SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of February, 1998
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 SALOMON BROTHERS ASSET MANAGEMENT
INC. (the "Subadviser"), a New York corporation registered under the Investment
Advisers Act.
WITNESSETH:
WHEREAS, Security Tax-Exempt Fund (the "Fund"), a Kansas corporation, is
registered with the Securities and Exchange Commission (the "Commission") as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act");
WHEREAS, the Fund 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 Agreement permits 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; and
WHEREAS, the Adviser desires to retain the Subadviser as subadviser for the
Fund to act as investment adviser for and to manage the 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 Fund subject
to the supervision of the Adviser and the Board of Directors of the 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 the Fund's
Investments.
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 Fund as set forth in its 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 Fund's Board 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. The Subadviser shall give the Fund the benefit of its best
efforts in rendering its services as Subadviser. The Subadviser may contract
with or consult with such banks, other securities firms, brokers or other
parties, without additional expense to the Fund, 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 Fund's Board to establish and maintain accounts on behalf
of the 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 the 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 Fund
and to such other clients. The Subadviser will report on such allocations at
the request of the Adviser, the Fund or the 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 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
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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 Fund
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 Fund 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 Fund 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 Fund and shall
be immediately surrendered to the Fund upon request. The Subadviser further
agrees that all books and records maintained hereunder shall be made
available to the Fund 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 Fund 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 Fund may
reasonably request. The Subadviser will make available its officers and
employees to meet with the Fund's Board of Directors at the Fund's principal
place of business on due notice to review the Investments of the Fund.
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 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.
(f) CUSTODY ARRANGEMENTS. The Subadviser shall provide the Fund's
custodian, on each business day with information relating to all transactions
concerning the Fund's assets.
(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 the
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Fund's Articles of Incorporation, By-Laws, and currently effective
registration statement and with the written instructions and directions of
the 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 ensure that the 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 the
Fund has ceased to so qualify or that it might not so qualify in the future.
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 the Fund, (ii) the By-Laws of the Fund and (iii) the 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 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 Fund or the Adviser in any way or
otherwise be deemed an agent of the Fund or the Adviser.
4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, an annual fee equal to 0.22 percent of the average daily
closing value of the net assets of the Fund, computed on a daily basis and
payable monthly. If this Agreement shall be effective for only a portion of a
year, then the Subadviser's compensation for said year shall be prorated for
such portion. For purposes of this paragraph 4, the value of the net assets of
the Fund 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.
Payment of the Subadviser's compensation for the preceding month shall be made
as promptly as possible after the end of each month.
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 Fund's Board.
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6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Fund 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 New York 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;
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;
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(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 gross
negligence on the part of the Subadviser or a breach of its duties hereunder,
the Subadviser shall not be subject to any liability to the Adviser or the
Fund or any of the Fund's shareholders, and, in the absence of willful
misfeasance, bad faith or gross 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.
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(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser and the
Fund, 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, gross 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, gross 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 the 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 the
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 the 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 the 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 the Fund, or by
vote of a majority of the outstanding voting securities of the 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
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(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 Fund pursuant to the Advisory Agreement
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 the 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 Fund 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 Fund and the actions of the
Subadviser, the Adviser and the Fund in respect thereof.
14. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Fund) 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:
Salomon Brothers Asset Management Inc.
0 Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: _________________________
Facsimile: (000) 000-0000
(b) If to the Adviser:
Xxxxx X. Xxxxxxx
President
Security Management Company, LLC
000 XX Xxxxxxxx
Xxxxxx, Xxxxxx 00000-0000
Attention: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
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(c) If to Security Tax-Exempt Fund:
Xxx X. Xxx
Secretary
Security Tax-Exempt 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.
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: President
Attest:
------------------------------
Name: Xxx X. Xxx
Title: Secretary
SALOMON BROTHERS ASSET MANAGEMENT INC.
By:
----------------------------------
Name:
Title:
Attest:
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Name:
Title:
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