INVESTMENT ADVISORY CONTRACT
THIS AGREEMENT, made this 1st day of November, 1999, between SECURITY MUNICIPAL
BOND FUND, a Kansas corporation (hereinafter referred to as the "Fund"), and
SECURITY MANAGEMENT COMPANY, LLC, a Kansas limited liability company
(hereinafter referred to as the "Management Company");
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end, management investment
company registered under the Federal Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Fund is authorized to issue shares of capital stock in separate
Series, with each such Series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends initially to offer shares in one series to be
designated Security Municipal Bond Fund (the "Initial Series"), such series
together with all other series subsequently established by the Fund with respect
to which the Fund desires to retain the Management Company to render investment
advisory services hereunder and with respect to which the Management Company is
willing so to do, being herein collectively referred to as the "Series", and
WHEREAS, the Management Company is willing to provide investment research and
advice to the Fund on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:
1. EMPLOYMENT OF MANAGEMENT COMPANY. The Fund hereby employs the Management
Company to act as investment adviser to the Initial Series with respect to
the investment of its assets, and to supervise and arrange the purchase of
securities for the Initial Series and the sale of securities held in the
portfolio of the Initial Series, subject always to the supervision of the
board of directors of the Fund (or a duly appointed committee thereof),
during the period and upon and subject to the terms and conditions herein
set forth. The Management Company hereby accepts such employment and agrees
to perform the services required by this Agreement for the compensation
herein provided.
In the event the Fund establishes one or more series other than the Initial
Series with respect to which it desires to retain the Management Company to
render investment advisory services hereunder, it shall notify the
Management Company in writing. If the Management Company is willing to
render such services it shall notify the Fund in writing, whereupon such
series shall become a Series subject to the terms and conditions hereunder,
and to such amended or additional provisions as shall be specifically agreed
to by the Fund and the Management Company in accordance with applicable law.
2. INVESTMENT ADVISORY DUTIES.
(a) The Management Company shall regularly provide each Series with
investment research, advice and supervision, continuously furnish an
investment program and recommend which securities shall be purchased
and sold and what portion of the assets of each series shall be held
uninvested and arrange for the purchase of securities and other
investments held in the portfolio of each Series. All investment advice
furnished by the Management Company to each Series under this Section 2
shall at all times conform to any requirements imposed by the
provisions of the Fund's Articles of Incorporation and Bylaws, the 1940
Act, the Investment Advisors Act of 1940 and the rules and regulations
promulgated thereunder, any other applicable provisions of law, and the
terms of the registration statements of the Fund under the Securities
Act of 1933 ("1933 Act") and the 1940 Act, all as from time to time
amended. The Management Company shall advise and assist the officers or
other agents of the Fund in taking such steps as are necessary or
appropriate to carry out the decisions of the board of directors of the
Fund (and any duly appointed committee thereof) with regard to the
foregoing matters and the general conduct of the Fund's business.
(b) Subject to the provisions of the Investment Company Act of 1940 (the
"1940 Act") and any applicable exemptions thereto, the Management
Company is authorized, but is under no obligation, to enter into
sub-advisory agreements (the "Sub-Advisory Agreements") with one or
more sub-advisers (each a "Sub-adviser") to provide investment advisory
services to any Series of the Fund. Each Sub-adviser shall have
investment discretion with respect to the assets of the Series assigned
to that Sub-adviser by the Management Company. The Management Company
shall not be responsible or liable with respect to any investment
decision made by a Sub-adviser, whether such decision be to purchase,
sell or hold such investment. Consistent with the provisions of the
1940 Act and any applicable exemption thereto, the Investment Manager
may enter into Sub-Advisory Agreements or amend Sub-Advisory Agreements
without the approval of the shareholders of the effected Series.
3. PORTFOLIO TRANSACTIONS AND BROKERAGE.
(a) Transactions in portfolio securities shall be effected by the
Management Company, through brokers or otherwise, in the manner
permitted in this Section 3 and in such manner as the Management
Company shall deem to be in the best interests of the Fund after
consideration is given to all relevant factors.
(b) In reaching a judgment relative to the qualification of a broker to
obtain the best execution of a particular transaction, the Management
Company may take into account all relevant factors and circumstances,
including the size of any contemporaneous market in such securities;
the importance to the Fund of speed and efficiency of execution;
whether the particular transaction is part of a larger intended change
in portfolio position in the same securities; the execution
capabilities required by the circumstances of the particular
transaction; the capital required by the transaction; the overall
capital strength of the broker; the broker's apparent knowledge of or
familiarity with sources from or to whom such securities may be
purchased or sold; as well as the efficiency, reliability and
confidentiality with which the broker has handled the execution of
prior similar transactions.
(c) Subject to any statements concerning the allocation of brokerage
contained in the Fund's prospectus, the Management Company is
authorized to direct the execution of portfolio transactions for the
Fund to brokers who furnish investment information or research services
to the Management Company. Such allocation shall be in such amounts and
proportions as the Management Company may determine. If a transaction
is directed to a broker providing brokerage and research services to
the Management Company, the commission paid for such transaction may be
in excess of the commission another broker would have charged for
effecting that transaction, if the Management Company shall have
determined in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided, viewed in
terms of either that particular transaction or the overall
responsibilities of the Management Company with respect to all accounts
as to which it now or hereafter exercises investment discretion. For
purposes of the immediately preceding sentence, "providing brokerage
and research services" shall have the meaning generally given such
terms or similar terms under Section 28(e)(3) of the Securities
Exchange Act of 1934, as amended.
(d) In the selection of a broker for the execution of any transaction not
subject to fixed commission rates, the Management Company shall have no
duty or obligation to seek advance competitive bidding for the most
favorable negotiated commission rate to be applicable to such
transaction, or to select any broker solely on the basis of its
purported or "posted" commission rates.
(e) In connection with transactions on markets other than national or
regional securities exchanges, the Fund will deal directly with the
selling principal or market maker without incurring charges for the
services of a broker on its behalf unless, in the best judgment of the
Management Company, better price or execution can be obtained in
utilizing the services of a broker.
4. ALLOCATION OF EXPENSES AND CHARGES. The Management Company shall provide
investment advisory, statistical and research facilities and all clerical
services relating to research, statistical and investment work, and shall
provide for the compilation and maintenance of such records relating to
these functions as shall be required under applicable law and the rules and
regulations of the Securities and Exchange Commission. Other than as
specifically indicated in the preceding sentence, the Management Company
shall not be required to pay any expenses of the Fund, and in particular,
but without limiting the generality of the foregoing, the Management Company
shall not be required to pay office rental or general administrative
expenses; board of directors' fees; legal, auditing and accounting expenses;
insurance premiums; broker's commissions; taxes and governmental fees;
membership dues; fees of custodian, transfer agent, registrar and dividend
disbursing agent (if any); expenses of obtaining quotations on the Series'
portfolio securities and pricing of the Series' shares; expenses (including
clerical expenses) of issue, sale or redemption of shares of the Fund's
capital stock; costs and expenses in connection with the registration of
such capital stock under the 1933 Act and qualification of the Fund's
capital stock under the Blue Sky laws of the states where such stock is
offered; costs and expenses in connection with the registration of the Fund
under the 1940 Act and all periodic and other reports required thereunder;
expenses of preparing reports, proxy statements, prospectuses and notices to
stockholders and of printing and distributing reports, proxies, prospectuses
and notices to existing stockholders; costs of stationery; costs of
stockholder and other meetings; expenses of maintaining the Fund's corporate
existence; and such nonrecurring expenses as may arise including litigation
affecting the Fund and the legal obligations the Fund may have to indemnify
its officers and directors.
5. COMPENSATION OF MANAGEMENT COMPANY.
(a) As compensation for the services rendered by the Management Company as
provided herein, for each of the years this agreement is in effect, the
Fund shall pay the Management Company an annual fee equal to 0.5 of 1%
of the average daily closing value of the net assets of the Initial
Series computed on a daily basis. Such fee shall be adjusted and
payable monthly. If this Agreement shall be effective for only a
portion of a year, then the Management Company's compensation for said
year shall be prorated for such portion. For purposes of this Section
5, the value of the net assets of the Initial Series shall be computed
in the same manner on each business day as of the normal close of the
New York Stock Exchange as the value of such net assets is computed in
connection with the determination of the net asset value of the shares
of the Initial Series as described in the Fund's prospectus.
(b) For each of the Fund's full fiscal years during the term of this
Agreement, the Management Company guarantees that the aggregate annual
expenses of every character, exclusive of interest and taxes,
extraordinary expenses (such as litigation), and distribution fees paid
under the Fund's Class A and Class B Distribution Plans, but inclusive
of the Management Company's compensation, incurred by the Fund shall
not exceed an amount equal to one percent of the average net assets of
the Fund for the year, such net assets to be calculated on a daily
basis. The Management Company agrees, on a monthly basis, to contribute
to the Fund such funds or to waive such portion of its fee as may be
necessary to insure that such aggregate annual expenses will not exceed
said amount. If this Agreement shall be effective for only a portion of
one of the Fund's fiscal years, then the maximum annual expenses shall
be prorated for such portion. Brokerage fees and commissions incurred
in connection with the purchase or sale of any securities by the Fund
shall not be deemed to be expenses within the meaning of this paragraph
(b).
6. MANAGEMENT COMPANY NOT TO RECEIVE COMMISSIONS. In connection with the
purchase or sale of portfolio securities for the account of the Fund,
neither the Management Company nor any officer or director of the Management
Company shall act as principal or receive any compensation from the Fund
other than its compensation as provided for in Section 5 above. If the
Management Company, or any "affiliated person" (as defined in the Investment
Company Act of 1940) receives any cash credits, commissions or tender fees
from any person in connection with transactions in portfolio securities of
the Fund (including but no limited to the tender or delivery of any
securities held in such portfolio), the Management Company shall immediately
pay such amount to the Fund in cash or as a credit against any then earned
but unpaid management fees due by the Fund to the Management Company.
7. LIMITATION OF LIABILITY OF MANAGEMENT COMPANY. So long as the Management
Company shall give the Fund the benefit of its best judgment and effort in
rendering services hereunder, the Management Company shall not be liable for
any errors of judgment or mistake of law, or for any loss sustained by
reason of the adoption of any investment policy or the purchase, sale or
retention of any security on its recommendation, whether or not such
recommendation shall have been based upon its own investigation and research
or upon investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been made and such other
individual, firm or corporation shall have been selected with due care and
in good faith. Nothing herein contained shall, however, be construed to
protect the Management Company against any liability to the Fund or its
contract owners by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement. As used in
this Section 7, "Management Company" shall include directors, officers and
employees of the Management Company, as well as the Management Company
itself.
8. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent the
Management Company or any officer thereof from acting as investment adviser
for any other person, firm, or corporation, nor shall it in any way limit or
restrict the Management Company or any of its directors, officers,
stockholders or employees from buying, selling, or trading any securities
for its own accounts or for the accounts of others for whom it may be
acting; provided, however, that the Management Company expressly represents
that it will undertake no activities which, in its judgment, will conflict
with the performance of its obligations to the Fund under this Agreement.
The Fund acknowledges that the Management Company acts as investment adviser
to other investment companies, and it expressly consents to the Management
Company acting as such; provided, however, that if in the opinion of the
Management Company, particular securities are consistent with the investment
objectives of, and desirable purchases or sales for the portfolios of, one
or more Series and one or more of such other investment companies or series
of such companies at approximately the same time, such purchases or sales
will be made on a proportionate basis if feasible, and if not feasible, then
on a rotating or other equitable basis.
9. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become effective
on November 1, 1999, provided that on or before that date it has been
approved by a majority of the holders of the outstanding voting securities
of the Fund. This Agreement shall continue in force until November 1, 2001,
and for successive 12-month periods thereafter, unless terminated, provided
that each such continuance is specifically approved at least annually
thereafter by (a) the vote of a majority of the entire board of directors of
the Fund, or, with respect to each Series, by the vote of a majority of the
outstanding voting securities of such Series (as defined in the 1940 Act),
and (b) the vote of a majority of those directors who are not parties to
this Agreement or interested persons (as such term is defined in the 0000
Xxx) of any such party cast in person at a meeting called for the purpose of
voting on such approval. In the event that this Agreement is approved by
such vote of the outstanding voting securities of one or more Series but not
of one or more others, this Agreement shall continue in effect with respect
to the former Series and, with respect to the latter may continue in effect
until such approval by the latter Series of this Agreement or of a new
agreement with the Management Company or with another party is obtained,
provided that compensation paid with respect to such Series pending such
approval is no greater than the lesser of the Management Company's actual
costs incurred hereunder or the amount due pursuant to Section 5 hereof.
This Agreement may be terminated at any time without payment of any penalty,
by the Fund upon the vote of a majority of the Fund's board of directors or,
with respect to any Series, by a majority of the outstanding voting
securities of such Series, or by the Management Company, in each case on
sixty (60) days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment (as such term is
defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective corporate officers thereto duly authorized on the
day, month and year first above written.
SECURITY MUNICIPAL BOND FUND
By: XXXX X. XXXXXXX
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Xxxx X. Xxxxxxx, President
ATTEST:
XXX X. XXX
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Xxx X. Xxx, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By: XXXXX X. XXXXXXX
--------------------------------
Xxxxx X. Xxxxxxx, President
ATTEST:
XXX X. XXX
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Xxx X. Xxx, Secretary
