SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 1st day of May 1995, by and between SECURITY
MANAGEMENT COMPANY, a Kansas Corporation (The "Adviser"), and LEXINGTON
MANAGEMENT CORPORATION, a Delaware corporation (the "Sub-Adviser"),
WITNESSETH:
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, the Adviser is the investment adviser for the SBL Fund (the "Fund"),
and provides investment advisory services to the Fund on the terms and
conditions set forth in an investment advisory contract;
WHEREAS, the Fund is registered as a diversified, open-end investment company
under the Investment Company Act of 1940, as amended, (the "1940 Act"), and the
rules and regulations promulgated thereunder;
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Adviser desires to retain the Sub-Adviser as the Adviser's agent to
furnish certain advisory services to Series K of the Fund (the "Series"), on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Series for the period and on the
terms set forth in this Agreement. Sub-Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. INVESTMENT ADVICE. The Sub-Adviser shall furnish the Series with investment
research and advice consistent with the investment policies set forth in the
Prospectus and Statement of Additional Information of the Fund, subject at
all times to the policies and control of the Fund's Board of Directors and
the supervision of the Adviser. In addition, the Sub-Adviser may avail itself
of any investment research or advice provided by the Adviser. The Sub-Adviser
shall give the Series the benefit of its best judgment, efforts and
facilities in rendering its services as Sub-Adviser.
3. INVESTMENT ANALYSIS AND IMPLEMENTATION. In carrying out its obligation under
paragraph 2 hereof, the Sub-Adviser shall:
(a) determine which issuers and securities shall be represented in the
Series' portfolio and regularly report thereon to the Fund's Board of
Directors and the Adviser;
(b) formulate and implement continuing programs for the purchase and sale of
the securities of such issuers and regularly report thereon to the
Fund's Board of Directors and the Adviser;
(c) continuously review the Series' security holdings and the investment
program and the investment policies of the Series; and
(d) take, on behalf of the Series, all actions which appear necessary to
carry into effect such purchase and sale programs, including the
placement of orders for the purchase and sale of securities for the
Series.
4. BROKER-DEALER RELATIONSHIPS. The Sub-Adviser is responsible for decisions to
buy and sell securities for the Series, broker/dealer selection, and
negotiation of brokerage commission rates. The Sub-Adviser's primary
consideration in effecting a security transaction will be execution at the
most favorable price. In selecting a broker/dealer to execute each particular
transaction, the Sub-Adviser will take the following into consideration: the
best net price available; the reliability, integrity and financial condition
of the broker/dealer; the size of and difficulty in executing the order; and
the value of the expected contribution of the broker/dealer to the investment
performance of the Series on a continuing basis. Accordingly, the price to
the Series in any transaction may be less favorable than that available from
another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered. Subject to such policies
as the Board of Directors may determine, the Sub-Adviser shall not be deemed
to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Series to
pay a broker for effecting a portfolio investment transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Adviser determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Sub-Adviser's overall
responsibilities with respect to the Series and to its other clients as to
which it exercises investment discretion. The Sub-Adviser is further
authorized to place and/or to effect orders with such brokers and dealers who
may provide research or statistical material or other services to the Series
or to the Sub-Adviser. Such allocation shall be in such amounts and
proportions as the Sub-Adviser shall determine and the Sub-Adviser will
report on said allocations regularly to the Board of Directors of the Fund
and the Adviser indicating the brokers to whom such allocations have been
made and the basis therefor.
5. CONTROL BY BOARD OF DIRECTORS. Any investment program undertaken by the
Sub-Adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-Adviser on behalf of the Series pursuant thereto, shall
at all times be subject to any directives of the Board of Directors of the
Fund.
6. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Sub-Adviser shall ensure that the Series complies
with:
(a) all applicable provisions of the 1940 Act;
(b) the provisions of the Registration Statement of the Fund, as amended,
under the Securities Act of 1933 and the 1940 Act;
(c) all applicable statutes and regulations necessary to qualify the Series
as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code (or any successor or similar provision), and shall notify
the Adviser immediately upon having a reasonable basis for believing
that the Series has ceased to so qualify or that it might not so qualify
in the future;
(d) the diversification provisions of Section 817(h) of the Internal Revenue
Code and the regulations issued thereunder relating to the
diversification requirements for variable insurance contracts and any
prospective amendments or other modifications to Section 817 or
regulations thereunder, and shall notify the Adviser immediately upon
having a reasonable basis for believing that the Series has ceased to
comply.
(e) the provisions of the Fund's Articles of Incorporation, as amended;
(f) the provisions of the Bylaws of the Fund, as amended; and
(g) any other applicable provisions of state and federal law.
7. RECORDS. The Sub-Adviser hereby agrees to maintain all records relating to
its activities and obligations under this Agreement which are required to be
maintained by Rule 31a-1 under the 1940 Act and agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the Act. The
Sub-Adviser further agrees that all such records are the property of the Fund
and agrees to surrender promptly to the Fund any such records upon the Fund's
request.
8. EXPENSES. The expenses connected with the Fund shall be borne by the
Sub-Adviser as follows:
(a) The Sub-Adviser shall maintain, at its expense and without cost to the
Adviser or the Series, a trading function in order to carry out its
obligations under subparagraph (d) of paragraph 3 hereof to place orders
for the purchase and sale of portfolio securities for the Series.
(b) The Sub-Adviser shall pay any expenses associated with carrying out its
obligation under subparagraph (b) of paragraph 2 hereof to prepare
reports for the Fund's Board of Directors concerning issuers and
securities represented in the Series' portfolio and the expenses of any
travel by employees of the Sub-Adviser in connection with such reports
to the Fund's Board of Directors.
(c) The Sub-Adviser shall pay any expenses that it may incur in
communicating with the Adviser in connection with its obligations under
this Agreement, including the expenses of telephone calls, special mail
services and telecopier charges.
9. DELEGATION OF RESPONSIBILITIES. Upon request of the Adviser and with the
approval of the Fund's Board of Directors, the Sub-Adviser may perform
services on behalf of the Fund which are not required by this Agreement. Such
services will be performed on behalf of the Fund, and the Sub-Adviser's cost
in rendering such services may be billed monthly to the Adviser, subject to
examination by the Adviser's independent accountants. Payment or assumption
by the Sub-Adviser of any Fund expense that the Sub-Adviser is not required
to pay or assume under this Agreement shall not relieve the Adviser or the
Sub-Adviser of any of their obligations to the Fund or obligate the
Sub-Adviser to pay or assume any similar Fund expense on any subsequent
occasions.
10.DELEGATION OF DUTIES. The Sub-Adviser may, at its discretion, delegate,
assign or subcontract any of the duties, responsibilities and services
governed by this agreement to a third party, whether or not by formal written
agreement, provided that such arrangement with a third party has been
approved by the Board of Directors of the Fund. The Sub-Adviser shall,
however, retain ultimate responsibility to the Fund and shall implement such
reasonable procedures as may be necessary for assuring that any duties,
responsibilities or services so assigned, subcontracted or delegated are
performed in conformity with the terms and conditions of this agreement.
11.COMPENSATION. For the services to be rendered and the facilities furnished
hereunder, the Adviser shall pay the Sub-Adviser an annual fee equal to .35
percent of the average daily closing value of the net assets of the Series,
computed on a daily basis. Such fee shall be computed and payable monthly. If
this Agreement shall be effective for only a portion of a year, then the
Sub-Adviser's compensation for said year shall be prorated for such portion.
For purposes of this paragraph 11, the value of the net assets of the Series
shall be computed in the same manner at the end of the business day as the
value of such net assets is computed in connection with the determination of
the net asset value of the Series' shares as described in the Fund's
prospectus and statement of additional information. Payment of the
Sub-Adviser's compensation for the preceding month shall be made as promptly
as possible after the end of each month.
12.NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser are not to
be deemed to be exclusive, and the Sub-Adviser shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under
this Agreement are not impaired thereby.
13.TERM. This Agreement shall become effective at the close of business on the
date first shown above. It shall remain in force and effect, subject to
paragraph 14 hereof for one year from the date hereof.
14.RENEWAL. Following the expiration of its initial year term, this Agreement
shall continue in force and effect from year to year, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a majority
of the Series' outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
15.TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by vote
of a majority of the Series' outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), or by the Adviser or by the Sub-Adviser on
sixty (60) days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment" as that term is
defined in Section 2(a)(4) of the 1940 Act. This Agreement shall
automatically terminate in the event that the investment advisory contract
between the Adviser and the Fund is terminated, assigned or not renewed.
16.LIABILITY OF THE SUB-ADVISER. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Sub-Adviser or its officers,
directors or employees, or reckless disregard by the Sub-Adviser of its
duties under this Agreement, the Sub-Adviser shall not be liable to the
Adviser, the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
security, provided the Sub-Adviser has acted in good faith.
17.INDEMNIFICATION. The Adviser and the Sub-Adviser each agree to indemnify the
other against any claim against, loss, or liability to, such other party
(including reasonable attorney's fees) arising out of any action on the part
of the indemnifying party which constitutes willful misfeasance, bad faith or
gross negligence.
18.NOTICES. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage-paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of the Sub-Adviser
for this purpose shall be Park 00 Xxxx, Xxxxx Xxx, Xxxxxx Xxxxx, Xxx Xxxxxx
00000, and the address of the Adviser for this purpose shall be 000 Xxxxxxxx
Xxxxxx, Xxxxxx, Xxxxxx 00000-0000.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
ATTEST: SECURITY MANAGEMENT COMPANY
XXX X. XXX By: XXXXX X. XXXXXXX
----------------------------------------- --------------------------------
Title: Secretary Senior Vice President
Security Management Company
ATTEST: LEXINGTON MANAGEMENT CORPORATION
XXXX XXXXXX By: XXXXXXXX XXXXXX
----------------------------------------- --------------------------------
Title: Senior Vice President & Secretary Executive Vice President
