SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of this 28th day of April, 1997, by and between MFR
ADVISORS, INC., a New York corporation (The "Adviser"), and LEXINGTON MANAGEMENT
CORPORATION, a Delaware corporation (the "Sub-Adviser"),
WITNESSETH:
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, the Adviser is the investment adviser for certain series of the
Security Income Fund (the "Fund"), and provides investment advisory services to
the Fund on the terms and conditions set forth in an investment advisory
contract;
WHEREAS, the Fund is registered as a diversified, open-end management investment
company under the Investment Company Act of 1940, as amended, (the "1940 Act"),
and the rules and regulations promulgated thereunder;
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Adviser desires to retain the Sub-Adviser as the Adviser's agent to
furnish certain advisory services to the Emerging Markets Total Return Series,
the Global Asset Allocation Series, and the Global High Yield Series of the Fund
(the "Series"), on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Series for the period and on the
terms set forth in this Agreement. Sub-Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. INVESTMENT ADVICE. The Sub-Adviser shall furnish the Series with investment
research and advice. 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 provide the following
services with respect to the Global High Yield Series:
(a) consult with Adviser concerning which issuers and securities should be
represented in the Global High Yield 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 consistent with the investment
policies set forth in the Prospectus and Statement of Additional
Information of the Global High Yield Series, subject at all times to
the policies and control of the Fund's Board of Directors and the
supervision of the Adviser;
(c) continuously review the Global High Yield Series' security holdings
and the investment program and the investment policies of the Global
High Yield Series and regularly report thereon to the Fund's Board of
Directors and the Adviser; and
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(d) take, on behalf of the Global High Yield 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 Global High Yield Series.
In carrying out its obligations under paragraph 2 hereof, the Sub-Adviser shall
provide the following services with respect to the Emerging Markets Total Return
and Global Asset Allocation Series:
The Sub-Adviser will provide investment advice to the Adviser,
including recommendations on the purchase and sale of securities for
the Emerging Markets Total Return and Global Asset Allocation Series
and will make available to Adviser certain investment research of the
Sub-Adviser. The Adviser shall not be obligated to follow or accept
any recommendation made by the Sub-Adviser and the investment
management of the Emerging Markets Total Return and Global Asset
Allocation Series, including the making or disposition of any
investment, shall be the ultimate responsibility of Adviser.
4. BROKER-DEALER RELATIONSHIPS. The Adviser is responsible for decisions to
buy and sell securities for the Global High Yield Series, broker/dealer
selection, and negotiation of brokerage commission rates provided that the
Adviser has delegated this responsibility to the Sub-Adviser. 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 Global High Yield Series on a continuing basis. Accordingly, the price
to the Global High Yield 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
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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
Global High Yield 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 Global High Yield 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
Global High Yield 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 to the extent of the
Sub-Adviser's duties under this Agreement that the Global High Yield 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;
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(d) the provisions of the Fund's Articles of Incorporation, as amended;
(e) the provisions of the Bylaws of the Fund, as amended; and
(f) any other applicable provisions of state and federal law.
7. RECORDS. The Sub-Adviser hereby agrees to maintain all records relating to
its activities and obligations under this Agreement which are required to
be maintained by Rule 31a-1 under the 1940 Act and agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the Act. The
Sub-Adviser 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
Global High Yield 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 Global High Yield 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.
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9. DELEGATION OF RESPONSIBILITIES. Upon request of the Adviser and with the
approval of the Fund's Board of Directors, the Sub-Adviser may perform
services on behalf of the Fund which are not required by this Agreement.
Such services will be performed on behalf of the Fund, and the
Sub-Adviser's cost in rendering such services may be billed monthly to the
Adviser, subject to examination by the Adviser's independent accountants.
Payment or assumption by the Sub-Adviser of any Fund expense that the
Sub-Adviser is not required to pay or assume under this Agreement shall not
relieve the Adviser or the Sub-Adviser of any of their obligations to the
Fund or obligate the Sub-Adviser to pay or assume any similar Fund expense
on any subsequent occasions.
10. DELEGATION OF DUTIES. The Sub-Adviser may, at its discretion, delegate,
assign or subcontract any of the duties, responsibilities and services
governed by this agreement to a third party, whether or not by formal
written agreement, provided that such arrangement with a third party has
been approved by the Board of Directors of the Fund. The Sub-Adviser shall,
however, retain ultimate responsibility to the Fund and shall implement
such reasonable procedures as may be necessary for assuring that any
duties, responsibilities or services so assigned, subcontracted or
delegated are performed in conformity with the terms and conditions of this
agreement.
11. COMPENSATION. For the services to be rendered and the facilities furnished
hereunder, the Adviser shall pay the Sub-Adviser an annual fee equal to .20
percent of the average daily closing value of the net assets for each of
Emerging Markets Total Return Series, Global Asset Allocation Series, and
Global High Yield 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.
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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. The research provided by the
Sub-Adviser is for the benefit of the Series only.
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.
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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, Attention: Xxxx Xxxxxx, Secretary, and the address
of the Adviser for this purpose shall be Xxx Xxxxxxx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
ATTEST: MFR ADVISORS, INC.
XXXXXXXXX XXXXXXXX XXXXX X. XXXXXXX
----------------------------------- By:--------------------------------
Title: Secretary
ATTEST: LEXINGTON MANAGEMENT
CORPORATION
XXXXXXX X. XXXXX XXXXXX X. XXXXXXXXX
----------------------------------- By:--------------------------------
Title: Chief Financial Officer
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