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EXHIBIT (5)(b)
SUB-ADVISORY AGREEMENT - LEXINGTON
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 1st day of May 1995, by and between SECURITY
MANAGEMENT COMPANY, a Kansas Corporation (The "Adviser"), and LEXINGTON
MANAGEMENT CORPORATION, a Delaware corporation (the "Sub-Adviser"),
WITNESSETH:
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, the Adviser is the investment adviser for the Security Income Fund
(the "Fund"), and provides investment advisory services to the Fund on the
terms and conditions set forth in an investment advisory contract;
WHEREAS, the Fund is registered as a diversified, open-end investment company
under the Investment Company Act of 1940, as amended, (the "1940 Act"), and the
rules and regulations promulgated thereunder;
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Adviser desires to retain the Sub-Adviser as the Adviser's agent
to furnish certain advisory services to the Global Aggressive Bond Series of
the Fund (the "Series"), on the terms and conditions hereinafter set forth.
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NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Series for the period and on the
terms set forth in this Agreement. Sub-Adviser accepts such appointment
and agrees to furnish the services herein set forth for the compensation
herein provided.
2. INVESTMENT ADVICE. The Sub-Adviser shall furnish the Series with
investment research and advice consistent with the investment policies set
forth in the Prospectus and Statement of Additional Information of the
Fund, subject at all times to the policies and control of the Fund's Board
of Directors and the supervision of the Adviser. In addition, the
Sub-Adviser may avail itself of any investment research or advice provided
by the Adviser. The Sub-Adviser shall give the Series the benefit of its
best judgment, efforts and facilities in rendering its services as
Sub-Adviser.
3. INVESTMENT ANALYSIS AND IMPLEMENTATION. In carrying out its obligation
under paragraph 2 hereof, the Sub-Adviser shall:
(a) determine which issuers and securities shall be represented in the
Series' portfolio and regularly report thereon to the Fund's Board
of Directors and the Adviser;
(b) formulate and implement continuing programs for the purchase and
sale of the securities of such issuers and regularly report thereon
to the Fund's Board of Directors and the Adviser;
(c) continuously review the Series' security holdings and the
investment program and the investment policies of the Series; and
(d) take, on behalf of the Series, all actions which appear necessary
to carry into effect such purchase and sale programs, including the
placement of orders for the purchase and sale of securities for the
Series.
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4. BROKER-DEALER RELATIONSHIPS. The Sub-Adviser is responsible for decisions
to buy and sell securities for the Series, broker/dealer selection, and
negotiation of brokerage commission rates. The Sub-Adviser's primary
consideration in effecting a security transaction will be execution at the
most favorable price. In selecting a broker/dealer to execute each
particular transaction, the Sub-Adviser will take the following into
consideration: the best net price available; the reliability, integrity
and financial condition of the broker/dealer; the size of and difficulty
in executing the order; and the value of the expected contribution of the
broker/dealer to the investment performance of the Series on a continuing
basis. Accordingly, the price to the Series in any transaction may be
less favorable than that available from another broker/dealer if the
difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Board of
Directors may determine, the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Series to pay a broker
for effecting a portfolio investment transaction in excess of the amount
of commission another broker or dealer would have charged for effecting
that transaction if the Sub-Adviser determines in good faith that such
amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed
in terms of either that particular transaction or the Sub-Adviser's
overall responsibilities with respect to the Series and to its other
clients as to which it exercises investment discretion. The Sub-Adviser
is further authorized to place and/or to effect orders with such brokers
and dealers who may provide research or statistical material or other
services to the Series or to the Sub-Adviser. Such allocation shall be in
such amounts and proportions as the Sub-Adviser shall determine and the
Sub-Adviser will report on said allocations regularly to the Board of
Directors of the Fund and the Adviser indicating the brokers to whom such
allocations have been made and the basis therefor.
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5. CONTROL BY BOARD OF DIRECTORS. Any investment program undertaken by the
Sub-Adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-Adviser on behalf of the Series pursuant thereto,
shall at all times be subject to any directives of the Board of Directors
of the Fund.
6. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Sub-Adviser shall ensure that the Series
complies with:
(a) all applicable provisions of the 1940 Act;
(b) the provisions of the Registration Statement of the Fund, as
amended, under the Securities Act of 1933 and the 1940 Act;
(c) all applicable statutes and regulations necessary to qualify the
Series as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code (or any successor or similar provision), and
shall notify the Adviser immediately upon having a reasonable basis
for believing that the Series has ceased to so qualify or that it
might not so qualify in the future;
(d) the provisions of the Fund's Articles of Incorporation, as amended;
(e) the provisions of the Bylaws of the Fund, as amended; and
(f) any other applicable provisions of state and federal law.
7. RECORDS. The Sub-Adviser hereby agrees to maintain all records relating
to its activities and obligations under this Agreement which are
required to be maintained by Rule 31a-1 under the 1940 Act and agrees to
preserve such records for the periods prescribed by Rule 31a-2 under the
Act. The Sub-Adviser further agrees that all such records are the
property of the Fund and agrees to surrender promptly to the Fund any such
records upon the Fund's request.
8. EXPENSES. The expenses connected with the Fund shall be borne by the
Sub-Adviser as follows:
(a) The Sub-Adviser shall maintain, at its expense and without cost to
the Adviser or the Series, a trading function in order to carry out
its obligations under subparagraph (d) of
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paragraph 3 hereof to place orders for the purchase and sale of
portfolio securities for the Series.
(b) The Sub-Adviser shall pay any expenses associated with carrying out
its obligation under subparagraph (b) of paragraph 2 hereof to
prepare reports for the Fund's Board of Directors concerning
issuers and securities represented in the Series' portfolio and the
expenses of any travel by employees of the Sub-Adviser in
connection with such reports to the Fund's Board of Directors.
(c) The Sub-Adviser shall pay any expenses that it may incur in
communicating with the Adviser in connection with its obligations
under this Agreement, including the expenses of telephone calls,
special mail services and telecopier charges.
9. DELEGATION OF RESPONSIBILITIES. Upon request of the Adviser and with the
approval of the Fund's Board of Directors, the Sub-Adviser may perform
services on behalf of the Fund which are not required by this Agreement.
Such services will be performed on behalf of the Fund, and the
Sub-Adviser's cost in rendering such services may be billed monthly to the
Adviser, subject to examination by the Adviser's independent accountants.
Payment or assumption by the Sub-Adviser of any Fund expense that the
Sub-Adviser is not required to pay or assume under this Agreement shall
not relieve the Adviser or the Sub-Adviser of any of their obligations to
the Fund or obligate the Sub-Adviser to pay or assume any similar Fund
expense on any subsequent occasions.
10. DELEGATION OF DUTIES. The Sub-Adviser may, at its discretion, delegate,
assign or subcontract any of the duties, responsibilities and
services governed by this agreement to a third party, whether or not by
formal written agreement, provided that such arrangement with a third
party has been approved by the Board of Directors of the Fund. The
Sub-Adviser shall, however, retain ultimate responsibility to the Fund and
shall implement such reasonable procedures as may be necessary for
assuring that any duties, responsibilities or services so assigned,
subcontracted or delegated are performed in conformity with the terms and
conditions of this agreement.
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11. COMPENSATION. For the services to be rendered and the facilities
furnished hereunder, the Adviser shall pay the Sub-Adviser an annual fee
equal to .35 percent of the average daily closing value of the net assets
of the Series, computed on a daily basis. Such fee shall be computed and
payable monthly. If this Agreement shall be effective for only a portion
of a year, then the Sub-Adviser's compensation for said year shall be
prorated for such portion. For purposes of this paragraph 11, the value
of the net assets of the 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 Series'
shares as described in the Fund's prospectus and statement of additional
information. Payment of the Sub-Adviser's compensation for the preceding
month shall be made as promptly as possible after the end of each month.
12. NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser are not
to be deemed to be exclusive, and the Sub-Adviser shall be free to render
investment advisory or other services to others (including other
investment companies) and to engage in other activities, so long as its
services under this Agreement are not impaired thereby.
13. TERM. This Agreement shall become effective at the close of business on
the date first shown above. It shall remain in force and effect, subject
to paragraph 14 hereof for one year from the date hereof.
14. RENEWAL. Following the expiration of its initial year
term, this Agreement shall continue in force and effect from year to
year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the Series' outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
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15. TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by
vote of a majority of the Series' outstanding voting securities (as
defined in Section 2(a)(42) of the 1940 Act), or by the Adviser or by the
Sub-Adviser on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its "assignment"
as that term is defined in Section 2(a)(4) of the 1940 Act. This
Agreement shall automatically terminate in the event that the investment
advisory contract between the Adviser and the Fund is terminated, assigned
or not renewed.
16. LIABILITY OF THE SUB-ADVISER. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Sub-Adviser or its officers,
directors or employees, or reckless disregard by the Sub-Adviser of its
duties under this Agreement, the Sub-Adviser shall not be liable to the
Adviser, the Fund or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase, holding or sale
of any security, provided the Sub-Adviser has acted in good faith.
17. INDEMNIFICATION. The Adviser and the Sub-Adviser each agree to indemnify
the other against any claim against, loss, or liability to, such other
party (including reasonable attorney's fees) arising out of any action on
the part of the indemnifying party which constitutes willful misfeasance,
bad faith or gross negligence.
18. NOTICES. Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage-paid to the other party at such address as
such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the
Sub-Adviser for this purpose shall be Park 00 Xxxx, Xxxxx Xxx, Xxxxxx
Xxxxx, Xxx Xxxxxx 00000, and the address of the Adviser for this purpose
shall be 000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxx 00000-0000.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
ATTEST: SECURITY MANAGEMENT COMPANY
Xxx X. Xxx By: Xxxxx X. Xxxxxxx
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Title: Secretary Senior Vice President
ATTEST: LEXINGTON MANAGEMENT
CORPORATION
Xxxx Xxxxxx By: Xxxxxxxx Xxxxxx
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Title: Senior Vice President & Secretary Executive Vice President
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