SUB-ADVISORY AGREEMENT
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THIS AGREEMENT is made and entered into as of this 1st day of July, 2003,
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 MAINSTREAM INVESTMENT ADVISERS, LLC
(the "Subadviser"), a Kentucky limited liability company, registered under the
Investment Advisers Act.
WITNESSETH:
WHEREAS, SBL Fund and Security Equity Fund, Kansas corporations, are each
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 Z, a separate
series of SBL Fund, and Security Equity Fund is authorized to issue shares of
Alpha Opportunity Series, a separate series of Security Equity Fund (Series Z
and Alpha Opportunity Series are referred to herein individually as a "Fund" and
collectively as the "Funds");
WHEREAS, each of the Funds has, pursuant to an Advisory Agreement with the
Adviser (the "Advisory Agreement"), retained the Adviser to act as investment
adviser for and to manage its assets;
WHEREAS, the Advisory Agreements permit the Adviser to delegate certain of
its duties under the Advisory Agreement to other investment advisers, subject to
the requirements of the Investment Company Act;
WHEREAS, the Adviser desires to retain the Subadviser as subadviser to act
as investment adviser for and to manage a portion of each Fund's assets and the
Subadviser desires to render such services; and
WHEREAS, the Adviser shall have the sole discretion to determine the
percentage of each Fund's assets to be managed by the Subadviser.
NOW, THEREFORE, the Adviser and the 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 assets of the Funds, subject to the
supervision of the Adviser, the Board of Directors of such Fund and the terms of
this Agreement, and the Subadviser hereby accepts such employment. In such
capacity, the Subadviser shall be responsible for the Investments (as defined
herein) of the Funds; provided that the Adviser reserves the authority to
review, modify or reject Subadviser's investment recommendations with respect to
the management of the Funds' Investments.
2. Duties of Subadviser.
(a) Investments. Subject to the instructions of the Adviser from time
to time, the Subadviser is hereby authorized and directed and hereby
agrees, subject to the stated investment policies and restrictions of each
Fund as set forth in the Fund's 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") to
purchase, hold and sell investments for the account of the Fund
(hereinafter "Investments") and to monitor on a continuous basis the
performance of such Investments. "Investments" when referred to in this
Agreement shall mean those investments included in the portion of each
Fund's total assets that Adviser has allocated to Subadviser for
management. The Adviser has agreed that it shall increase or decrease the
total assets allocated to the Subadviser for management solely as of the
first business day of each calendar month, unless otherwise mutually agreed
to by the parties. Subject to the instructions of the Adviser from time to
time, the Subadviser may contract with or consult with such banks, other
securities firms, brokers or other parties, without additional expense to
the Adviser, as it may deem appropriate regarding investment advice,
research and statistical data, clerical assistance or otherwise.
(b) Brokerage. The Subadviser is authorized, subject to the
supervision of the Adviser and the respective Fund's Board of Directors, to
establish and maintain accounts on behalf of each Fund with, and place
orders for the purchase
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and sale of each Fund's Investments with or through, such persons, brokers
or dealers as Subadviser may select which may include, to the extent
permitted by the Adviser or the respective Fund's Board of Directors,
brokers or dealers affiliated with the Subadviser. The Subadviser is also
authorized, subject to the supervision of the Adviser and the respective
Fund's Board of Directors to negotiate commissions to be paid on such
transactions. The Subadviser shall make sales, exchanges, commitments,
contracts, investments or reinvestments, or take any action which it deems
necessary or desirable in connection with the Investments, in accordance
with its own judgment and discretion. Specifically, the Subadviser shall
have the authority to purchase, sell, sell short, transfer, deal in or
otherwise invest in publicly traded common stocks, convertible bonds,
convertible preferred stocks, stock warrants and rights. The Subadviser
agrees that in placing such orders for a Fund it shall attempt to obtain
best execution, provided that, the Subadviser may, on behalf of such Fund,
pay brokerage commissions to a broker that 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 such 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 such Fund will be reasonable in relation to the
benefits to the Fund over the long term. In reaching such determination,
the Subadviser will not be required to place or attempt to place a specific
dollar value on the brokerage and/or research services provided or being
provided by such broker. 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 the
Fund as well as other clients of the Subadviser, the Subadviser, to the
extent permitted by applicable laws and
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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, shall be made by the Subadviser in
the manner the Subadviser considers to be the most equitable and consistent
with its fiduciary obligations to the Fund or Funds involved and to such
other clients. The Subadviser shall report on such allocations at the
request of the Adviser, or the respective Fund's Board of Directors,
providing such information as the number of aggregated trades to which a
Fund was a party, the broker(s) to whom such trades were directed and the
basis of the allocation for the aggregated trades. Subject to the foregoing
provisions of this Subsection 2(b) and at the direction of the Adviser or
the Fund, the Subadviser may also consider sales of the Funds' shares as a
factor in the selection of brokers or dealers for a Fund's portfolio
transactions.
(c) Securities Transactions. The Subadviser and any affiliated person
of the Subadviser shall not purchase securities or other 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 Advisers Act and the rules and regulations promulgated
thereunder, and (ii) the transaction or category of transactions receives
the express written approval of the Adviser.
The Subadviser agrees to observe and comply in all material respects
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 with a copy of such Code of Ethics.
(d) Books and Records. The Subadviser shall maintain all books and
records required to be maintained pursuant to the Investment Company Act
and the rules and regulations promulgated thereunder solely with respect to
transactions made by it on behalf of the Funds including, without
limitation, the books and records required by
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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
shall also preserve all such books and records for the periods prescribed
in part (e) of 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 the appropriate Fund upon
request. The Subadviser further agrees that all books and records
maintained hereunder shall be made available to the respective Fund or the
Adviser at any time upon reasonable request and notice during any business
day.
(e) Information Concerning Investments and Subadviser. From time to
time as the Adviser or a Fund may reasonably request, the Subadviser shall
furnish the requesting party reports on transactions and reports on
Investments held in the Fund portfolios, all in such detail as the Adviser
or the applicable Fund may reasonably request. From time to time as the
Adviser or a Fund may reasonably request, the Subadviser will make
available its officers and employees to meet with the Board of Directors of
a Fund at the Fund's principal place of business on due notice to review
the Investments of the Fund.
The Subadviser shall also provide such information as is customarily
provided by a subadviser and as may be required for each Fund 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.
During the term of this Agreement, the Adviser agrees to furnish the
Subadviser at its principal office all registration statements, proxy
statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of each Fund, or the public that
refer to the Subadviser for Subadviser's review
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and approval. The Subadviser shall be deemed to have approved all such
materials unless the Subadviser reasonably objects by giving notice to the
Adviser in writing within five business days (or such other period as may
be mutually agreed) after receipt thereof. The Subadviser's right to object
to such materials is limited to the portions of such materials that
expressly relate to the Subadviser, its services and its clients. The
Adviser agrees to use its best efforts to ensure that materials prepared by
its employees or agents or its affiliates that refer to the Subadviser or
its clients in any way are consistent with those materials previously
approved by the Subadviser as referenced in this paragraph. Sales
literature may be furnished to the Sub-Adviser by first class or overnight
mail, facsimile transmission equipment or hand delivery.
(f) Custody Arrangements. The Subadviser shall provide each Fund's
custodian (the "Custodian"), on each business day, information relating to
all transactions made by it on behalf of the Funds.
(g) Compliance with Applicable Laws and Governing Documents. In all
matters relating to the performance of this Agreement, the Subadviser and
its members, officers, partners, employees and interested persons shall act
in conformity in all material respects with each Fund's Articles of
Incorporation, By-Laws, and currently effective registration statement and
with the written instructions and directions of each Fund's Board of
Directors and the Adviser, after receipt of such documents from the
relevant Fund, and shall comply in all material respects with the
requirements of the Investment Company Act, the Investment Advisers Act,
the Commodity Exchange Act (the "CEA"), 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 and based on
information available to it (i) invest the assets of the Fund in such a
manner that each Fund complies with Section 851(b)(2) and Section 851(b)(3)
of Subchapter M of the Code (or any successor provision), and (ii) invest
the assets of Series Z of SBL Fund in such a manner that Series Z
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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 a Fund has ceased to
qualify as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code (or any successor or similar provision) or Series Z
has ceased to comply with Section 817(h) and, with respect to Section
817(h), shall take all reasonable steps to adequately diversify Series Z 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, (iii) each
Fund's registration statement under the Investment Company Act and the
Securities Act, as filed with the Commission, and (iv) any written
instructions of the respective Fund's Board of Directors and the Adviser.
The Subadviser shall not be held responsible for compliance with any
document described above unless and until such document has been received
by the Subadviser.
(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 Investments held by
a Fund.
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 Adviser in any way or otherwise
be deemed an agent of the Funds or Adviser.
4. Compensation. The Adviser shall pay to the Subadviser an Advisory Fee
computed in accordance with Schedule A attached
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hereto, which fee shall be payable as provided therein. The parties hereby
disclaim any obligation on the part of the Funds or their shareholders to pay
any portion of the Advisory Fee payable by the Adviser to the Subadviser.
5. Expenses. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and shall, 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 investment
management duties under this Agreement without the written approval of the
Adviser and the respective Fund's Board of Directors.
6. Representations and Warranties of Subadviser. The Subadviser represents
and warrants to the Adviser as follows:
(a) The Subadviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Subadviser shall immediately notify the Adviser of the
existence or 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 is fully authorized under all applicable law to
serve as Subadviser to the Funds and to perform the services described
under this Agreement;
(d) The Subadviser is a limited liability company duly organized and
validly existing under the laws of the State of Kentucky 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 of the 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 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
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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;
and
(g) The Form ADV of the Subadviser previously provided to the Adviser
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.
7. Non-Exclusivity. The services of the Subadviser with respect to the
Funds are not deemed to be exclusive, and the Subadviser and its officers shall
be free to render investment advisory and administrative or other services to
others and to engage in other activities. Nothing in this Agreement shall limit
or restrict the Subadviser or any of its officers, managers, members, employees,
affiliates or agents from buying, selling or trading in any securities for its
or their own account or accounts, except as set forth in Subsection 2(c) herein.
The Adviser acknowledges that the Subadviser and its officers, managers,
members, employees, affiliates or agents and its other clients may at any time
have, acquire, increase, decrease or dispose of positions in investments which
are at the same time being acquired or disposed of for the Funds. The Adviser
agrees that the Subadviser may give advice and take action with respect to any
of its other clients which may differ from advice given or the timing or nature
of action taken with respect to the Funds, so long as it is the Subadviser's
policy, to the extent practical, to allocate investment opportunities to the
Funds over a period of time on a fair and equitable basis relative to other
clients.
8. 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
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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;
and
(f) 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.
9. 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 8 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.
10. Duty of Care and Indemnification.
(a) Liability. In the absence of willful misfeasance, bad faith or
gross negligence on the part of the Subadviser or a material breach of its
duties hereunder, the Subadviser shall not be subject to any liability to
the Adviser, to either Fund, or any of either Fund's shareholders, and, in
the absence of willful misfeasance, bad faith or gross negligence on the
part of the Adviser or
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a material 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 respective 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 reasonable attorneys' fees, which may be sustained
by the Adviser, or the Funds, as a result of the Subadviser's willful
misfeasance, bad faith, or gross negligence, material breach of its duties
hereunder or material 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 partners, for any
liability and expenses, including reasonable attorneys' fees, which may be
sustained as a result of the Adviser's, or the Funds' willful misfeasance,
bad faith, or gross negligence, material breach of its duties hereunder or
material violation of applicable law, including, without limitation, the
federal and state securities laws or the CEA.
12. 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 the Funds, unless it has first been approved by a vote of a
majority of those directors of SBL Fund and Security Equity Fund, as
applicable, 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. 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 the Board of Directors of the
applicable Fund. In addition to the foregoing, each renewal of this
Agreement with
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respect to each Fund must be approved by the vote of a majority of the
applicable 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 the applicable Fund may
request and evaluate, and the Subadviser shall furnish, such information as
reasonably may 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 the
applicable Fund, or by vote of a majority of the outstanding voting
securities of the applicable Fund, or by the Adviser, in each case,
upon sixty (60) days' written notice to the Subadviser;
(ii) By the Adviser upon material breach by the Subadviser of any
representation or warranty contained in Section 6 hereof, which shall
not have been cured within twenty (20) days of the Subadviser's
receipt of written notice of such breach;
(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 sixty (60) days' written notice to
the Adviser and the applicable 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.
13. Duties of the Adviser. The Adviser shall continue to have
responsibility for all services to be provided to the Funds pursuant to the
Advisory Agreement and shall oversee and review the Subadviser's performance of
its duties under this Agreement.
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14. Amendment. This Agreement may be amended in writing 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 applicable Fund or by a
vote of a majority of the outstanding voting securities of the applicable Fund.
15. Notice. Any notice that is required to be given by the parties to each
other 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:
(a) If to the Subadviser:
Mainstream Investment Advisers, LLC
000 X. Xxxxxx Xxxxxx
Xxxxxx Xxxxx
Xxx Xxxxxx, XX 00000
Attention: Xxxxx X. Hulls, Director
Facsimile: (000) 000-0000
(b) If to the Adviser:
Security Management Company, LLC
One Security Benefit Place
Topeka, Kansas 66636-0001
Attention: Xxxxx X. Xxxxxxx, President
Facsimile: (000) 000-0000
(c) If to SBL Fund:
SBL Fund
One Security Benefit Place
Topeka, Kansas 66636-0001
Attention: Xxx X. Xxx, Secretary
Facsimile: (000) 000-0000
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(d) If to Security Equity Fund:
Security Equity Fund
One Security Benefit Place
Topeka, Kansas 66636-0001
Attention: Xxx X. Xxx, Secretary
Facsimile: (000) 000-0000
16. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Kansas.
17. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
18. Captions. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
19. 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.
20. Definitions. As used herein, "business day" means any customary
business day in the United States on which the New York Stock Exchange is open.
As used herein, "investment company," "affiliated person," "interested person,"
"assignment," "broker," and "dealer" 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 Advisers Act or 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.
MAINSTREAM INVESTMENT ADVISERS, LLC
By: XXXXXXX X. XXXXXXX
------------------------------------------------------
Name: Xxxxxxx X. Xxxxxxx,
Title: Manager
Attest: XXXXX X. HULLS
------------------------------------------------------
Name: Xxxxx J Hulls,
Title: Director
SECURITY MANAGEMENT COMPANY, LLC
By: XXXXX X. XXXXXXX
------------------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President
Attest: XXX X. XXX
------------------------------------------------------
Name: Xxx X. Xxx
Title: Secretary
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SCHEDULE A
INVESTMENT ADVISORY FEE
1. Base Fee. The Adviser shall pay the Subadviser at the end of each
calendar month, an advisory fee (the "Base Fee") equal to 2.50%, on an annual
basis, of that portion of each Fund's net assets that Adviser has allocated to
Subadviser for management ("Subadviser Assets"). The Base Fee shall be
determined as of the last day of each calendar month based upon the average of
the value of Subadviser Assets as of the close of business on the first business
day, and the close of business on the last business day, of each calendar month.
If the Subadviser shall serve for less than the whole of any calendar month, the
Base Fee shall be calculated on a pro rata basis for the portion of the month
for which it has served as Subadviser. The value of the Subadviser Assets shall
be determined by valuations made in accordance with each Fund's procedures for
calculating its net assets as described in each Fund's current prospectus and/or
Statement of Additional Information. During the first 12 months of operations,
the management fee will be charged at the Base Fee of 2.50% without any
adjustment as discussed in Section 2 below.
2. Base Fee Adjustment. Beginning in the 13th month of operations, the Base
Fee of 2.50% will be adjusted upward or downward on a monthly basis based upon
the performance of the Subadviser Assets relative to the performance of the S&P
500 Index (the "Index"). The maximum or minimum adjustment is 1.50% annually.
Therefore, the maximum annual fee payable to the Subadviser shall be 4.00% of
Subadviser Assets, and the minimum annual fee shall be 1.00% of Subadviser
Assets. The pro rata adjustment upward or downward will be determined based upon
the performance of the Subadviser Assets in excess of, or below, that of the
Index. The amount of any upward adjustment in the Base Fee shall be equal to
1.50% multiplied by the ratio of the number of percentage points by which the
performance of the Subadviser Assets exceeds the performance of the Index as
compared to 30 percentage points. For example, if the performance of the
Subadviser Assets was 6.6% above that of the S&P 500 Index, the ratio would be
6.6 to 30, or 22%, times 1.50%, for an upward adjustment of 0.33%. The amount of
any downward adjustment in the Base Fee will be equal to 1.50% multiplied by the
ratio of the number of percentage points by which the performance of the
Subadviser Assets is less than the
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performance of the Index as compared to 30 percentage points. For example, if
the performance of the Subadviser Assets was 10.0% below that of the S&P 500
Index, the ratio would be 10 to 30, or 33.33%, times 1.50%, for a downward
adjustment of 0.50%.
In determining the Base Fee adjustment, if any, applicable during any
month, the Adviser will compare the investment performance of the Subadviser
Assets for the twelve-month period ending on the last day of the prior month
(the "Performance Period") to the investment record of the Index during the
Performance Period. The investment performance of the Subadviser Assets will be
determined for each month in the Performance Period by subtracting (i) the value
of the Subadviser Assets as of the first business day of the calendar month
(including any amounts allocated to the Subadviser Assets as of that date) from
(ii) the value of the Subadviser Assets as of the last business day of the
calendar month, expressed as a percentage of (iii) the value of the Subadviser
Assets as of the first business day of the calendar month (including any amounts
allocated to the Subadviser Assets as of that date). The investment performance
for the Performance Period shall be the annualized product of the investment
performance for each month in the Performance Period. The investment performance
of the Index will be determined by adding together (i) the change in the level
of the Index during the Performance Period, and (ii) the value, computed
consistently with the Index, of cash distributions made by companies whose
securities comprise the Index accumulated to the end of the Performance Period,
and will be expressed as a percentage of the Index at the beginning of the
Performance Period.
After it determines any Base Fee adjustment, the Adviser will determine the
dollar amount of additional fees or fee reductions to be accrued each month by
multiplying the Base Fee adjustment by the average Subadviser Assets during the
Performance Period and dividing that number by the number of months in the
Performance Period. The average Subadviser Assets will be the average of (i) the
value of the Subadviser Assets as of the first business day of each calendar
month (including any amounts allocated to the Subadviser Assets as of that
date), and (ii) the value of the Subadviser Assets as of the last business day
of each calendar month (not including any rebalancing), in the Performance
Period. The Base Fee, as adjusted, is accrued and paid monthly and shall be
prorated in any month for which this Agreement is not in effect for the entire
month.
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3. Valuation. For purposes of calculating the compensation to be paid
hereunder, the value of the Subadviser Assets shall be computed in the same
manner at the end of each business day as the value of the Funds' net assets is
computed in connection with the determination of the net asset value of Fund
shares as described in the then current registration statement for the
applicable Fund. Adviser shall provide Subadviser within three business days of
each calendar month end such information as Adviser used to value the Subadviser
Assets as of the first and last business day of that calendar month. The parties
agree to review the valuation process on or before August 15, 2003 to determine
whether there is any material difference in the valuation of the Fund's net
assets as determined by Adviser from that determined by Banc of America, the
Funds' custodian. In the event that there is a material difference, the parties
agree to promptly renegotiate the basis for valuation of the Subadviser Assets
for purposes of calculating the compensation to be paid hereunder.
4. Payment of Fees. All fees due Subadviser shall be remitted by the
Adviser within thirty (30) days after the applicable calendar month end and/or
Valuation Period.
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