together
with respect to Proposal Nos. 1 through 5.
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 or
until his or her successor is duly elected and qualified. Each nominee is
currently a director of the Fund and has consented to his or her nomination and
agreed to serve if elected. Each director was elected by stockholders, except
James R. Schmank, who was elected by the other directors on December 10, 1997,
and Maynard F. Oliverius, who was so elected on February 6, 1998. If any of the
nominees is not available for election, the persons named as proxies (or their
substitutes) may vote for other persons in their discretion. Management has no
reason to believe that any nominee will be unavailable for election.
The names of the nominees to the Fund's Board of Directors and their
respective offices and principal occupations are set forth below.
NOMINEES TO THE FUND'S BOARD OF DIRECTORS
<TABLE>
<CAPTION>
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FUND SHARES BENEFICIALLY OWNED, ALL OTHER SECURITY FUNDS'
DIRECTLY OR INDIRECTLY, SHARES OWNED DIRECTLY
NAME, AGE, ADDRESS, AS OF 11/30/99 AS OF 11/30/99 DATE FIRST
POSITION ON FUND BOARD ------------------------------- ----------------------------- BECAME A
AND PRINCIPAL OCCUPATIONS FUND SHARES FUND SHARES DIRECTOR
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<S> <C> <C> <C> <C> <C>
DONALD A. CHUBB, JR., 53, Growth & Income Ultra 1994
2222 SW 29th Street, Equity
Topeka, Kansas 66611, Corporate Bond
POSITION ON FUND BOARD: Director of the Fund Cash
PRINCIPAL OCCUPATIONS: Business broker, Griffith & Global
Blair Realtors. Prior to 1997, President, Neon Total Return
Tube Light Company, Inc. Select 25
SBL Fund - Series A
SBL Fund - Series B
SBL Fund - Series S
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JOHN D. CLELAND*, 63, Growth & Income Equity 1991
700 SW Harrison Street, Cash
Topeka, Kansas 66636-0001, Value
POSITION ON FUND BOARD: President and Director of Small Company
the Fund Select 25
PRINCIPAL OCCUPATIONS: Senior Vice President and
Managing Member Representative, Security
Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit
Life Insurance Company
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PENNY A. LUMPKIN, 60, Growth & Income Ultra 1993
3616 Canterbury Town Road, Equity
Topeka, Kansas 66610, Growth
POSITION ON FUND BOARD: Director of the Fund Cash
PRINCIPAL OCCUPATIONS: President, Vivians Municipal Bond
(Corporate Sales); Vice President, Palmer Global
Companies (Wholesalers, Retailers and Developers); Value
Vice President, Bellairre Shopping Center (Leasing SBL Fund - Series B
and Shopping Center Management) U.S. Government
Corporate Bond
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MARK L. MORRIS, JR., DVM, 65, Growth & Income Equity 1991
5500 SW 7th Street, Corporate Bond
Topeka, Kansas 66606,
POSITION ON FUND BOARD: Director of the Fund
PRINCIPAL OCCUPATIONS: Retired. Independent
Investor, Morris Co. (Personal Investments)
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MAYNARD F. OLIVERIUS, 56, Growth & Income Equity 1998
1500 SW 10th Avenue, Cash
Topeka, Kansas 66604, SBL Fund - Series A
POSITION ON FUND BOARD: Director of the Fund
PRINCIPAL OCCUPATIONS: President and Chief
Executive Officer, Stormont-Vail Health Care
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JAMES R. SCHMANK*, 46, Growth & Income Ultra 1997
700 SW Harrison Street, Equity
Topeka, Kansas 66636-0001, High Yield
POSITION ON FUND BOARD: Vice President and Global
Director of the Fund Select 25
PRINCIPAL OCCUPATIONS: President and Managing Value
Member Representative of Security Management Small Company
Company, LLC; Senior Vice President, Security Cash
Benefit Group, Inc. and Security Benefit Life
Insurance Company
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<FN>
*Nominees who are considered "interested persons" of Security Management Company, LLC by reason of their respective positions with
Security Management Company, LLC, the Fund's investment adviser, and Security Distributors, Inc., the Fund's principal underwriter.
</FN>
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</TABLE>
The directors are responsible for general oversight of the Fund's business
and for assuring that the Fund is managed in the best interests of its
stockholders. The Board of Directors held six meetings during fiscal year 1999,
and each director standing for reelection attended all of those 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 twice in
fiscal year 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>
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PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED AS
COMPENSATION PART OF FUND EXPENSES ESTIMATED TOTAL COMPENSATION
------------ --------------------- ANNUAL FROM THE SECURITY
NAME OF DIRECTOR GROWTH AND GROWTH AND BENEFITS UPON FUND COMPLEX,
OF THE FUND INCOME FUND INCOME FUND RETIREMENT INCLUDING THE FUND
- ---------------------------------------------------------------------------------------------------------
<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
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</TABLE>
REQUIRED VOTE
In the election of directors, each stockholder is entitled to vote that
number of shares owned as of the record date multiplied by the number of
directors to be elected. A stockholder may cast all such votes for a single
director or distribute them among two or more directors. This method of voting
for the election of directors is commonly known as "cumulative voting."
A plurality of the combined votes cast at the meeting by the stockholders of
the Fund is sufficient to approve the election of a director. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF THE NOMINEES TO THE
FUND'S BOARD OF DIRECTORS.
PROPOSAL NO. 2
SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by the Fund's Board of Directors of the firm of Ernst & Young
LLP as the independent accountants for the Fund for the fiscal year 2000 is to
be submitted for ratification or rejection by stockholders at the annual
meeting. The firm of Ernst & Young LLP, including a predecessor firm, Arthur
Young and Company, has served the Fund as independent accountants since its
inception. The independent accountants have no direct or material indirect
financial interest in the Fund. Representatives of the firm of Ernst & Young LLP
are not expected to be present at the annual meeting. Approval of this Proposal
No. 2 requires the affirmative vote of a majority of those shares represented at
the Meeting in person or by proxy. THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL NO. 3
TO APPROVE CHANGES TO THE FUNDAMENTAL INVESTMENT LIMITATIONS OF THE FUND
Certain investment limitations of the Fund are matters of fundamental policy
and may not be changed without the approval of the Fund's stockholders. The
Investment Manager has recommended to the Board of Directors that certain
fundamental investment limitations of the Fund 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 Fund to those of other mutual funds managed by the Investment
Manager. The changes will allow the Investment Manager to manage the Fund's
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 Fund's 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 Fund 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
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.
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CURRENT PROPOSED
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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. 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 the Fund's
total assets.
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The proposed fundamental investment limitation would conform the Fund's
investment limitation to Section 5(b)(1) of the Investment Company Act of 1940
and would allow the Fund to invest a greater percentage of its assets in a
single issuer. If the proposed investment limitation were adopted, the Fund
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 Fund's total
assets. The proposed fundamental investment limitation, if adopted, could
increase the risk to the Fund 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 Fund interprets this proposed limitation to require that any positions in
a single issuer in excess of 5%, in total must not exceed 25%, of the Fund's
total assets. For example, the Fund 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 would facilitate investment compliance efforts and give the Fund 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 consistent
with the investment objective and policies of the Fund. While the Fund has no
present intention of taking large positions in the securities of a single
issuer, the flexibility to do so may be beneficial to the Fund 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
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.
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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 the Fund's total assets, more
than 10% of the outstanding voting
securities of any issuer would be held
by the Fund (other than obligations
issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities).
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The proposed fundamental investment limitation would conform the Fund's
investment limitation to Section 5(b)(1) of the Investment Company Act of 1940
and would allow the Fund to invest a greater percentage of its assets in a
single issuer. If the proposed investment limitation were adopted, the Fund
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 Fund's total
assets. The proposed fundamental investment limitation, if adopted, could
increase the risk to the Fund 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 Fund
has no present intention of investing greater percentages of its assets in any
single issuer, the flexibility to do so may be beneficial to the Fund 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 would facilitate investment compliance efforts and give the Fund 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 consistent
with the investment objective and policies of the Fund. 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
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 could 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 Fund 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 Fund's 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 would 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
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.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to act as an underwriter, either Not to act as underwriter of
directly or indirectly. securities issued by others, except to
the extent that the Fund may be
considered an underwriter within the
meaning of the Securities Act of 1933
in the disposition of restricted
securities.
- -------------------------------------- --------------------------------------
The primary purpose of the proposed change is to clarify that the Fund is not
prohibited from selling restricted securities if, as a result of such sale, the
Fund is considered an underwriter under federal securities laws. Approval of
this Proposal may subject the Fund to additional risk of liability in that
underwriters have heightened obligations to purchasers in connection with sales
of securities. The Fund does not intend to invest in restricted securities in a
manner that would cause a Fund 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 Fund's 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
Fund, adoption of the proposed standardized fundamental investment limitation
would 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
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.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to borrow money or securities for Not to borrow in excess of 33 1/3% of
any purpose except to the extent that the Fund's total assets.
borrowing up to 5% of the Fund's total
assets is permitted for emergency As an operating policy, the Fund may
purposes, provided such borrowing is not borrow money or securities for any
made on a temporary basis from purposes except that borrowing up to
commercial banks and is not used for 10% of the Fund's total assets from
investment purposes. commercial banks is permitted for
emergency or temporary purposes.
- -------------------------------------- --------------------------------------
The primary purpose of the proposed change to the fundamental investment
limitation concerning borrowing is to conform it to a limitation that is
expected to become standard for all funds managed by the Investment Manager. If
the proposal is approved, the amended fundamental borrowing limitation could not
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 Fund
is managed, the investment performance of the Fund, or the securities or
instruments in which the Fund invests.
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 Fund 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 Fund 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 Fund has 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 Fund at a future
date.
The proposed change will have no current impact on the Fund. However,
adoption of a standardized fundamental investment policy will facilitate
investment compliance efforts and will enable the Fund 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
The Fund is currently subject to a fundamental investment limitation
concerning lending, and the Investment Manager recommends a change in the
fundamental investment limitation and adoption of an operating policy that may
be changed without a vote of stockholders. The current and proposed fundamental
investment limitations and proposed operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to lend money or securities to any Not to lend any security or make any
person, corporation, securities other loan if, as a result, more than
dealer, or bank, other than the 33 1/3% of the Fund's total assets
purchase of publicly distributed debt would be lent to other parties, except
securities which are not considered (i) through the purchase of a portion
loans, or by entry into repurchase of an issue of debt securities in
agreements. accordance with its investment
objective and policies, or (ii) by
engaging in repurchase agreements with
respect to portfolio securities.
As an operating policy, the Fund does
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 Fund is managed in
that it would allow the Fund 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 Fund's investment program. While the securities loans are outstanding, the
Fund 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 Fund 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 Fund would not have the right to vote securities
while they are being lent, but it would call a loan in anticipation of any
important vote.
The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans would be made only to firms deemed
by the Investment Manager to be of good standing and would not be made unless,
in the judgment of the Investment Manager, the consideration to be earned from
such loans would justify the risk.
In addition to the potential benefits of securities lending, the adoption of
standardized investment policies as proposed will advance the goals of
investment limitation standardization. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(F).
PROPOSAL NO. 3(G)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
SHORT SALES AND MARGIN PURCHASES OF SECURITIES
The Fund 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 Fund does
effect short sales of securities. not currently intend to sell
securities short, unless the Fund owns
or has the right to obtain securities
equivalent in kind and amount to the
securities sold short, and provided
that transactions in futures contracts
and options are not deemed to
constitute selling securities short.
In addition, the Fund does not
currently intend to purchase
securities on margin, except that the
Fund may obtain such short-term
credits as are necessary for the
clearance of transactions, and
provided that margin payments in
connection with futures contracts and
options on futures contracts shall not
constitute purchasing securities on
margin.
- -------------------------------------- --------------------------------------
In a short sale, an investor sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. In an
investment technique known as a short sale "against the box," an investor sells
short while owning the same securities in the same amount, or having the right
to obtain equivalent securities. The investor could have the right to obtain
equivalent securities, for example, through its ownership of warrants, options,
or convertible bonds.
Margin purchases involve the purchase of securities with money borrowed from
a broker. "Margin" is the cash or eligible securities that the borrower places
with a broker as collateral against the loan. The Fund's current fundamental
investment limitation prohibits the Fund from purchasing securities on margin,
except to obtain such short-term credits as may be necessary for the clearance
of transactions. Policies of the Securities and Exchange Commission (SEC) also
allow mutual funds to purchase securities on margin for initial and variation
margin payments made in connection with the purchase and sale of futures
contracts and options on futures contracts. With these exceptions, mutual funds
are prohibited from entering into most types of margin purchases by applicable
policies of the SEC. The proposed non-fundamental operating policy includes
these exceptions.
Elimination of the Fund's fundamental investment limitation on margin
purchases and short sales is unlikely to affect the Fund's 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, the Fund 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 ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
MORTGAGING, PLEDGING OR HYPOTHECATING THE FUND'S ASSETS
The Fund currently is subject to a fundamental investment limitation
concerning mortgaging, pledging or hypothecating its assets, and the Investment
Manager recommends that stockholders approve the elimination of this fundamental
investment limitation. The current fundamental investment limitation is as
follows: "Not to mortgage, pledge or hypothecate any securities or funds of the
Fund other than as might become necessary to furnish bond to governmental
agencies required for the conduct of the business of the Fund."
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 inconsistent with
the purposes of amending the fundamental investment limitations concerning
borrowing and senior securities. Those proposed limitations, if adopted, would
enable the Fund to respond more promptly if circumstances with respect to
borrowing and pledging of assets in the future suggest a change in the Fund's
policies.
Elimination of this fundamental investment limitation is unlikely to affect
the Fund's investment techniques at this time. In the event of a change in state
or federal regulatory requirements, the Fund may alter 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 interests of stockholders. 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 PURCHASING SECURITIES THAT ARE NOT
TRADED ON AN EXCHANGE OR ACTIVELY OVER-THE-COUNTER
The Fund currently is subject to a fundamental investment limitation
concerning purchasing securities that are not traded on an exchange or actively
traded over-the-counter. 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 purchase any security other As an operating policy, the Fund may
than securities listed on a national not invest more than 15% of its total
securities exchange registered under assets in illiquid securities and the
the Securities Exchange Act of 1934, Fund may not invest more than 10% of
or actively traded over-the-counter. its total assets in securities which
are restricted as to disposition under
the federal securities laws; provided
that the Fund 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 Fund's current fundamental investment limitation prohibits or limits
investment in securities that are not actively traded. In the interest of
conforming the Fund's investment policies to those of other mutual funds managed
by the Investment Manager, the Board of Directors recommends eliminating this
fundamental investment limitation and replacing it with an operating policy
concerning illiquid and restricted securities. The purpose of the current
fundamental investment limitation appears to be to limit the Fund's investment
in illiquid securities. An illiquid security is generally any security that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the fund has valued the instrument. Restricted
securities, particularly those that are not eligible for resale pursuant to Rule
144A, are often illiquid.
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 Fund 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 Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Fund 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 illiquid or restricted securities would be beneficial to the Fund in the
future. The SEC currently limits a fund's investment in illiquid securities to
15% of its total assets.
The Board of Directors proposes to limit investment in restricted securities
to 10% of its total assets, provided that there would be no limit on investment
in securities that are eligible for resale pursuant to Rule 144A. This rule
permits certain qualified institutional buyers, such as the Fund, 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 Fund's restriction of investing no more
than 15% of its net assets in illiquid securities. Increased investment in
restricted securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities. 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
The Fund is currently 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 Fund 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 Fund
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 Fund 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
The Fund is currently 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 Fund for sale.
The Fund is 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 Fund's 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 FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN OTHER INVESTMENT COMPANIES
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 Fund may
other investment companies except in not, except in connection with a
the open market at ordinary broker's merger, consolidation, acquisition, or
commissions. 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 affect the
Fund's investment practices, because the Fund's current fundamental investment
limitation permits it to invest in shares of other investment companies. The
proposed change, however, would further the efforts of the Board or Directors to
standardize the Fund's fundamental investment limitations. THE BOARD OF
DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(L).
PROPOSAL NO. 3(M)
TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING THE OFFICERS OR DIRECTORS OF THE FUND,
THE UNDERWRITER OR INVESTMENT MANAGER PURCHASING
SHARES OF THE FUND, EXCEPT AT NET ASSET VALUE
The Fund currently is subject to a fundamental investment limitation
prohibiting officers and directors of the Fund, the Underwriter or Investment
Manager from 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, Underwriter or 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(M).
PROPOSAL NO. 3(N)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING BUYING OR SELLING REAL ESTATE,
COMMODITIES OR COMMODITY CONTRACTS
The Fund currently is subject to a fundamental investment limitation
concerning investment in real estate, commodities and 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.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to own, buy or sell real estate, Not to purchase or sell real estate
commodities or commodity contracts. unless acquired as a result of
(This policy shall not prevent the ownership of securities or other
Fund from investing in securities or instruments (but this shall not
other instruments backed by real prevent the Fund from investment in
estate or in securities of companies securities or other instruments backed
engaged in the real estate business.) by real estate or securities of
companies engaged in the real estate
business).
Not to purchase or sell physical
commodities, except that the Fund may
enter into futures contracts and
options thereon.
- -------------------------------------- --------------------------------------
The Fund has 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
Fund 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 Fund has 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 Fund's
approach to investing in commodities. The Fund does not intend to engage in the
buying or selling of physical commodities such as pork, corn and wheat futures
or related commodity contracts other than financial instruments. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(N).
PROPOSAL NO. 3(O)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN PUTS, CALLS, STRADDLES OR SPREADS
The Fund is currently 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 in puts, calls, As an operating policy, the Fund may
straddles, spreads, or any combination buy and sell exchange-traded and
thereof. over-the-counter put and call options,
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 the Fund will
not exceed 5% of the Fund's total
assets. The Fund may write only
covered put and call options. The Fund
does not currently intend to engage in
spread or straddle transactions.
- -------------------------------------- --------------------------------------
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 the Fund 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 Fund, 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 Fund 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 Fund 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 Fund's 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 Fund will write only covered call options. This means that the Fund 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 Fund's
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 Fund will write only covered put
options, which means that theFund will maintain in a segregated account cash or
liquid securities in an amount not less than the exercise price or the Fund 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 Fund 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 Fund's
total return, and the Fund's attempt to use such investments for hedging
purposes may not be successful. Losses from options could be significant if the
Fund 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 Fund would not be subject absent the use of options. If the Investment
Manager seeks to protect the Fund 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 Fund, the Fund 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 Fund's
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 Fund 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(O).
PROPOSAL NO. 3(P)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN OIL, GAS, MINERAL LEASES OR
OTHER MINERAL EXPLORATION DEVELOPMENT PROGRAMS
The Fund 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 Fund does
or similar interests in oil, gas, not currently intend to invest in oil,
mineral lease, and other mineral gas, mineral leases or other mineral
exploration development programs; exploration or development programs.
provided, however, that the Fund may
invest in the securities of other
corporations whose activities include
such exploration and development.
- -------------------------------------- --------------------------------------
The proposed change would not currently affect the Fund. Adoption of a
standardized operating policy would, however, facilitate the Investment
Manager's compliance efforts and would enable the Fund to respond more promptly
in the future. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(P).
REQUIRED VOTE
Each of Proposal Nos. 3(a) through 3(p) will be adopted with respect to the
Fund if it is approved by the vote of a majority of outstanding shares of the
Fund, as defined in the 1940 Act. A "majority vote" is defined as the lesser of
(a) a vote of 67% or more of the Fund shares whose holders are present or
represented by proxy at the meeting if the holders of more than 50% of all
outstanding shares are present in person or represented by proxy at the meeting,
or (b) a vote of more than 50% of all outstanding 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 the Fund shares, the Fund's current investment limitation, as
set forth in the applicable sub-portion of Proposal 3, would remain unchanged.
The Board of Directors believes that all of the proposed changes to the
fundamental investment limitations of the Fund, 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.
At this time, the Fund does not utilize the services of a sub-adviser.
However, SMC may in the future wish to use one or more sub-advisers to manage
all or part of the Fund's assets. 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.
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
Enhanced 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. The existing and new Investment
Advisory Contracts are described in more detail below under the headings
"Existing Investment Advisory Contract" and "New Investment Advisory Contract,"
respectively.
The Board now seeks the approval of Fund stockholders which would: (i)
authorize SMC on behalf of the Fund to enter into sub-advisory agreements or
amend such agreements without obtaining stockholder approval; and (ii) approve
the new Investment Advisory Contract between the Fund and SMC. The Fund's use of
the authority that would be granted by this proposal is contingent upon the
SEC's issuance of an order permitting the Fund to do so.
BOARD CONSIDERATION OF PROPOSAL NO. 4
At its November 30, 1999 meeting, the Board considered various information
provided by SMC, including the information contained in the exemptive
application submitted to the SEC. Based on this information, the Board concluded
that approval of the proposal is in the best interests of the Fund and its
investors. Among the things considered by the Board in reaching this conclusion
was that (i) the proposal would permit the Fund to avoid the administrative
burdens 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 administrative burdens on the Fund,
such as calling and holding a stockholder meeting and soliciting stockholders in
order to obtain a quorum Accordingly, the Board considered that the proposal
would permit the Fund to minimize these administrative burdens if, in the
future, a sub-adviser was retained.
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 just as stockholders have currently elected
to rely upon SMC to select individual portfolio managers and analysts on its
staff and supervise them accordingly.
The third factor considered by the Board was that the proposal preserves
certain protections and safeguards for the Fund and its stockholders. For
example, although the proposal would authorize SMC on behalf of the Fund to
enter into or amend sub-advisory agreements, any change in the investment
advisory contract between the Fund and SMC, or the replacement of SMC itself,
would continue to require approval of Fund stockholders. In addition,
stockholders would receive the same information about sub-advisers as they
currently would. In the event SMC, with the approval of the Board, determines to
use the services of a sub-adviser or replace a sub-adviser, stockholders would
receive, within ninety days of the change, the same information about the
sub-adviser and sub-advisory agreement they would receive in a proxy statement
if their approval were required.
APPROVAL BY SEC
As noted above, the Board has approved the submission of an application to
the SEC for an order of exemption from certain requirements of the 1940 Act in
order to permit the Fund to use the authority to enter into or amend
sub-advisory agreements as contemplated by this proposal. Any use of that
authority is contingent upon obtaining the requested order from the SEC. The
application for exemption contains conditions to which the order would be
subject. The conditions are set forth in Exhibit B. It is possible that the SEC
may require certain changes to the application or impose additional conditions
prior to granting the order. The Fund will agree to such changes if the Board
and SMC determine that it is in the best interests of the Fund and its
stockholders to do so. It is also possible that the SEC may refuse to grant the
order entirely, although the SEC has granted similar exemptions to other mutual
fund companies under similar circumstances in the past. In that case, the Board
will take what further actions it deems to be in the best interests of the Fund
and its stockholders.
REQUIRED VOTE
The proposal will be adopted with respect to the Fund if it is approved by
the vote of a majority of outstanding shares, as defined in the 1940 Act, which
is the lesser of (a) a vote of 67% or more of the shares whose holders are
present or represented by proxy at the meeting if the holders of more than 50%
of all outstanding shares are present in person or represented by proxy at the
meeting, or (b) a vote of more than 50% of all outstanding 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 Fund pursuant to the
terms of an Investment Advisory Contract dated March 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 March 29, 1989. The Existing Contract has not been submitted to
stockholders for approval since that date. 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 Fund with investment research
and advice and an investment program. In addition, SMC provides for the
compilation and maintenance of records relating to its duties as required by the
rules and regulations of the SEC. SMC also provides the Fund with general
administrative, fund accounting, transfer agency and dividend disbursing
services, as well as most other services the Fund may require such as services
of independent accountants, legal counsel, custodial services and printing.
Under the terms of the Existing Contract, SMC is not subject to any liability
for any errors of judgment or mistake of law or for any loss sustained by reason
of the adoption of any investment policy so long as such recommendation shall
have been made with due care and in good faith. Nothing in the Existing
Contract, however, shall protect SMC against any liability to the Fund or its
stockholders by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the agreement.
SMC pays its expenses in connection with providing investment advisory
services to the Fund under the Existing Contract. SMC has also agreed that, if
the total annual expenses of the Fund, exclusive of interest, taxes,
distribution fees paid under the Fund's Class B and 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 the
Fund such funds or waive such portion of its fee as may be necessary to insure
that the annual expenses of the Fund will not exceed any such limitation.
For its services under the Existing Contract, SMC receives from the Fund, on
an annual basis, a fee equal to 2% of the first $10 million of the average net
assets, 1.5% of the next $20 million of the average net assets and 1% of the
remaining average net assets of the Fund, determined daily and payable monthly.
Under the Existing Contract, SMC received from the Fund advisory fees of
$1,101,276.
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).
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 provision relating to sub-advisory arrangements,
and the provision relating to the ability of SMC to place the Fund's purchase
and sale of portfolio securities with SMC's broker/dealer affiliate as discussed
in connection with Proposal No. 5, there are no material differences between the
Existing Contract and the New Contract. In particular, the New Contract does NOT
provide for any increase in the investment advisory fee paid to SMC. It is
expected that the New Contract will become effective on January 27, 2000,
provided that on the Meeting date it is approved by a majority vote of the
holders of the outstanding voting securities of the Fund. 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 $__________ 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, President and Managing Vice President
SMC; Senior Vice President, Security Benefit Member Representative and Director
Group, Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
John D. Cleland, 63 Senior Vice President and Managing Member Senior Vice President President and
Representative, SMC; Senior Vice President, and Managing Member Director
Security Benefit Group, Inc. and Security Benefit Representative
Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas A. Swank, 39 Senior Vice President and Portfolio Manager, SMC; Senior Vice President Vice President
Senior Vice President, Security Benefit Group, and Portfolio Manager
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Amy J. Lee, 38 Secretary, SMC; Vice President, Associate General Secretary Secretary
Counsel and Assistant Secretary, Security Benefit
Group, Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Bowser, 39 Second Vice President and Portfolio Manager, SMC; Second Vice President Vice President
Second Vice President, Security Benefit Group, and Portfolio Manager
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
David Eshnaur, 38 Assistant Vice President and Portfolio Manager, Assistant Vice Vice President
SMC; Assistant Vice President, Security Benefit President and
Group, Inc. and Security Benefit Life Insurance Portfolio Manager
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Brenda M. Harwood, 35 Assistant Vice President and Treasurer, SMC; Assistant Vice Treasurer
Assistant Vice President, Security Benefit Group, President and Treasurer
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher D. Assistant Secretary, SMC; Assistant Vice Assistant Secretary Assistant Secretary
Swickard, 34 President 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 another mutual fund with investment
objectives similar to the investment objectives of the Fund. Set forth below is
the name of the similar mutual fund information concerning the similar funds'
net assets as of November 30, 1999 the fees paid to SMC for its services to the
similar mutual fund and information concerning certain expense caps for the
similar mutual fund.
---------------------------------------------------------------
NAME OF FUND SIMILAR ANNUAL RATE OF
TO SECURITY GROWTH NET ASSETS OF COMPENSATION FOR
AND INCOME FUND SIMILAR FUND SIMILAR FUND
---------------------------------------------------------------
SBL Fund, Series E $________ 0.___% of net assets
---------------------------------------------------------------
For the mutual fund that is similar to the Security Ultra Fund, SMC has
agreed that if the total annual expenses of the similar fund, exclusive of
interest, taxes, brokerage fees and extraordinary expenses, but inclusive of
SMC's own investment advisory fee, exceeds any expense limitation imposed by
state securities law or regulation in any state in which the similar fund is
offered, SMC will contribute to the similar fund or waive such portion of its
fee as may be necessary to insure that the annual expenses of the similar fund
will not exceed any such limitation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following chart shows the shares of common stock of Security Growth and
Income Fund beneficially owned by directors and executive officers of the Fund.
--------------------------------------------------------------
NUMBER OF SHARES BENEFICIALLY OWNED AS
OF NOVEMBER 30, 1999 BY ALL DIRECTORS
AND EXECUTIVE OFFICERS AS A GROUP PERCENTAGE OF CLASS
--------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
_______ _______ ______% ______%
_______ _______ ______% ______%
--------------------------------------------------------------
*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 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 sales 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
Under the Plan, the Fund would not incur any new fees or charges. In summary,
the Plan would authorize the Fund to place orders for the purchase or sale of
portfolio securities or other assets with: (i) broker-dealers that have agreed
to direct a portion of their brokerage commissions to the Distributor, or other
introducing brokers ("Brokerage Payments") to be used to finance activities that
are primarily intended to result in the sale of Fund shares; 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. Under the Plan, the Fund would not incur any
new fees or charges. 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-Adviser, 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.
* 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, including materials intended either
for broker-dealer only use or for retail use.
* Providing information about the Fund, or mutual funds in general, to
registered representatives of broker-dealers.
* Providing assistance to broker-dealers that are conducting due diligence on
the Fund.
* Payment of Marketing Fees requested by broker-dealers who sell shares of the
Fund.
* Obtaining information and providing explanations to stockholders regarding
the Fund's investments and policies and other information about the Fund,
including the performance of the Fund.
* Training sales personnel regarding sales of the Fund.
* 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 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-Adviser, 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 by a vote of at least a majority of the
outstanding voting securities of the Fund. 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, by a vote of a majority of the outstanding voting securities of the Fund.
All material Plan amendments must be approved by a majority vote of the Board,
including a majority of the Plan Directors.
BOARD CONSIDERATION OF THE PLAN
The Board, including all of the Plan Directors, have voted to approve the
Plan and to recommend to stockholders 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 bearing any direct
additional expenses of the type normally associated with distribution plans for
mutual funds. Moreover, the Board considered that 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 Fund currently do not directly benefit the
Fund, except to the extent that executing brokers provide research services to
the Investment Manager. Under the Plan, the Fund 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 Fund. 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 Fund's
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
Fund's 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. If Proposal No. 5 is approved by
stockholders, the New Contract with this provision omitted will be adopted. If
Proposal No. 5 is not approved by stockholders, but Proposal No. 4 is approved,
the New 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 requires the vote of a majority of the outstanding
shares of the Fund that are eligible to vote at the meeting. For purposes of
this proposal, majority means the lesser of (a) 67% or more of the shares of the
Fund 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 the Fund.
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 Growth and Income Fund,
AMY J. LEE
Secretary
<PAGE>
EXHIBIT A
PROPOSED FUNDAMENTAL INVESTMENT LIMITATIONS FOR SECURITY
GROWTH AND INCOME 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 the Fund's total assets.
2. Not to purchase a security if, as a result, with respect to 75% of the value
of the Fund's total assets, more than 10% of the outstanding voting
securities of any issuer would be held by the Fund (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 the Fund 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 the Fund's total assets.
5. Not to lend any security or make any other loan if, as a result, more than
33 1/3% of the Fund's 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 purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
Not to purchase or sell physical commodities, except that the Fund may enter
into futures contracts and options thereon.
<PAGE>
EXHIBIT B
CONDITIONS PROPOSED BY THE FUND AND SMC TO THE SEC
AS PART OF THEIR APPLICATION FOR EXEMPTIVE RELIEF
1. No Fund will enter into a subadvisory agreement with an Affiliated
Subadviser without such agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the Fund (or, if the Fund
serves as a funding medium for any sub-account of a registered separate
account, then pursuant to voting instructions by the unitholders of the
sub-account).
2. At all times, a majority of each Funds' Board will be persons who are
Independent Directors, and the nomination of new or additional Independent
Directors will be at the discretion of the then-existing Independent
Directors.
3. When a change of Subadviser is proposed for a Fund with an Affiliated
Subadviser, the Fund's Board, including a majority of the Independent
Directors, will make a separate finding, reflected in the Fund's Board
minutes, that such change of Subadviser is in the best interests of the Fund
and its shareholders (or, if the Fund serves as a funding medium for any
sub-account of a registered separate account, in the best interests of the
Fund and the unitholders of any sub-account) and that the change does not
involve a conflict of interest from which SMC or the Affiliated Subadviser
derives an inappropriate advantage.
4. SMC will provide management services to the Funds, including overall
supervisory responsibility for the general management and investment of each
Fund, and, subject to review and approval by the applicable Fund's Board
will (a) set each Fund's overall investment strategies; (b) evaluate, select
and recommend Subadvisers to manage all or a part of a Fund's assets; (c)
when appropriate, allocate and reallocate a Fund's assets among multiple
Subadvisers; (d) monitor and evaluate the investment performance of
Subadvisers; and (e) implement procedures reasonably designed to ensure that
the Subadvisers comply with the relevant Fund's investment objectives,
policies, and restrictions.
5. Within 90 days of the hiring of any new Subadviser, SMC will furnish
shareholders (or, if the Fund serves as a funding medium for any sub-account
of a registered separate account, SMC will furnish the unit holders of the
sub-account) with respect to the appropriate Fund with all information about
the new Subadviser that would be included in a proxy statement. Such
information will include any changes caused by the addition of a new
Subadviser. To meet this condition, SMC will provide shareholders (or, if
the Fund serves as a funding medium for any sub-account of a registered
separate account, then by providing unitholders of the sub-account) with an
information statement meeting the requirements of Regulation 14C, Schedule
14C, and Item 22 of Schedule 14A under the Securities Exchange Act of 1934.
6. Any Fund relying on the requested relief will disclose in its prospectus the
existence, substance and effect of any order granted pursuant to this
application. In addition, any such Fund will hold itself out as employing
the management structure described in the application. The prospectus will
prominently disclose that SMC has ultimate responsibility to oversee the
Subadvisers and recommend their hiring, termination, and replacement.
7. Before a Fund may rely on the order, the operation of the Fund in the manner
described in the application will be approved by a majority of the Fund's
outstanding voting securities (or, if the Fund serves as a funding medium
for any sub-account of a registered separate account, pursuant to voting
instructions provided by the unitholders of the sub-account), as defined in
the 1940 Act, or in the case of a new Fund whose public shareholders (or
variable contract owners through a separate account) purchase shares on the
basis of a prospectus(es) containing the disclosure contemplated by
Condition 6 above, by the sole initial shareholder(s) before the shares of
such Fund are offered to the public (or the variable contract owners through
a separate account).
<PAGE>
EXHIBIT C
INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
This Agreement, made and entered into this 27th day of January, 2000, by and
between SECURITY GROWTH AND INCOME 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 the purchase of securities for the Fund and the sale of
securities held in the portfolio of the Fund, subject always to the supervision
of the Board of Directors of the Fund (or a duly appointed committee thereof),
during the period and upon and subject to the terms and conditions described
herein; (b) to 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) to arrange for, monitor, and bear the expense of, 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 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 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 otherwise provided 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;
(v) distribution fees paid under the Fund's Class B Distribution
Plan; and
(vi) distribution fees paid under the Fund's Class C Distribution
Plan.
3. COMPENSATION OF SMC.
(a) In consideration of the services to be rendered by SMC pursuant to
this Agreement, the Fund shall pay SMC an annual fee equal to 2% of the first
$10 million of the average net assets of the Fund, and 1 1/2% of the next $20
million of the average net assets, and 1% of the remaining average net assets
of the Fund for any fiscal year, determined and payable monthly. If this
Agreement shall be effective for only a portion of a year in which a fee is
owed, then SMC's compensation for the year shall be prorated for such
portion. For purposes of this Section 3, the value of the net assets of the
Fund shall be computed in the same manner as the value of such net assets is
computed in connection with the determination of the net asset value of the
shares of the Fund as described in the Fund's Prospectus and Statement of
Additional Information.
(b) For each of the Fund's fiscal years this Agreement remains in force,
SMC agrees that if total annual expenses of the Fund, exclusive of interest
and taxes, extraordinary expenses (such as litigation) distribution fees paid
under the Fund's 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 the Fund are then qualified
for sale, as such regulations may be amended from time to time, SMC will
contribute to the Fund 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 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 the Fund 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 Investment Company Act
of 1940 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 the Fund, or any series thereof. Each
Subadviser shall have investment discretion with respect to the assets
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 Fund, or series thereof as applicable.
(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, whether or
not such recommendation shall have been based upon its own investigation and
research or upon investigation and research made by any other individual,
firm or corporation, if such recommendation shall have been made and such
other individual, firm or corporation shall have been selected with due care
and in good faith. Nothing herein contained shall, however, be construed to
protect 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 Paragraph
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 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 paragraph 5, to an affiliated company, whether or not by formal written
agreement. SMC shall, however, retain ultimate responsibility to the Fund,
and shall implement such reasonable procedures as may be necessary, for
assuring that any duties, responsibilities or services so assigned,
subcontracted or delegated are performed in conformity with the terms and
conditions of this Agreement.
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 January 26, 2000, it is approved
by a majority of the holders of the outstanding voting securities of the Fund.
This Agreement shall continue in effect until January 27, 2002, and for
successive 12-month periods thereafter, unless terminated, provided that each
such continuance is specifically approved at least annually by (a) the vote of
the majority of the entire Board of Directors of the Fund, and the vote of the
majority of those directors who are not parties to this Agreement or interested
persons (as such terms are defined in the 1940 Act) of any such party cast in
person at a meeting called for the purpose of voting on such approval, or (b) by
the vote of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act).
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 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 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 GROWTH AND INCOME 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, prospectuses and Statements of Additional Information.
h. Provide legal advice and oversight regarding shareholder transactions,
administrative services, compliance with contractual agreements and the
provisions of the 1940 and 1933 Acts.
SCHEDULE OF SHARE TRANSFER AND DIVIDEND DISBURSING SERVICES
Security Management Company, LLC agrees to provide the Fund the following
transfer agency and dividend disbursing services.
1. Maintenance of shareholder accounts, including processing of new accounts.
2. Posting address changes and other file maintenance for shareholder
accounts.
3. Posting all transactions to the shareholder file, including:
a. Direct purchases;
b. Wire order purchases;
c. Direct redemptions;
d. Wire order redemptions;
e. Draft redemptions;
f. Direct exchanges;
g. Transfers;
h. Certificate issuances; 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 GROWTH AND INCOME FUND
BROKERAGE ENHANCEMENT PLAN
WHEREAS, Security Growth and Income 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 authorized to be issued in
multiple series, but are currently issued in only a single series;
WHEREAS in the event the Fund issues its shares in more than a single series in
the future (the "Series"), such Series can be added to this Plan by listing such
Series on a Schedule and attaching the same hereto;
WHEREAS, shares of common stock of the Fund are divided into multiple classes of
shares, and this Plan applies to the Fund as a whole and the effect of the Plan
does not vary based upon a class of shares;
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, if any, 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, if
any, 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 Fund or its Series from
broker-dealers executing such portfolio transactions for the benefit of
the Fund or its 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 its 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 its 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 Fund's or its
Series' investments and policies and other information about the Fund and
its Series, including the performance of the Fund or its 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. If 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 a 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>
[SBG LOGO]
The Security Benefit
Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
SECURITY GROWTH AND INCOME 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 GROWTH AND INCOME 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 Harrison Street, Topeka, Kansas
66636-0001, and at any adjournment thereof, in the manner directed
below with respect to the matters referred to in the proxy statement
for the meeting, receipt of which is hereby acknowledged, and in the
proxies' discretion, upon such other matters as may properly come
before the meeting or any adjournment thereof.
In order to avoid the additional expense of further solicitation to your Fund,
we strongly urge you to review, complete, and return your ballot as soon as
possible. Your vote is important regardless of the number of shares you own. The
Board of Directors recommends a vote for each of the following proposals. These
voting instructions will be voted as specified and in the absence of
specification will be treated as granting authority to vote "FOR" each proposal.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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SECURITY GROWTH AND INCOME FUND
NOTE: Please sign exactly as the name appears on this card. EACH joint owner
must sign the proxy. When signing as executor, administrator, attorney, trustee
or guardian, or as custodian for a minor, please give the FULL title of such. If
a corporation, please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.
PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
VOTE ON DIRECTORS
1. To elect six directors to FOR AGAINST FOR ALL To withhold authority
serve on the Board of ALL ALL EXCEPT to vote, mark "For All
Directors of the Fund Except" and write the
until the next annual nominee's number on
meeting, if any, or until the line below.
their successors shall
have been duly elected and
qualified.
01) Donald A. Chubb, Jr.,
02) John D. Cleland,
03) Penny A. Lumpkin,
04) Mark L. Morris, Jr.,
05) Maynard F. Oliverius
and 06) James R. Schmank |_| |_| |_| ______________________
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
2. To ratify or reject the selection of the firm of
Ernst & Young LLP as independent accountants for
the Fund's fiscal year 2000. |_| |_| |_|
3a. To amend the Fund's fundamental investment
limitation concerning diversification. |_| |_| |_|
3b. To amend the Fund's fundamental investment
limitation concerning share ownership of any one
issuer. |_| |_| |_|
3c. To eliminate the Fund's fundamental investment
limitation concerning investing for control of
portfolio companies. |_| |_| |_|
3d. To amend the Fund's fundamental investment
limitation concerning underwriting. |_| |_| |_|
3e. To amend the Fund's fundamental investment
limitation concerning borrowing. |_| |_| |_|
3f. To amend the Fund's fundamental investment
limitation concerning lending. |_| |_| |_|
3g. To eliminate the Fund's fundamental investment
limitation concerning short sales and margin
purchases of securities. |_| |_| |_|
3h. To eliminate the Fund's fundamental investment
limitation concerning mortgaging, pledging or
hypothecating its assets. |_| |_| |_|
3i. To eliminate the Fund's fundamental investment
limitation concerning purchasing securities that
are not traded on an exchange or actively traded
over-the-counter. |_| |_| |_|
3j. To eliminate the Fund's fundamental investment
limitation concerning investment in companies with
less than three years' operating history. |_| |_| |_|
3k. 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. |_| |_| |_|
3l. To eliminate the Fund's fundamental investment
limitation concerning investment in other
investment companies. |_| |_| |_|
3m. To eliminate the Fund's fundamental investment
limitation concerning the officers or directors of
the Fund, the Underwriter or Investment Manager
purchasing shares of the Fund, except at net
value. |_| |_| |_|
3n. To amend the Fund's fundamental investment
limitation concerning buying or selling real
estate and commodities or commodity contracts. |_| |_| |_|
3o. To eliminate the Fund's fundamental investment
limitation concerning investment in puts, calls,
straddles or spreads. |_| |_| |_|
3p. To eliminate the Fund's fundamental investment
limitation concerning investment in oil, gas,
mineral leases or other mineral exploration
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. |_| |_| |_|
To transact such other business as may properly come before the Meeting or
any adjournments thereof, and to adjourn the Meeting from time to time.
- ------------------------------------------- ---------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
- --------------------------------------------------------------------------------