INVESTMENT MANAGEMENT AGREEMENT
This Agreement, made and entered into this 27th day of January, 2000, and
amended and restated effective as of November 18, 2005 and amended and restated
as of February 8, 2008, by and between SECURITY EQUITY FUND, a Kansas
corporation (hereinafter referred to as the "Fund"), and SECURITY INVESTORS,
LLC, a Kansas limited liability company (hereinafter referred to as the
"Adviser") (formerly, Security Management Company, LLC);
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end, management investment
company registered under the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, the Adviser is willing to provide investment research and advice to the
Fund on the terms and conditions hereinafter set forth;
WHEREAS, this Agreement has last been amended and restated to reflect
non-material amendments, including a change in the Adviser's name, the
liquidation of three Series of the Fund, and the addition of three new Series of
the Fund;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties agree as follows:
1. EMPLOYMENT OF THE ADVISER. The Fund hereby employs the Adviser to act as
investment adviser to the Fund with respect to the investment of its assets
and to supervise and arrange for the purchase of securities of the Fund and
the sales of securities held in the portfolio of the Fund, subject always
to the supervision of the Board of Directors of the Fund (or a duly
appointed committee thereof), during the period and upon and subject to the
terms and conditions described herein. The Adviser agrees to maintain
sufficient trained personnel and equipment and supplies to perform its
responsibilities under this Agreement and in conformity with the current
Prospectus(es) of the Fund and such other reasonable standards of
performance as the Fund may from time to time specify.
The Adviser hereby accepts such employment and agrees to perform the
services required by this Agreement for the compensation herein provided.
2. ALLOCATION OF EXPENSES AND CHARGES.
(a) EXPENSES OF THE ADVISER. The Adviser shall pay all expenses in
connection with the performance of its services under this Agreement,
except as provided otherwise herein.
(b) EXPENSES OF THE FUND. Anything in this Agreement to the contrary
notwithstanding, the Fund shall pay or reimburse the Adviser for the
payment of the
following described expenses of the Fund whether or not billed to the
Fund, the Adviser or any related entity:
(i) brokerage fees and commissions;
(ii) taxes;
(iii) interest expenses;
(iv) any extraordinary expenses approved by the Board of Directors of
the Fund; and
(v) distribution fees paid under the Fund's Class A, Class B and
Class C Distribution Plans;
and, in addition to those expenses set forth above, the Fund shall pay
all of its expenses whether or not billed to the Fund, the Adviser or
any related entity.
(c) EXPENSE CAP. For each of the Fund's full fiscal years that this
Agreement remains in force, the Adviser agrees that if total annual
expenses of each Series of the Fund identified below, exclusive of
interest, taxes, extraordinary expenses (such as litigation),
brokerage fees and commissions, and 12b-1 fees paid under a Fund's
Class A, Class B or Class C Distribution Plans, but inclusive of the
Adviser's compensation, exceeds the amount set forth below (the
"Expense Cap"), the Adviser shall contribute to such Series such funds
or waive such portion of its fee, adjusted monthly, as may be required
to insure that the total annual expenses of the Series shall not
exceed the Expense Cap. If this Agreement shall be effective for only
a portion of a Series' fiscal year, then the maximum annual expenses
shall be prorated for such portion.
EXPENSE CAP
Select 25 Series, Class A, B and C - 1.75%
3. COMPENSATION OF THE ADVISER.
(a) As compensation for the investment advisory services to be rendered by
the Adviser to Global Series and Small Cap Growth Series, for each of
the years this Agreement is in effect, each of the foregoing Series
shall pay the Adviser an annual fee equal to 1.00% of its respective
average daily net assets. Such fee shall be calculated daily and
payable monthly. As compensation for the investment advisory services
to be rendered by the Adviser to Equity Series and Select 25 Series,
for each of the years this Agreement is in effect, each of the
foregoing Series shall pay the Adviser an annual fee equal to 0.75% of
its respective average daily net assets. As compensation for the
investment advisory services to be rendered by the Adviser to Small
Cap Value Series and Global Institutional Fund, for each of the years
this Agreement is in effect, each of the foregoing Series shall pay
the Adviser an annual fee equal to 0.90% of its respective average
daily net assets. Such fee shall be calculated daily and payable
monthly. As compensation for the investment advisory services to be
rendered by the Adviser to Mid Cap Value Institutional Fund, for
each of the years this Agreement is in effect, Mid Cap Value
Institutional Fund shall pay the Adviser an annual fee equal to 0.85%
of average daily net assets. Such fee shall be calculated daily and
payable monthly. As compensation for the investment advisory services
to be rendered by the Adviser to Mid Cap Value Series for each of the
years this Agreement is in effect, the Mid Cap Value Series shall pay
the Adviser an annual fee equal to 1.00% of its average daily net
assets of $200 million or less; plus an annual rate of 0.75% of its
average daily net assets of more than $200 million. Such fee shall be
calculated daily and payable monthly. As compensation for the
investment advisory services to be rendered by the Adviser to Alpha
Opportunity Series, Alpha Opportunity Series shall pay the Adviser a
fee as described in paragraphs 3(c) and 3(d) below. If this Agreement
shall be effective for only a portion of a year, then the Adviser's
compensation for said year shall be prorated for such portion. For
purposes of this Section 3, the value of the net assets of each 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 Fund's shares as described
in the Fund's prospectus(es).
(b) For each of the Fund's fiscal years this Agreement remains in force,
the Adviser agrees that if total annual expenses of any Series of the
Fund, exclusive of interest and taxes, extraordinary expenses (such as
litigation) and distribution fees paid under the Fund's Class A, Class
B and Class C Distribution Plans, but inclusive of the Adviser's
compensation, exceed any expense limitation imposed by state
securities law or regulation in any state in which shares of such
Series of the Fund are then qualified for sale, as such regulations
may be amended from time to time, the Adviser will contribute to such
Series such funds or waive such portion of its fee, adjusted monthly,
as may be requisite to insure that such annual expenses will not
exceed any such limitation. If this Agreement shall be effective for
only a portion of any Series' fiscal year, then the maximum annual
expenses shall be prorated for such portion. Brokerage fees and
commissions incurred in connection with the purchase or sale of any
securities by a Series shall not be deemed to be expenses within the
meaning of this paragraph (b).
(c) Total Fee. (1) During the first 12 months of operations of Alpha
Opportunity Series, the Series shall pay the Adviser an investment
advisory fee equal to 2.00% of average daily net assets, accrued daily
and paid monthly (without any adjustment of the type discussed below).
(2) Thereafter, as compensation for the investment advisory services
to be rendered by the Adviser to Alpha Opportunity Series, the Series
shall pay the Adviser at the end of each calendar month, an advisory
fee (the "Total Fee") composed of: (i) a base fee equal to 2.00% (on
an annual basis), of the Alpha Opportunity Series' average daily net
assets over the month (the "Base Fee"); and (ii) a performance
adjustment to the Base Fee as further explained in (d) below (the
"Performance Adjustment"). The Total Fee shall be accrued daily and
paid monthly, with such
periodic adjustments as deemed appropriate in accordance with
applicable law and accounting standards.
(3) If the Adviser shall serve for less than the whole of any calendar
month, the Total Fee mentioned above shall be calculated on a pro rata
basis for the portion of the month for which the Adviser has served as
adviser.
(d) Calculation of Performance Adjustment. Each month, the rate of any
positive Performance Adjustment shall be equal to 0.75% multiplied by
the ratio of the number of percentage points by which the investment
performance of the Series (the "Investment Performance") exceeds the
investment record (the "Investment Record") of the Standard & Poor's
500 Composite Stock Price Index (the "Index") over the twelve-month
period ending on the last day of that month (the "Measuring Period")
as compared to 15 percentage points. For example, if the Investment
Performance of the Series was 6.6% and the Investment Record of the
Index was 0%, the ratio would be 6.6 to 15, or 0.44, times 0.75%, for
an upward Performance Adjustment rate of 0.33%.
Similarly, the rate of any negative Performance Adjustment shall be
equal to 0.75% multiplied by the ratio of the number of percentage
points by which the Investment Performance of the Series is less than
the Investment Record of the Index over the Measuring Period as
compared to 15 percentage points. For example, if the Investment
Performance of the Series was -10.0% and the Investment Record of the
Index was 0%, the ratio would be 10 to 15, or 0.667, times 0.75%, for
a downward Performance Adjustment rate of 0.50%.
After the rate of the Performance Adjustment has been determined as
described above, the Adviser will determine the dollar amount of such
Performance Adjustment by multiplying the Performance Adjustment rate
by the average daily net assets of the Series during the Measuring
Period and dividing that number by the number of days in the Measuring
Period and then multiplying that amount by the number of days in the
current month. The dollar amount of the Total Fee then equals the
dollar amount of the Base Fee as adjusted by the dollar amount of the
Performance Adjustment.
Each month, the maximum or minimum Performance Adjustment shall be
equal to 1/12th of 0.75% of the average daily net assets of the Series
during the Measuring Period (subject to minor accounting adjustments
to account for the specific number of days in the month) when the
Investment Performance of the Series is superior or inferior to the
Investment Record of the Index by 15 percentage points or more over
the Measuring Period. The maximum Total Fee payable to the Adviser in
any month is then equal to 1/12th
of 2.00% of the Series' average daily net assets over that month
(i.e., the Base Fee), plus 1/12th of 0.75% of the Series' average
daily net assets over the Measuring Period (i.e., the maximum positive
Performance Adjustment); and the minimum Total Fee payable to the
Adviser is equal to 1/12th of 2.00% of the Series' average daily net
assets over that month (i.e., the Base Fee), less 1/12th of 0.75% of
the Series' average daily net assets over the Measuring Period (i.e.,
the maximum negative Performance Adjustment) (subject to accounting
adjustments to account for the specific number of days in the month).
The Investment Performance of the Series will be determined by
reference to Class A shares of the Series in accordance with Rule
205-1(a) under the Investment Advisers Act of 1940 ("Advisers Act").
As such, it shall be equal to the sum of: (i) the change in the net
asset value of Class A shares during the Measuring Period, (ii) the
value of all cash distributions made by the Series to holders of its
Class A shares accumulated to the end of the Measuring Period, and
(iii) the value of capital gains taxes per Class A share, if any, paid
or payable on undistributed realized long-term gains accumulated to
the end of the Measuring Period, and will be expressed as a percentage
of the net asset value per share of the Class A shares at the
beginning of the Measuring Period (for this purpose, the value of
distributions per share of realized capital gains, of dividends per
share paid from investment income and of capital gains taxes per share
paid or payable on undistributed realized long-term capital gains are
treated as reinvested in Class A shares at the net asset value per
share in effect at the close of business on the record date for the
payment of such distributions and dividends and the date on which
provision is made for such taxes, after giving effect to such
distributions, dividends and taxes).
The Investment Record of the Index will be determined in accordance
with Rule 205-1(b) under the Advisers Act. As such, it shall be equal
to the sum of: (i) the change in the level of the Index during the
Measuring 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 Measuring Period, and
will be expressed as a percentage of the Index at the beginning of the
Measuring Period.
It is the intent of the parties to this Agreement that the Total Fee
arrangement comply with Section 205 of the Advisers Act, Rules 205-1
and 205-2 thereunder, as each may be amended from time to time (the
"Fulcrum Fee Provisions"). Any question in interpreting and
implementing the Total Fee arrangement shall be answered in accordance
with the Fulcrum Fee Provisions.
4. INVESTMENT ADVISORY DUTIES.
(a) INVESTMENT ADVICE. The Adviser shall regularly provide the Fund with
investment research, advice and supervision, continuously furnish an
investment program, recommend which securities shall be purchased and
sold and what portion of the assets of the Fund shall be held
uninvested and arrange for the purchase of securities and other
investments for the Fund and the sale of securities and other
investments held in the portfolio of the Fund. All investment advice
furnished by the Adviser to the Fund under this Section 4 shall at all
times conform to any
requirements imposed by the provisions of the Fund's Articles of
Incorporation and Bylaws, the 1940 Act, the Investment Advisors Act of
1940 and the rules and regulations promulgated thereunder, and other
applicable provisions of law, and the terms of the registration
statements of the Fund under the Securities Act of 1933 ("1933 Act")
and/or the 1940 Act, as may be applicable at the time, all as from
time to time amended. The Adviser shall advise and assist the officers
or other agents of the Fund in taking such steps as are necessary or
appropriate to carry out the decisions of the Board of Directors of
the Fund (and any duly appointed committee thereof) with regard to the
foregoing matters and the general account of the Fund's business.
(b) SUBADVISERS. Subject to the provisions of the 1940 Act and any
applicable exemptions thereto, the Adviser is authorized, but is under
no obligation, to enter into sub-advisory agreements (the
"Sub-Advisory Agreements") with one or more subadvisers (each a
"Subadviser") to provide investment advisory services to any series of
the Fund. Each Subadviser shall have investment discretion with
respect to the assets of the series assigned to that Subadviser by the
Adviser. Consistent with the provisions of the 1940 Act and any
applicable exemption thereto, the Adviser may enter into Sub-Advisory
Agreements or amend Sub-Advisory Agreements without the approval of
the shareholders of the affected series.
(c) PORTFOLIO TRANSACTIONS AND BROKERAGE.
(i) Transactions in portfolio securities shall be effected by the
Adviser, through brokers or otherwise (including affiliated
brokers), in the manner permitted in this Section 4 and in such
manner as the Adviser shall deem to be in the best interests of
the Fund after consideration is given to all relevant factors.
(ii) In reaching a judgment relative to the qualification of a broker
to obtain the best execution of a particular transaction, the
Adviser may take into account all relevant factors and
circumstances, including the size of any contemporaneous market
in such securities; the importance to the Fund of speed and
efficiency of execution; whether the particular transaction is
part of a larger intended change of portfolio position in the
same securities; the execution capabilities required by the
circumstances of the particular transaction; the capital required
by the transaction; the overall capital strength of the broker;
the broker's apparent knowledge of or familiarity with sources
from or to whom such securities may be purchased or sold; as well
as the efficiency, reliability and confidentiality with which the
broker has handled the execution of prior similar transactions.
(iii) Subject to any statements concerning the allocation of brokerage
contained in the Fund's Prospectus(es) or Statement(s) of
Additional Information, the Adviser is authorized to direct the
execution of portfolio transactions for the Fund to brokers who
furnish investment information or research service to the
Adviser. Such allocations shall be in such amounts and
proportions as the Adviser may determine. If the transaction is
directed to a broker providing brokerage and research services to
the Adviser, the commission paid for such transaction may be in
excess of the commission another broker would have charged for
effecting that transaction, if the Adviser shall have determined
in good faith that the commission is reasonable in relation to
the value of the brokerage and research services provided, viewed
in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to all accounts as
to which it now or hereafter exercises investment discretion. For
purposes of the immediately preceding sentence, "providing
brokerage and research services" shall have the meaning generally
given such terms or similar terms under Section 28(e)(3) of the
Securities Exchange Act of 1934, as amended.
(iv) In the selection of a broker for the execution of any transaction
not subject to fixed commission rates, the Adviser shall have no
duty or obligation to seek advance competitive bidding for the
most favorable negotiated commission rate to be applicable to
such transaction, or to select any broker solely on the basis of
its purported or "posted" commission rates.
(v) In connection with transactions on markets other than national or
regional securities exchanges, the Fund will deal directly with
the selling principal or market maker without incurring charges
for the services of a broker on its behalf unless, in the best
judgment of the Adviser, better price or execution can be
obtained by utilizing the services of a broker.
(d) LIMITATION OF LIABILITY OF THE ADVISER WITH RESPECT TO RENDERING
INVESTMENT ADVISORY SERVICES. So long as the Adviser shall give the
Fund the benefit of its best judgment and effort in rendering
investment advisory services hereunder, the Adviser shall not be
liable for any errors of judgment or mistake of law, or for any loss
sustained by reason of the adoption of any investment policy or the
purchase, sale or retention of any security on its recommendation
shall have been based upon its own investigation and research or upon
investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been made and such
other individual, firm or corporation shall have been selected with
due care and in good faith. Nothing herein contained shall, however,
be construed to protect the Adviser against any liability to the Fund
or its shareholders by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Section 4.
As used in this Section 4, the "Adviser" shall include directors,
officers and employees of the Adviser, as well as the Adviser itself.
5. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent
the Adviser or any officer thereof from acting as investment adviser for
any other person, firm or corporation, nor shall it in any way limit or
restrict the Adviser or any of its directors,
officers, stockholders or employees from buying, selling, or trading any
securities for their own accounts or for the accounts of others for whom
they may be acting; provided, however, that the Adviser expressly
represents that it will undertake no activities which, in its judgment,
will conflict with the performance of its obligations to the Fund under
this Agreement. The Fund acknowledges that the Adviser acts as investment
adviser to other investment companies, and it expressly consents to the
Adviser acting as such; provided, however, that if in the opinion of the
Adviser, particular securities are consistent with the investment
objectives of, and desirable purchases or sales for the portfolios of one
or more of such other investment companies or series of such companies at
approximately the same time, such purchases or sales will be made on a
proportionate basis if feasible, and if not feasible, then on a rotating or
other equitable basis.
6. AMENDMENT. This Agreement may be amended at any time, without shareholder
approval to the extent permitted by applicable law, by a writing signed by
each of the parties hereto. Any change in the Fund's registration
statements or other documents of compliance or in the forms relating to any
plan, program or service offered by its current Prospectus(es) which would
require a change in the Adviser's obligations hereunder shall be subject to
the Adviser's approval, which shall not be unreasonably withheld.
7. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall continue in
force with respect to a Series for an initial term of up to two years, and
then for successive 12-month periods thereafter, unless terminated,
provided each such continuance is specifically approved at least annually
by (a) the vote of a majority of the entire Board of Directors of the Fund,
or by the vote of the holders of a majority of the outstanding voting
securities of each series of the Fund (as defined in the 1940 Act), and (b)
the vote of a majority of the directors of the Fund who are not parties to
this Agreement or interested persons (as such terms are defined in the
Investment Company Act of 1940) of any such party cast in person at a
meeting of such directors called for the purpose of voting upon such
approval. In the event a majority of the outstanding shares of one series
vote for continuance of the Agreement, it will be continued for that series
even though the Agreement is not approved by either a majority of the
outstanding shares of any other series or by a majority of outstanding
shares of the Fund.
Upon this Agreement becoming effective, any previous Agreement between the
Fund and the Adviser providing for investment advisory services shall
concurrently terminate, except that such termination shall not affect any
fees accrued and guarantees of expenses with respect to any period prior to
termination.
This Agreement may be terminated at any time as to any series of the Fund
without payment of any penalty, by the Fund upon the vote of a majority of
the Fund's Board of Directors or, by a majority of the outstanding voting
securities of the applicable series of the Fund, or by the Adviser, in each
case on sixty (60) days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment (as such term
is defined in the 1940 Act).
8. SEVERABILITY. If any clause or provision of this Agreement is determined to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, then such clause or provision shall be considered
severed herefrom and the remainder of this Agreement shall continue in full
force and effect.
9. APPLICABLE LAW. This Agreement shall be subject to and construed in
accordance with the laws of the State of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereto duly authorized on the day, month
and year first above written.
SECURITY EQUITY FUND
By XXXXXX X. XXXXX
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Xxxxxx X. Xxxxx
Title: President
ATTEST:
XXX X. XXX
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XXX X. XXX
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Secretary
SECURITY INVESTORS, LLC
By XXXXXXX X. XXXXXXX
------------------------------------------
Xxxxxxx X. Xxxxxxx
Title: President
ATTEST:
XXX X. XXX
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XXX X. XXX
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Secretary
