THIRD PARTY FEEDER FUND AGREEMENT
AMONG
SECURITY MANAGEMENT COMPANY, LLC,
SECURITY DISTRIBUTORS, INC.,
SECURITY INCOME FUND,
CAPITAL PRESERVATION SERIES,
BT PRESERVATIONPLUS INCOME PORTFOLIO
AND
BANKERS TRUST COMPANY
DATED AS OF MAY 4, 1999
THIRD PARTY FEEDER FUND AGREEMENT
The parties to this Agreement are Security Management Company, LLC
("Security Management"), Security Income Fund, (the "Company"), a Kansas
corporation, in respect of the Capital Preservation Series, a series thereof
(the "Fund"), BT PreservationPlus Income Portfolio, a New York business trust
(the "Portfolio"), Security Distributors, Inc., a corporation organized under
the laws of the State of Kansas ("Security Distributors"), and Bankers Trust
Company, a New York banking corporation ("Bankers"), with respect to the
proposed investment by the Fund in the Portfolio. THIS AGREEMENT is made and
entered into as of May 4, 1999, with respect to the proposed investment by the
Fund in the Portfolio.
PREAMBLE
WHEREAS, the Company and the Portfolio are each open-end management
investment companies and the Fund and the Portfolio have the same investment
objectives;
WHEREAS, Bankers currently serves as the investment adviser of the
Portfolio;
WHEREAS, Security Distributors currently serves as the principal
underwriter of the Company and Fund;
WHEREAS, Security Management serves as promoter of the Fund;
WHEREAS, the Company desires to invest all of the Fund's investable assets
in the Portfolio in exchange for a beneficial interest in the Portfolio (the
"Investment") on the terms and conditions set forth in this Agreement; and
WHEREAS, the Portfolio believes that accepting the Investment is in the
best interests of the Portfolio and that the interests of existing investors in
the Portfolio will not be diluted as a result of its accepting the Investment;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE ONE
THE INVESTMENT
1.1 AGREEMENT TO EFFECT THE INVESTMENT. The Company agrees to assign, transfer
and deliver all of the Fund's investable assets (the "Assets") to the
Portfolio at each Closing (as hereinafter defined). The Portfolio agrees in
exchange therefore to issue to the Fund a beneficial interest (the
"Interest") in the Portfolio equal in value to the net asset value of the
Assets of the Fund conveyed to the Portfolio on that date of Closing.
ARTICLE TWO
CLOSING AND CLOSING DATE
2.1 TIME OF CLOSING. The conveyance of the Assets in exchange for the Interest,
as described in Article One, together with related acts necessary to
consummate such transactions, shall occur initially on the date the Company
commences its offering of shares of the Fund to the public and at each
subsequent date as the Company desires to make a further Investment in the
Portfolio (each, a "Closing"). All acts occurring at any Closing shall be
deemed to occur simultaneously as of the last daily determination of the
Portfolio's net asset value on the date of Closing.
2.2 RELATED CLOSING MATTERS. On each date of Closing, the Company, on behalf of
the Fund, shall authorize the Fund's custodian to deliver all of the Assets
held by such custodian to the Portfolio's custodian. The Fund's and the
Portfolio's custodians shall each acknowledge, in a form acceptable to the
other party, their respective delivery and acceptance of the Assets. The
Portfolio shall deliver to the Company acceptable evidence of the Fund's
ownership of the Interest. In addition, each party shall deliver to each
other party such bills of sale, checks, assignments, securities
instruments, receipts or other documents as such other party or its counsel
may reasonably request. Each of the representations and warranties set
forth in Article Three shall be deemed to have been made anew on each date
of Closing.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
3.1 THE COMPANY AND SECURITY MANAGEMENT
The Company and Security Management each represents and warrants to the
Portfolio and Bankers that:
(a) ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas.
The Fund is a duly and validly designated series of the Company. The
Company and the Fund have the requisite power and authority to own
their property and conduct their business as now being conducted and
as proposed to be conducted pursuant to this Agreement.
(b) AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action
on the part of the Company. No other action or proceeding is necessary
for the execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder and the
consummation by the Company of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company in
respect of the Fund, enforceable against them in accordance with its
terms.
(c) AUTHORIZATION OF INVESTMENT. The Investment has been duly authorized
by all necessary action on the part of the Board of Directors of the
Company.
(d) NO BANKRUPTCY PROCEEDINGS. Neither the Company nor the Fund is under
the jurisdiction of a court in a proceeding under Title 11 of the
United States Code (the "Bankruptcy Code") or similar case within the
meaning of Section 368(a)(3)(A) of the Bankruptcy Code.
(e) FUND ASSETS. The Fund's Assets will, at the initial Closing, consist
solely of cash.
(f) FISCAL YEAR. The fiscal year end for the Fund is September 30.
(g) AUDITORS. The Company has appointed Ernst & Young, LLP as the Fund's
independent public accountants to certify the Fund's financial
statements in accordance with Section 32 of the Investment Company Act
of 1940, as amended ("1940 Act").
(h) REGISTRATION STATEMENT. The Company has reviewed the Portfolio's
registration statement on Form N-1A, as filed with the Securities and
Exchange Commission ("SEC"), and understands and agrees to the
Portfolio's policies and methods of operation as described therein.
(i) ERRORS AND OMISSIONS INSURANCE POLICY. The Company has in force an
errors and omissions liability insurance policy insuring the Fund
against loss up to $8 million for negligence or wrongful acts.
(j) SEC FILINGS. To the best of its knowledge, the Company has duly filed
all forms, reports, proxy statements and other documents
(collectively, the "SEC Filings") required to be filed under the
Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934 (the "1934 Act") and the 1940 Act (collectively,
the "Securities Laws") in connection with the registration of its
shares, any meetings of its shareholders and its registration as an
investment company. The SEC Filings were prepared in accordance with
the requirements of the Securities Laws, as applicable, and the rules
and regulations of the SEC thereunder and do not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(k) 1940 ACT REGISTRATION. The Company is duly registered as an open-end
management investment company under the 1940 Act and the Fund and its
shares are registered or qualified in any states where such
registration or qualification is necessary and such registrations or
qualifications are in full force and effect.
(l) All purchases and redemptions of Fund shares contemplated by this
Agreement shall be effected in accordance with the Fund's then-current
prospectus.
3.2 THE PORTFOLIO AND BANKERS
The Portfolio and Bankers each represents and warrants to the Company and
Security Management that:
(a) ORGANIZATION. The Portfolio is a business trust duly organized and
validly existing under the common law of the State of New York and has
the requisite power and authority to own its property and conduct its
business as now being conducted and as proposed to be conducted
pursuant to this Agreement.
(b) AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement by the Portfolio and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action
on the part of the Portfolio by its Board of Trustees and no other
action or proceeding is necessary for the execution and delivery of
this Agreement by the Portfolio, the performance by the Portfolio of
its obligations hereunder and the consummation by the Portfolio of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Portfolio and constitutes a legal, valid
and binding obligation of the Portfolio, enforceable against it in
accordance with its terms.
(c) AUTHORIZATION OF ISSUANCE OF INTEREST. The issuance by the Portfolio
of the Interest in exchange for the Investment by the Fund of its
Assets has been duly authorized by all necessary action on the part of
the Board of Trustees of the Portfolio. When issued in accordance with
the terms of this Agreement, the Interest will be validly issued,
fully paid and non-assessable by the Portfolio.
(d) NO BANKRUPTCY PROCEEDINGS. The Portfolio is not under the jurisdiction
of a court in a proceeding under Title 11 of the Bankruptcy Code or
similar case within the meaning of Section 368(a)(3)(A) of the
Bankruptcy Code.
(e) FISCAL YEAR. The fiscal year end of the Portfolio is September 30.
(f) AUDITORS. The Portfolio has appointed Ernst & Young LLP as the
Portfolio's independent public accountants to certify the Portfolio's
financial statements in accordance with Section 32 of the 1940 Act.
(g) REGISTRATION STATEMENT. The Portfolio has reviewed the Company's
registration statement on Form N-1A, as filed with the SEC, and
understands and agrees to the Fund's policies and methods of operation
as described therein.
(h) ERRORS AND OMISSIONS INSURANCE POLICY. The Portfolio has in force an
errors and omissions liability insurance policy insuring the Portfolio
against loss up to $10 million for negligence or wrongful acts.
(i) SEC FILINGS; STATE FILINGS. To the best of its knowledge, the
Portfolio has duly filed all SEC Filings required to be filed with the
SEC pursuant to the 1934 Act and the 1940 Act in connection with any
meetings of its investors and its registration as an investment
company. Beneficial interests in the Portfolio are not required to be
registered under the 1933 Act because such interests are offered
solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act,
and such beneficial interests are not required to be registered or
qualified in any state. The SEC Filings were prepared in accordance
with the requirements of the Securities Laws, as applicable, and the
rules and regulations of the SEC thereunder, and do not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(j) 1940 ACT REGISTRATION. The Portfolio is duly registered as an open-end
management investment company under the 1940 Act and such registration
is in full force and effect.
(k) TAX STATUS. The Portfolio is taxable as a partnership under the
Internal Revenue Code of 1986, as amended (the "Code").
(l) YEAR 2000 PREPAREDNESS. The Portfolio has taken steps reasonably
designed to assure that the software and operating systems it uses
(and those of its vendors) to perform its obligations hereunder are
able properly to distinguish dates before January 1, 2000 from dates
on or after January 1, 2000.
3.3 BANKERS
Bankers represents and warrants to the Company and Security Management
that:
(a) ORGANIZATION. Bankers is a New York banking corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and has the requisite power and authority to conduct
its business as now being conducted.
(b) AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement by Bankers has been duly authorized by all necessary action
on the part of Bankers and no other action or proceeding is necessary
for the execution and delivery of this Agreement by Bankers. This
Agreement has been duly executed and delivered by Bankers and
constitutes a legal, valid and binding obligation of Bankers.
(c) ADVISERS ACT. Bankers is exempt from the definition of an investment
adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), and is not required to register under that Act.
(d) CHANGE OF CONTROL. Bankers is a wholly owned subsidiary of Bankers
Trust Corporation. On November 30, 1998, Bankers Trust Corporation
entered into an Agreement and Plan of Merger with Deutsche Bank, AG
under which Bankers Trust Corporation would merge with and into a
subsidiary of Deutsche Bank AG. If the proposed transaction is
approved and completed, Deutsche Bank, AG, as the investment adviser's
new parent company, will control the operations of Bankers.
(e) YEAR 2000. Bankers has taken steps reasonably designed to insure
assure that the software and operating systems it uses (and those of
its vendors) to perform its obligations hereunder are able properly to
distinguish dates before January 1, 2000 from dates on or after
January 1, 2000.
3.4 SECURITY MANAGEMENT AND SECURITY DISTRIBUTORS
(a) Security Management represents and warrants to the Portfolio and
Bankers that:
(i) ORGANIZATION. Security Management is a limited liability
company duly organized, validly existing and in good standing
under the laws of the State of Kansas and has the requisite
power and authority to conduct its business as now being
conducted.
(ii) AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement by Security Management have been duly authorized by
all necessary action on the part of Security Management and no
other action or proceeding is necessary for the execution and
delivery of this Agreement by Security Management. This
Agreement has been duly executed and delivered by Security
Management and constitutes a legal, valid and binding
obligation of Security Management.
(iii) PROMOTER AND ADMINISTRATOR. Security Management is the Fund's
promoter and administrator and is registered as an investment
adviser under the Advisers Act.
(b) Security Distributors represents and warrants to the Portfolio and
Bankers that:
(i) AUTHORIZATION OF AGREEMENT. The execution and delivery of this
Agreement by Security Distributors has been duly authorized by
all necessary action on the part of Security Distributors and
no other action or proceeding is necessary for the execution
and delivery of this Agreement by Security Distributors. This
Agreement has been duly executed and delivered by Security
Distributors and constitutes a legal, valid and binding
obligation of Security Distributors.
(ii) Security Distributors serves as the Company's and the Fund's
principal underwriter and is duly registered as a
broker-dealer under the 1934 Act. Security Distributors is
duly organized, validly existing and in good standing under
the laws of the state of Kansas, and has requisite authority
to conduct its business as now being conducted.
ARTICLE FOUR
COVENANTS
4.1 THE COMPANY
The Company covenants that:
(a) ADVANCE REVIEW OF CERTAIN DOCUMENTS. The Company will furnish the
Portfolio and Bankers, at least 10 business days prior to filing or
first use, as the case may be, with drafts of its registration
statement on Form N-lA (including amendments) and prospectus
supplements or amendments relating to the Fund. The Company will
furnish the Portfolio and Bankers with any proposed advertising or
sales literature relating to the Fund at least 10 business days prior
to filing or first use. These advance review periods may be waived
with the consent of the Portfolio and Bankers. The Company agrees that
it will include in all such Fund documents any disclosures that may be
required by law, particularly those relating to Bankers' status as a
bank, and it will include in all such Fund documents any material
comments reasonably made by Bankers or the Portfolio. The Portfolio
and Bankers will, however, in no way be liable for any errors or
omissions in such documents, whether or not they make any objection
thereto, except to the extent such errors or omissions result from
information provided by Bankers or the Portfolio. The Company will not
make any other written or oral representation about the Portfolio or
Bankers without their prior written consent.
(b) TAX STATUS. The Fund will qualify for treatment as a regulated
investment company under Subchapter M of the Code for all periods
during which this Agreement is in effect, except to the extent a
failure to so qualify may result from any action or omission of the
Portfolio.
(c) INVESTMENT SECURITIES. The Fund will own no investment security other
than its Interest in the Portfolio.
(d) PROXY VOTING. If requested to vote as a shareholder on matters
pertaining to the Portfolio (other than a vote by the Company to
continue the operation of the Portfolio upon the withdrawal of another
investor in the Portfolio), the Company will, to the extent required
by applicable law, (i) call a meeting of shareholders of the Fund for
the purpose of seeking instructions from shareholders regarding such
matters, (ii) vote the Fund's Interest proportionally as instructed by
Fund shareholders, and (iii) vote the Fund's Interest with respect to
the shares held by Fund shareholders who do not give voting
instructions in the same proportion as the shares of Fund shareholders
who do give voting instructions. The Company will hold each such
meeting of Fund shareholders in accordance with a timetable reasonably
established by the Portfolio. With respect to proposals solely
attributable to and for the benefit of Bankers, Bankers shall bear the
costs and expenses in calling and holding such meetings, including,
but not limited to the cost of printing and mailing proxy statements
and expenses associated with the solicitation of Fund shareholders.
(e) Insurance. The Company shall at all times maintain errors and
omissions liability insurance with respect to the Fund covering losses
for negligence and wrongful acts in an amount not less than $5
million. At least once each calendar year, the Company shall review
its insurance coverage, and shall increase its coverage as it deems
appropriate.
(f) Auditors. In the event the Fund's independent public accountants
differ from those of the Portfolio, the Fund shall be responsible for
any costs and expenses associated with the need for the Portfolio's
independent public accountants to provide information to the Fund's
independent public accountants.
4.2 INDEMNIFICATION BY SECURITY MANAGEMENT
(a) With respect to those matters listed in subparagraphs (i) through (vi)
below, Security Management will indemnify and hold harmless the
Portfolio, Bankers and their respective trustees, directors, officers
and employees and each other person who controls the Portfolio or
Bankers, as the case may be, within the meaning of Section 15 of the
1933 Act (each, a "Covered Person" and collectively, "Covered
Persons"), against any and all losses, claims, demands, damages,
liabilities and expenses, joint or several, (each, a "Liability" and
collectively, the "Liabilities"). Unless Security Management elects to
assume the defense pursuant to paragraph (b) Security Management will
bear the reasonable cost of investigating and defending against any
claims therefor and any reasonable counsel fees incurred in connection
therewith. This Section 4.2 applies to any Liability which arises out
of, is based upon or results from:
(i) any violation or alleged violation of the Securities Laws, any
other statute or common law or are incurred in connection with
or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as
such Liabilities arise out of or are based upon the ground or
alleged ground that any direct or indirect omission or
commission by the Company or the Fund (either during the
course of its daily activities or in connection with the
accuracy of its representations or its warranties in this
Agreement) caused or continues to cause the Portfolio to
violate any federal or state securities laws or regulations or
any other applicable domestic or foreign law or regulations or
common law duties or obligations, but only to the extent that
such Liabilities do not arise out of and are not based upon an
omission or commission of the Portfolio or Bankers;
(ii) the Fund having caused the Portfolio to be an association
taxable as a corporation rather than a partnership; or
(iii) any misstatement of a material fact or an omission of a
material fact in the Company's registration statement
(including amendments thereto) or included in Fund advertising
or sales literature, other than information provided by or on
behalf of the Portfolio or Bankers or included in Fund
advertising or sales literature at the request of the
Portfolio or Bankers or the agent of either;
(iv) the failure of any representation or warranty made by the
Company or Security Management to be materially accurate when
made or the failure of the Company or Security Management to
perform any covenant contained herein or to otherwise comply
with the terms of this Agreement;
(v) any unlawful or negligent act of the Company, Security
Management or any director, officer, employee or agent of the
Company or Security Management, whether such act was committed
against the Company, the Portfolio, Bankers Trust or any third
party;
(vi) any Liability of the Fund for which the Portfolio is also
liable and for which the Company or Security Management is
responsible; provided, however, that in no case shall Security
Management be liable with respect to any claim made against
any Covered Person under this Section 4.2 unless the Covered
Person shall have notified Security Management in writing of
the nature of the claim within a reasonable time after the
summons, other first legal process or formal or informal
initiation of a regulatory investigation or proceeding shall
have been served upon or provided to a Covered Person, or any
federal, state or local tax deficiency has come to the
attention of Bankers, the Portfolio or a Covered Person.
Failure to notify Security Management of such claim shall
relieve it from Liability only to the extent that it is
actually harmed or disadvantaged by the failure to provide
timely notice and shall not relieve Security Management from
any Liability that it may have to any Covered Person otherwise
than on account of the indemnification contained in this
Section.
(b) Security Management will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any such Liability. If Security Management elects
to assume the defense, such defense shall be conducted by counsel
chosen by Security Management. In the event Security Management elects
to assume the defense of any such suit and retain such counsel, each
Covered Person and any other defendant or defendants may retain
additional counsel, but shall bear the fees and expenses of such
counsel unless (A) Security Management shall have specifically
authorized the retaining of such counsel or (B) the parties to such
suit include any Covered Person and Security Management, and any such
Covered Person has been advised by counsel in writing that one or more
legal defenses may be available to it that may not be available to
Security Management, in which case Security Management shall not be
entitled to assume the defense of such suit notwithstanding its
obligation to bear the reasonable fees and expenses of such counsel.
Security Management shall not be liable to indemnify any Covered
Person for any settlement of any claim effected without Security
Management's written consent, which consent shall not be unreasonably
withheld or delayed. The indemnities set forth in paragraph (a) will
be in addition to any liability that the Company in respect of the
Fund might otherwise have to a Covered Person.
4.3 INDEMNIFICATION BY SECURITY DISTRIBUTORS
(a) With respect to those matters listed in subparagraph (i) through (iv)
below, Security Distributors will indemnify and hold harmless the
Portfolio, Bankers and their respective trustees, directors, officers
and employees and each other person who controls the Portfolio or
Bankers, as the case may be, within the meaning of Section 15 of the
1933 Act (each a "Covered Person" and collectively, "Covered
Persons"), against any and all losses, claims, demands, damages,
liabilities and expenses, joint or several, (each, a "Liability" and
collectively, the "Liabilities"). Unless Security Distributors elects
to assume the defense pursuant to paragraph (c), Security Distributors
will bear the reasonable cost of investigating and defending against
any claims therefor and any reasonable counsel fees incurred in
connection therewith. This Section 4.3 applies to any Liability which
arises out of, is based upon or results from:
(i) any misstatement of a material fact or an omission of a
material fact included in Fund advertising or sales
literature, other than information provided by or on behalf of
the Portfolio or Bankers or included in Fund advertising or
sales literature at the request of the Portfolio or Bankers or
the agent of either;
(ii) the failure of any representation or warranty made by Security
Distributors to be materially accurate when made or the
failure of Security Distributors to perform any covenant
contained herein or to otherwise comply with the terms of this
Agreement;
(iii) any unlawful or negligent act of Security Distributors or any
director, officer, employee or agent of Security Distributors,
whether such act was committed against the Company, the
Portfolio, Bankers Trust or any third party; or
(iv) any material breach of Security Distributors' representations,
warranties and covenants included herein, including the
representations that the Fund will permit investments only by
IRAs and Plans as defined in the prospectus for the BT
PreservationPlus Income Fund.
(b) In no case shall Security Distributors be liable with respect to any
claim made against any Covered Person under this Section 4.3 unless
the Covered Person shall have notified Security Distributors in
writing of the nature of the claim within a reasonable time after the
summons, other first legal process or formal or informal initiation of
a regulatory investigation or proceeding shall have been served upon
or provided to a Covered Person, or any federal, state or local tax
deficiency has come to the attention of Bankers, the Portfolio or a
Covered Person. Failure to notify Security Distributors of such claim
shall relieve it from Liability only to the extent that it is actually
harmed or disadvantaged by the failure to provide timely notice and
shall not relieve Security Distributors from any Liability that it may
have to any Covered Person otherwise than on account of the
indemnification contained in this Section.
(c) Security Distributors will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such Liability. If Security
Distributors elects to assume the defense, such defense shall be
conducted by counsel chosen by Security Distributors. In the event
Security Distributors elects to assume the defense of any such suit
and retain such counsel, each Covered Person and any other defendant
or defendants may retain additional counsel, but shall bear the fees
and expenses of such counsel unless (i) Security Distributors shall
have specifically authorized the retaining of such counsel or (ii) the
parties to such suit include any Covered Person and Security
Distributors, and any such Covered Person has been advised by counsel
in writing that one or more legal defenses may be available to it that
may not be available to Security Distributors, in which case Security
Distributors shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the reasonable fees and
expenses of such counsel. Security Distributors shall not be liable to
indemnify any Covered Person for any settlement of any claim effected
without Security Distributors' written consent. Such consent shall not
be unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that Security
Distributors might otherwise have to a Covered Person.
(d) Any material breach of the representations, warranties and covenants
included herein (including the representations that the Fund will
permit investments only by IRAs and Plans (as defined in the
prospectus for the BT PreservationPlus Income Fund) and, other than
with the consent of the Portfolio, that the redemption rights of
shareholders of the Fund will be the same as those described in the
prospectus for the BT PreservationPlus Income Fund.
4.4 THE PORTFOLIO
The Portfolio covenants that:
(a) ADVANCE REVIEW OF CERTAIN DOCUMENTS. The Portfolio will furnish the
Company and Security Management, at least 10 business days prior to
filing or first use, as the case may be, with drafts of its
registration statement on Form N-1A (including amendments) and
prospectus supplements or amendments. This advance review period may
be waived with the consent of the Company and Security Management. The
Portfolio will not make any written or oral representation about the
Company, Security Distributors or Security Management without their
prior written consent.
(b) TAX STATUS. The Portfolio will qualify to be taxable as a partnership
under the Code for all periods during which this Agreement is in
effect, except to the extent that the failure to so qualify results
from any action or omission of the Fund.
(c) INSURANCE. The Portfolio shall at all times maintain errors and
omissions liability insurance covering losses for negligence and
wrongful acts in an amount not less than $10 million. At least once
each calendar year, the Portfolio shall review its insurance coverage,
and shall increase its coverage, as it deems appropriate.
(d) AVAILABILITY OF INTERESTS. Conditional upon the Company complying with
the terms of this Agreement, the Portfolio shall permit the Fund to
make additional Investments in the Portfolio on each business day on
which shares of the Fund are sold to the public; provided, however,
that the Portfolio may refuse to permit the Fund to make additional
Investments in the Portfolio on any day on which:
(i) the Portfolio has refused to permit all other investors in the
Portfolio to make additional investments in the Portfolio, or
(ii) the Trustees of the Portfolio have reasonably determined that
permitting additional investments by the Fund in the Portfolio
would constitute a breach of their fiduciary duties to the
Portfolio.
4.5 INDEMNIFICATION BY BANKERS
(a) With respect to those matters listed in subparagraphs (i) through
(viii) below, Bankers will indemnify and hold harmless the Company,
Security Management, Security Distributors, their respective
directors, officers and employees and each other person who controls
the Company, the Fund, Security Management or Security Distributors,
as the case may be, within the meaning of Section 15 of the 1933 Act
(each, a "Covered Person" and collectively, "Covered Persons"),
against any and all losses, claims, demands, damages, liabilities and
expenses, joint or several, (each, a "Liability" and collectively, the
"Liabilities"). Unless Bankers elects to assume the defense pursuant
to paragraph (b), Bankers will bear the reasonable costs of
investigating and defending against any claims therefore and any
reasonable counsel fees incurred in connection therewith), whether
incurred directly by the Company, Security Management or Security
Distributors or indirectly by the Company, Security Management, or
Security Distributors through the Company's Investment in the
Portfolio. This Section 4.5 applies to any Liability which arises out
of, is based upon or results from:
(i) any violation or alleged violation of the Securities Laws, any
other statute or common law or are incurred in connection with
or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as
such Liabilities arise out of or are based upon the ground or
alleged ground that any direct or indirect omission or
commission by the Portfolio (either during the course of its
daily activities or in connection with the accuracy of its
representations or its warranties in this Agreement) caused or
continues to cause the Company to violate any federal or state
securities laws or regulations or any other applicable
domestic or foreign law or regulations or common law duties or
obligations, but only to the extent that such Liabilities do
not arise out of and are not based upon an omission or
commission of the Company, Security Management or Security
Distributors;
(ii) an inaccurate calculation of the Portfolio's net asset value
(whether by the Portfolio, Bankers or any party retained for
that purpose);
(iii) (A) any misstatement of a material fact or an omission of a
material fact in the Portfolio's registration statement
(including amendments thereto) or included in advertising or
sales literature used by the Fund, other than information
provided by or on behalf of the Company, Security Management
or Security Distributors or included at their, or their
agent's request, or (B) any misstatement of a material fact or
an omission of a material fact in the registration statement
or advertising or sales literature of any investor in the
Portfolio, other than the Company;
(iv) the Portfolio's having caused the Fund to fail to qualify as a
regulated investment company under the Code;
(v) failure of any representation or warranty made by the
Portfolio or Bankers to be materially accurate when made, any
material breach of any representation or warranty made by the
Portfolio or Bankers, or the failure of the Portfolio or
Bankers to perform any covenant contained herein or to
otherwise comply with the terms of this Agreement;
(vi) any unlawful or negligent act by the Portfolio, Bankers or any
director, trustee, officer, employee or agent of the Portfolio
or adviser, whether such act was committed against the
Portfolio, the Company, Security Management, Security
Distributors or any third party;
(vii) any claim that the systems, methodologies, or technology used
in connection with operating the Portfolio, including the
technologies associated with maintaining the master-feeder
structure of the Portfolio, violate any license or infringe
upon any patent or trademark;
(viii) any liability of the Portfolio for which the Fund is also
liable and for which the Portfolio or Bankers is responsible,
and any Liability of the Portfolio to any investor in the
Portfolio (or shareholder thereof), other than the Fund (and
its shareholders); provided, however, that in no case shall
Bankers be liable with respect to any claim made against any
such Covered Person under this Section 4.5 unless such Covered
Person shall have notified Bankers in writing of the nature of
the claim within a reasonable time after the summons, other
first legal process or formal or informal initiation of a
regulatory investigation or proceeding shall have been served
upon or provided to a Covered Person or any federal, state or
local tax deficiency has come to the attention of the Company,
Security Management, Security Distributors or a Covered
Person. Failure to notify Bankers of such claim shall relieve
it from Liability only to the extent that it is actually
harmed or disadvantaged by the failure to provide timely
notice and shall not relieve Bankers from any Liability that
it may have to any Covered Person otherwise than on account of
the indemnification contained in this paragraph.
(b) Bankers will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought
to enforce any such Liability. If Bankers elects to assume the
defense, such defense shall be conducted by counsel chosen by Bankers.
In the event Bankers elects to assume the defense of any such suit and
retain such counsel, each Covered Person and any other defendant or
defendants in the suit may retain additional counsel but shall bear
the reasonable fees and expenses of such counsel unless (i) Bankers
shall have specifically authorized the retaining of such counsel or
(ii) the parties to such suit include any Covered Person and Bankers,
and any such Covered Person has been advised by counsel, in writing,
that one or more legal defenses may be available to it that may not be
available to Bankers, in which case Bankers shall not be entitled to
assume the defense of such suit notwithstanding the obligation to bear
the fees and expenses of such counsel. Bankers shall not be liable to
indemnify any Covered Person for any settlement of any such claim
effected without Bankers' written consent. Such consent shall not be
unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that the Portfolio
might otherwise have to a Covered Person.
4.6 SCOPE OF AGREEMENT
Nothing contained herein shall be construed to protect any person against
any liability to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence, in the performance of such
person's duties, or by reason of such person's reckless disregard of such
person's obligations under such contract or agreement.
4.7 IN-KIND REDEMPTION
In the event the Company desires to withdraw or redeem all or a portion of
the Fund's Investment in the Portfolio, unless otherwise agreed to by the
parties, the Portfolio will effect such redemption (a) in cash, (b) "in kind"
(as described below) or (c) in some combination of the foregoing determined
solely in the discretion of Bankers. Further, if the Interest Rate Trigger as
described in the prospectus for the Portfolio is active, a redemption fee
(currently 3% of the proceeds of such redemption) will be applied. In connection
with a partial or complete redemption "in kind," the Portfolio will distribute
to the Company securities and Wrapper Agreements as described in the prospectus
for the BT PreservationPlus Income Fund. The Portfolio will assign to the
Company one or more Wrapper Agreements issued by the Wrapper providers covering
the securities distributed in kind. The terms and conditions of the Wrapper
Agreements distributed to the Company will be substantially similar to the terms
and conditions of the Wrapper Agreements held by the Portfolio. In order to
obtain the benefits provided thereunder, the Company's management of the
securities must be consistent with the Wrapper Agreement requirements and the
Company must complete the assignment by executing the Wrapper Agreements. No
other withdrawal or redemption of any Interest in the Portfolio will be
satisfied by means of an "in kind" redemption except in compliance with Rule
18f-1 under the 1940 Act, provided, however, that for purposes of determining
compliance with Rule 18f-1, each shareholder of the Fund redeeming shares of the
Fund on a particular day will be treated as a direct holder of an Interest in
the Portfolio being redeemed that day.
4.8 REASONABLE ACTIONS
Each party covenants that it will, subject to the provisions of this
Agreement, from time to time, as and when requested by another party or in its
own discretion, as the case may be, execute and deliver or cause to be executed
and delivered all such assignments and other instruments, take or cause to be
taken such actions, and do or cause to be done all things reasonably necessary,
proper or advisable in order to consummate the transactions contemplated by this
Agreement and to carry out its intent and purpose.
ARTICLE FIVE
CONDITIONS PRECEDENT
5.0 GENERAL
The obligations of each party to consummate the transactions provided for
herein shall be subject to:
(a) performance by the other parties of all the obligations to be
performed by the other parties hereunder on or before each Closing,
(b) all representations and warranties of the other parties contained in
this Agreement being true and correct in all material respects as of
the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of each date of
Closing, with the same force and effect as if made on and as of the
time of such Closing, and
(c) the following further conditions that shall be fulfilled on or before
each Closing.
5.1 REGULATORY STATUS
All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been received that
any other or further action is required to permit the parties to carry out the
transactions contemplated hereby.
5.2 APPROVAL OF AUDITORS
Unless precluded by applicable fiduciary duties or the failure of the
Fund's shareholders to provide necessary ratification, the directors of the
Company that are not "interested persons" of the Company, as defined in the 1940
Act, shall have selected as the independent certified public accountants for the
Fund the independent certified public accountants selected and ratified for the
Portfolio.
5.3 INVESTMENT OBJECTIVE/RESTRICTIONS
The Fund shall have the same investment objective and substantively the
same investment restrictions as the Portfolio.
ARTICLE SIX
ADDITIONAL AGREEMENTS
6.1 NOTIFICATION OF CERTAIN MATTERS
Each party will give prompt notice to the other parties of:
(a) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause either:
(i) any representation or warranty contained in this Agreement to
be materially untrue or inaccurate, or
(ii) any condition precedent set forth in Article Five hereof to be
unsatisfied in any material respect at the time of any
Closing, and
(b) any material failure of a party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by
such person hereunder; provided, however, that the delivery of any
notice pursuant to this Section 6.1 shall not limit or otherwise
affect the remedies available, hereunder or otherwise, to the party
receiving such notice.
6.2 ACCESS TO INFORMATION
The Portfolio and the Company shall afford each other reasonable access at
all reasonable times to such party's officers, employees, agents and offices and
to all its relevant books and records and shall furnish each other party with
all relevant financial and other data and information as requested; provided,
however, that nothing contained herein shall obligate the Company to provide the
Portfolio with access to the books and records of the Company relating to any
series of the Company other than the Fund, nor shall anything contained herein
obligate the Company to furnish the Portfolio with the Fund's shareholder list,
except as may be required to comply with applicable law or any provision of this
Agreement.
6.3 CONFIDENTIALITY
Each party agrees that it shall hold in strict confidence all data and
information obtained from another party (unless such information is or becomes
readily ascertainable from public or published information or trade sources) and
shall ensure that its officers, employees and authorized representatives do not
disclose such information to others without the prior written consent of the
party from whom it was obtained, except if disclosure is required by the SEC,
any other regulatory body or the Fund's or Portfolio's respective auditors, or
in the opinion of counsel such disclosure is required by law, and then only with
as much prior written notice to the other party as is practical under the
circumstances.
6.4 PUBLIC ANNOUNCEMENTS
No party shall issue any press release or otherwise make any public
statements with respect to the matters covered by this Agreement without the
prior consent of the other parties hereto, which consent shall not be
unreasonably withheld; provided, however, that consent shall not be required if,
in the opinion of counsel, such disclosure is required by law, provided further,
however, that the party making such disclosure shall provide the other parties
hereto with as much prior written notice of such disclosure as is practical
under the circumstances. Advance review of sales literature and advertising
material shall be subject to the provisions of Section 4.1 of this Agreement.
ARTICLE SEVEN
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
(a) This Agreement may be terminated by the mutual agreement of all
parties.
(b) This Agreement may be terminated at any time by the Company by
withdrawing all of the Fund's Interest in the Portfolio.
(c) This Agreement may be terminated on not less than 120 days' prior
written notice by the Portfolio to the Company, Security Management
and Security Distributors, or by Security Management or Security
Distributors on not less than 120 days' prior written notice to the
Portfolio and Bankers.
(d) This Agreement shall terminate automatically with respect to Security
Management and Security Distributors upon the effective date of
termination by the Company and this Agreement shall terminate
automatically with respect to Bankers upon the effective date of
termination by the Portfolio.
(e) This Agreement may be terminated at any time immediately upon written
notice to the other parties in the event that formal proceedings are
instituted against another party to this Agreement by the SEC or any
other regulatory body, provided that the terminating party has a
reasonable belief that the institution of the proceeding is not
without foundation and will have a material adverse impact on the
terminating party.
(f) This Agreement shall terminate automatically with respect to Security
Distributors upon the effective date of the termination of its duties
as principal underwriter by the Company. At such time Bankers shall
have the right to immediately terminate this Agreement. Security
Management and the Company acknowledge that at such time in the event
this Agreement is not terminated, the Agreement will require amendment
to reflect the Company's appointment of a new distributor.
(g) The indemnification obligations of the parties set forth in Article
Four shall survive the termination of this Agreement with respect to
any Liability relating to actions or omissions prior to the
termination.
7.2 AMENDMENT
This Agreement may be amended, modified or supplemented at any time in such
manner as may be mutually agreed upon in writing by the parties.
7.3 WAIVER
At any time prior to any Closing, any party may:
(a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained
herein.
ARTICLE EIGHT
DAMAGES
8.1 APPROPRIATE RELIEF
The parties agree that, in the event of a breach of this Agreement, the
remedy of money damages would not be adequate and agree that injunctive relief
would be the appropriate relief.
ARTICLE NINE
GENERAL PROVISIONS
9.1 NOTICES
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made on the earlier of
(a) when actually received in person or by fax, or (b) three days after being
sent by certified or registered United States mail, return receipt requested,
postage prepaid, addressed as follows:
If to Security Management, Security Distributors or the Company:
Security Management Company, LLC
000 XX Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxx 00000-0000
Attention: General Counsel
If to the Portfolio or Bankers:
Mutual Fund Services
BT Alex.Xxxxx Incorporated
Xxx Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxx
Any party to this Agreement may change the identity or address of the
person to receive notice by providing written notice thereof to all other
parties to the Agreement.
9.2 EXPENSES
All costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses, unless otherwise provided herein.
9.3 HEADINGS
The headings and captions contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.4 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
9.5 ENTIRE AGREEMENT
This Agreement and the agreements and other documents delivered pursuant
hereto set forth the entire understanding between the parties concerning the
subject matter of this Agreement and incorporate or supersede all prior
negotiations and understandings. There are no covenants, promises, agreements,
conditions or understandings, either oral or written, between them relating to
the subject matter of this Agreement other than those set forth herein. No
representation or warranty has been made by or on behalf of any party to this
Agreement (or any officer, director, trustee, employee or agent thereof) to
induce any other party to enter into this Agreement or to abide by or consummate
any transactions contemplated by any terms of this Agreement, except
representations and warranties expressly set forth herein.
9.6 SUCCESSORS AND ASSIGNMENTS
Each and all of the provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and, except as otherwise specifically
provided in this Agreement, their respective successors and assigns.
Notwithstanding the foregoing, no party shall make any assignment of this
Agreement or any rights or obligations hereunder without the written consent of
all other parties. As used herein, the term "assignment" shall have the meaning
ascribed thereto in the 1940 Act. The parties hereby consent to the acquisition
of Bankers by Deutsche Bank, AG.
9.7 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the choice of law or
conflicts of law provisions thereof.
9.8 COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
shall constitute one and the same instrument, and any party hereto may execute
this Agreement by signing one or more counterparts.
9.9 THIRD PARTIES
Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, other than the parties hereto and their
successors or assigns, any rights or remedies under or by reason of this
Agreement.
9.10 INTERPRETATION
Any uncertainty or ambiguity existing herein shall not presumptively be
interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arm's-length agreements.
9.11 LIMITATION OF LIABILITY
The parties hereby acknowledge that the Company has entered into this
Agreement solely on behalf of the Fund and that no other series of the Company
shall have any obligation hereunder with respect to any liability of the Company
arising hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers, thereunto duly authorized, as of the date first
written above.
SECURITY MANAGEMENT COMPANY, LLC
By: XXXXX X. XXXXXXX
---------------------------------
Name: Xxxxx X. Xxxxxxx
---------------------------------
Title: President
---------------------------------
SECURITY DISTRIBUTORS, INC.
By: XXXXXXX X XXXX
---------------------------------
Name: Xxxxxxx X Xxxx
---------------------------------
Title: President
---------------------------------
SECURITY INCOME FUND on behalf of itself and the Capital Preservation Series, a
series thereof
By: XXXXX X. XXXXXXX
---------------------------------
Name: Xxxxx X. Xxxxxxx
---------------------------------
Title: Vice President
---------------------------------
BT PRESERVATIONPLUS INCOME PORTFOLIO
By: XXXXXX X. XXXXXX
---------------------------------
Name: Xxxxxx X. Xxxxxx
---------------------------------
Title: Secretary
---------------------------------
BANKERS TRUST COMPANY
By: XXXX XXXXXX
---------------------------------
Name: Xxxx Xxxxxx
---------------------------------
Title: Managing Director
---------------------------------
