DRAFT 6/20/97
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of __________, 1997
between SECURITY MANAGEMENT COMPANY, LLC (the "Adviser"), a Kansas limited
liability company, registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and STRONG CAPITAL MANAGEMENT, INC.
(the "Subadviser"), a Wisconsin corporation registered under the Investment
Advisers Act.
W I T N E S S E T H :
WHEREAS, SBL Fund and Security Equity Fund, Kansas corporations, are
registered with the Securities and Exchange Commission (the "Commission") as
open-end management investment companies under the Investment Company Act of
1940, as amended (the "Investment Company Act");
WHEREAS, SBL Fund is authorized to issue shares of Series X, a separate
series of SBL Fund and Security Equity Fund is authorized to issue shares of the
Small Company Series, a separate series of Security Equity Fund (each series
referred to herein individually as a "Fund" and collectively as the "Funds");
WHEREAS, each of SBL Fund and Security Equity Fund has, pursuant to an
Advisory Agreement with the Adviser (the "Advisory Agreements"), retained the
Adviser to act as investment adviser for and to manage each Fund's assets;
WHEREAS, the Advisory Agreements permit the Adviser to delegate certain of
its duties under the Advisory Agreements to other investment advisers, subject
to the requirements of the Investment Company Act; and
WHEREAS, the Adviser desires to retain the Subadviser as subadviser for the
Funds to act as investment adviser for and to manage each Fund's Investments (as
defined below) and the Subadviser desires to render such services.
NOW, THEREFORE, the Adviser and Subadviser do mutually agree and promise as
follows:
1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the Subadviser to
act as investment adviser for and to manage certain assets of the Funds subject
to the supervision of the Adviser and the respective Boards of Directors of SBL
Fund and Security Equity Fund and subject to the terms of this Agreement; and
the Subadviser hereby accepts such employment. In such capacity, the Subadviser
shall be responsible for each Fund's Investments.
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2. DUTIES OF SUBADVISER.
(a) INVESTMENTS. The Subadviser is hereby authorized and directed and
hereby agrees, subject to the stated investment policies and restrictions
of the Funds as set forth in each Fund's current prospectus and statement
of additional information as currently in effect and as supplemented or
amended from time to time (collectively referred to hereinafter as the
"Prospectus") and subject to the directions of the Adviser and the
respective Fund's Board to purchase, hold and sell investments for the
account of the Funds (hereinafter "Investments") and to monitor on a
continuous basis the performance of such Investments. The Subadviser shall
give the Funds the benefit of its best efforts in rendering its services as
Subadviser.
(b) BROKERAGE. The Subadviser is authorized, subject to the
supervision of the Adviser and the respective Fund's Board to establish and
maintain accounts on behalf of each Fund with, and place orders for the
purchase and sale of the Fund's Investments with or through, such persons,
brokers or dealers as Subadviser may select and negotiate commissions to be
paid on such transactions. The Subadviser agrees that in placing such
orders it shall attempt to obtain best execution, provided that, the
Subadviser may, on behalf of a Fund, pay brokerage commissions to a broker
which provides brokerage and research services to the Subadviser in excess
of the amount another broker would have charged for effecting the
transaction, provided (i) the Subadviser determines in good faith that the
amount is reasonable in relation to the value of the brokerage and research
services provided by the executing broker in terms of the particular
transaction or in terms of the Subadviser's overall responsibilities with
respect to the Fund and the accounts as to which the Subadviser exercises
investment discretion, (ii) such payment is made in compliance with Section
28(e) of the Securities Exchange Act of 1934, as amended, and any other
applicable laws and regulations, and (iii) in the opinion of the
Subadviser, the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. It is recognized
that the services provided by such brokers may be useful to the Subadviser
in connection with the Subadviser's services to other clients. On occasions
when the Subadviser deems the purchase or sale of a security to be in the
best interests of a Fund as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be
sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
securities so sold or purchased, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary
obligations to the Funds and to such other clients. The Subadviser will
report on such allocations at the request of the Adviser, the Funds or the
respective Fund's Board providing such information as the number of
aggregated trades to which the Fund was a party, the broker(s) to whom such
trades were directed and the basis of the allocation for the aggregated
trades.
(c) SECURITIES TRANSACTIONS. The Subadviser and any affiliated person
of the Subadviser will not purchase securities or other
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instruments from or sell securities or other instruments to a Fund
("Principal Transactions"); PROVIDED, HOWEVER, the Subadviser may enter
into a Principal Transaction with a Fund if (i) the transaction is
permissible under applicable laws and regulations, including, without
limitation, the Investment Company Act and the Investment Advisers Act and
the rules and regulations promulgated thereunder, and (ii) the transaction
receives the express written approval of the Adviser.
The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics, as the same may be amended
from time to time. The Subadviser agrees to provide the Adviser and the
Funds with a copy of such Code of Ethics.
(d) BOOKS AND RECORDS. The Subadviser will maintain all books and
records required to be maintained pursuant to the Investment Company Act
and the rules and regulations promulgated thereunder with respect to
transactions made by it on behalf of the Funds including, without
limitation, the books and records required by Subsections (b)(1), (5), (6),
(7), (9), (10) and (11) and Subsection (f) of Rule 31a-1 under the
Investment Company Act and shall timely furnish to the Adviser all
information relating to the Subadviser's services hereunder needed by the
Adviser to keep such other books and records of the Funds required by Rule
31a-1 under the Investment Company Act. The Subadviser will also preserve
all such books and records for the periods prescribed in Rule 31a-2 under
the Investment Company Act, and agrees that such books and records shall
remain the sole property of the respective Fund and shall be immediately
surrendered to a Fund upon request. The Subadviser further agrees that all
books and records maintained hereunder shall be made available to the Funds
or the Adviser at any time upon reasonable request, including telecopy,
during any business day.
(e) INFORMATION CONCERNING INVESTMENTS AND SUBADVISER. From time to
time as the Adviser or the Funds may request, the Subadviser will furnish
the requesting party reports on portfolio transactions and reports on
Investments held in the portfolio, all in such detail as the Adviser or the
Funds may reasonably request. The Subadviser will make available its
officers and employees to meet with the respective Fund's Board of
Directors at the Funds' principal place of business on due notice to review
the Investments of the Funds.
The Subadviser will also provide such information or perform such
additional acts as are customarily performed by a subadviser and may be
required for the Funds or the Adviser to comply with their respective
obligations under applicable laws, including, without limitation, the
Internal Revenue Code of 1986, as amended (the "Code"), the Investment
Company Act, the Investment Advisers Act, the Securities Act of 1933, as
amended (the "Securities Act") and any state securities laws, and any rule
or regulation thereunder.
(f) CUSTODY ARRANGEMENTS. The Subadviser shall provide the Funds'
custodian, on each business day with information relating to all
transactions concerning each Fund's assets.
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(g) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS. In all
matters relating to the performance of this Agreement, the Subadviser and
its directors, officers, partners, employees and interested persons shall
act in conformity with each Fund's Articles of Incorporation, By-Laws, and
currently effective registration statement and with the written
instructions and directions of the respective Fund's Board and the Adviser,
and shall comply with the requirements of the Investment Company Act, the
Investment Advisers Act, the Commodity Exchange Act, the rules thereunder,
and all other applicable federal and state laws and regulations.
In carrying out its obligations under this Agreement, the Subadviser
shall, solely with regard to those matters within its control, ensure that
each Fund complies with all applicable statutes and regulations necessary
to qualify the Fund as a Regulated Investment Company under Subchapter M of
the Code (or any successor provision), and shall notify the Adviser
immediately upon having a reasonable basis for believing that a Fund has
ceased to so qualify or that it might not so qualify in the future.
In carrying out its obligations under this Agreement, the Subadviser
shall invest the assets of Series X in such a manner as to ensure that the
Fund complies with the diversification provisions of Section 817(h) of the
Code (or any successor provision) 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. Subadviser shall notify the Adviser
immediately upon having a reasonable basis for believing that the Fund has
ceased to comply and will take all reasonable steps to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 1.817-5.
The Adviser has furnished the Subadviser with copies of each of the
following documents and will furnish the Subadviser at its principal office
all future amendments and supplements to such documents, if any, as soon as
practicable after such documents become available: (i) the Articles of
Incorporation of each Fund, (ii) the By-Laws of each Fund and (iii) each
Fund's registration statement under the Investment Company Act and the
Securities Act of 1933, as amended, as filed with the Commission.
(h) VOTING OF PROXIES. The Subadviser shall direct the custodian as to
how to vote such proxies as may be necessary or advisable in connection
with any matters submitted to a vote of shareholders of securities held by
the Funds.
3. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Funds or the Adviser in any way or
otherwise be deemed an agent of the Funds or the Adviser.
4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, the fees set forth in Exhibit A attached hereto.
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5. EXPENSES. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and will, from time to time,
at its sole expense employ or associate itself with such persons as it believes
to be particularly fitted to assist it in the execution of its duties hereunder.
However, the Subadviser shall not assign or delegate any of its duties under
this Agreement without the approval of the Adviser and the respective Fund's
Board.
6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Funds as follows:
(a) The Subadviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Subadviser will immediately notify the Adviser of the
occurrence of any event that would disqualify the Subadviser from serving
as an investment adviser of an investment company pursuant to Section 9(a)
of the Investment Company Act;
(c) The Subadviser has filed a notice of exemption pursuant to Rule
4.14 under the CEA with the Commodity Futures Trading Commission (the
"CFTC") and the National Futures Association;
(d) The Subadviser is a corporation duly organized and validly
existing under the laws of the State of Wisconsin with the power to own and
possess its assets and carry on its business as it is now being conducted;
(e) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly authorized
by all necessary action on the part of its shareholders, and no action by
or in respect of, or filing with, any governmental body, agency or official
is required on the part of the Subadviser for the execution, delivery and
performance by the Subadviser of this Agreement, and the execution,
delivery and performance by the Subadviser of this Agreement do not
contravene or constitute a default under (i) any provision of applicable
law, rule or regulation, (ii) the Subadviser's governing instruments, or
(iii) any agreement, judgment, injunction, order, decree or other
instrument binding upon the Subadviser;
(f) This Agreement is a valid and binding agreement of the Subadviser;
(g) The Form ADV of the Subadviser previously provided to the Adviser
is a true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they
were made, not misleading;
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7. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser represents and
warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC")
and the National Futures Association;
(c) The Adviser is a limited liability company duly organized and
validly existing under the laws of the State of Kansas with the power to
own and possess its assets and carry on its business as it is now being
conducted;
(d) The execution, delivery and performance by the Adviser of this
Agreement are within the Adviser's powers and have been duly authorized by
all necessary action on the part of its members, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and
performance by the Adviser of this Agreement, and the execution, delivery
and performance by the Adviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
regulation, (ii) the Adviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Adviser;
(e) This Agreement is a valid and binding agreement of the Adviser;
(f) The Form ADV of the Adviser previously provided to the Subadviser
is a true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they
were made, not misleading;
(g) The Adviser acknowledges that it received a copy of the
Subadviser's Form ADV at least 48 hours prior to the execution of this
Agreement.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION.
All representations and warranties made by the Subadviser and the Adviser
pursuant to Sections 6 and 7 hereof shall survive for the duration of this
Agreement and the parties hereto shall promptly notify each other in writing
upon becoming aware that any of the foregoing representations and warranties are
no longer true.
9. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. In the absence of willful misfeasance, bad faith or
negligence on the part of the Subadviser or a breach of its duties
hereunder, the Subadviser shall not be
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subject to any liability to the Adviser or the Funds or any of the Funds'
shareholders, and, in the absence of willful misfeasance, bad faith or
negligence on the part of the Adviser or a breach of its duties hereunder,
the Adviser shall not be subject to any liability to the Subadviser, for
any act or omission in the case of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of Investments; PROVIDED, HOWEVER, that nothing herein shall
relieve the Adviser and the Subadviser from any of their obligations under
applicable law, including, without limitation, the federal and state
securities laws and the CEA.
(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser and
the Funds, and their respective officers and directors, for any liability
and expenses, including attorneys' fees, which may be sustained as a result
of the Subadviser's willful misfeasance, bad faith, negligence, breach of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The Adviser
shall indemnify the Subadviser and its officers and directors, for any
liability and expenses, including attorneys' fees, which may be sustained
as a result of the Adviser's willful misfeasance, bad faith, negligence,
breach of its duties hereunder or violation of applicable law, including,
without limitation, the federal and state securities laws or the CEA.
10. DURATION AND TERMINATION.
(a) DURATION. This Agreement shall become effective upon the date
first above written, provided that this Agreement shall not take effect
with respect to a Fund unless it has first been approved (i) by a vote of a
majority of those directors of the Fund who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by vote
of a majority of the Fund's outstanding voting securities. This Agreement
shall continue in effect for a period of two years from the date hereof,
subject thereafter to being continued in force and effect from year to year
with respect to each Fund if specifically approved each year by either (i)
the Board of Directors of the Fund, or (ii) by the affirmative vote of a
majority of the Fund's outstanding voting securities. In addition to the
foregoing, each renewal of this Agreement with respect to a Fund must be
approved by the vote of a majority of the Fund's directors who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
Prior to voting on the renewal of this Agreement, the Board of Directors of
each Fund may request and evaluate, and the Subadviser shall furnish, such
information as may reasonably be necessary to enable the Fund's Board of
Directors to evaluate the terms of this Agreement.
(b) TERMINATION. Notwithstanding whatever may be provided herein to
the contrary, this Agreement may be terminated at any time, without payment
of any penalty:
(i) By vote of a majority of the Board of Directors of a Fund
with respect to that Fund, or by vote of a majority of the outstanding
voting securities of the
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Fund, or by the Adviser, in each case, upon sixty (60) days' written
notice to the Subadviser;
(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 6 hereof, which shall
not have been cured during the notice period, upon twenty (20) days
written notice;
(iii) By the Adviser immediately upon written notice to the
Subadviser if the Subadviser becomes unable to discharge its duties
and obligations under this Agreement; or
(iv) By the Subadviser upon 180 days written notice to the
Adviser and the Fund.
This Agreement shall not be assigned (as such term is defined in the
Investment Company Act) without the prior written consent of the parties
hereto. This Agreement shall terminate automatically in the event of its
assignment without such consent or upon the termination of the Advisory
Agreement.
11. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to the Funds pursuant to the
Advisory Agreements and shall oversee and review the Subadviser's performance of
its duties under this Agreement.
12. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment with respect to a Fund
shall be approved by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund.
13. CONFIDENTIALITY. Subject to the duties of the Adviser, the Funds and
the Subadviser to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction, the parties hereto shall
treat as confidential all information pertaining to the Funds and the actions of
the Subadviser, the Adviser and the Funds in respect thereof.
14. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Funds) under the terms of this Agreement shall be in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
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(a) If to the Subadviser:
Strong Capital Management, Inc.
000 Xxxxxxxx Xxxxxxx
Xxxxxxxxx Xxxxx, Xxxxxxxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
(b) If to the Adviser:
Xxxxx X. Xxxxxxx
Senior Vice President and Chief Fiscal Officer
Security Management Company, LLC
000 XX Xxxxxxxx
Xxxxxx, Xxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
(c) If to Security Equity Fund:
Xxx X. Xxx
Secretary
Security Equity Fund
000 XX Xxxxxxxx
Xxxxxx, Xxxxxx 00000-0000
Attention: Xxx X. Xxx, Secretary
Facsimile: (000) 000-0000
(d) If to SBL Fund:
Xxx X. Xxx
Secretary
SBL Fund
000 XX Xxxxxxxx
Xxxxxx, Xxxxxx 00000-0000
Attention: Xxx X. Xxx, Secretary
Facsimile: (000) 000-0000
15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Kansas.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
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17. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
18. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of the Agreement
shall not be affected adversely and shall remain in full force and effect.
19. CERTAIN DEFINITIONS.
(a) "BUSINESS DAY." As used herein, business day means any customary
business day in the United States on which the New York Stock Exchange is
open.
(b) MISCELLANEOUS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the Investment Company Act shall be resolved by
reference to such term or provision of the Investment Company Act and to
interpretations thereof, if any, by the U.S. courts or, in the absence of
any controlling decisions of any such court, by rules, regulation or order
of the Commission validly issued pursuant to the Investment Company Act.
Specifically, as used herein, "investment company," "affiliated person,"
"interested person," "assignment," "broker," "dealer" and "affirmative vote
of the majority of the Fund's outstanding voting securities" shall all have
such meaning as such terms have in the Investment Company Act. The term
"investment adviser" shall have such meaning as such term has in the
Investment Advisers Act and the Investment Company Act, and in the event of
a conflict between such Acts, the most expansive definition shall control.
In addition, where the effect of a requirement of the Investment Company
Act reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
SECURITY MANAGEMENT COMPANY, LLC
By:
-----------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior VP and Chief Fiscal Officer
Attest:
---------------------------------
Name:
Title:
STRONG CAPITAL MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
Attest:
---------------------------------
Name:
Title:
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Exhibit A
SUBADVISORY FEE
For all services rendered by the Subadviser hereunder, Adviser shall pay to
Subadviser an annual fee (the "Subadvisory Fee"), as follows:
An annual rate of .50% of the combined average daily net assets of the
Funds under $150 million.
An annual rate of .45% of the combined average daily net assets of the
Funds at or above $150 million but less than $500 million.
An annual rate of .40% of the combined average daily net assets of the
Funds at or above $500 million.
The Subadvisory Fee shall be accrued for each calendar day the Subadviser
renders subadvisory services hereunder and the sum of the daily fee accruals
shall be paid monthly to the Subadviser as soon as practicable following the
last day of each month, by wire transfer if so requested by the Subadviser, but
no later than ten (10) calendar days thereafter. If this Agreement shall be
effective for only a portion of a year, then the Subadviser's fee for said year
shall be prorated for such portion. The daily fee accruals on the first $150
million of the Funds' net assets will be computed by multiplying the fraction of
one (1) over the number of calendar days in the year by the appropriate annual
rate described above and multiplying the product of the net asset value of the
Funds as determined in accordance with each Fund's prospectus as of the close of
business on the previous business day on which the Funds were open for business.
The daily fee accruals on the Funds' net assets equal to or in excess of $150
million but less than $500 million will be computed by multiplying the fraction
of one (1) over the number of calendar days in the year by the appropriate
annual rate described above and multiplying the product by the amount by which
the average daily net asset value of the Funds, as determined in accordance with
each Fund's prospectus as of the close of business on the previous business day
on which the Funds were open for business, equals or exceeds $150 million but is
less than $500 million. The daily fee accruals on the Funds' net assets at or
above $500 million will be computed by multiplying the fraction of one (1) over
the number of calendar days in the year by the appropriate annual rate described
above and multiplying the product by the amount by which the average daily net
asset value of the Funds, as determined in accordance with each Fund's
prospectus as of the close of business on the previous business day on which the
Funds were open for business, equals or exceeds $500 million.
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