-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WaZkBMY39T/po0gpsEENFnBj+Q4VcMWctbLFq75pooPkOOashC8VIUCKcmIYNtCc fpSxHlmuMuqDEV+9lezf4g== 0001061036-99-000014.txt : 19991130 0001061036-99-000014.hdr.sgml : 19991130 ACCESSION NUMBER: 0001061036-99-000014 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19991129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY INCOME FUND /KS/ CENTRAL INDEX KEY: 0000088498 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 480774743 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 002-38414 FILM NUMBER: 99765252 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-02120 FILM NUMBER: 99765253 BUSINESS ADDRESS: STREET 1: 700 HARRISON ST CITY: TOPEKA STATE: KS ZIP: 66636 BUSINESS PHONE: 9132953127 MAIL ADDRESS: STREET 1: 700 HARRISON ST CITY: TOPEKA STATE: KS ZIP: 66636 FORMER COMPANY: FORMER CONFORMED NAME: SECURITY BOND FUND DATE OF NAME CHANGE: 19850821 485APOS 1 SECURITY INCOME FUND - PEA 64 Registration No. 811-2120 Registration No. 2-38414 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_] Post-Effective Amendment No. 64 [X] ------ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] Post-Effective Amendment No. 64 [X] ------ (Check appropriate box or boxes) SECURITY INCOME FUND (Exact Name of Registrant as Specified in Charter) 700 HARRISON STREET, TOPEKA, KANSAS 66636-0001 (Address of Principal Executive Offices/Zip Code) Registrant's Telephone Number, including area code: (785) 431-3127 Copies To: John D. Cleland, President Amy J. Lee, Secretary Security Income Fund Security Income Fund 700 Harrison Street 700 Harrison Street Topeka, KS 66636-0001 Topeka, KS 66636-0001 (Name and address of Agent for Service) Approximate date of proposed public offering: April 30, 1999 It is proposed that this filing will become effective (check appropriate box): [_] immediately upon filing pursuant to paragraph (b) [_] on January 28, 2000, pursuant to paragraph (b) [_] 60 days after filing pursuant to paragraph (a)(1) [X] on January 28, 2000, pursuant to paragraph (a)(1) [_] 75 days after filing pursuant to paragraph (a)(2) [_] on January 28, 2000, pursuant to paragraph (a)(2) of rule 485 If appropriate, check the following box: [_] this post-effective amendment designates a new effective date for a previously filed post-effective amendment Title of Securities Being Registered: Shares of common stock, par value $1.00. SECURITY INCOME FUND FORM N-1A This Amendment to the Registration Statement of Security Income Fund, which contains five series, relates only to the Capital Preservation Series. The prospectus and statement of additional information for the Corporate Bond, Limited Maturity Bond, U.S. Government and High Yield Series are incorporated herein by reference to the Registrant's most recent filing under Rule 497 under the Securities Act of 1933. PART B. STATEMENT OF ADDITIONAL INFORMATION ITEM 22. FINANCIAL STATEMENTS To be filed by amendment. SECURITY FUNDS ================================================================================ PROSPECTUS FEBRUARY 1, 2000 * Security Capital Preservation Fund ----------------------------------- The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. ----------------------------------- [LOGO] SECURITY DISTRIBUTORS, INC. A Member of The Security Benefit Group of Companies TABLE OF CONTENTS - -------------------------------------------------------------------------------- OVERVIEW OF THE SECURITY CAPITAL PRESERVATION FUND GOAL ....................................................................... 2 CORE STRATEGY............................................................... 2 INVESTMENT POLICIES AND STRATEGIES.......................................... 2 PRINCIPAL RISKS OF INVESTING IN THE FUND.................................... 2 WHO SHOULD CONSIDER INVESTING IN THE FUND................................... 2 FEES AND EXPENSES OF THE FUND............................................... 4 A DETAILED LOOK AT THE SECURITY CAPITAL PRESERVATION FUND OBJECTIVE................................................................... 6 STRATEGY.................................................................... 6 PRINCIPAL INVESTMENTS....................................................... 6 Fixed Income Securities................................................. 6 Wrapper Agreements...................................................... 7 Short-Term Investments.................................................. 8 Derivative Instruments.................................................. 8 Other Investments....................................................... 8 INVESTMENT PROCESS.......................................................... 9 RISKS ...................................................................... 10 Primary Risks........................................................... 10 Secondary Risk.......................................................... 12 MANAGEMENT OF THE FUND...................................................... 13 Board of Directors...................................................... 13 Investment Adviser...................................................... 13 Other Services.......................................................... 14 Organizational Structure................................................ 15 Portfolio Managers...................................................... 15 CALCULATING THE FUND'S SHARE PRICE.......................................... 16 BUYING SHARES............................................................... 16 Class A Shares.......................................................... 16 Class A Distribution Plan............................................... 16 Class B Shares.......................................................... 17 Class B Distribution Plan............................................... 17 Class C Shares.......................................................... 18 Class C Distribution Plan............................................... 18 Waiver of Deferred Sales Charge......................................... 18 Confirmations and Statements............................................ 18 SELLING SHARES.............................................................. 19 Qualified TSA Redemptions............................................... 21 Qualified IRA Redemptions............................................... 22 Qualified Plan Redemptions.............................................. 22 Payment of Redemption Proceeds.......................................... 22 DIVIDENDS AND DISTRIBUTIONS................................................. 23 TAX CONSIDERATIONS.......................................................... 23 SHAREHOLDER SERVICES........................................................ 23 Accumulation Plan....................................................... 23 Systematic Withdrawal Program........................................... 24 Exchange Privilege...................................................... 24 Retirement Plans........................................................ 25 GENERAL INFORMATION......................................................... 25 Shareholder Inquiries................................................... 25 FINANCIAL HIGHLIGHTS........................................................ 26 APPENDIX A - REDUCED SALES CHARGES.......................................... 29 Class A Shares.......................................................... 29 Rights of Accumulation.................................................. 29 Statement of Intention.................................................. 29 Reinstatement Privilege................................................. 29 OVERVIEW OF THE SECURITY CAPITAL PRESERVATION FUND GOAL The Fund seeks a high level of current income while seeking to maintain a stable value per share. CORE STRATEGY The Fund invests primarily in fixed income securities. The Fund also enters into contracts with financial institutions that are designed to stabilize the Fund's share value. INVESTMENT POLICIES AND STRATEGIES The Fund invests all of its assets in a master portfolio with the same investment goal as the Fund. The Fund, through the master portfolio, seeks to achieve its goal by investing in fixed income securities of varying maturities, money market instruments and futures and options (including futures and options traded on foreign exchanges, such as bonds and equity indices of foreign countries). The Fund attempts to maintain a stable share value by entering into contracts, called Wrapper Agreements, with financial institutions, such as insurance companies or banks. PRINCIPAL RISKS OF INVESTING IN THE FUND Although the Fund seeks to preserve a stable share value, there are risks associated with fixed income investing. For example, the value of fixed income securities could fluctuate or fall if: * There is a sharp rise in interest rates. * An issuer's creditworthiness declines. * Changes in interest rates or economic downturns have a negative effect on issuers in the financial services industry. The Fund attempts to offset these risks by purchasing Wrapper Agreements. Wrapper Agreements may have their own risks, including: * The possibility of default by a financial institution providing a Wrapper Agreement ("Wrapper Provider"). * The inability of the Fund to obtain Wrapper Agreements covering the Fund's assets. The Fund is also subject to the risk that the Investment Adviser incorrectly judges the potential risks and rewards of derivative investing. WHO SHOULD CONSIDER INVESTING IN THE FUND You should consider investing in the Fund if you are looking for an investment that seeks to earn current income higher than money market mutual funds over most time periods and to preserve the value of your investment. In addition, the Fund is offered as an alternative to short-term bond funds and as a comparable investment to stable value or guaranteed investment contract options offered in employee benefit plans. The Fund offers shares only to retirement accounts such as tax-sheltered annuity custodial accounts (TSAs) individual retirement accounts (IRAs) and to employees investing through participant-directed employee benefit plans. IRAs include traditional IRAs, Roth IRAs, education IRAs, simplified employee pension IRAs (SEP IRAs), savings incentive match plans for employees (SIMPLE IRAs), and Keogh plans. You should not consider investing in the Fund if you seek capital growth. Although it provides a convenient means of diversifying short-term investments, the Fund by itself does not constitute a balanced investment program. - -------------------------------------------------------------------------------- An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve a stable share value, it is possible to lose money by investing in the Fund. - ------------------------------------------------------------------------------- FEES AND EXPENSES OF THE FUND THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD SHARES OF THE FUND. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (fees paid directly from your investment) - -------------------------------------------------------------------------------- CLASS A CLASS B CLASS C SHARES(1) SHARES(2) SHARE(3) Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 3.5% None None Maximum Sales Charge Imposed on Reinvested Dividends None None None 5% during the Maximum Deferred Sales charge (as a first year, percentage of original purchase price or None decreasing to 0% 1% redemption proceeds, whichever if lower) in the sixth and following years Maximum Redemption Fee(4) 3% 3% 3% - -------------------------------------------------------------------------------- 1 Purchases of Class A shares in amounts of $1,000,000 or more are not subject to an initial sales load; however, a deferred sales charge of 1% is imposed in the event of redemption within one year of purchase. 2 Class B shares convert tax-free to Class A shares automatically after eight years. 3 A deferred sales charge of 1% is imposed in the event of redemption within one year of purchase. 4 The redemption fee payable to the master portfolio is designed primarily to offset those expenses which may be incurred by the master portfolio in connection with certain shareholder redemptions. Proceeds from the redemption fee will be used by the master portfolio to offset the actual portfolio and administrative costs associated with such redemptions, including custodian, transfer agent, settlement, and account processing costs, as well as the adverse impact of such redemptions on the premiums paid for Wrapper Agreements and the yield on Wrapper Agreements. The redemption fee may also have the effect of discouraging redemptions by shareholders attempting to take advantage of short-term interest rate movements. The redemption fee does not apply to Qualified TSA, Qualified IRA or Qualified Plan Redemptions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) - -------------------------------------------------------------------------------- MANAGEMENT DISTRIBUTION OTHER TOTAL ANNUAL FUND FEES(1) (12B-1) FEES EXPENSES(2) OPERATING EXPENSES(3) Class A 0.00% 0.25% ____% _____% Class B 0.00% 0.75% ____% _____% Class C 0.00% 0.50% ____% _____% - -------------------------------------------------------------------------------- 1 The Fund does not directly pay a management fee. However, the underlying master portfolio in which the Fund invests, the BT PreservationPlus Income Portfolio (the "Portfolio") does pay a management fee to its investment adviser, Bankers Trust Company. Bankers Trust Company has contractually agreed to waive its advisory fee from the Portfolio until July 31, 2000. 2 "Other Expenses" includes the amounts paid by the Portfolio for wrapper agreements. 3 Information on the annual Fund operating expenses reflects the expenses of both the Fund and the Portfolio. Security Management Company, LLC ("SMC"), the Fund's Administrator, has agreed that if the total annual expenses of the Fund, exclusive of interest, taxes, extraordinary expenses, brokerage fees and commissions, and Rule 12b-1 fees, but inclusive of its own fee, exceeds 1.50%, SMC will contribute to the Fund an amount and/or waive its fee as may be necessary to insure that the total annual expenses do not exceed such amount. - -------------------------------------------------------------------------------- EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: You would pay the following expenses if you redeemed your shares at the end of each period. ----------------------------------- 1 YEAR 3 YEARS ----------------------------------- Class A Class B Class C ----------------------------------- You would pay the following expenses if you redeemed your shares at the end of each period and were assessed the 3% Redemption Fee. ----------------------------------- 1 YEAR 3 YEARS ----------------------------------- Class A Class B Class C ----------------------------------- You would pay the following expenses if you did not redeem your shares. ----------------------------------- 1 YEAR 3 YEARS ----------------------------------- Class A Class B Class C ----------------------------------- A DETAILED LOOK AT THE SECURITY CAPITAL PRESERVATION FUND OBJECTIVE The Security Capital Preservation Fund seeks a high level of current income while seeking to maintain a stable value per share. While priority is given to earning income and maintaining the value of the Fund's principal, all fixed income securities, including U.S. government obligations, can change in value when, for example, interest rates change or an issuer's creditworthiness changes. THE FUND'S OBJECTIVE IS NOT A FUNDAMENTAL POLICY AND MAY BE CHANGED BY THE FUND'S BOARD OF DIRECTORS. STRATEGY As noted previously, the Fund seeks its objective by investing its assets in the BT PreservationPlus Income Portfolio. Accordingly, references to the Fund investing in particular types of securities or asset classes are actually references to what is done by the underlying Portfolio. The Fund seeks current income that is higher than that of money market funds by investing in fixed income securities with varying maturities and maintaining an average portfolio DURATION of 2.5 to 4.5 years. In addition, the Fund enters into Wrapper Agreements designed to stabilize the Fund's share value. Wrapper Agreements are provided by financial institutions, such as insurance companies and banks. In an attempt to enhance return, the Fund also employs a global asset allocation strategy, which evaluates the equity, bond, cash and currency opportunities across domestic and international markets. - -------------------------------------------------------------------------------- DURATION measures the sensitivity of bond prices to changes in interest rates. The longer the duration of a bond, the longer it will take to repay the principal and interest obligations and the more sensitive it is to changes in interest rates. Investors in longer-duration bonds face more risk as interest rates rise--but also are more likely to receive more income from their investment to compensate for the risk. - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENTS FIXED INCOME SECURITIES -- The Fund invests at least 65% of its total assets in fixed income securities rated, at the time of purchase, within the top four long-term rating categories by a nationally recognized statistical rating organization (or, if unrated, are determined to be of similar quality by the Portfolio's Investment Adviser). However, the Fund may invest up to 10% of its assets in high yield debt securities (also known as junk bonds) rated in the fifth and sixth long-term rating categories by a nationally recognized statistical rating organization (or, if unrated, are determined to be of similar quality by the Fund's Investment Adviser). Fixed income securities in which the Fund may invest include the following: * U.S. government securities that are issued or guaranteed by the U.S. Treasury, or by agencies or instrumentalities of the U.S. Government. * U.S. dollar-denominated securities issued by domestic or foreign corporations, foreign governments or supranational entities. * U.S. dollar-denominated asset-backed securities issued by domestic or foreign entities. * Mortgage pass-through securities issued by governmental and non-governmental issuers. * Collateralized mortgage obligations and real estate mortgage investment conduits. * Obligations issued or guaranteed, or backed by securities issued or guaranteed, by the U.S. government, or any of its agencies or instrumentalities, including CATS, TIGRs, TRs and zero coupon securities, which are securities consisting of either the principal component or the interest component of a U.S. Treasury bond. The following policies are employed to attempt to reduce the risks involved in investing in fixed income securities: * Assets are allocated among a diversified group of issuers. * Investments are primarily made in fixed income securities that are rated, at the time of purchase, within the top four rating categories as rated by Moody's Investors Service, Inc., Standard & Poor's Ratings Services or Duff & Phelps Credit Rating Co., another nationally recognized statistical rating organization, or, if unrated, determined by us to be of comparable quality. * Average portfolio duration of 2.5 to 4.5 years is targeted by investing in fixed income securities with short- to intermediate term MATURITIES. Generally, rates of short-term investments fluctuate less than longer-term investments. - -------------------------------------------------------------------------------- MATURITY measures the time remaining until an issuer must repay a bond's principal in full. - -------------------------------------------------------------------------------- WRAPPER AGREEMENTS -- The Fund enters into Wrapper Agreements with insurance companies, banks and other financial institutions. Unlike traditional fixed income portfolios, the Fund's purchases of Wrapper Agreements should offset substantially the price fluctuations typically associated with fixed income securities. In using Wrapper Agreements, the Fund seeks to eliminate the effect of any gains or losses on the value per share when the Fund sells securities. Normally, these agreements require the Wrapper Provider to maintain the BOOK VALUE of a portion of the Fund's assets (Covered Assets) if certain events occur. More than one Wrapper Provider provides coverage with respect to the same securities and, when applicable, pays based on the pro rata portion of the Fund's assets that it covers. - -------------------------------------------------------------------------------- BOOK VALUE of the Covered Assets is their purchase price, plus interest on the Covered Assets at the Crediting Rate, less an adjustment to reflect any defaulted securities. - -------------------------------------------------------------------------------- The Crediting Rate: * Is the actual interest earned on the Covered Assets based on the formula stated in the Wrapper Agreements and is generally adjusted monthly for price movements in the Covered Assets and amounts payable to or receivable from the Wrapper Provider; and * Is a significant component of the Fund's yield. In general, if the Fund sells securities to meet shareholder redemptions and the market value (plus accrued interest) of those securities is less than their book value, the Wrapper Provider must pay the difference to the Fund. On the other hand, if the Fund sells securities and the market value (plus accrued interest) is more than the book value, the Fund must pay the difference to the Wrapper Provider. The timing of payments between the Fund and the Wrapper Provider vary. The following policies are employed to attempt to reduce the risks involved in using Wrapper Agreements: * Wrapper Agreements are purchased from multiple issuers, each of which has received a HIGH QUALITY RATING from Moody's or Standard & Poor's. * The financial well being of the issuers of the securities in which the Fund invests and the Wrapper Providers providing Wrapper Agreements to the Fund are monitored on a continuous basis. Generally, unless the Wrapper Agreement requires the sale of a security that has been downgraded below a specified rating, the Fund is not required to dispose of any security or Wrapper Agreement whose issuer's rating has been downgraded. - -------------------------------------------------------------------------------- A HIGH QUALITY RATING means a security is rated in the top two long-term ratings categories by a nationally recognized statistical rating organization. - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- The Fund will also invest in short-term investments, including money market mutual funds, to meet shareholder withdrawals and other liquidity needs. These short-term investments, such as commercial paper and certificates of deposit, will be rated, at the time of purchase, in one of the top two short-term rating categories by a nationally recognized statistical rating organization, or if unrated, are determined to be of similar quality by the Portfolio's Investment Adviser. DERIVATIVE INSTRUMENTS -- The Fund may invest in various instruments commonly known as "derivatives" to increase its exposure to certain groups of securities. The derivatives that the Fund may use include FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS AND FORWARD CONTRACTS. The Fund may use derivatives to keep cash on hand to meet shareholder redemptions, as a hedging strategy to maintain a specific portfolio duration, or to protect against market risk. When employing the global asset allocation strategy, the Fund may use derivatives for leveraging, which is a way to attempt to enhance returns. OTHER INVESTMENTS -- The Fund may also invest in and utilize the following investments and investment techniques and practices: Rule 144A securities, when-issued and delayed delivery securities, repurchase agreements, reverse repurchase agreements and dollar rolls. - -------------------------------------------------------------------------------- FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS are commonly used for traditional hedging purposes to attempt to protect an investor from the risks of changing interest rates, securities prices or currency exchange rates and for cash management purposes as a low cost method of gaining exposure to a particular securities market without investing directly in those securities. PORTFOLIO TURNOVER rate measures the frequency that the Portfolio sells and replaces the securities it holds within a given period. Historically, this Fund has had a high portfolio turnover rate. High turnover can increase the Fund's transaction costs, thereby lowering its returns. - -------------------------------------------------------------------------------- INVESTMENT PROCESS The Fund's investment strategy emphasizes a diversified exposure to higher yielding mortgage, corporate and asset-backed sectors of the investment grade fixed income markets. These "spread" sectors have historically offered higher returns than U.S. government securities. The investment process focuses on a top-down approach, first focused on the sector allocations, then using relative value analysis to select the best securities within each sector. To select securities, we analyze such factors as credit quality, interest rate sensitivity and spread relationships between individual bonds. The Fund also purchases Wrapper Agreements, which seek to offset price fluctuations of the fixed income securities and, as a result, provide a stable value per share for the Fund. A primary emphasis is placed on assessing the credit quality of financial institutions that may provide a Wrapper Agreement to the Fund. The Portfolio's Investment Adviser performs proprietary credit analysis on a large universe of issuers and actively manages the negotiation and maintenance of Wrapper Agreements. The global asset allocation strategy attempts to enhance long-term returns and manage risk by responding effectively to changes in global markets using instruments including but not limited to, futures, options and currency forwards. This strategy employs a multi-factor global asset allocation model that evaluates equity, bond, cash and currency opportunities across domestic and international markets. In implementing the global asset allocation strategy, the Fund invests in options and futures based on any type of security or index including options and futures traded on foreign exchanges, such as bonds and equity indices of foreign countries. Some options and futures strategies, including selling futures, buying puts and writing calls, hedge the Fund's investments against price fluctuations. Other strategies, including buying futures, writing puts and buying calls, tend to increase and will broaden the Fund's market exposure. Options and futures may be combined with each other, or with forward contracts, in order to adjust the risk and return characteristics of an overall strategy. The Fund may also enter into forward currency exchange contracts (agreements to exchange one currency for another at a future date), may buy and sell options and futures contracts relating to foreign currencies and may purchase securities indexed to foreign currencies. Currency management strategies allow shifts of investment exposure from one currency to another to attempt to profit from anticipated declines in the value of a foreign currency relative to the U.S. dollar. Some of these strategies will require the Fund to segregate liquid assets in a custodial account to cover its obligations. Successful implementation of the global asset allocation strategy depends on the Investment Adviser's judgment as to the potential risks and rewards of implementing the different types of strategies. RISKS Set forth below are some of the prominent risks associated with fixed income investing, the use of Wrapper Agreements, and the risks of investing in general. Although an attempt is made to assess the likelihood that these risks may actually occur and to limit them, there can be no guarantee that it will succeed. PRIMARY RISKS INTEREST RATE RISK. All debt securities face the risk that the securities will decline in value because of changes in interest rates. Generally, investments subject to interest rate risk will decrease in value when interest rates rise and increase when interest rates fall. If interest rates are falling, the Fund's income may decline because of the investment or reinvestment of assets in fixed income securities. CREDIT RISK. An investor purchasing a fixed income security faces the risk that the value of the security may decline because the creditworthiness of the issuer may decline or the issuer may fail to make timely payment of interest or principal. WRAPPER AGREEMENT RISK. Although the Wrapper Agreements attempt to maintain a stable value per share, there are risks associated with the Wrapper Agreements, including: * A Wrapper Provider could default, which could cause the Fund's share value to fluctuate or fall and could result in losses for Plan participants who sell their shares. * The Wrapper Agreements may require the Fund to maintain a certain percentage of its assets in short-term investments. This could result in a lower return than if the Fund invested those assets in longer-term securities. The Fund may elect not to cover a fixed income security with a remaining maturity of 60 days or less, cash or short-term investments with Wrapper Agreements. * The Wrapper Agreements generally do not protect the Fund from loss caused by a fixed income security issuer's default on principal or interest payments. * The Fund may not be able to obtain Wrapper Agreements to cover all of its assets. * If a Wrapper Provider is unable to make timely payments, the Portfolio's Board may determine the fair value of that Wrapper Agreement to be less than the difference between the book value and the market value, which could cause the Fund's net asset value to fluctuate. * There is no guarantee that a Fund shareholder or Plan participant will realize the same investment return as they might if they had invested directly in the Fund's assets (without use of the Wrapper Agreements). MARKET RISK. Although individual securities may outperform their market, the entire market may decline as a result of rising interest rates, regulatory developments or deteriorating economic conditions. SECURITY SELECTION RISK. While the Fund invests in short- to intermediate-term securities, which by nature are relatively stable investments, the risk remains that the securities selected will not perform as expected. This could cause the Fund's returns to lag behind those of money market funds. LIQUIDITY RISK. Liquidity risk is the risk that a security cannot be sold quickly at a price that reflects the estimate of its value. Because there is no active trading market for Wrapper Agreements, the Fund's investments in the Wrapper Agreements are considered illiquid. In an effort to minimize this risk, the Fund limits its investments in illiquid securities, including Wrapper Agreements, to 15% of net assets. PRICING RISK. The securities in the Fund are valued at their stated market value if price quotations are available and, if not, by the method that most accurately reflects their current worth in the judgment of the Portfolio's Board of Trustees. This procedure implies an unavoidable risk, the risk that the prices used are higher or lower than the prices that the securities might actually command if they were sold. If the securities are valued too highly, you may end up paying too much for Fund shares when you buy. If the price of the securities are undervalued, you may not receive the full market value for your Fund shares when you sell. According to the procedures adopted by the Portfolio's Board of Trustees, the fair value of the Wrapper Agreements generally will equal the difference between the book value and the market value (plus accrued interest) of the Fund's assets. In determining fair value, the Board will consider the creditworthiness and ability of a Wrapper Provider to pay amounts due under the Wrapper Agreements. If the Board of Trustees determines that a Wrapper Agreement should not be valued this way, the net asset value of the Fund could fluctuate. DERIVATIVE RISK. Derivatives are more volatile and less liquid than traditional fixed income securities. Risks associated with derivatives include: * the derivative may not fully offset the underlying positions; * the derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities; and * the possibility the Fund cannot sell the derivative because of an illiquid secondary market. The use of derivatives for leveraging purposes tends to magnify the effect of an instrument's price changes as market conditions change. If the Fund invests in futures contracts and options on futures contracts for non-hedging purposes, the margin and premiums required to make those investments will not exceed 5% of the Fund's net asset value after taking into account unrealized profits and losses on the contracts. Futures contracts and options on futures contracts used for non-hedging purposes involve greater risks than other investments. FOREIGN INVESTING RISK. The Fund faces the risks detailed below in the portion of its investments it devotes to foreign securities. * POLITICAL RISK. Profound social changes and business practices that depart from developed-market norms have hindered the growth of capital markets in developing nations in the past. High levels of debt have tended to make them overly reliant on foreign capital investment and vulnerable to capital flight. Governments have limited foreign investors' access to capital markets and restricted the flow of profits overseas. They have resorted to high taxes, expropriation and nationalization. All these threats remain a part of emerging-market investing in particular today. * INFORMATION RISK. Foreign accounting, auditing, and financial reporting and disclosure standards tend to be less stringent than those in the United States. And the risks of investors acting on incomplete or inaccurate information are correspondingly greater. Compounding the problem, local investment research often lacks the sophistication to spot potential pitfalls. CURRENCY RISK. The Fund invests in foreign securities denominated in foreign currencies. This creates the possibility that changes in foreign exchange rates will affect the value of foreign securities and, thus, the U.S. dollar amount of income or gain received on these securities. The Portfolio's Investment Adviser seeks to minimize this risk by actively managing the currency exposure of the Fund. There is no guarantee that these currency management activities will work and they could cause losses to the Fund. SECONDARY RISK LOWER RATED SECURITIES. The Fund may invest in debt securities rated in the fifth and sixth long-term ratings categories. The market for lower-rated debt securities may be thinner and less active than that for higher rated debt securities, which can adversely affect the prices at which the lower-rated securities are sold. If market quotations are not available, lower-rated debt securities will be valued in accordance with procedures established by the Portfolio's Board of Trustees. Judgment plays a greater role in valuing high yield corporate debt securities than is the case for securities for which more external sources for quotations and last sale information is available. Adverse publicity and changing investor perception may affect the availability of outside pricing services to value lower-rated debt securities and the Fund's ability to dispose of these securities. Since the risk of default is higher for lower-rated securities, the Investment Adviser's research and credit analysis are an especially important part of managing securities of this type. In considering investments for the Fund, the Investment Adviser attempts to identify those issuers of high yielding debt securities whose financial conditions are adequate to meet future obligations, have improved or are expected to improve in the future. The Investment Adviser's analysis focuses on relative values based on such factors as interest on dividend coverage, asset coverage, earnings prospects and the experience and managerial strength of the issuer. TEMPORARY DEFENSIVE POSITION. From time to time a temporary defensive position may be adopted in response to extraordinary adverse political, economic or market events. Up to 100% of the Fund's assets could be placed in short-term obligations within one of the top two investment ratings. These short-term obligations may not be covered by a Wrapper Agreement. To the extent such a position is adopted, the Fund may not meet its goal of a high level of current income or a stable net asset value. MANAGEMENT OF THE FUND BOARD OF DIRECTORS -- The Fund's shareholders, voting in proportion to the number of shares each owns, elect a Board of Directors, and the Directors supervise all of the Fund's activities on their behalf. INVESTMENT ADVISER -- Under the supervision of the Board of Trustees of the Portfolio, Bankers Trust Company (Bankers Trust) with headquarters at 130 Liberty Street, New York, New York 10006, acts as the Portfolio's Investment Adviser. As Investment Adviser, Bankers Trust makes the Portfolio's investment decisions and assumes responsibility for the securities the Portfolio owns. It buys and sells securities for the Portfolio and conducts the research that leads to the purchase and sale decisions. Bankers Trust received a fee of ____% of the Portfolio's average daily net assets for its services in the last fiscal year. As of December 31, 1999, Bankers Trust had total assets under management of approximately $____ billion. Bankers Trust is dedicated to servicing the needs of corporations, governments, financial institutions, and private clients and has invested retirement assets on behalf of the nation's largest corporations and institutions for more than 50 years. The scope of the firm's capability is broad: it is a leader in both the active and passive quantitative investment disciplines and maintains a major presence in stock and bond markets worldwide. As of December 31, 1999, BT managed approximately $_______ in stable value assets. At a Special Meeting of Shareholders held on October 8, 1999, shareholders of the Portfolio approved a new investment advisory agreement with Morgan Grenfell, Inc. As of October 6, 1999, Morgan Grenfell, Inc. has been renamed Deutsche Asset Management Inc. ("DAMI"). The new investment advisory agreement with DAMI may be implemented within two years of the date of the Special Meeting upon approval of a majority of the members of the Board of Trustees of the Portfolio who are not "interested persons", generally referred to as Independent Trustees. Shareholders of the Portfolio also approved a new sub-investment advisory agreement among the Trust, DAMI and Bankers Trust under which Bankers Trust may perform certain of DAMI's responsibilities, at DAMI's expense, upon approval of the Independent Trustees, within two years of the date of the Special Meeting. Under the new investment advisory agreement and new sub-advisory agreement, the compensation paid and the services provided would be the same as those under the existing advisory agreement with Bankers Trust. DAMI is located at 885 Third Avenue, 32nd Floor, New York, New York 10022. DAMI provides a full range of investment advisory services to institutional clients. DAMI serves as investment adviser to ten other investment companies and as sub-adviser to five other investment companies. On March 11, 1999, Bankers Trust announced that it had reached an agreement with the United States Attorney's Office in the Southern District of New York to resolve an investigation concerning inappropriate transfers of unclaimed funds and related record-keeping problems that occurred between 1994 and early 1996. Bankers Trust pleaded guilty to misstating entries in the bank's books and records and agreed to pay a $63.5 million fine to state and federal authorities. On July 26, 1999, the federal criminal proceedings were concluded with Bankers Trust's formal sentencing. The events leading up to the guilty pleas did not arise out of the investment advisory or mutual fund management activities of Bankers Trust or its affiliates. As a result of the plea, absent an order from the SEC, Bankers Trust would not be able to continue to provide investment advisory services to the Portfolio. The SEC has granted a temporary order to permit Bankers Trust and its affiliates to continue to provide investment advisory services to registered investment companies. There is no assurance that the SEC will grant a permanent order. OTHER SERVICES -- The Fund's administrator, Security Management Company, LLC ("SMC" or the "Administrator") provides administrative services, fund accounting and transfer agency services to the Fund. Bankers Trust provides administrative services--such as portfolio accounting, legal services and other services--for the Portfolio. Pursuant to a separate Management Services Agreement, SMC also performs certain other services on behalf of the Fund. Under this Agreement, SMC provides, among other things, feeder fund management and administrative services to the Fund which include: * monitoring the performance of the Portfolio; * coordinating the Fund's relationship with the Portfolio; * communicating with the Fund's Board of Directors and shareholders regarding the Portfolio's performance and the Fund's two tier structure, and in general; * assisting the Board of Directors of the Fund in all aspects of the administration and operation of the Fund. For these services, the Fund pays SMC a fee at the annual rate of .20% of its average daily net assets, calculated daily and payable monthly. For providing certain shareholder services to the shareholders of the Fund, SMC receives from Bankers Trust a fee which is equal on an annual basis to .20% of the aggregate net assets of the Fund invested in the Portfolio. The fee is not an expense of the Fund or the Portfolio. ORGANIZATIONAL STRUCTURE -- Although the Fund has not currently retained the services of an investment adviser or sub-adviser, it may do so in the future. Accordingly, the Fund, along with the other mutual funds in the Security Funds complex, have applied to the Securities and Exchange Commission ("SEC") for an exemptive order from the Investment Company Act of 1940 that will permit the Fund and Security Management Company, LLC to enter into and materially amend sub-advisory agreements without the agreements or amendments being approved by shareholders. However, this order would not apply to sub-advisory agreements with an affiliate of Security Management Company, LLC. If this order is obtained, the Fund or Security Management Company, LLC could terminate a sub-advisory agreement with a sub-adviser and engage a new sub-adviser, or materially amend a sub-advisory agreement, without shareholder approval of the new sub-advisory agreement or the amendment. In order for the Fund to enter into and amend sub-advisory agreements without shareholder approval, the Fund and Security Management Company, LLC must not only receive an order from the SEC, but the shareholders of the Fund must also approve this method of operation. At a meeting of shareholders on October 29, 1999 Fund shareholders approved this method of operation. Therefore the Fund could be operated under the method of operation described above upon effectiveness of the exemptive order, although at this time it is not anticipated that it will do so. There can be no assurance that the exemptive order will be issued by the SEC. It is anticipated that if the exemptive order is granted, notice to shareholders would be required of new sub-advisory agreements. The Fund is a "feeder fund" that invests all of its assets in a "master portfolio," the BT PreservationPlus Income Portfolio. The Fund and the master portfolio have the same investment objective. The master portfolio is advised by Bankers Trust. The master portfolio may accept investments from other feeder funds. The feeders bear the master portfolio's expenses in proportion to their assets. Each feeder can set its own transaction minimums, fund-specific expenses, and other conditions. This arrangement allows the Fund's Directors to withdraw the Fund's assets from the master portfolio if they believe doing so is in the shareholders' best interests. If the Directors withdraw the Fund's assets, they would then consider whether the Fund should hire its own investment adviser, invest in a different master portfolio or take other action. PORTFOLIO MANAGERS -- ERIC KIRSCH, Managing Director and Chief Investment Officer of the Structured Fixed Income Group at Bankers Trust, has managed the Fixed Income Securities of the Portfolio since its inception in May 1999. Mr. Kirsch joined Bankers Trust in 1980. He is a Chartered Financial Analyst with ten years of investment experience. LOUIS R. D'ARIENZO, Vice President and a portfolio manager of the Structured Fixed Income Group at Bankers Trust, has managed the Fixed Income Securities of the Portfolio since its inception in May 1999. Mr. D'Arienzo joined Bankers Trust in 1981 and has 17 years investment experience. JOHN D. AXTELL, JR., a Principal and a portfolio manager at Bankers Trust, is responsible for the portfolio management and trading activities relating to Stable Value Investments for client porfolios. Mr. Axtell joined Bankers Trust in 1990. CALCULATING THE FUND'S SHARE PRICE The Fund's share price is calculated daily (also known as the "net asset value" or "NAV") in accordance with the standard formula for valuing mutual fund shares at the close of regular trading on the New York Stock Exchange every day the Exchange is open for business. The formula calls for deducting all of a Fund's liabilities from the total value of its assets--the market value of the securities it holds, plus its cash reserves--and dividing the result by the number of shares outstanding. According to the procedures adopted by the Board of Trustees of the Portfolio, the fair value of the Wrapper Agreements generally will equal the difference between the book value and the market value (plus accrued interest) of the Portfolio's assets. In determining fair value, the Board will consider the creditworthiness and ability of a Wrapper Provider to pay amounts due under the Wrapper Agreements. - -------------------------------------------------------------------------------- The Exchange is open every week, Monday through Friday, except when the following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day (the third Monday in January), Presidents' Day (the third Monday in February), Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day (the first Monday in September), Thanksgiving Day (the fourth Thursday in November) and Christmas Day. - -------------------------------------------------------------------------------- BUYING SHARES Shares of the Fund are available through broker/dealers, banks, and other financial intermediaries that have an agreement with the Fund's Distributor, Security Distributors, Inc. There are three different ways to buy shares of the Fund--Class A shares, Class B shares or Class C shares. The different classes of a Fund differ primarily with respect to the sales charges and Rule 12b-1 distribution fees to which they are subject. The minimum initial investment is $100. Subsequent investments must be $100 (or $20 under an Accumulation Plan). The Fund reserves the right to reject any order to purchase shares. CLASS A SHARES -- Class A shares are subject to a sales charge at the time of purchase. An order for Class A shares will be priced at the Fund's net asset value per share (NAV), plus the sales charge, set forth in the following table. The NAV, plus the sales charge is the "offering price." The Fund's NAV is generally calculated as of the close of trading on every day the New York Stock Exchange is open. An order for Class A shares is priced at the NAV next calculated after the order is accepted by the Fund, plus the sales charge. - -------------------------------------------------------------------------------- SALES CHARGE -------------------------------------------- APPLICABLE PERCENTAGE OF PERCENTAGE AMOUNT OF PURCHASE PERCENTAGE OF NET AMOUNT REALLOWABLE AT OFFERING PRICE OFFERING PRICE INVESTED TO DEALERS - -------------------------------------------------------------------------------- Less than $100,000 ................. 3.5% 3.63% 3.0% $100,000 but less than $500,000..... 2.5% 2.56% 2.0% $500,000 but less than $1,000,000... 1.5% 1.52% 1.0% $1,000,000 and over ................ None None (See below) - -------------------------------------------------------------------------------- Please see Appendix A for options that are available for reducing the sales charge applicable to purchases of Class A shares. CLASS A DISTRIBUTION PLAN -- The Fund has adopted a Class A Distribution Plan that allows the Fund to pay distribution fees to the Fund's Distributor. The Distributor uses the fees to finance activities related to the sale of Class A shares and services to shareholders. The distribution fee is equal to 0.25% of the average daily net assets of the Fund's Class A shares. Because the distribution fees are paid out of the Fund's assets on an ongoing basis, over time these fees will increase the cost of a shareholder's investment and may cost an investor more than paying other types of sales charges. CLASS B SHARES -- Class B shares are not subject to a sales charge at the time of purchase. An order for Class B shares will be priced at the Fund's NAV next calculated after the order is accepted by the Fund. The Fund's NAV is generally calculated as of the close of trading on every day the New York Stock Exchange is open. Class B shares are subject to a deferred sales charge if redeemed within 5 years from the date of purchase. The deferred sales charge is a percentage of the NAV of the shares at the time they are redeemed or the original purchase price, whichever is less. Shares that are not subject to the deferred sales charge are redeemed first. Then, shares held the longest will be the first to be redeemed. The amount of the deferred sales charge is based upon the number of years since the shares were purchased, as follows: -------------------------------------------------------- NUMBER OF YEARS SINCE PURCHASE DEFERRED SALES CHARGE -------------------------------------------------------- 1 5% 2 4% 3 3% 4 3% 5 2% 6 and more 0% -------------------------------------------------------- The Distributor will waive the deferred sales charge under certain circumstances. See "Waiver of the Deferred Sales Charge," page 18. CLASS B DISTRIBUTION PLAN -- The Fund has adopted a Class B Distribution Plan that allows the Fund to pay distribution fees to the Distributor. The Distributor uses the fees to finance activities related to the sale of Class B shares and services to shareholders. The distribution fee is equal to .75% of the average daily net assets of the Fund's Class B shares. Because the distribution fees are paid out of the Fund's assets on an ongoing basis, over time these fees will increase the cost of a shareholder's investment and may cost an investor more than paying other types of sales charges. Class B shares automatically convert to Class A shares on the eighth anniversary of purchase. This is advantageous to such shareholders because Class A shares are subject to a lower distribution fee than Class B shares. A pro rata amount of Class B shares purchased through the reinvestment of dividends or other distributions is also converted to Class A shares each time that shares purchased directly are converted. CLASS C SHARES -- Class C shares are not subject to a sales charge at the time of purchase. An order for Class C shares will be priced at the Fund's NAV next calculated after the order is accepted by the Fund. The Fund's NAV is generally calculated as of the close of trading on every day the New York Stock Exchange is open. Class C shares are subject to a deferred sales charge of 1.00% if redeemed within one year from the date of purchase. The deferred sales charge is a percentage of the NAV of the shares at the time they are redeemed or the original purchase price, whichever is less. Shares that are not subject to the deferred sales charge are redeemed first. Then, shares held the longest will be the first to be redeemed. The Distributor will waive the deferred sales charge under certain circumstances. See "Waiver of the Deferred Sales Charge," page 18. CLASS C DISTRIBUTION PLAN -- The Fund has adopted a Class C Distribution Plan that allows the Fund to pay distribution fees to the Distributor. The Distributor uses the fees to finance activities related to the sale of Class C shares and services to shareholders. The distribution fee is equal to .50% of the average daily net assets of the Fund's Class C shares. Because the distribution fees are paid out of the Fund's assets on an ongoing basis, over time these fees will increase the cost of a shareholder's investment and may cost an investor more than paying other types of sales charges. WAIVER OF DEFERRED SALES CHARGE -- The Distributor will waive the deferred sales charge under the following circumstances: * Upon the death of the shareholder if shares are redeemed within one year of the shareholder's death * Upon the disability of the shareholder prior to age 65 if shares are redeemed within one year of the shareholder becoming disabled and the shareholder was not disabled when the shares were purchased * In connection with required minimum distributions from a retirement plan qualified under Section 401(a), 401(k), 403(b) or 408 of the Internal Revenue Code * In connection with distributions from retirement plans qualified under Section 401(a) or 401(k) of the Internal Revenue Code for: * returns of excess contributions to the plan * retirement of a participant in the plan * a loan from the plan (loan repayments are treated as new sales for purposes of the deferred sales charge) * Upon the financial hardship (as defined in regulations under the Code) of a participant in a plan * Upon termination of employment of a participant in a plan * Upon any other permissible withdrawal under the terms of the plan CONFIRMATIONS AND STATEMENTS -- The Fund will send you a confirmation statement after every transaction that affects your account balance or registration. However, certain automatic transactions may be confirmed on a quarterly basis including systematic withdrawals, automatic purchases and reinvested dividends. Each shareholder will receive a quarterly statement setting forth a summary of the transactions that occurred during the preceding quarter. SELLING SHARES Selling your shares of a Fund is called a "redemption," because the Fund buys back its shares. A shareholder may sell shares at any time. Shares will be redeemed at the NAV next determined after the order is accepted by the Fund's transfer agent, less any applicable (i) deferred sales charge and (ii) redemption fee. A Fund's NAV is generally calculated as of the close of trading on every day the New York Stock Exchange is open. Any share certificates representing Fund shares being sold must be returned with a request to sell the shares. The value of your shares at the time of redemption may be more or less than their original cost. The Fund reserves the right to honor any request for redemption by making payment in whole or in part in securities selected in the sole discretion of the Fund. The redemption-in-kind will not include wrapper agreements. When redeeming recently purchased shares, if the Fund has not collected payment for the shares, it may delay sending the proceeds until it has collected payment, which may take up to 15 days. When the interest rate trigger is active, redemptions that are not Qualified TSA Redemptions, Qualified IRA Redemptions or Qualified Plan Redemptions, as described in the following sections, will be subject to a 3% redemption fee. It is therefore important to consult with your professional tax advisor regarding the terms, conditions and tax consequences of such withdrawals. To sell your shares, send a letter of instruction that includes: * The name and signature of the account owner(s) * The name of the Fund * The reason you are selling your shares * The dollar amount or number of shares to sell * Where to send the proceeds * A signature guarantee if - The check will be mailed to a payee or address different than that of the account owner, or - The sale of shares is more than $10,000. - -------------------------------------------------------------------------------- A SIGNATURE GUARANTEE helps protect against fraud. Banks, brokers, credit unions, national securities exchanges and savings associations provide signature guarantees. A notary public is not an eligible signature guarantor. For joint accounts, both signatures must be guaranteed. - -------------------------------------------------------------------------------- Mail your request to: Security Management Company, LLC P.O. Box 750525 Topeka, KS 66675-9135 Signature requirements vary based on the type of account you have: * INDIVIDUAL OR JOINT TENANTS: Written instructions must be signed by an individual shareholder, or in the case of joint accounts, all of the shareholders, exactly as the name(s) appears on the account. * UGMA OR UTMA: Written instructions must be signed by the custodian as it appears on the account. * SOLE PROPRIETOR OR GENERAL PARTNER: Written instructions must be signed by an authorized individual as it appears on the account. * CORPORATION OR ASSOCIATION: Written instructions must be signed by the person(s) authorized to act on the account. A certified resolution dated within six months of the date of receipt, authorizing the signer to act, must accompany the request if not on file with the Fund. * TRUST: Written instructions must be signed by the trustee(s). If the name of the current trustee(s) does not appear on the account, a certified certificate of incumbency dated within 60 days must also be submitted. * RETIREMENT: Written instructions must be signed by the account owner. Qualified TSA Redemptions, Qualified IRA Redemptions and Qualified Plan Redemptions are not subject to the redemption fee at any time. All other redemptions are subject to the redemption fee, in the amount of 3%, on the proceeds of such redemptions of shares by shareholders on any day that the "Interest Rate Trigger" (as described below) is "active," and not subject to those charges on days that the Interest Rate Trigger is "inactive." The Interest Rate Trigger is active on any day when, as of the preceding day, the "Reference Index Yield" exceeds the sum of the "Annual Effective Yield" of the Portfolio's plus 1.35%. The Reference Index Yield on any determination date is the previous day's closing "Yield to Worst" on the Lehman Brothers Intermediate Treasury Bond Index(R). The "Annual Effective Yield" generally represents one day's investment income expressed as an annualized yield and compounded annually. The status of the Interest Rate Trigger will either be "active" or "inactive" on any day, and shall be determined on every day that an NAV is calculated for the Fund. Once the Interest Rate Trigger is active, it remains active every day until the Reference Index Yield is less than the sum of the Annual Effective Yield of the Portfolio plus 1.10%, at which time the Interest Rate Trigger becomes inactive on the following day and remains inactive every day thereafter until it becomes active again. An example of when and how the redemption fee will apply to the redemption of shares follows. - -------------------------------------------------------------------------------- The Annual Effective Yield of the Portfolio is intended to represent one day's investment income expressed as an annualized yield and compounded annually. The Annual Effective Yield of the Portfolio shall be expressed as a percentage and calculated on each business day as follows based on the dividend declared for the previous day: [(1 + PREVIOUS DAY'S DIVIDEND FACTOR)^365 - 1 --------------------------------------------- NAV per share - -------------------------------------------------------------------------------- Shareholder is considering submitting a request for a redemption of Class A shares other than a Qualified TSA Redemption, Qualified IRA Redemption or Qualified Plan Redemption to the Fund on March 2 in the amount of $5,000. Assume that the Reference Index Yield is 8.65% as of the close of business on March 1 and the Annual Effective Yield of the Portfolio is 6.20% as of that date. Since the Annual Effective Yield of the Portfolio plus 1.35% (7.55%) is less than the Reference Index Yield (8.65%), the Interest Rate Trigger is active. Thus, the net redemption proceeds to the Shareholder will be $4,850. The redemption fee will continue to apply to all redemptions which are not Qualified TSA Redemptions, Qualified IRA Redemptions or Qualified Plan Redemptions until the day after the Reference Index Yield is less than the sum of the Annual Effective Yield of the Portfolio plus 1.10%. (Please note that this example does not take into consideration an individual Shareholder's tax issues or consequences including without limitation any withholding taxes that may apply.) The spread between the Annual Effective Yield of the Portfolio and the Reference Index Yield that cause the Interest Rate Trigger to be activated (currently a spread of 1.35%) and de-activated (currently a spread of 1.10%) reflect the fact that the Portfolio's entire investment advisory fee is currently being waived. If the investment advisory fee waiver is discontinued, these spreads will change. Shareholders can obtain information regarding when the Interest Rate Trigger is active, as well as the Annual Effective Yield of the Portfolio and the Reference Index Yield by calling 1-800-888-2461. The amount of, and method of applying, the redemption fee, including the operation of the Interest Rate Trigger, may be changed in the future. QUALIFIED TSA REDEMPTIONS -- A redemption of Fund shares can be made at any time without the assessment of a redemption fee if the redemption is a "Qualified TSA Redemption." In general, amounts distributed to a taxpayer from a TSA account prior to the date on which the taxpayer reaches age 59 1/2 are includible in the taxpayer's gross income and, unless the distribution meets the requirements of a specific exception under the tax code, are also subject to an early withdrawal penalty tax. A "Qualified TSA Redemption" is a redemption made by an owner of a TSA account that is not subject to the early withdrawal penalty tax, provided however, that a rollover from a TSA account to an IRA account, or a direct trustee-to-trustee transfer of a TSA account is not a Qualified TSA Redemption unless the owner of the TSA account or IRA account continues the investment of the transferred amount in the Fund. Owners of TSA accounts requesting a redemption of Fund shares will be required to provide a written statement as to whether the proceeds of the redemption will be subject to the early withdrawal penalty tax and to identify the specific exception upon which he or she intends to rely. This information will form the basis for determining whether a redemption is a Qualified TSA Redemption. The Fund or the Fund's Administrator may require additional evidence, such as the opinion of a certified public accountant or tax attorney, that any particular redemption will not be subject to early withdrawal penalty tax. QUALIFIED IRA REDEMPTIONS -- A redemption of Fund shares can be made at any time without the assessment of a redemption fee if the redemption is a "Qualified IRA Redemption." In general, amounts distributed to a taxpayer from an IRA account prior to the date on which the taxpayer reaches age 59 1/2 are includible in the taxpayer's gross income and, unless the distribution meets the requirements of a specific exception under the tax code, are also subject to an early withdrawal penalty tax. A "Qualified IRA Redemption" is a redemption made by an owner of an IRA account that is not subject to the early withdrawal penalty tax, provided however, that an IRA rollover, or a direct trustee-to-trustee transfer of an IRA is not a Qualified IRA Redemption unless the owner of the IRA account continues the investment of the transferred amount in the Fund. Owners of IRA accounts requesting a redemption of Fund shares will be required to provide a written statement as to whether the proceeds of the redemption will be subject to the early withdrawal penalty tax and to identify the specific exception upon which he or she intends to rely. This information will form the basis for determining whether a redemption is a Qualified IRA Redemption. The Fund or the Fund's Administrator may require additional evidence, such as the opinion of a certified public accountant or tax attorney, that any particular redemption will not be subject to early withdrawal penalty tax. QUALIFIED PLAN REDEMPTIONS -- Your plan administrator should be contacted for information on how to redeem shares. There will be no reduction of the NAV per share for Qualified Plan Redemptions (other than the possible assessment of a contingent deferred sales charge) which are redemptions resulting from a plan participant's death, disability, retirement, termination of employment or to make loans to, or "in service" withdrawals by, a plan participant. All other redemptions of shares, including transfers to other plan investment options, will be subject to the 3% redemption fee if the Interest Rate Trigger is active. The Fund reserves the right to require written verification of whether a redemption request is for a Qualified Plan Redemption in accordance with plan provisions and to establish the authenticity of this information before processing a redemption request. PAYMENT OF REDEMPTION PROCEEDS -- Payments may be made by check. The Fund may suspend the right of redemption during any period when trading on the New York Stock Exchange is restricted or such Exchange is closed for other than weekends or holidays, or any emergency is deemed to exist by the Securities and Exchange Commission. BY CHECK. Redemption proceeds will be sent to the shareholder(s) of record at the address on our records generally within seven days after receipt of a valid redemption request. For a charge of $15 deducted from redemption proceeds, the Administrator will provide a certified or cashier's check, or send the redemption proceeds by express mail, upon the shareholder's request. DIVIDENDS AND DISTRIBUTIONS The Fund declares dividends from its net income daily and pays the dividends on a monthly basis. The Fund reserves the right to include in the daily dividend any short-term capital gains on securities that it sells. Also, the Fund will normally declare and pay annually any long-term capital gains as well as any short-term capital gains that it did not distribute during the year. On occasion, the dividends the Fund distributes may differ from the income the Fund earns. When the Fund's income exceeds the amount distributed to shareholders, the Fund may make an additional distribution. When an additional distribution is necessary, the Board of Directors may declare a REVERSE STOCK SPLIT to occur at the same time the additional distribution is made. Making the additional distribution simultaneously with the reverse stock split will minimize fluctuations in the net asset value of the Fund's shares. All dividends and capital gains, if any, will automatically be reinvested unless you notify the Fund otherwise. - -------------------------------------------------------------------------------- A REVERSE STOCK SPLIT reduces the number of total shares the Fund has outstanding. The market value of the shares will be the same after the stock split as before the split, but each share will be worth more. - -------------------------------------------------------------------------------- TAX CONSIDERATIONS The Fund does not ordinarily pay income taxes. You and other shareholders pay taxes on the income or capital gains from the Fund's holdings. For TSA owners, IRA owners and Plan participants utilizing the Fund as an investment option under their Plan, dividend and capital gain distributions from the Fund generally will not be subject to current taxation, but will accumulate on a tax-deferred basis. Because each participant's tax circumstances are unique and because the tax laws governing Plans are complex and subject to change, it is recommended that you consult your Plan administrator, your plan's Summary Plan Description, and/or your tax advisor about the tax consequences of your participation in your Plan and of any Plan contributions or withdrawals. SHAREHOLDER SERVICES ACCUMULATION PLAN -- An investor may choose to invest in the Fund through a voluntary Accumulation Plan. This allows for an initial investment of $100 minimum and subsequent investments of $20 minimum at any time. An Accumulation Plan involves no obligation to make periodic investments, and is terminable at will. Payments are made by sending a check to the Distributor who (acting as an agent for the dealer) will purchase whole and fractional shares of the Fund as of the close of business on such day as the payment is received. The investor will receive a confirmation and statement after each investment. Investors may also choose to use "Secur-O-Matic" (automatic bank draft) to make Fund purchases. There is no additional charge for choosing to use Secur-O-Matic. Withdrawals from your bank account may occur up to 3 business days before the date scheduled to purchase Fund shares. An application for Secur-O-Matic may be obtained from the Fund. SYSTEMATIC WITHDRAWAL PROGRAM -- Shareholders who wish to receive regular monthly, quarterly, semiannual, or annual payments of $25 or more may establish a Systematic Withdrawal Program. A shareholder may elect a payment that is a specified percentage of the initial or current account value or a specified dollar amount. A Systematic Withdrawal Program will be allowed only if shares with a current aggregate net asset value of $5,000 or more are deposited with the Administrator, which will act as agent for the shareholder under the Program. Shares are liquidated at net asset value less any applicable Redemption Fee. The Program may be terminated on written notice, or it will terminate automatically if all shares are liquidated or redeemed from the account. A shareholder may establish a Systematic Withdrawal Program with respect to Class B and Class C shares without the imposition of any applicable contingent deferred sales charge, provided that such withdrawals do not in any 12-month period, beginning on the date the Program is established, exceed 10 percent of the value of the account on that date ("Free Systematic Withdrawals"). Free Systematic Withdrawals are not available if a Program established with respect to Class B or Class C shares provides for withdrawals in excess of 10 percent of the value of the account in any Program year and, as a result, all withdrawals under such a Program would be subject to any applicable contingent deferred sales charge. Free Systematic Withdrawals will be made first by redeeming those shares that are not subject to the contingent deferred sales charge and then by redeeming shares held the longest. The contingent deferred sales charge applicable to a redemption of Class B or Class C shares requested while Free Systematic Withdrawals are being made will be calculated as described under "Waiver of Deferred Sales Charge," page 18. A Systematic Withdrawal form may be obtained from the Fund. EXCHANGE PRIVILEGE -- Shareholders who own shares of the Fund may exchange those shares for shares of another of the series of Security Income Fund or for shares of other mutual funds distributed by the Distributor (the "Security Funds"). Exchanges may be made, only in those states where shares of the fund into which an exchange is to be made are qualified for sale. No service fee is presently imposed on such an exchange. Class A, Class B and Class C shares of the Fund may be exchanged for Class A, Class B and, if applicable, Class C shares, respectively, of another Security Fund. A Redemption Fee may be assessed on an exchange from the Security Capital Preservation Fund to another Security Fund if the Interest Rate Trigger is active. Any applicable contingent deferred sales charge will be calculated from the date of the initial purchase. Exchanges of Class A shares from the Fund are made at net asset value without a front-end sales charge if (1) the shares have been owned for at least 90 consecutive days prior to the exchange, (2) the shares were acquired pursuant to a prior exchange from a Security Fund which assessed a sales charge on the original purchase, or (3) the shares were acquired as a result of the reinvestment of dividends or capital gains distributions. Exchanges of Class A shares from the Fund, other than those described above, are made at net asset value plus the sales charge described in the prospectus of the other Security Fund being acquired, less the sales charge paid on the shares of the Fund at the time of original purchase. Shareholders should contact the Fund before requesting an exchange in order to ascertain whether any sales charges are applicable to the shares to be exchanged. In effecting the exchanges of Fund shares, the Administrator will first cause to be exchanged those shares which would not be subject to any sales charges. For tax purposes, an exchange is a sale of shares which may result in a taxable gain or loss. Special rules may apply to determine the amount of gain or loss on an exchange occurring within ninety days after the exchanged shares were acquired. Exchanges are made upon receipt of a properly completed Exchange Authorization form. This privilege may be changed or discontinued at any time at the discretion of the management of the Fund upon 60 days' notice to shareholders. A current prospectus of the Security Fund into which an exchange is made will be given to each shareholder exercising this privilege. RETIREMENT PLANS -- The Fund has available tax-qualified retirement plans for individuals, prototype plans for the self-employed, pension and profit sharing plans for corporations and custodial accounts for employees of public school systems and organizations meeting the requirements of Section 501(c)(3) of the Internal Revenue Code. Further information concerning these plans is contained in the Fund's Statement of Additional Information. GENERAL INFORMATION SHAREHOLDER INQUIRIES -- Shareholders who have questions concerning their account or wish to obtain additional information, may call the Fund (see back cover for address and telephone numbers), or contact their securities dealer. FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Fund's financial performance for its Class A shares, Class B shares and Class C Shares for the period May 3, 1999 to September 30, 1999. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund assuming reinvestment of all dividends and distributions. This information has been audited by ____________________, whose report, along with the Fund's financial statements, is included in the annual report which is available upon request. - -------------------------------------------------------------------------------- SECURITY CAPITAL PRESERVATION FUND (CLASS A) - -------------------------------------------------------------------------------- FISCAL PERIOD ENDED SEPTEMBER 30 ------------ 1999 PER SHARE DATA Net asset value beginning of period.......................... INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)................................. Net gain (loss) on securities (realized & unrealized)........ Total from investment operations............................. LESS DISTRIBUTIONS Dividends (from net investment income)....................... Distributions (from capital gains)........................... Total distributions.......................................... Net asset value end of period................................ Total return ................................................ RATIOS/SUPPLEMENTAL DATA Net assets end of period (thousands)......................... Ratio of expenses to average net assets...................... Ratio of net investment income (loss) to average net assets.. Portfolio turnover rate...................................... - -------------------------------------------------------------------------------- SECURITY CAPITAL PRESERVATION FUND (CLASS B) - -------------------------------------------------------------------------------- FISCAL PERIOD ENDED SEPTEMBER 30 ------------ 1999 PER SHARE DATA Net asset value beginning of period.......................... INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)................................. Net gain (loss) on securities (realized & unrealized)........ Total from investment operations............................. LESS DISTRIBUTIONS Dividends (from net investment income)....................... Distributions (from capital gains)........................... Total distributions.......................................... Net asset value end of period................................ Total return ................................................ RATIOS/SUPPLEMENTAL DATA Net assets end of period (thousands)......................... Ratio of expenses to average net assets ..................... Ratio of net investment income (loss) to average net assets.. Portfolio turnover rate...................................... - -------------------------------------------------------------------------------- SECURITY CAPITAL PRESERVATION FUND (CLASS C) - -------------------------------------------------------------------------------- FISCAL PERIOD ENDED SEPTEMBER 30 ------------ 1999 PER SHARE DATA Net asset value beginning of period.......................... INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)................................. Net gain (loss) on securities (realized & unrealized)........ Total from investment operations............................. LESS DISTRIBUTIONS Dividends (from net investment income)....................... Distributions (from capital gains)........................... Total distributions.......................................... Net asset value end of period................................ Total return ................................................ RATIOS/SUPPLEMENTAL DATA Net assets end of period (thousands)......................... Ratio of expenses to average net assets ..................... Ratio of net investment income (loss) to average net assets.. Portfolio turnover rate...................................... APPENDIX REDUCED SALES CHARGES CLASS A SHARES -- Initial sales charges may be reduced or eliminated for persons or organizations purchasing Class A shares of the Fund alone or in combination with Class A shares of other Security Funds. For purposes of qualifying for reduced sales charges on purchases made pursuant to Rights of Accumulation or a Statement of Intention, the term "Purchaser" includes the following persons: an individual, his or her spouse and children under the age of 21; a trustee or other fiduciary of a single trust estate or single fiduciary account established for their benefit; an organization exempt from federal income tax under Section 501(c)(3) or (13) of the Internal Revenue Code; or a pension, profit-sharing or other employee benefit plan whether or not qualified under Section 401 of the Internal Revenue Code. RIGHTS OF ACCUMULATION -- To reduce sales charges on purchases of Class A shares of the Fund, a Purchaser may combine all previous purchases of the Fund with a contemplated current purchase and receive the reduced applicable front-end sales charge. The Distributor must be notified when a sale takes place which might qualify for the reduced charge on the basis of previous purchases. Rights of accumulation also apply to purchases representing a combination of the Class A shares of the Fund, and other Security Funds, except Security Cash Fund, in those states where shares of the fund being purchased are qualified for sale. STATEMENT OF INTENTION -- A Purchaser may choose to sign a Statement of Intention within 90 days after the first purchase to be included thereunder, which will cover future purchases of Class A shares of the Fund, and other Security Funds, except Security Cash Fund. The amount of these future purchases shall be specified and must be made within a 13-month period (or 36-month period for purchases of $1 million or more) to become eligible for the reduced front-end sales charge applicable to the actual amount purchased under the Statement. Shares equal to five percent (5%) of the amount specified in the Statement of Intention will be held in escrow until the statement is completed or terminated. These shares may be redeemed by the Fund if the Purchaser is required to pay additional sales charges. A Statement of Intention may be revised during the 13-month (or, if applicable, 36-month) period. Additional Class A shares received from reinvestment of income dividends and capital gains distributions are included in the total amount used to determine reduced sales charges. A Statement of Intention may be obtained from the Fund. REINSTATEMENT PRIVILEGE -- Shareholders who redeem their Class A shares of the Fund have a one-time privilege (1) to reinstate their accounts by purchasing Class A shares without a sales charge up to the dollar amount of the redemption proceeds; or (2) to the extent the redeemed shares would have been eligible for the exchange privilege, to purchase Class A shares of another of the Security Funds, without a sales charge up to the dollar amount of the redemption proceeds. To exercise this privilege, a shareholder must provide written notice and a check in the amount of the reinvestment within thirty days after the redemption request; the reinstatement will be made at the net asset value per share on the date received by the Fund or the Security Funds, as appropriate. FOR MORE INFORMATION - -------------------------------------------------------------------------------- BY TELEPHONE -- Call 1-800-888-2461. BY MAIL -- Write to: Security Management Company, LLC 700 SW Harrison Topeka, KS 66636-0001 ON THE INTERNET -- Reports and other information about the Fund can be viewed online or downloaded from: SEC: http://www.sec.gov SMC, LLC: http://www.securitybenefit.com Additional information about the Fund (including the Statement of Additional Information) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, DC. Information about the operation of the public reference room may be obtained by calling the Commission at 1-800-SEC-0330. Copies may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the Commission, Washington, DC 20549-6009. - -------------------------------------------------------------------------------- ANNUAL/SEMI-ANNUAL REPORT -- Additional information about the Fund's investments is available in the Fund's annual and semi-annual reports to shareholders. In the Fund's annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. STATEMENT OF ADDITIONAL INFORMATION -- The Fund's Statement of Additional Information and the Fund's annual or semi-annual report are available, without charge upon request by calling the Funds' toll-free telephone number 1-800-888-2461, extension 3127. Shareholder inquiries should be addressed to SMC, LLC, 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by calling the Fund's toll-free telephone number listed above. The Fund's Statement of Additional Information is incorporated into this prospectus by reference. The Fund's Investment Company Act file number is listed below: Security Income Fund............. 811-2120 - -------------------------------------------------------------------------------- SECURITY INCOME FUND * CAPITAL PRESERVATION SERIES Member of The Security Benefit Group of Companies 700 SW Harrison, Topeka, Kansas 66636-0001 (785) 431-3127 (800) 888-2461 This Statement of Additional Information is not a Prospectus. It should be read in conjunction with the Prospectus dated February 1, 2000, as it may be supplemented from time to time. A Prospectus may be obtained by writing Security Distributors, Inc., 700 SW Harrison, Topeka, Kansas 66636-0001, or by calling (785) 431-3127 or (800) 888-2461, ext. 3127. STATEMENT OF ADDITIONAL INFORMATION FEBRUARY 1, 2000 RELATING TO THE PROSPECTUS DATED February 1, 2000, as it may be supplemented from time to time - -------------------------------------------------------------------------------- FUND ADMINISTRATOR Security Management Company, LLC 700 SW Harrison Street Topeka, Kansas 66636-0001 DISTRIBUTOR Security Distributors, Inc. 700 SW Harrison Street Topeka, Kansas 66636-0001 CUSTODIAN UMB Bank, N.A. 928 Grand Avenue Kansas City, Missouri 64106 INDEPENDENT AUDITOR ______________________ One Kansas City Place 1200 Main Street Kansas City, Missouri 64105-2143 TABLE OF CONTENTS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS................................................ 3 Investment Objective..................................................... 3 Investment Policies...................................................... 3 SHORT-TERM INSTRUMENTS................................................. 3 CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES....................... 4 COMMERCIAL PAPER....................................................... 4 U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES........................ 4 U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES............................. 4 U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME SECURITIES................................ 4 MORTGAGE-AND ASSET-BACKED SECURITIES................................... 5 COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")........................... 5 ZERO-COUPON SECURITIES................................................. 6 WRAPPER AGREEMENTS..................................................... 6 RISKS OF WRAPPER AGREEMENTS............................................ 8 ILLIQUID SECURITIES.................................................... 9 WHEN-ISSUED AND DELAYED DELIVERY SECURITIES............................ 10 U.S. GOVERNMENT OBLIGATIONS............................................ 10 LOWER-RATED DEBT SECURITIES ("JUNK BONDS")............................. 11 HEDGING STRATEGIES..................................................... 11 FUTURES CONTRACTS AND OPTIONS AND FUTURES CONTRACTS - GENERAL.......... 12 FUTURES CONTRACTS...................................................... 12 OPTIONS ON FUTURES CONTRACTS........................................... 13 OPTIONS ON SECURITIES.................................................. 14 GLOBAL ASSET ALLOCATION STRATEGY ("GAA STRATEGY")...................... 15 REPURCHASE AGREEMENTS.................................................. 17 REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS......................... 17 BORROWING.............................................................. 17 ASSET COVERAGE......................................................... 17 Rating Services.......................................................... 17 Investment Restrictions.................................................. 17 FUNDAMENTAL RESTRICTIONS............................................... 18 NON-FUNDAMENTAL RESTRICTIONS........................................... 18 Portfolio Transactions and Brokerage Commissions......................... 19 PERFORMANCE INFORMATION.................................................... 20 Standard Performance Information......................................... 20 YIELD.................................................................. 20 TOTAL RETURN........................................................... 21 PERFORMANCE RESULTS.................................................... 21 Comparison of Fund Performance........................................... 21 Economic and Market Information.......................................... 21 VALUATION OF ASSETS; REDEMPTIONS IN KIND................................... 21 Overview of TSA Accounts................................................. 23 OVERVIEW OF THE TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS............................................. 23 Types of Individual Retirement Accounts.................................. 23 TRADITIONAL IRAS....................................................... 23 ROTH IRAS.............................................................. 24 SIMPLE IRAS............................................................ 24 KEOGH PLANS............................................................ 25 EDUCATION IRAS......................................................... 25 OWNERSHIP OF SHARES THROUGH PLANS.......................................... 25 QUALIFIED REDEMPTIONS...................................................... 25 Traditional IRAs, SEP-IRAs and SIMPLE IRAs............................... 27 Roth IRAs................................................................ 27 Keogh Plans.............................................................. 27 Education IRAs........................................................... 28 MANAGEMENT OF THE FUND AND TRUST........................................... 28 Directors and Officers of Security Income Fund........................... 28 Trustees of BT Investment Portfolios..................................... 29 Officers of BT Investment Portfolios..................................... 31 Security Income Fund Director Compensation Table......................... 31 BT Investment Portfolio Trustee Compensation Table....................... 32 Investment Adviser....................................................... 32 Administrator............................................................ 33 Custodian and Transfer Agent............................................. 34 Banking Regulatory Matters............................................... 34 Independent Accountants.................................................. 34 ORGANIZATION OF SECURITY INCOME FUND....................................... 34 ORGANIZATION OF THE TRUST.................................................. 35 TAXATION................................................................... 35 Taxation of the Fund..................................................... 35 Taxation of the Portfolio................................................ 36 Other Taxation........................................................... 37 Foreign Withholding Taxes................................................ 37 FINANCIAL STATEMENTS....................................................... 37 APPENDIX................................................................... 38 Description of Moody's Corporate Bond Ratings............................ 38 Description of S&P's Corporate Bond Ratings.............................. 38 Duff & Phelps' Long-Term Debt Ratings.................................... 39 Description of Moody's Short-Term Ratings................................ 39 Description of S&P Short-Term Issuer Credit Ratings...................... 40 Description of Duff & Phelps' Commercial Paper Ratings................... 40 Description of Moody's Insurance Financial Strength Ratings.............. 40 Description of S&P Claims Paying Ability Rating Definitions.............. 41 Duff & Phelps' Claims Paying Ability Ratings............................. 41 INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS Security Capital Preservation Fund (the "Fund") is a separate series of Security Income Fund, an open-end, management investment company (mutual fund) of the series type, offering shares of the Fund ("Shares") as described herein. As described in the Fund's Prospectus, the Fund seeks to achieve its investment objective by investing all its net investable assets (the "Assets") in BT PreservationPlus Income Portfolio (the "Portfolio"), a diversified open-end management investment company having the same investment objective as the Fund. The Portfolio is a separate subtrust of BT Investment Portfolios, a New York master trust fund (the "Portfolio Trust"). Because the investment characteristics of the Fund correspond directly to those of the Portfolio (in which the Fund invests all of its assets), the following is a discussion of the various investments of and techniques employed by the Portfolio. The Fund has been established to serve as an alternative investment to short-term bond funds and money market funds. In addition, since to date, there has been no comparable investment substitute for those individuals who are "rolling" assets over from the stable value or guaranteed investment contract ("GIC") option of their employee benefit plans (such as 401(k) plans), the Fund is designed to be that comparable alternative. Shares of the Fund are sold by Security Distributors, Inc., the Fund's distributor (the "Distributor"), solely to tax-sheltered annuity custodial accounts as defined in Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), individual retirement accounts as defined in Section 408 of the Code including "SIMPLE IRAs" and "SEP IRAs", Roth IRAs as defined in Section 408A of the Code, education individual retirement accounts as defined in Section 530 of the Code and "Keogh Plans" (sometimes collectively referred to herein as "IRAs"), and to employees investing through participant-directed employee benefit plans (each a "Plan" and together "Plans"). Shares are offered to Plans either directly, or through vehicles such as bank collective funds or insurance company separate accounts consisting solely of such Plans. Shares are also available to employee benefit plans which invest in the Fund through an omnibus account or similar arrangement. The Fund's Prospectus (the "Prospectus") is dated February 1, 2000. The Prospectus provides the basic information investors should know before investing and may be obtained without charge by calling the Distributor at 1-800-888-2461 extension 3127. This Statement of Additional Information ("SAI"), which is not a prospectus, is intended to provide additional information regarding the activities and operations of the Fund and the Portfolio and should be read in conjunction with the Prospectus. This SAI is not an offer by the Fund to an investor that has not received a Prospectus. Capitalized terms not otherwise defined in this SAI have the meanings ascribed to them in the Prospectus. INVESTMENT OBJECTIVE -- The investment objective of the Fund is a high level of current income while seeking to maintain a stable net asset value per Share. There can, of course, be no assurance that the Fund will achieve its investment objective. INVESTMENT POLICIES --The Fund seeks to achieve its investment objective by investing all of its Assets in the Portfolio. The Fund's investment in the Portfolio may be withdrawn at any time if the Board of Directors of Security Income Fund determines that it is in the best interests of the Fund to do so. The Portfolio's investment objective is a high level of current income while seeking to maintain a stable net asset value per Share. The Portfolio expects to invest primarily in fixed income securities ("Fixed Income Securities") of varying maturities rated, at the time of purchase, in one of the top four long-term rating categories by Standard & Poor's Ratings Services ("S&P"), Moody's Investors Service, Inc. ("Moody's"), or Duff & Phelps Credit Rating Co., or comparably rated by another nationally recognized statistical rating organization ("NRSRO"), or, if not rated by a NRSRO, of comparable quality as determined by Bankers Trust in its sole discretion. In addition, the Portfolio will enter into contracts ("Wrapper Agreements") with insurance companies, banks or other financial institutions ("Wrapper Providers") that are rated, at the time of purchase, in one of the top two long-term rating categories by Moody's or S&P. There is no active trading market for Wrapper Agreements, and none is expected to develop; therefore, they will be considered illiquid. At the time of purchase, the value of all of the Wrapper Agreements and any other illiquid securities will not exceed 15% of the Portfolio's net assets. The following is a discussion of the various investments of and techniques employed by the Portfolio. SHORT-TERM INSTRUMENTS. The Portfolio's assets may be invested in high quality short-term investments with remaining maturities of 397 days or less to maintain the Liquidity Reserve (as defined below), to meet anticipated redemptions and expenses for day-to-day operating purposes and when, in the opinion of Bankers Trust Company, the Portfolio's investment adviser (the "Adviser" or "Bankers Trust"), it is advisable to adopt a temporary defensive position because of unusual and adverse conditions affecting the respective markets. The Portfolio may hold short-term investments consisting of foreign and domestic (i) short-term obligations of sovereign governments, their agencies, instrumentalities, authorities or political subdivisions; (ii) other short-term debt securities rated in one of the top two short-term rating categories by an NRSRO or, if unrated, of comparable quality in the opinion of the Adviser; (iii) commercial paper; (iv) bank obligations, including negotiable certificates of deposit, time deposits and bankers' acceptances; and (v) repurchase agreements. At the time the Portfolio invests in commercial paper, bank obligations or repurchase agreements, the issuer or the issuer's parent must have an outstanding long-term debt rating of A or higher by Standard & Poor's Ratings Group ("S&P") or A-2 or higher by Moody's Investors Service, Inc. ("Moody's") or outstanding commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such ratings are available, the instrument must be of comparable quality in the opinion of the Adviser. CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit are receipts issued by a depository institution in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one to 270 days) unsecured promissory notes issued by corporations in order to finance their current operations. A variable amount master demand note (which is a type of commercial paper) represents a direct borrowing arrangement involving periodically fluctuating rates of interest under a letter agreement between a commercial paper issuer and an institutional lender pursuant to which the lender may determine to invest varying amounts. For a description of commercial paper ratings, see the Appendix. U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES. Bonds and other debt instruments are used by issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest but are purchased at a discount from their face values. Debt securities, loans and other direct debt have varying degrees of quality and varying levels of sensitivity to changes in interest rates. Longer-term bonds are generally more sensitive to interest rate changes than short-term bonds. U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Portfolio may invest a portion of its assets in the dollar-denominated debt securities of foreign companies. Investing in the securities of foreign companies involves more risks than investing in securities of U.S. companies. Their value is subject to economic and political developments in the countries where the companies operate and to changes in foreign currency values. Values may also be affected by foreign tax laws, changes in foreign economic or monetary policies, exchange control regulations and regulations involving prohibitions on the repatriation of foreign currencies. In general, less information may be available about foreign companies than about U.S. companies, and foreign companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. Foreign securities markets may be less liquid and subject to less regulation than the U.S. securities markets. The costs of investing outside the United States frequently are higher than those in the United States. These costs include relatively higher brokerage commissions and foreign custody expenses. U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME SECURITIES. Debt instruments issued or guaranteed by foreign governments, agencies and supranational organizations ("sovereign debt obligations"), especially sovereign debt obligations of developing countries, may involve a high degree of risk. The issuer of the obligation or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal and interest when due and may require renegotiation or rescheduling of debt payments. In addition, prospects for repayment of principal and interest may depend on political as well as economic factors. MORTGAGE- AND ASSET-BACKED SECURITIES. The Portfolio may purchase mortgage-backed securities issued by the U.S. government, its agencies or instrumentalities and non-governmental entities such as banks, mortgage lenders or other financial institutions. Mortgage-backed securities include mortgage pass-through securities, mortgage-backed bonds and mortgage pay-through securities. A mortgage pass-through security is a pro rata interest in a pool of mortgages where the cash flow generated from the mortgage collateral is passed through to the security holder. A mortgage-backed bond is a general obligation of the issuer, payable out of the issuer's general funds and additionally secured by a first lien on a pool of mortgages. Mortgage pay-through securities exhibit characteristics of both pass-through and mortgage-backed bonds. The mortgage pass-through securities issued by non-governmental entities such as banks, mortgage lenders or other financial institutions in which the Portfolio may invest include private label mortgage pass-through securities and whole loans. Mortgage-backed securities also include other debt obligations secured by mortgages on commercial real estate or residential properties. Other types of mortgage-backed securities will likely be developed in the future, and the Portfolio may invest in them if Bankers Trust determines they are consistent with the Portfolio's investment objective and policies. COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are mortgage-backed bonds that separate mortgage pools into different classes, called tranches. Tranches pay different rates of interest and can mature in a few months, or in as long as 20 years. Issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) and private issuers, CMOs are usually backed by government-guaranteed or other top grade mortgages and have AAA ratings. In return for a lower yield, CMOs provide investors with increased security throughout the life of their investment compared to purchasing a whole mortgage-backed security. Even so, if mortgage rates drop sharply, causing a flood of refinancings, prepayment rates will soar and CMO tranches will be repaid before their expected maturity. REMICs are pass-through vehicles created under the tax reform act of 1986 to issue multiclass mortgage-backed securities. REMICs may be organized as corporations, partnerships or trusts. Interests in REMICs may be senior or junior, regular (debt instruments) or residual (equity interests). CMOs normally have AAA bond ratings, whereas REMICs represent a range of risk levels. Asset-backed securities have structural characteristics similar to mortgage-backed securities. However, the underlying assets are not first lien mortgage loans or interests therein but include assets such as motor vehicle installment sale contracts, other installment sale contracts, home equity loans, leases of various types of real and personal property, and receivables from revolving credit (credit card) agreements. Such assets are securitized through the use of trusts or special purpose corporations. Payments or distributions of principal and interest on asset-backed securities may be guaranteed up to certain amounts and for a certain time period by a letter of credit or a pool insurance policy issued by a financial institution unaffiliated with the issuer, or other credit enhancements may be present. The yield characteristics of the mortgage- and asset-backed securities in which the Portfolio may invest differ from those of traditional debt securities. Among the major differences are that interest and principal payments are made more frequently on mortgage- and asset-backed securities (usually monthly) and that principal may be prepaid at any time because the underlying mortgage loans or other assets generally may be prepaid at any time. As a result, if the Portfolio purchases these securities at a premium, a prepayment rate that is faster than expected will reduce their yield, while a prepayment rate that is slower than expected will have the opposite effect of increasing yield. Conversely, if the Portfolio purchases these securities at a discount, faster than expected prepayments will increase, while slower than expected prepayments will reduce, their yield. Amounts available for reinvestment by the Portfolio are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates than during a period of rising interest rates. Unlike ordinary Fixed Income Securities, which generally pay a fixed rate of interest and return principal upon maturity, mortgage-backed securities repay both interest income and principal as part of their periodic payments. Because the mortgages underlying mortgage-backed certificates can be prepaid at any time by homeowners or corporate borrowers, mortgage-backed securities give rise to certain unique "pre-payment" risks. Prepayment risk or call risk is the likelihood that, during periods of falling interest rates, securities with high stated interest rates will be prepaid (or "called") prior to maturity, requiring the Portfolio to invest the proceeds at generally lower interest rates. In general, the prepayment rate for mortgage-backed securities decreases as interest rates rise and increases as interest rates fall. However, rising interest rates will tend to decrease the value of these securities. In addition, an increase in interest rates may affect the volatility of these securities by effectively changing a security that was considered a short-term security at the time of purchase into a long-term security. Long-term securities generally fluctuate more widely in response to changes in interest rates than short- or intermediate-term securities. The market for privately issued mortgage- and asset-backed securities is smaller and less liquid than the market for U.S. government mortgage-backed securities. CMO classes may be specially structured in a manner that provides any of a wide variety of investment characteristics, such as yield, effective maturity and interest rate sensitivity. As market conditions change, however, and particularly during periods of rapid or unanticipated changes in market interest rates, the attractiveness of the CMO classes and the ability of the structure to provide the anticipated investment characteristics may be significantly reduced. These changes can result in volatility in the market value, and in some instances reduced liquidity, of the CMO class. Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities do not have the benefit of the same type of security interest in the related collateral. Credit card receivables are generally unsecured, and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to avoid payment of certain amounts owed on the credit cards, thereby reducing the balance due. There is the risk in connection with automobile receivables that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. ZERO-COUPON SECURITIES. The Portfolio may invest in certain zero coupon securities that are "stripped" U.S. Treasury notes and bonds. Zero Coupon Securities including CATS, TIGRs and TRs, are the separate income or principal components of a debt instrument. Zero coupon securities usually trade at a substantial discount from their face or par value. Zero coupon securities are subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities that make current distributions of interest in cash. Zero coupon securities involve risks that are similar to those of other debt securities, although they may be more volatile, and the value of certain zero coupon securities moves in the same direction as interest rates. Zero coupon bonds do not make regular interest payments. WRAPPER AGREEMENTS. Wrapper Agreements are structured with a number of different features. Wrapper Agreements purchased by the Portfolio are of three basic types: (1) non-participating, (2) participating and (3) "hybrid." In addition, the Wrapper Agreements will either be of fixed-maturity or open-end maturity ("evergreen"). The Portfolio enters into particular types of Wrapper Agreements depending upon their respective cost to the Portfolio and the Wrapper Provider's creditworthiness, as well as upon other factors. Under most circumstances, it is anticipated that the Portfolio will enter into participating Wrapper Agreements of open-end maturity and hybrid Wrapper Agreements. Under a NON-PARTICIPATING WRAPPER AGREEMENT, the Wrapper Provider becomes obligated to make a payment to the Portfolio whenever the Portfolio sells Covered Assets at a price below Book Value to meet withdrawals of a type covered by the Wrapper Agreement (a "Benefit Event"). Conversely, the Portfolio becomes obligated to make a payment to the Wrapper Provider whenever the Portfolio sells Covered Assets at a price above their Book Value in response to a Benefit Event. In neither case is the Crediting Rate adjusted at the time of the Benefit Event. Accordingly, under this type of Wrapper Agreement, while the Portfolio is protected against decreases in the market value of the Covered Assets below Book Value, it does not realize increases in the market value of the Covered Assets above Book Value; those increases are realized by the Wrapper Providers. Under a PARTICIPATING WRAPPER AGREEMENT, the obligation of the Wrapper Provider or the Portfolio to make payments to each other typically does not arise until all of the Covered Assets have been liquidated. Instead of payments being made on the occurrence of each Benefit Event, these obligations are a factor in the periodic adjustment of the Crediting Rate. Under a HYBRID WRAPPER AGREEMENT, the obligation of the Wrapper Provider or the Portfolio to make payments does not arise until withdrawals exceed a specified percentage of the Covered Assets, after which time payment covering the difference between market value and Book Value will occur. A FIXED-MATURITY WRAPPER AGREEMENT terminates at a specified date, at which time settlement of any difference between Book Value and market value of the Covered Assets occurs. A fixed-maturity Wrapper Agreement tends to ensure that the Covered Assets provide a relatively fixed rate of return over a specified period of time through bond immunization, which targets the duration of the Covered Assets to the remaining life of the Wrapper Agreement. An EVERGREEN WRAPPER AGREEMENT has no fixed maturity date on which payment must be made, and the rate of return on the Covered Assets accordingly tends to vary. Unlike the rate of return under a fixed-maturity Wrapper Agreement, the rate of return on assets covered by an evergreen Wrapper Agreement tends to more closely track prevailing market interest rates and thus tends to rise when interest rates rise and fall when interest rates fall. An evergreen Wrapper Agreement may be converted into a fixed-maturity Wrapper Agreement that will mature in the number of years equal to the duration of the Covered Assets. Wrapper Providers are banks, insurance companies and other financial institutions. The number of Wrapper Providers has been increasing in recent years. As of December 1998, there were approximately _________ Wrapper Providers rated in one of the top two long-term rating categories by Moody's, S&P or another NRSRO. The cost of Wrapper Agreements is typically 0.10% to 0.25% per dollar of Covered Assets per annum. In the event of the default of a Wrapper Provider, the Portfolio could potentially lose the Book Value protections provided by the Wrapper Agreements with that Wrapper Provider. However, the impact of such a default on the Portfolio as a whole may be minimal or non-existent if the market value of the Covered Assets thereunder is greater than their Book Value at the time of the default, because the Wrapper Provider would have no obligation to make payments to the Portfolio under those circumstances. In addition, the Portfolio may be able to obtain another Wrapper Agreement from another Wrapper Provider to provide Book Value protections with respect to those Covered Assets. The cost of the replacement Wrapper Agreement might be higher than the initial Wrapper Agreement due to market conditions or if the market value (plus accrued interest on the underlying securities) of those Covered Assets is less than their Book Value at the time of entering into the replacement agreement. Such cost would also be in addition to any premiums previously paid to the defaulting Wrapper Provider. If the Portfolio were unable to obtain a replacement Wrapper Agreement, participants redeeming Shares might experience losses if the market value of the Portfolio's assets no longer covered by the Wrapper Agreement is below Book Value. The combination of the default of a Wrapper Provider and an inability to obtain a replacement agreement could render the Portfolio and the Fund unable to achieve their investment objective of seeking to maintain a stable value per Share. With respect to payments made under the Wrapper Agreements between the Portfolio and the Wrapper Provider, some Wrapper Agreements provide that payments may be due upon disposition of the Covered Assets, while others provide for payment only upon the total liquidation of the Covered Assets or upon termination of the Wrapper Agreement. In none of these cases, however, would the terms of the Wrapper Agreements specify which Portfolio Securities are to be disposed of or liquidated. Moreover, because it is anticipated that each Wrapper Agreement will cover all Covered Assets up to a specified dollar amount, if more than one Wrapper Provider becomes obligated to pay to the Portfolio the difference between Book Value and market value (plus accrued interest on the underlying securities), each Wrapper Provider will pay a pro-rata amount in proportion to the maximum dollar amount of coverage provided. Thus, the Portfolio will not have the option of choosing which Wrapper Agreement to draw upon in any such payment situation. Under the terms of most Wrapper Agreements, the Wrapper Provider will have the right to terminate the Wrapper Agreement in the event that material changes are made to the Portfolio's investment objectives or limitations or to the nature of the Portfolio's operations. In such event, the Portfolio may be obligated to pay the Wrapper Provider termination fees equal in amount to the premiums that would have been due had the Wrapper Agreement continued through the predetermined period. The Portfolio will have the right to terminate a Wrapper Agreement for any reason. Such right, however, may also be subject to the payment of termination fees. In the event of termination of a Wrapper Agreement or conversion of an evergreen Wrapper Agreement to a fixed maturity, some Wrapper Agreements may require that the duration of some portion of the Fund's portfolio securities be reduced to correspond to the fixed maturity or termination date and that such securities maintain a higher credit rating than is normally required, either of which requirements might adversely affect the return of the Portfolio and the Fund. RISKS OF WRAPPER AGREEMENTS. Each Wrapper Agreement obligates the Wrapper Provider to maintain the "Book Value" of a portion of the Portfolio's assets ("Covered Assets") up to a specified maximum dollar amount, upon the occurrence of certain specified events. The Book Value of the Covered Assets is their purchase price (i) plus interest on the Covered Assets at a rate specified in the Wrapper Agreement ("Crediting Rate"), and (ii) less an adjustment to reflect any defaulted securities. The Crediting Rate used in computing Book Value is calculated by a formula specified in the Wrapper Agreement and is adjusted periodically. In the case of Wrapper Agreements purchased by the Portfolio, the Crediting Rate is the actual interest earned on the Covered Assets, or an index-based approximation thereof, plus or minus an adjustment for an amount receivable from or payable to the Wrapper Provider based on fluctuations in the market value of the Covered Assets. As a result, while the Crediting Rate will generally reflect movements in the market rates of interest, it may at any time be more or less than these rates or the actual interest income earned on the Covered Assets. The Crediting Rate may also be impacted by defaulted securities and by increases and decreases of the amount of Covered Assets as a result of contributions and withdrawals tied to the sale and redemption of Shares. Furthermore, the premiums due Wrapper Providers in connection with the Portfolio's investments in Wrapper Agreements are offset against interest earned and thus reduce the Crediting Rate. These premiums are generally paid quarterly. In no event will the Crediting Rate fall below zero percent under the Wrapper Agreements entered into by the Portfolio. Under the terms of a typical Wrapper Agreement, if the market value (plus accrued interest on the underlying securities) of the Covered Assets is less than their Book Value at the time the Covered Assets are liquidated in order to provide proceeds for withdrawals of Portfolio interests resulting from redemptions of Shares by Plan participants, the Wrapper Provider becomes obligated to pay to the Portfolio the difference. Conversely, the Portfolio becomes obligated to make a payment to the Wrapper Provider if it is necessary for the Portfolio to liquidate Covered Assets at a price above their Book Value in order to make withdrawal payments. (Withdrawals generally will arise when the Fund must pay shareholders who redeem their Shares.) Because it is anticipated that each Wrapper Agreement will cover all Covered Assets up to a specified dollar amount, if more than one Wrapper Provider becomes obligated to pay to the Portfolio the difference between Book Value and market value (plus accrued interest on the underlying securities), each Wrapper Provider will be obligated to pay a pro-rata amount in proportion to the maximum dollar amount of coverage provided. Thus, the Portfolio will not have the option of choosing which Wrapper Agreement to draw upon in any such payment situation. The terms of the Wrapper Agreements vary concerning when these payments must actually be made between the Portfolio and the Wrapper Provider. In some cases, payments may be due upon disposition of the Covered Assets; other Wrapper Agreements provide for settlement only upon termination of the Wrapper Agreement or total liquidation of the Covered Assets. The Fund expects that the use of Wrapper Agreements by the Portfolio will under most circumstances permit the Fund to maintain a constant NAV per Share and to pay dividends that will generally reflect over time both the interest income of, and market gains and losses on, the Covered Assets held by the Portfolio less the expenses of the Fund and the Portfolio. However, there can be no guarantee that the Fund will maintain a constant NAV per Share or that any Fund shareholder or Plan participant will realize the same investment return as might be realized by investing directly in the Portfolio assets other than the Wrapper Agreements. For example, a default by the issuer of a Portfolio Security or a Wrapper Provider on its obligations might result in a decrease in the value of the Portfolio assets and, consequently, the Shares. The Wrapper Agreements generally do not protect the Portfolio from loss if an issuer of Portfolio Securities defaults on payments of interest or principal. Additionally, a Fund shareholder may realize more or less than the actual investment return on the Portfolio Securities depending upon the timing of the shareholder's purchases and redemption of Shares, as well as those of other shareholders. Furthermore, there can be no assurance that the Portfolio will be able at all times to obtain Wrapper Agreements. Although it is the current intention of the Portfolio to obtain such agreements covering all of its assets (with the exceptions noted), the Portfolio may elect not to cover some or all of its assets with Wrapper Agreements should Wrapper Agreements become unavailable or should other conditions such as cost, in Bankers Trust's sole discretion, render their purchase inadvisable. If, in the event of a default of a Wrapper Provider, the Portfolio were unable to obtain a replacement Wrapper Agreement, participants redeeming Shares might experience losses if the market value of the Portfolio's assets no longer covered by the Wrapper Agreement is below Book Value. The combination of the default of a Wrapper Provider and an inability to obtain a replacement agreement could render the Portfolio and the Fund unable to achieve their investment objective of maintaining a stable NAV per Share. If the Board of Trustees of the Portfolio Trust (the "Portfolio Trust Board") determines that a Wrapper Provider is unable to make payments when due, that Board may assign a fair value to the Wrapper Agreement that is less than the difference between the Book Value and the market value (plus accrued interest on the underlying securities) of the applicable Covered Assets and the Portfolio might be unable to maintain NAV stability. Some Wrapper Agreements require that the Portfolio maintain a specified percentage of its total assets in short-term investments ("Liquidity Reserve"). These short-term investments must be used for the payment of withdrawals from the Portfolio and Portfolio expenses. To the extent the Liquidity Reserve falls below the specified percentage of total assets, the Portfolio is obligated to direct all net cash flow to the replenishment of the Liquidity Reserve. The obligation to maintain a Liquidity Reserve may result in a lower return for the Portfolio and the Fund than if these funds were invested in longer-term Fixed Income Securities. The Liquidity Reserve required by all Wrapper Agreements is not expected to exceed 20% of the Portfolio's total assets. Wrapper Agreements also require that the Covered Assets have a specified duration or maturity, consist of specified types of securities or be of a specified investment quality. The Portfolio will purchase Wrapper Agreements whose criteria in this regard are consistent with the Portfolio's (and the Fund's) investment objective and policies as described in this Prospectus. Wrapper Agreements may also require the disposition of securities whose ratings are downgraded below a certain level. This may limit the Portfolio's ability to hold such downgraded securities. For a description of Wrapper Provider ratings, see the Appendix. ILLIQUID SECURITIES. Mutual funds do not typically hold a significant amount of illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities, and a mutual fund might be unable to dispose of illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. A mutual fund might also have to register restricted securities in order to dispose of them, resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities. In recent years, however, a large institutional market has developed for certain securities that are not registered under the 1933 Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Rule 144A Securities are securities that are not registered for sale under the federal securities laws but can be resold to institutions pursuant to Rule 144A under the Securities Act of 1933. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer's ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale of such investments to the general public or to certain institutions may not be indicative of their liquidity. The Securities and Exchange Commission (the "SEC") has adopted Rule 144A under the 1933 Act, which allows a broader institutional trading market for securities otherwise subject to restriction on their resale to the general public. Rule 144A establishes a "safe harbor" from the registration requirements of the 1933 Act for resales of certain securities to qualified institutional buyers. The Adviser anticipates that the market for certain restricted securities such as institutional commercial paper will expand further as a result of this rule and the development of automated systems for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers, such as the PORTAL System sponsored by the National Association of Securities Dealers, Inc. The Adviser will monitor the liquidity of Rule 144A securities held by the Portfolio under the supervision of the Portfolio Trust Board. In reaching liquidity decisions, the Adviser will consider, among other things, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers and other potential purchasers or sellers of the security; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer). Provided that a dealer or institutional trading market in such securities exists, these restricted securities are treated as exempt from the Portfolio's 15% limit on illiquid securities. Under the supervision of the Portfolio Trust Board, Bankers Trust determines the liquidity of restricted securities; and through reports from Bankers Trust, the Portfolio Trust Board monitors trading activity in restricted securities. If institutional trading in restricted securities were to decline, the liquidity of the Portfolio could be adversely affected. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase securities on a when-issued or delayed delivery basis. Delivery of and payment for these securities can take place a month or more after the date of the purchase commitment. The purchase price and the interest rate payable, if any, on the securities are fixed on the purchase commitment date or at the time the settlement date is fixed. The value of such securities is subject to market fluctuation, and no interest accrues to the Portfolio until settlement takes place. At the time the Portfolio makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record the transaction, reflect the value each day of such securities in determining its NAV and, if applicable, calculate the maturity for the purposes of average maturity from that date. At the time of settlement, a when-issued security may be valued at less than the purchase price. To facilitate such acquisitions, the Portfolio will maintain with its custodian (Bankers Trust) a segregated account with liquid assets, consisting of cash, U.S. government securities or other appropriate securities, in an amount at least equal to such commitments. On delivery dates for such transactions, the Portfolio will meet its obligations from maturities or sales of the securities held in the segregated account and/or from cash flow. If the Portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other portfolio obligation, realize a gain or loss due to market fluctuation. It is the current policy of the Portfolio not to enter into when-issued commitments exceeding in the aggregate 15% of the market value of its total assets, less liabilities other than the obligations created by when-issued commitments. U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations issued or guaranteed by U.S. government agencies or instrumentalities. U.S. government securities are high-quality debt securities issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S. government. These obligations may or may not be backed by the "full faith and credit" of the United States. In the case of securities not backed by the full faith and credit of the United States, the Portfolio must look principally to the federal agency issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitments. Securities in which the Portfolio may invest that are not backed by the full faith and credit of the United States include obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation and the U.S. Postal Service, each of which has the right to borrow from the U.S. Treasury to meet its obligations, and obligations of the Federal Farm Credit System and the Federal Home Loan Banks, both of whose obligations may be satisfied only by the individual credit of the issuing agency. Securities that are backed by the full faith and credit of the United States include obligations of the Government National Mortgage Association (the "GNMA"), the Farmers Home Administration and the Export-Import Bank. LOWER-RATED DEBT SECURITIES ("JUNK BONDS"). The Portfolio may invest in debt securities rated in the fifth and sixth long-term rating categories by S&P, Moody's and Duff & Phelps Credit Rating Company, or comparably rated by another NRSRO, or if not rated by a NRSRO, of comparable quality as determined by Bankers Trust in its sole discretion. While the market for high yield corporate debt securities has been in existence for many years and has weathered previous economic downturns, the 1980's brought a dramatic increase in the use of such securities to fund highly leveraged corporate acquisitions and restructuring. Past experience may not provide an accurate indication of future performance of the high yield bond market, especially during periods of economic recession. In fact, from 1989 to 1991, the percentage of lower-rated debt securities that defaulted rose significantly above prior levels. The market for lower-rated debt securities may be thinner and less active than that for higher rated debt securities, which can adversely affect the prices at which the former are sold. If market quotations are not available, lower-rated debt securities will be valued in accordance with procedures established by the Board of Trustees, including the use of outside pricing services. Judgment plays a greater role in valuing high yield corporate debt securities than is the case for securities for which more external sources for quotations and last sale information is available. Adverse publicity and changing investor perception may affect the availability of outside pricing services to value lower-rated debt securities and the Portfolio's ability to dispose of these securities. Since the risk of default is higher for lower-rated debt securities, Bankers Trust's research and credit analysis are an especially important part of managing securities of this type held by the Portfolio. In considering investments for the Portfolio, Bankers Trust will attempt to identify those issuers of high yielding debt securities whose financial conditions are adequate to meet future obligations, have improved or are expected to improve in the future. Bankers Trust's analysis focuses on relative values based on such factors as interest on dividend coverage, asset coverage, earnings prospects and the experience and managerial strength of the issuer. The Portfolio may choose, at its expense or in conjunction with others, to pursue litigation or otherwise exercise its rights as a security holder to seek to protect the interest of security holders if it determines this to be in the interest of the Portfolio. HEDGING STRATEGIES. The Portfolio may use certain strategies designed to adjust the overall risk of its investment portfolio. These "hedging" strategies involve derivative contracts, including U.S. Treasury and Eurodollar futures contracts and exchange-traded put and call options on such futures contracts. New financial products and risk management techniques continue to be developed and may be used if consistent with the Portfolio's investment objective and policies. Among other purposes, these hedging strategies may be used to effectively maintain a desired portfolio duration or to protect against market risk should the Portfolio change its investments among different types of Fixed Income Securities. In this respect, these hedging strategies are designed for different purposes than the investments in Wrapper Agreements. The Portfolio might not use any hedging strategies, and there can be no assurance that any strategy used will succeed. If the Adviser is incorrect in its judgment on market values, interest rates or other economic factors in using a hedging strategy, the Portfolio may have lower net income and a net loss on the investment. Each of these strategies involves certain risks, which include: * the fact that the skills needed to use hedging instruments are different from those needed to select securities for the Portfolio; * the possibility of imperfect correlation, or even no correlation, between the price movements of hedging instruments and price movements of the securities or currencies being hedged; * possible constraints placed on the Portfolio's ability to purchase or sell portfolio investments at advantageous times due to the need for the Portfolio to maintain "cover" or to segregate securities; and * the possibility that the Portfolio will be unable to close out or liquidate its hedged position. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- GENERAL. The successful use of these instruments draws upon the Adviser's skill and experience with respect to such instruments and usually depends on its ability to forecast interest rate movements correctly. If interest rates move in an unexpected manner, the Portfolio may not achieve the anticipated benefits of futures contracts or options thereon or may realize losses and thus will be in a worse position than if such strategies had not been used. In addition, the correlation between movements in the price of futures contracts or options thereon and movements in the price of the securities hedged or used for cover will not be perfect and could produce unanticipated losses. FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase or sale for future delivery of fixed-income securities or contracts based on financial indices, including any index of U.S. government securities, foreign government securities or corporate debt securities. U.S. futures contracts have been designed by exchanges that have been designated "contracts markets" by the Commodity Futures Trading Commission ("CFTC") and must be executed through a futures commission merchant, or brokerage firm, that is a member of the relevant contract market. Futures contracts trade on a number of exchange markets, and, through their clearing corporations, the exchanges guarantee performance of the contracts as between the clearing members of the exchange. The Portfolio may enter into futures contracts based on debt securities that are backed by the full faith and credit of the U.S. government, such as long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA modified pass-through mortgage-backed securities and three-month U.S. Treasury bills. The Portfolio may also enter into futures contracts that are based on bonds issued by entities other than the U.S. government. At the same time a futures contract is purchased or sold, the Portfolio must allocate cash or securities as a deposit payment. Daily thereafter, the futures contract is valued and "variation margin" may be required (that is, the Portfolio may have to provide or may receive cash that reflects any decline or increase in the contract's value). At the time of delivery of securities pursuant to a futures contract, adjustments are made to recognize differences in value arising from the delivery of securities with a different interest rate from that specified in the contract. In some (but not many) cases, securities called for by a futures contract may not have been issued when the contract was written. Although futures contracts by their terms call for the actual delivery or acquisition of securities, in most cases the contractual obligation is fulfilled before the termination date of the contract without having to make or take delivery of the securities. The offsetting of a contractual obligation is accomplished by buying (or selling, as the case may be) on a commodities exchange an identical futures contract calling for delivery in the same month. Such a transaction, which is effected through a member of an exchange, cancels the obligation to make or take delivery of the securities. Since all transactions in the futures market are made, offset or fulfilled through a clearinghouse associated with the exchange on which the contracts are traded, the Portfolio will incur brokerage fees when it purchases or sells futures contracts. The purpose of the Portfolio's acquisition or sale of a futures contract is to attempt to protect the Portfolio from fluctuations in interest rates without actually buying or selling fixed-income securities. For example, if interest rates were expected to increase (which thus would cause the prices of debt securities to decline), the Portfolio might enter into futures contracts for the sale of debt securities. Such a sale would have much the same effect as selling an equivalent value of the debt securities owned by the Portfolio. If interest rates did increase, the value of the debt securities held by the Portfolio would decline, but the value of the futures contracts to the Portfolio would increase at approximately the same rate, thereby keeping the Portfolio's NAV from declining as much as it otherwise would have. The Portfolio could accomplish similar results by selling debt securities and investing in bonds with short maturities when interest rates are expected to increase. However, since the futures market is more liquid than the cash market, the use of futures contracts as an investment technique allows the Portfolio to maintain a defensive position without having to sell its portfolio securities. Similarly, when it is expected that interest rates may decline (thus increasing the value of debt securities), futures contracts for the acquisition of debt securities may be purchased to attempt to hedge against anticipated purchases of debt securities at higher prices. Since the fluctuations in the value of futures contracts should be similar to those of the underlying debt securities, the Portfolio could take advantage of the anticipated rise in the value of debt securities without actually buying them until the market had stabilized. At that time, the futures contracts could be liquidated and the Portfolio could then buy debt securities on the cash market. To the extent the Portfolio enters into futures contracts for this purpose, the assets in the segregated asset account maintained to cover the Portfolio's obligations with respect to such futures contracts will consist of cash, cash equivalents or high quality liquid debt securities from its portfolio in an amount equal to the difference between the fluctuating market value of such futures contracts and the aggregate value of the initial and variation margin payments made by the Portfolio with respect to such futures contracts. The ordinary spreads between prices in the cash and futures market, due to differences in the nature of those markets, are subject to distortions. First, all participants in the futures market are subject to initial and variation margin requirements. Rather than meeting additional variation margin requirements, investors may close futures contracts through offsetting transactions that could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest rate trends by Bankers Trust may still not result in a successful transaction. In addition, futures contracts entail risks. Although the Adviser believes that use of such contracts will benefit the Portfolio, if its investment judgment about the general direction of interest rates is incorrect, the Portfolio's overall performance would be poorer than if it had not entered into any such contract. For example, if the Portfolio has hedged against the possibility of an increase in interest rates that would adversely affect the price of debt securities held in its portfolio and interest rates decrease instead, the Portfolio will lose part or all of the benefit of the increased value of its debt securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Portfolio has insufficient cash, it may have to sell debt securities from its portfolio to meet daily variation margin requirements. Such sales of securities may be, but will not necessarily be, at increased prices that reflect the rising market. The Portfolio may have to sell securities at a time when it may be disadvantageous to do so. OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and write (sell) options on futures contracts for hedging purposes. The purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. As with the purchase of futures contracts, when the Portfolio is not fully invested it may purchase a call option on a futures contract to hedge against a market advance due to declining interest rates. The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the security that is deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the price specified in the option ("exercise price"), the Portfolio will retain the full amount of the net premium (the premium received for writing the option less any commission), which will provide a partial hedge against any decline that may have occurred in its portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the security that is deliverable upon exercise of the futures contract. If the futures price at expiration of the option is higher than the exercise price, the Portfolio will retain the full amount of the option net premium, which will provide a partial hedge against any increase in the price of securities that the Portfolio intends to purchase. If a put or call option the Portfolio has written is exercised, the Portfolio may incur a loss that will be reduced by the amount of the net premium it receives. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its futures positions, such losses from existing options on futures may to some extent be reduced or increased by changes in the value of portfolio securities. The purchase of a put option on a futures contract is similar in some respects to the purchase of put options on portfolio securities. For example, the Portfolio may purchase a put option on a futures contract to hedge its portfolio against the risk of rising interest rates. The amount of risk the Portfolio assumes when it purchases an option on a futures contract is the premium paid for the option plus related transaction costs. In addition to the correlation risks discussed above, the purchase of an option also entails the risk that changes in the value of the underlying futures contract will not be fully reflected in the value of the option purchased. The Portfolio Trust Board has adopted a restriction that the Portfolio will not enter into any futures contract or option on a futures contract if immediately thereafter the amount of margin deposits on all the futures contracts held by the Portfolio and premiums paid on outstanding options on its futures contracts (other than those entered into for BONA FIDE hedging purposes) would exceed 5% of the market value of the Portfolio's total assets. OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and put options on its portfolio securities ("covered options") to a limited extent in an attempt to increase income. However, the Portfolio may forgo the benefits of appreciation on securities sold or may pay more than the market price on securities acquired pursuant to call and put options it writes. A call option written by a Portfolio is "covered" if the Portfolio owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Portfolio holds a call option on the same security and in the same principal amount as the written call option where the exercise price of the call option so held (a) is equal to or less than the exercise price of the written call option or (b) is greater than the exercise price of the written call option if the difference is maintained by the Portfolio in cash, U.S. government securities and other high quality liquid securities in a segregated account with its custodian. When the Portfolio writes a covered call option, it gives the purchaser of the option the right to buy the underlying security at the exercise price by exercising the option at any time during the option period. If the option expires unexercised, the Portfolio will realize income in an amount equal to the premium received for writing the option. If the option is exercised, a decision over which the Portfolio has no control, the Portfolio must sell the underlying security to the option holder at the exercise price. By writing a covered call option, the Portfolio forgoes, in exchange for the net premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. When the Portfolio writes a covered put option, it gives the purchaser of the option the right to sell the underlying security to the Portfolio at the exercise price at any time during the option period. If the option expires unexercised, the Portfolio will realize income in the amount of the net premium received for writing the option. If the put option is exercised, a decision over which the Portfolio has no control, the Portfolio must purchase the underlying security from the option holder at the exercise price. By writing a covered put option, the Portfolio, in exchange for the net premium, accepts the risk of a decline in the market value of the underlying security below the exercise price. The Portfolio will only write put options involving securities for which a determination is made at the time the option is written that the Portfolio wishes to acquire the securities at the exercise price. The Portfolio may terminate its obligation as the writer of a call or put option by purchasing an option with the same exercise price and expiration date as the option previously written. This transaction is called a "closing purchase transaction." The Portfolio will realize a profit or loss on a closing purchase transaction if the amount paid to purchase the option is less or more, as the case may be, than the amount received from the sale thereof. To close out a position as a purchaser of an option, the Portfolio may enter into a "closing sale transaction," which involves liquidating the Portfolio's position by selling the option previously purchased. Where the Portfolio cannot effect a closing purchase transaction, it may be forced to incur brokerage commissions or dealer spreads in selling securities it receives or it may be forced to hold underlying securities until an option is exercised or expires. When the Portfolio writes an option, an amount equal to the net premium received is included in the liability section of its Statement of Assets and Liabilities as a deferred credit. The amount of the deferred credit will be subsequently marked to market to reflect the current market value of the option. The current market value of a traded option is the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices. If an option expires or if the Portfolio enters into a closing purchase transaction, the Portfolio will realize a gain (or loss if the cost of the closing purchase transaction exceeds the net premium received when the option was sold), and the deferred credit related to such option will be eliminated. If a call option is exercised, the Portfolio will realize a gain or loss from the sale of the underlying security and the proceeds of the sale will be increased by the premium originally received. The writing of covered call options may be deemed to involve the pledge of the securities against which the option is being written. Securities against which call options are written will be segregated on the books of the custodian for the Portfolio. The Portfolio may purchase call and put options on any securities in which it may invest. The Portfolio would normally purchase a call option in anticipation of an increase in the market value of such securities. The purchase of a call option would entitle the Portfolio, in exchange for the premium paid, to purchase a security at a specified price during the option period. The Portfolio would ordinarily have a gain if the value of the securities increased above the exercise price sufficiently to cover the premium and would have a loss if the value of the securities remained at or below the exercise price during the option period. The Portfolio would normally purchase put options in anticipation of a decline in the market value of securities in its portfolio ("protective puts") or securities of the type in which it is permitted to invest. The purchase of a put option would entitle the Portfolio, in exchange for the premium paid, to sell a security, which may or may not be held in the Portfolio's holdings, at a specified price during the option period. The purchase of protective puts is designed merely to offset or hedge against a decline in the market value of the Portfolio's holdings. Put options also may be purchased by the Portfolio for the purpose of benefiting from a decline in the price of securities that the Portfolio does not own. The Portfolio would ordinarily recognize a gain if the value of the securities decreased below the exercise price sufficiently to cover the premium and would recognize a loss if the value of the securities remained at or above the exercise price. Gains and losses on the purchase of protective put options would tend to be offset by countervailing changes in the value of underlying portfolio securities. The Portfolio has adopted certain non-fundamental policies concerning option transactions that are discussed below. The hours of trading for options on securities may not conform to the hours during which the underlying securities are traded if the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying securities markets that will not be reflected in the option markets. It is impossible to predict the volume of trading that may exist in such options, and there can be no assurance that viable exchange markets will develop or continue. The Portfolio may engage in over-the-counter options transactions with broker-dealers who make markets in these options. At present, approximately ten broker-dealers, including several of the largest primary dealers in U.S. government securities, make these markets. The ability to terminate over-the-counter option positions is more limited than with exchange-traded option positions because the predominant market is the issuing broker rather than an exchange and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations. To reduce this risk, the Portfolio will purchase such options only from broker-dealers who are primary U.S. government securities dealers recognized by the Federal Reserve Bank of New York and who agree to (and are expected to be capable of) entering into closing transactions, although there can be no guarantee that any such option will be liquidated at a favorable price prior to expiration. Bankers Trust will monitor the creditworthiness of dealers with whom the Portfolio enters into such options transactions under the general supervision of the Portfolio Board. GLOBAL ASSET ALLOCATION STRATEGY ("GAA STRATEGY"). In connection with the GAA Strategy and in addition to the securities described above, the Portfolio may invest in indexed securities, futures contracts on securities indices, securities representing securities of foreign issuers (e.g. ADRs, GDRs and EDRs), options on stocks, options on futures contracts, foreign currency exchange transactions and options on foreign currencies. These are discussed below, to the extent not already described above. INDEXED SECURITIES. The indexed securities in which the Portfolio may invest include debt securities whose value at maturity is determined by reference to the relative prices of various currencies or to the price of a stock index. The value of such securities depends on the price of foreign currencies, securities indices or other financial values or statistics. These securities may be positively or negatively indexed; that is, their value may increase or decrease if the underlying instrument appreciates. FUTURES CONTRACTS ON SECURITIES INDICES. Futures contracts on securities indices provide for the making and acceptance of a cash settlement based upon changes in the value of an index of securities, and will be entered into by the Portfolio to hedge against anticipated future change in general market prices which otherwise might either adversely affect the value of securities held by the Portfolio or adversely affect the prices of securities which are intended to be purchased at a later date for the Portfolio, or as an efficient means of managing allocations between asset classes. A futures contract may also be entered into to close out or offset an existing futures position. The risks attendant to futures contracts on securities indices are similar to those of futures contracts, discussed above. SECURITIES REPRESENTING SECURITIES OF FOREIGN ISSUERS. The Portfolio's investments in the securities of foreign issuers may be made directly or in the form of American Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs") or other similar securities representing securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities they represent, and while designed for use as alternatives to the purchase of the underlying securities in their national markets and currencies, are subject to the same risks as the foreign securities to which they relate. FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio from time to time may enter into foreign currency exchange transactions to convert to and from different foreign currencies and to convert foreign currencies to and from the U.S. dollar, either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through forward contracts to purchase or sell foreign currencies. A forward foreign currency exchange contract obligates the Portfolio to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract. Forward foreign currency exchange contracts establish an exchange rate at a future date. These contracts are transferable in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward foreign currency exchange contract generally has no deposit requirement and is traded at a net price without commission. Neither spot transactions nor forward foreign currency exchange contracts eliminate fluctuations in the prices of the Portfolio's securities or in foreign exchange rates, or prevent loss if the prices of these securities should decline. The Portfolio may enter into foreign currency hedging transactions in an attempt to protect against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated investment position. Since consideration of the prospect for currency parities will be incorporated into Bankers Trust's long term investment decisions, the Portfolio will not routinely enter into foreign currency hedging transactions with respect to security transactions; however, Bankers Trust believes that it is important to have the flexibility to enter into foreign currency hedging transactions when it determines that the transactions would be in the Portfolio's best interest. Although these transactions tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of the hedged currency increase. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of such securities between the date the forward contract is entered into and the date it matures. The projection of currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain. OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and call options and purchase put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. The Portfolio may use options on currency to cross hedge, which involves writing or purchasing options on one currency to hedge against changes in exchange rates for a different, but related currency. As with other types of options, however, the writing of an option on foreign currency will constitute only a partial hedge up to the amount of the premium received, and the Portfolio could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may be used to hedge against fluctuations in exchange rates although, in the event of exchange rate movements adverse to the Portfolio's position, it may forfeit the entire amount of the premium plus related transaction costs. In addition, the Portfolio may purchase call options on currency when the Adviser anticipates that the currency will appreciate in value. There is no assurance that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time. If the Portfolio is unable to effect a closing purchase transaction with respect to covered options it has written, the Portfolio will not be able to sell the underlying currency or dispose of assets held in a segregated account until the options expire or are exercised. Similarly, if the Portfolio is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying currency. The Portfolio pays brokerage commissions or spreads in connection with its options transactions. As in the case of forward contracts, certain options on foreign currencies are traded over the counter and involve liquidity and credit risks which may not be present in the case of exchange traded currency options. The Portfolio's ability to terminate over-the-counter ("OTC") options will be more limited than with exchange traded options. It is also possible that broker dealers participating in OTC options transactions will not fulfill their obligations. Until such time as the staff of the SEC changes its position, the Portfolio will treat purchased OTC options and assets used to cover written OTC options as illiquid securities. With respect to options written with primary dealers in U.S. Government securities pursuant to an agreement requiring a closing purchase transaction at a formula price, the amount of illiquid securities may be calculated with reference to the repurchase formula. REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a security at one price and simultaneously agrees to sell it back to the seller on a specific date and at a higher price reflecting a market rate of interest unrelated to the coupon rate or maturity of the underlying security. Delays or losses could result if the other party to the agreement defaults or becomes insolvent. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. In a reverse repurchase agreement, the Portfolio temporarily transfers possession of a portfolio instrument to another party in return for cash. This could increase the risk of fluctuation in the Fund's yield or in the market value of its interest in the Portfolio. In a dollar roll, the Portfolio sells mortgage-backed or other securities for delivery in the current month and simultaneously contracts to purchase substantially similar securities on a specified future date. Reverse repurchase agreements and dollar rolls are forms of borrowing and will be counted towards the Portfolio's borrowing restrictions. Wrapper Agreements would cover the cash proceeds of such transactions but not the portfolio instruments transferred to another party until possession of such instruments is returned to the Portfolio. BORROWING. The Portfolio will not borrow money (including through reverse repurchase agreements or dollar roll transactions) for any purpose in excess of 5% of its total assets, except that it may borrow for temporary or emergency purposes up to 1/3 of its total assets. Under the 1940 Act, the Portfolio is required to maintain continuous asset coverage of 300% with respect to such borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidation of the Portfolio's holdings may be disadvantageous from an investment standpoint. Leveraging by means of borrowing may exaggerate the effect of any increase or decrease in the value of the Portfolio's securities and the Fund's NAV per Share, and money borrowed by the Portfolio will be subject to interest and other costs (which may include commitment fees and/or the cost of maintaining minimum average balances) that may exceed the income received from the securities purchased with the borrowed funds. It is not the intention of Bankers Trust to use leverage as a normal practice in the investment of the Portfolio's assets. There can be no assurance that the use of these portfolio strategies will be successful. ASSET COVERAGE. To assure that the Portfolio's use of futures contracts and related options, as well as when-issued and delayed-delivery securities, are not used to achieve investment leverage, the Portfolio will cover such transactions, as required under applicable interpretations of the SEC, either by owning the underlying securities or by segregating or earmarking liquid securities with the Portfolio's custodian (Bankers Trust) in an amount at all times equal to or exceeding the Portfolio's commitment with respect to these instruments or contracts. The Portfolio will also cover its use of Wrapper Agreements to the extent required to avoid the creation of a "senior security" (as defined in the 1940 Act) in connection with its use of such agreements. RATING SERVICES -- The ratings of rating services represent their opinions as to the quality of the securities that they undertake to rate. It should be emphasized, however, that ratings are relative and subjective and are not absolute standards of quality. Although these ratings are an initial criterion for selection of portfolio investments, the Adviser also makes its own evaluation of these securities, subject to review by the Portfolio Trust Board. After purchase by the Portfolio, an obligation may cease to be rated or its rating may be reduced below the minimum required for purchase by the Portfolio. Neither event would require the Portfolio to eliminate the obligation from its portfolio, but the Adviser will consider such an event in its determination of whether the Portfolio should continue to hold the obligation. A description of the ratings referred to herein and in the Prospectus is set forth in the Appendix. INVESTMENT RESTRICTIONS -- The following investment restrictions are "fundamental policies" of the Fund and the Portfolio and may not be changed without the approval of a "majority of the outstanding voting securities" of the Fund or the Portfolio, as the case may be. The phrase "Majority of the outstanding voting securities" under the 1940 Act, and as used in this SAI and the Prospectus, means, with respect to the Fund (or the Portfolio), the lesser of (1) 67% or more of the outstanding voting securities of the Fund (or of the total beneficial interests of the Portfolio) present at a meeting, if the holders of more than 50% of the outstanding voting securities of the Fund (or of the total beneficial interests of the Portfolio) are present or represented by proxy or (2) more than 50% of the outstanding voting securities of the Fund (or of the total beneficial interests of the Portfolio). Whenever the Fund is requested to vote on a fundamental policy of the Portfolio, the Fund will hold a meeting of its shareholders and will cast its vote as instructed by them. Fund shareholders who do not vote will not affect the Fund's votes at the Portfolio meeting. The Fund's votes representing Fund shareholders not voting will be voted by the Directors of Security Income Fund in the same proportion as the Fund shareholders who do, in fact, vote. None of the fundamental and non-fundamental policies described below shall prevent the Fund from investing all of its assets in an open-end investment company with substantially the same investment objective. Because the Fund and the Portfolio have the same fundamental policies and the Fund invests all of its Assets in the Portfolio, the following discussion (though speaking only of the Portfolio) applies to the Fund as well. FUNDAMENTAL RESTRICTIONS. As a matter of fundamental policy, the Portfolio may not: 1. Borrow money (including through reverse repurchase or dollar roll transactions) in excess of 5% of the Portfolio's total assets (taken at cost), except that the Portfolio may borrow for temporary or emergency purposes up to 1/3 of its net assets. The Portfolio may pledge, mortgage or hypothecate not more than 1/3 of such assets to secure such borrowings provided that collateral arrangements with respect to options and futures, including deposits of initial and variation margin, are not considered a pledge of assets for purposes of this restriction and except that assets may be pledged to secure letters of credit solely for the purpose of participating in a captive insurance company sponsored by the Investment Company Institute; 2. Underwrite securities issued by other persons except insofar as the Portfolio may be deemed an underwriter under the 1933 Act in selling a portfolio security; 3. Make loans to other persons except (a) through the lending of the Portfolio's portfolio securities and provided that any such loans not exceed 30% of its total assets (taken at market value); (b) through the use of repurchase agreements or the purchase of short-term obligations; or (c) by purchasing a portion of an issue of debt securities of types distributed publicly or privately; 4. Purchase or sell real estate (including limited partnership interests but excluding securities secured by real estate or interests therein), interests in oil, gas or mineral leases, commodities or commodity contracts (except futures and option contracts) in the ordinary course of business (except that the Portfolio may hold and sell, for its portfolio, real estate acquired as a result of the Portfolio's ownership of securities); 5. Concentrate its investments in any particular industry (excluding U.S. government securities), but if it is deemed appropriate for the achievement of the Portfolio's investment objective, up to 25% of its total assets may be invested in any one industry; 6. Issue any senior security (as that term is defined in the 1940 Act) if such issuance is specifically prohibited by the 1940 Act or the rules and regulations promulgated thereunder, provided that collateral arrangements with respect to options and futures contracts, including deposits of initial and variation margin, are not considered to be the issuance of a senior security for purposes of this restriction; 7. Purchase, with respect to 75% of the Portfolio's total assets, securities of any issuer if such purchase at the time thereof would cause the Portfolio to hold more than 10% of any class of securities of such issuer, for which purposes all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class, except that options or futures contracts shall not be subject to this restriction; and 8. Invest, with respect to 75% of the Portfolio's total assets, more than 5% of its total assets in the securities (excluding U.S. government securities) of any one issuer. NON-FUNDAMENTAL RESTRICTIONS. In order to comply with certain statutes and policies and for other reasons, the Portfolio will not, as a matter of operating policy (these restrictions may be changed without shareholder approval): (i) purchase any security or evidence of interest therein on margin, except that short-term credit necessary for the clearance of purchases and sales of securities may be obtained and deposits of initial and variation margin may be made in connection with the purchase, ownership, holding or sale of futures contracts; (ii) sell securities it does not own (short sales). (This restriction does not preclude short sales "against the box" (that is, sales of securities (a) the Portfolio contemporaneously owns or (b) where the Portfolio has the right to obtain securities equivalent in kind and amount to those sold). The Portfolio has no current intention to engage in short selling); (iii) purchase securities issued by any investment company except to the extent permitted by the 1940 Act (including any exemptions or exclusions therefrom), except that this limitation does not apply to securities received or acquired as dividends, through offers of exchange, or as a result of reorganization, consolidation or merger; and (iv) invest more than 15% of the Portfolio's net assets (taken at the greater of cost or market value) in securities that are illiquid or not readily marketable (excluding Rule 144A securities deemed by the Portfolio Board to be liquid). An investment restriction will not be considered violated if that restriction is complied with at the time the relevant action is taken, notwithstanding a later change in the market value of an investment, in net or total assets or in the change of securities rating of the investment or any other later change. The Portfolio will comply with the permitted investments and investment limitations in the securities laws and regulations of all states in which the Fund, or any other registered investment company investing in the Portfolio, is registered. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS -- The Adviser is responsible for decisions to buy and sell securities, futures contracts and options thereon for the Portfolio, the selection of brokers, dealers and futures commission merchants to effect transactions and the negotiation of brokerage commissions, if any. Broker-dealers may receive brokerage commissions on portfolio transactions, including options, futures contracts and options on futures transactions and the purchase and sale of underlying securities upon the exercise of options. Orders may be directed to any broker-dealer or futures commission merchant, including, to the extent and in the manner permitted by applicable law, the Adviser or its subsidiaries or affiliates. Purchases and sales of certain portfolio securities on behalf of the Portfolio are frequently placed by the Adviser with the issuer or a primary or secondary market-maker for these securities on a net basis, without any brokerage commission being paid by the Portfolio. Trading does, however, involve transaction costs. Transactions with dealers serving as market-makers reflect the spread between the bid and asked prices. Transaction costs may also include fees paid to third parties for information as to potential purchasers or sellers of securities. Purchases of underwritten issues may be made that will include an underwriting fee paid to the underwriter. The Adviser seeks to evaluate the overall reasonableness of the brokerage commissions paid (to the extent applicable) in placing orders for the purchase and sale of securities for the Portfolio taking into account such factors as price, commission (negotiable in the case of national securities exchange transactions), if any, size of order, difficulty of execution and skill required of the executing broker-dealer through familiarity with commissions charged on comparable transactions, as well as by comparing commissions paid by the Portfolio to reported commissions paid by others. The Adviser reviews on a routine basis commission rates, execution and settlement services performed, making internal and external comparisons. The Adviser is authorized, consistent with Section 28(e) of the Securities Exchange Act of 1934, as amended, when placing portfolio transactions for the Portfolio with a broker to pay a brokerage commission (to the extent applicable) in excess of that which another broker might have charged for effecting the same transaction on account of the receipt of research, market or statistical information. The term "research, market or statistical information" includes (a) advice as to (i) the value of securities, (ii) the advisability of investing in, purchasing or selling securities, and (iii) the availability of securities or purchasers or sellers of securities and (b) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. Higher commissions may be paid to firms that provide research services to the extent permitted by law. The Adviser may use this research information in managing the Portfolio's assets, as well as the assets of other clients. Consistent with the policy stated above, the Conduct Rules of the National Association of Securities Dealers, Inc. and such other policies as the Portfolio Trust Board may determine, the Adviser may consider sales of shares of the Fund and of other investment company clients of the Adviser as a factor in the selection of broker-dealers to execute portfolio transactions. The Adviser will make such allocations if commissions are comparable to those charged by nonaffiliated, qualified broker-dealers for similar services. Except for implementing the policies stated above, there is no intention to place portfolio transactions with particular brokers or dealers or groups thereof. In effecting transactions in over-the-counter securities, orders are placed with the principal market-makers for the security being traded unless, after exercising care, it appears that more favorable results are available otherwise. Although certain research, market or statistical information from brokers and dealers can be useful to the Portfolio and to the Adviser, it is the opinion of the Portfolio's management that such information is only supplementary to the Adviser's own research effort, since the information must still be analyzed, weighed and reviewed by the Adviser's staff. Such information may be useful to the Adviser in providing services to clients other than the Portfolio, and not all such information is used by the Adviser in connection with the Portfolio. Conversely, such information provided to the Adviser by brokers and dealers through whom other clients of the Adviser effect securities transactions may be useful to the Adviser in providing services to the Portfolio. In certain instances there may be securities that are suitable for the Portfolio, as well as for one or more of the Adviser's other clients. Investment decisions for the Portfolio and for the Adviser's other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated between (among) clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Portfolio is concerned. However, it is believed that the ability of the Portfolio to participate in volume transactions will produce better executions for the Portfolio. PERFORMANCE INFORMATION STANDARD PERFORMANCE INFORMATION -- From time to time, quotations of the Fund's performance may be included in advertisements, sales literature or shareholder reports. These performance figures are calculated in the following manner: YIELD. Yield refers to the income generated by an investment over a given period of time, expressed as an annual percentage rate. Yields are calculated according to a standard that is required for all stock and bond mutual funds. Because this differs from other accounting methods, the quoted yield may not equal the income actually paid to shareholders. Per SEC regulations, the yield of the Fund (the "SEC yield") shall be calculated on any determination date as follows: 2[((a - b)/c * d) + 1)^6 - 1] where a = current income measured over a 30-day period. b = Expenses accrued during the same 30-day period. c = Average daily number of shares outstanding during the same 30-day period. d = Maximum offering price per share on the last day of the period. The "annual effective yield" of the fund is intended to represent one day's investment income expressed as an annualized yield and compounded annually. It shall be expressed as a percentage and calculated on each business day as follows based on the dividend declared for the previous day. [(1 + previous day's dividend factor)^365 - 1] ---------------------------------------------- NAV per share Example: If on March 1, the Fund's dividend factor is 0.00174163 and the Fund's NAV per share is $10, then the Fund's annual effective yield for March 2 equals 6.56%. The annual effective yield of the Portfolio is used in determining when the interest rate trigger is active. Performance information or advertisements may include comparisons of the Fund's investment results to various unmanaged indices or results of other mutual funds or investment or savings vehicles. From time to time, the Fund's ranking may be quoted from various sources, such as Lipper Analytical Services, Inc., Value Line, Inc. and Morningstar, Inc. Unlike some bank deposits or other investments that pay a fixed yield for a stated period of time, the total return of the Shares will vary depending upon interest rates, the current market value of the securities held by the Portfolio and the Wrapper Agreements and changes in the expenses of the Shares and the Portfolio. In addition, during certain periods for which total return may be provided, the Fund's administrator, Security Management Company, LLC may have voluntarily agreed to waive portions of its fees, or to reimburse certain operating expenses of the Fund , on a month-to-month basis. Bankers Trust may have agreed to do the same thing with respect to the Portfolio. Such waivers will have the effect of increasing the Fund's net income (and therefore its yield and total return) during the period such waivers are in effect. TOTAL RETURN. Total return is the change in value of an investment in the shares over a given period, assuming reinvestment of any dividends and capital gain distributions. A cumulative total return reflects actual performance over a stated period of time. An average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. Average annual total return calculations smooth out variations in performance; they are not the same as actual year-by-year results. Average annual total returns covering periods of less than one year assume that performance will remain constant for the rest of the year. The Fund's average annual total return is calculated for certain periods by determining the average annual compounded rates of return over those periods that would cause an investment of $1,000 (made at the maximum public offering price with all distributions reinvested) to reach the value of that investment at the end of the periods. The Fund may also calculate total return figures that represent aggregate performance over a period or year-by-year performance. PERFORMANCE RESULTS. Any performance information provided for the Fund should not be considered as representative of its performance in the future, because the NAV and public offering price of Shares will vary based not only on the type, quality and maturities of the securities held by the Portfolio but also on changes in the current value of such securities and on changes in the expenses of the Fund and the Portfolio. Total return reflects the performance of both principal and income. Unless noted otherwise, the Fund's total return and average annual total return will reflect deduction of the maximum initial sales load in the case of Class A shares or the applicable deferred sales charge in the case of Class B and Class C shares. From time to time the Fund may include performance information in advertisements and sales literature without deduction of the sales charge, which, if deducted, would reduce the performance data quoted. COMPARISON OF FUND PERFORMANCE -- Comparison of the quoted non-standardized performance of various investments is valid only if performance is calculated in the same manner. Since there are different methods of calculating performance, investors should consider the effect of the methods used to calculate performance when comparing performance of the Fund with performance quoted with respect to other investment companies or types of investments. In connection with communicating its performance to current or prospective shareholders, the Fund also may compare these figures to the performance of other mutual funds tracked by mutual fund rating services or to unmanaged indices that may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. Evaluations of the Fund's performance made by independent sources may also be used in advertisements concerning the Fund. Sources for the Fund's performance information could include the following: ASIAN WALL STREET JOURNAL, BARRON'S, BUSINESS WEEK, CHANGING Times, THE KIPLINGER MAGAZINE, CONSUMER DIGEST, FINANCIAL TIMES, FINANCIAL WORLD, FORBES, FORTUNE, GLOBAL INVESTOR, INVESTOR'S DAILY, LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, MONEY, MORNINGSTAR INC., NEW YORK TIMES, PERSONAL INVESTING NEWS, PERSONAL INVESTOR, SUCCESS, U.S. NEWS AND WORLD REPORT, VALUELINE, WALL STREET JOURNAL, WEISENBERGER INVESTMENT COMPANIES SERVICES, WORKING WOMEN and WORTH. ECONOMIC AND MARKET INFORMATION -- Advertising and sales literature of the Fund may include discussions of economic, financial and political developments and their effect on the securities market. Such discussions may take the form of commentary on these developments by Fund portfolio managers and their views and analysis on how such developments could affect the Fund. In addition, advertising and sales literature may quote statistics and give general information about the mutual fund industry, including the growth of the industry, from sources such as the Investment Company Institute ("ICI"). For example, according to the ICI, thirty-seven percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $3.5 trillion to the more than 6,000 funds available. VALUATION OF ASSETS; REDEMPTIONS IN KIND Debt securities (other than short-term debt obligations maturing in 60 days or less), including listed securities and securities for which price quotations are available, will normally be valued on the basis of market valuations furnished by a pricing service. Such market valuations may represent the last quoted price on the securities' major trading exchange or quotes received from dealers or market makers in the relevant securities or may be determined through the use of matrix pricing. In matrix pricing, pricing services may use various pricing models, involving comparable securities, historic relative price movements, economic factors and dealer quotations. Over-the-counter securities will normally be valued at the bid price. Short-term debt obligations and money market securities maturing in 60 days or less are valued at amortized cost. Securities for which market quotations are not readily available are valued by Bankers Trust pursuant to procedures adopted by the Portfolio's Trust Board. The NAV per Share is calculated once on each Valuation Day as of the Valuation Time, which is currently 3:00 p.m., Central time, or if the NYSE closes early, at the time of such early closing. The NAV per Share is computed by dividing the value of the Fund's assets (I.E., the value of its investment in the Portfolio and other assets, if any), less all liabilities, by the total number of its Shares outstanding. The Portfolio's securities and other assets are valued primarily on the basis of market quotations or, if quotations are not readily available, by a method that the Portfolio Trust Board believes accurately reflects fair value. Pursuant to procedures adopted by the Portfolio Trust Board, the Wrapper Value generally will be equal to the difference between the Book Value and the market value (plus accrued interest on the underlying securities) of the applicable Covered Assets. If the market value (plus accrued interest on the underlying securities) of the Covered Assets is greater than their Book Value, the Wrapper Value will be reflected as a liability of the Portfolio in the amount of the difference, I.E., a negative value, reflecting the potential liability of the Portfolio to the Wrapper Provider. If the market value (plus accrued interest on the underlying securities) of the Covered Assets is less than their Book Value, the Wrapper Value will be reflected as an asset of the Portfolio in the amount of the difference, I.E., a positive value, reflecting the potential liability of the Wrapper Provider to the Portfolio. In performing its fair value determination, the Portfolio Trust Board expects to consider the creditworthiness and ability of a Wrapper Provider to pay amounts due under the Wrapper Agreement. If the Portfolio Trust Board determine that a Wrapper Provider is unable to make such payments, that Board may assign a fair value to the Wrapper Agreement that is less than the difference between the Book Value and the market value (plus accrued interest on the underlying securities) of the applicable Covered Assets and the Portfolio might be unable to maintain NAV stability. The problems inherent in making a good faith determination of value are recognized in the codification effected by SEC Financial Reporting Release No. 1 (formerly Accounting Series Release No. 113) ("FRR 1"), which concludes that there is "no automatic formula" for calculating the value of restricted securities. It recommends that the best method simply is to consider all relevant factors before making any calculation. According to FRR 1, such factors would include consideration of the-- type of security involved, financial statements, cost at date of purchase, size of holding, discount from market value of unrestricted securities of the same class at the time of purchase, special reports prepared by analysts, information as to any transactions or offers with respect to the security, existence of merger proposals or tender offers affecting the security, price and extent of public trading in similar securities of the issuer or comparable companies, and other relevant matters. The Adviser will value securities purchased by the Portfolio that are restricted as to resale or for which current market quotations are not readily available, including Wrapper Agreements, based upon all relevant factors as outlined in FRR 1. The Fund and the Portfolio each reserves the right, if conditions exist that make cash payments undesirable, or for other reasons, to honor any request for redemption or withdrawal, respectively, by making payment wholly or partly in Portfolio Securities, as the same may be chosen by the Adviser in its sole discretion (a "redemption in kind"). Such securities shall not include Wrapper Agreements, and shall be valued as they are for purposes of computing the Fund's or the Portfolio's NAV, as the case may be. If payment is made to a Fund shareholder in securities, the shareholder may incur transaction expenses in converting those securities into cash. The Portfolio has agreed to make a redemption in kind to the Fund whenever the Fund wishes to make a redemption in kind to a shareholder thereof, and therefore Fund shareholders that receive redemptions in kind will receive Portfolio Securities of the Portfolio and in no case will they receive a security issued by the Portfolio. The Portfolio has advised Security Income Fund that the Portfolio will not redeem in kind except in circumstances in which the Fund is permitted to redeem in kind or unless requested by the Fund. Each investor in the Portfolio, including the Fund, may add to or reduce its investment in the Portfolio on each business day the Portfolio determines its NAV. At the close of business on each such day, the value of each investor's beneficial interest in the Portfolio will be determined by multiplying the NAV of the Portfolio by the percentage effective for that day that represents that investor's share of the aggregate beneficial interests in the Portfolio. Any additions or withdrawals that are to be effected as of the close of business on that day will then be effected. The investor's percentage of the aggregate beneficial interests in the Portfolio will then be recomputed as the percentage equal to a fraction (a) the numerator of which is the value of the investor's investment in the Portfolio as of the close of business on that day plus or minus, as the case may be, the amount of net additions to or withdrawals from the investor's investment in the Portfolio effected as of the close of business on that day, and (b) the denominator of which is the aggregate NAV of the Portfolio as of the close of business on that day plus or minus, as the case may be, the amount of net additions to or withdrawals from the aggregate investments in the Portfolio by all investors therein. The percentage so determined will then be applied to determine the value of the investor's interest in the Portfolio as the close of business on the following business day. The Fund and the Portfolio each reserves the right to redeem all of its shares, if their respective Boards vote to liquidate the Fund and/or Portfolio as applicable. OVERVIEW OF TSA ACCOUNTS -- In general, Section 403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code") permits public school employees and employees of certain types of charitable, educational and scientific organizations specified in Section 501(c)(3) of the Code to purchase shares of a mutual fund through a custodial account, and, subject to certain limitations, to exclude the amount of purchase payments from gross income for tax purposes. Shares of the Fund may be purchased in connection with a TSA custodial account. TSA Accounts may provide significant tax savings to individuals, but are governed by a complex set of tax rules under the Code and the regulations promulgated by the Department of the Treasury thereunder. If you already have a Security Funds TSA custodial account, you may be able to invest in the Fund. If you do not presently have a Security Funds TSA custodial account and you meet the requirements of the applicable tax rules, you may be able to create a Security Funds TSA custodial account (or a TSA custodial account from another provider that makes shares of the Fund available to its customers) and invest in shares of the Fund through that TSA. Included in Appendix B is a general discussion of some TSA features. HOWEVER, TSA OWNERS AND OTHER PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR PROFESSIONAL TAX AND FINANCIAL ADVISERS BEFORE ESTABLISHING A TSA OR OTHERWISE INVESTING IN SHARES. OVERVIEW OF THE TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS In general, an IRA is a trust or custodial account established in the United States for the exclusive benefit of an individual or his or her beneficiaries.(Keogh plans are established by self-employed persons, including partnerships, and also cover eligible non-owner employees.) Most IRAs are designed principally as retirement savings vehicles. Education IRAs are designed to provide a tax-favored means of saving for a child's educational expenses. IRAs may provide significant tax savings to individuals, but are governed by a complex set of tax rules set out under the Internal Revenue Code of 1986, as amended (the "Code"),and the regulations promulgated by the Department of the Treasury thereunder. If you already have an IRA, your IRA may be able to invest in the Fund. If you do not presently have an IRA and you meet the requirements of the applicable tax rules, you may be able to create an IRA and invest in Shares of the Fund through that IRA. Included below is a general discussion of some IRA features. However, IRA Owners and other prospective investors should consult with their professional tax and financial advisers before establishing an IRA or investing in Shares. TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS -- TRADITIONAL IRAS. If you are under age 70 1/2, and you (or if you file a joint return, your spouse) have taxable compensation, you may set up a Traditional IRA and make annual IRA contributions of up to $2,000, or 100% of your taxable compensation, whichever is less. Taxable income includes wages, salaries, and other amounts reported in box 1 of Form W-2, as well as earnings from self-employment. If you file a joint return and your taxable compensation is less than that of your spouse, you may make annual contributions to a Traditional IRA equal to the lesser of $2,000, or the sum of (i) your taxable compensation and (ii) the taxable compensation of your spouse, reduced by the amount of his or her IRA deduction for the year. Amounts contributed to a Traditional IRA generally are deductible for federal income tax purposes. However, if you were covered by an employer retirement plan, the amount of your contribution to a Traditional IRA that you may deduct will be reduced or eliminated if your modified adjusted gross income exceeds certain amounts (currently $50,000 for a married couple filing a joint return and $30,000 for a single taxpayer). If your spouse is covered by an employer retirement plan but you are not, you may be able to deduct your contributions to a Traditional IRA; however, the deduction will be reduced or eliminated if your adjusted gross income on a joint return exceeds $150,000. Even if your ability to deduct contributions to a Traditional IRA is limited, you may still make contributions up to the limits described above. In general, you may also make a contribution to a Traditional IRA by "rolling over" all or a portion of a distribution you receive from a qualified retirement plan (such as a pension or profit-sharing plan or a 401(k) plan) or another Traditional IRA. Amounts distributed from a Traditional IRA and eligible rollover distributions from qualified retirement plans will not be includible in income if they are contributed to a Traditional IRA in a rollover transaction which meets certain conditions; however, a federal withholding tax may be imposed on such distributions. Consult your professional tax adviser for complete details on Traditional IRAs. ROTH IRAS. Regardless of your age, you may be able to establish a Roth IRA. Contributions to Roth IRAs are not deductible for federal income tax purposes. However, if all of the applicable requirements are met, earnings in the account accumulate tax free, and all withdrawals are also tax free. Generally, you may contribute up to $2,000 annually to a Roth IRA; however, your ability to contribute to a Roth IRA will be reduced or eliminated if your adjusted gross income exceeds certain amounts (currently $150,000 for a married couple filing a joint return and$95,000 for a single taxpayer). In addition, if you make contributions to both a Traditional IRA and a Roth IRA, your contribution limit for the Roth IRA will be reduced by the amount of the contribution you make to the Traditional IRA. If certain requirements are met, and (i) your modified adjusted gross income is not more than $100,00, and (ii) you are not married and filing a separate tax return, you can roll over amounts from a Traditional IRA to a Roth IRA. The amount rolled over generally will be included in your taxable income; however, if you roll over from a Traditional IRA to a Roth IRA before 1999, you may elect to have the taxable amount included in your income ratably over a four-year period. You may also roll over amounts from one Roth IRA to another Roth IRA. Consult your professional tax adviser for complete details on Roth IRAs. SEP-IRAs are IRAs that are created in connection with a simplified employee pension ("SEP") established and maintained by a self-employed individual, a partnership or a corporation. SEP-IRAs must be created for each qualifying employee of the employer that establishes a SEP. In general, a qualifying employee is an employee who has: (i) reached the age of 21; and (ii) worked for the employer at least three out of the past five years. Each SEP-IRA is owned by the employee for whom it is created; assets of a SEP are not pooled together. SEPs must provide for discretionary employer contributions. In other words, employers are not required to make contributions to SEP-IRAs each year, but if they do make contributions for any year, the contributions must be based on a specific allocation formula set forth in the SEP, and must not discriminate in favor of highly compensated employees. Contributions to SEP-IRAs generally are deductible by the employer, subject to certain limitations. Contributions to SEP-IRAs of self-employed individuals are subject to certain additional limitations. SEP-IRAs generally are subject to the same distribution and rollover rules that apply to Traditional IRAs. SIMPLE IRAS. In general, a SIMPLE plan may be established by any employer, including a sole proprietorship, partnership or corporation, with 100 or fewer employees, and must be the only retirement plan maintained by the employer. Under a SIMPLE plan using SIMPLE IRAs, a SIMPLE IRA is created for each eligible employee which, in general, includes all employees who received at least $5,000 in compensation during any two years preceding the year for which eligibility is being determined (i.e., the current year) and is reasonably expected to earn at least $5,000 during the current year. As with SEP-IRAs, SIMPLE IRAs are individual accounts owned by each eligible employee. Under a SIMPLE IRA plan, eligible employees can elect to contribute a portion of their salary to their SIMPLE IRA. (These contributions are referred to as "elective deferrals.") Elective deferrals are based on a stated percentage of the employee's compensation, and are limited to $6,000 per year (indexed for inflation). Elective deferrals are included in employees' gross income only for Social Security and Medicare tax purposes (i.e., they are not included in wages for federal income tax purposes).In addition to elective deferrals by employees, under a SIMPLE IRA plan, employers must make either: (i) matching contributions equal to each employee' selective deferral, up to a maximum of 3% of the employee's compensation, or (ii) nonelective contributions of 2% of compensation for each eligible employee(subject to certain limits). Employer contributions to SIMPLE IRAs are excluded from employees' gross income and are deductible by the employer. SIMPLE IRAs generally are subject to the same distribution and rollover rules that apply to Traditional IRAs. However, a rollover from a SIMPLE IRA to a Traditional IRA can be made tax free only after the employee has participated in the SIMPLE IRA plan for at least two years. KEOGH PLANS. Keogh plans are qualified retirement plans established by sole proprietors or partnerships. As with other qualified retirement plans, in general, contributions to Keogh plans are deductible, and neither such contributions nor the investment earnings thereon are subject to tax until they are distributed by the plan. A number of different types of plans may qualify as Keogh plans. In certain circumstances, Keogh plans may provide greater tax advantages than other types of retirement plans. However, Keogh plans must satisfy a number of complex rules, including minimum participation requirements, under which certain employees must be covered by the plan, and in some cases, minimum funding requirements. Professional assistance generally is required to establish and maintain a Keogh plan. EDUCATION IRAS. An education IRA is a trust or custodial account created for the purpose of paying the qualified higher education expenses of a designated beneficiary, i.e., a child under the age of 18 at the time of the contributions. In general, qualified higher education expenses include expenses for tuition, fees, books, supplies and equipment required for the designated beneficiary of the Education IRA to attend an eligible educational institution, which includes essentially all accredited post-secondary educational institutions. Any individual may make contributions to an education IRA so long as his or her modified adjusted gross income is less than $110,000 ($160,000 for married taxpayers filing jointly).The maximum total contributions that may be made to education IRAs for each child is $500 per year. Generally, amounts may be rolled over from an Education IRA to another education IRA established for the same beneficiary or for certain members of the beneficiary's family. Beneficiaries may make tax free withdrawals from education IRAs to pay qualified higher education expenses. Other withdrawals generally will be subject to tax. Consult your professional tax adviser for complete details on Education IRAs. OWNERSHIP OF SHARES THROUGH PLANS Fund Shares owned by Plan Participants through Plans are held either directly by the respective Plan, or beneficially through vehicles such as bank collective funds or insurance company separate accounts consisting solely of such Plans (collectively, "Plan Pools"), which will in turn offer the Fund as an investment option to their participants. Investments in the Fund may by themselves represent an investment option for a Plan or may be combined with other investments as part of a pooled investment option for the Plan. In the latter case, the Fund may require Plans to provide information regarding the withdrawal order and other characteristics of any pooled investment option in which the Shares are included prior to a Plan's initial investment in the Fund. Thereafter, the Fund will require the Plan to provide information regarding any changes to the withdrawal order and other characteristics of the pooled investment option before such changes are implemented. The Fund in its sole discretion may decline to sell Shares to Plans if the governing withdrawal order or other characteristics of any pooled investment option in which the Shares are included is determined at any time to be disadvantageous to the Fund. Plan Participants should contact their Plan administrator or the organization that provides recordkeeping services if they have questions concerning their account. Plan administrators and fiduciaries should call 1-800-888-2461 for information regarding a Plan's account with the Fund. QUALIFIED REDEMPTIONS At any time, a redemption of Fund Shares can be effected without assessment of the Redemption Fee as described in the Prospectus, if such redemption is a "Qualified Plan Redemption," a "Qualified TSA Redemption" or a "Qualified IRA Redemption." "Qualified Plan Redemptions" are redemptions resulting from a Plan Participant's death, disability, retirement or termination of employment or to make loans to, or "in service" withdrawals by, a Plan Participant. A "Qualified TSA Redemption" is a redemption made by an owner of a TSA account to effect a distribution from his or her account that is not subject to the 10% penalty tax imposed by section 72(t), other than a rollover from a TSA account to an IRA or other TSA account and, direct trustee-to-trustee transfers, unless the owner continues the investment of the transferred amount in the Fund. In general, section 72(t) of the Code imposes a 10% penalty tax on any distribution received by a taxpayer who owns a TSA account prior to the date on which the taxpayer reaches age 59 1/2, unless the distribution meets the requirements of a specific exception to the penalty tax. In general, rollovers from a TSA account to an IRA, from one TSA account to another and direct trustee-to-trustee transfers from one TSA account to another TSA account are not subject to tax. TSA account owners requesting a redemption of Fund Shares will be required to provide a written statement as to whether the proceeds of the redemption will be subject to a penalty tax and, if not, to identify the specific exception upon which the owner intends to rely. The information provided by the owner will be reflected on the Form 1099-R issued to the owner and filed with the Internal Revenue Service in connection with the redemption as well as forming the basis for redemption as a Qualified TSA Redemption. The Fund may require additional evidence, such as the opinion of a certified public accountant or tax attorney, that any particular redemption will not be subject to any penalty tax. TSA ACCOUNT OWNERS SHOULD CONSULT THEIR TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF ANY REDEMPTION. Some of the exceptions to the 10% penalty taxes are described below. This description is intended to provide only a brief summary of the principal exceptions to the additional tax imposed on early withdrawals under the current provisions of the Code, which may change from time to time. The Fund intends to conform the definition of Qualified TSA Redemptions to changes in applicable tax laws; however, the Fund reserves the right to continue to define Qualified TSA Redemptions by reference to Code provisions now in effect or otherwise to define such phrase independently of future Code provisions. In general, the early withdrawal penalty tax imposed by the Code will not apply to the following types of distributions from a TSA account: 1. Distributions made on or after the date on which the TSA account owner attains age 59 1/2; 2. Distributions made to a beneficiary (or to the estate of the TSA account owner) on or after the death of the TSA account owner; 3. Distributions attributable to the TSA account owner being disabled; 4. Distributions made to the TSA account owner after separation from service after age 55; 5. Distributions to an alternate payee (e.g. a former spouse) pursuant to a qualified domestic relations order; 6. Distributions that are part of a series of substantially equal periodic payments made at least annually for the life (or life expectancy) of the TSA account owner, or the joint lives (or life expectancies) of the TSA account owner and his or her designated beneficiary, after the TSA account owner separates from service; 7. Distributions made to a TSA account owner for medical care, but not in excess of the amount allowable as a medical expense deduction by the TSA account owner on his or her tax return for the year; 8. Distributions timely made to correct an excess contribution; and 9. Distributions timely made to reduce an excess elective deferral. A "Qualified IRA Redemption" is a redemption made by an IRA Owner to effect a distribution from his or her IRA account that is not subject to the 10% penalty tax imposed by section 72(t) or 530(d), as applicable, other than IRA rollovers, direct trustee-to-trustee transfers and conversions of Traditional IRAs to Roth IRAs, unless the IRA Owner continues the investment of the transferred amount in the Fund. In general, section 72(t) of the Code imposes a 10% penalty tax on any distribution received by a taxpayer from a Traditional IRA, SEP-IRA or SIMPLE IRA prior to the date on which the taxpayer reaches age 59 1/2, unless the distribution meets the requirements of a specific exception to the penalty tax. Similar penalties apply to early withdrawals from Roth IRAs and Keogh Plans. Section 530(d) as currently written, imposes a separate 10% penalty tax on distributions from an education IRA not used to pay qualified higher education expenses. In general, rollovers from one IRA to another and direct trustee-to-trustee transfers from an IRA to another IRA (or in some cases to other types of qualified plans) are not subject to tax. In addition, conversions of Traditional IRAs to Roth IRAs are subject to income tax but are not subject to the early withdrawal penalty tax. IRA Owners requesting a redemption of Fund Shares will be required to provide a written statement as to whether the proceeds of the redemption will be subject to a penalty tax and, if not, to identify the specific exception upon which the IRA Owner intends to rely. The information provided by the IRA Owner will be reflected on the Form 1099-R issued to the IRA Owner and filed with the Internal Revenue Service in connection with the redemption as well as forming the basis for redemption as a Qualified IRA Redemption. The Fund may require additional evidence, such as the opinion of a certified public accountant or tax attorney, that any particular redemption will not be subject to any penalty tax. IRA OWNERS SHOULD CONSULT THEIR TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF ANY REDEMPTION. Some of the exceptions to the 10% penalty taxes are described below. This description is intended to provide only a brief summary of the principal exceptions to the additional tax imposed on early withdrawals under the current provisions of the Code, which may change from time to time. The Fund intends to conform the definition of Qualified IRA Redemptions to changes in applicable tax laws; however, the Fund reserves the right to continue to define Qualified IRA Redemptions by reference to Code provisions now in effect or otherwise to define such phrase independently of future Code provisions. TRADITIONAL IRAS, SEP-IRAS AND SIMPLE IRAS -- In general, the 10% penalty tax imposed by section 72(t) of the Code will not apply to the following types of distributions from a Traditional IRA, SEP-IRA or SIMPLE IRA: 1. Distributions made on or after the date on which the IRA Owner attains age 59 1/2; 2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on or after the death of the IRA Owner; 3. Distributions attributable to the IRA Owner's being disabled within the meaning of section 72(m)(7) of the Code; 4. Distributions made to the IRA Owner to the extent such distributions do not exceed the amount of unreimbursed medical expenses allowed as a deduction under section 213 of the Code; 5. Distributions to unemployed individuals to the extent such distributions do not exceed the amount paid for medical insurance as described in section 213(d)(1)(D) of the Code for the IRA Owner, and his or her spouse and dependents; 6. Distributions to an IRA Owner to the extent such distributions do not exceed the qualified higher education expenses, as defined in section 72(t)(7), for the IRA Owner; 7. Distributions to an IRA Owner that are used to acquire a first home, and that meet the definition of "qualified first-time homebuyer distributions" under section 72(t)(8) of the Code; and 8. Distributions that are part of a series of substantially equal periodic payments made at least annually for the life (or life expectancy) of the IRA Owner, or the joint lives (or life expectancies) of the IRA Owner and his or her designated beneficiary. ROTH IRAS -- With respect to a Roth IRA, all "qualified distributions" are excluded from gross income and, therefore, from the 10% penalty tax imposed by section 72(t). In general, qualified distributions from a Roth IRA include: 1. Distributions made on or after the date on which the IRA Owner attains age 59 1/2; 2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on or after the death of the IRA Owner; 3. Distributions attributable to the IRA Owner's being disabled within the meaning of section 72(m)(7) of the Code; and 4. Distributions to an IRA Owner that are used to acquire a first home, and that meet the definition of "qualified first-time homebuyer distributions" under section 72(t)(8) of the Code. However, a distribution will not be a qualified distribution, even if it otherwise meets the definition, if it is made within the 5-year period beginning with the first taxable year for which the IRA Owner made a contribution to the Roth IRA (or such person's spouse made a contribution to a Roth IRA established for the IRA Owner). Special rules apply with respect to certain types of rollovers. To the extent a distribution from a Roth IRA is not a qualified distribution, either because it does not meet the definition of a qualified distribution in the first instance, or because it is made within the five-year period described in section 408A(d)(2)(B), the portion of the distribution that represents earnings will be subject to tax in accordance with section 72 of the Code, including the 10% penalty tax imposed under section 72(t). The same exceptions to the penalty tax that apply to Traditional IRAs will apply to nonqualified distributions from Roth IRAs. In the event of a nonqualified distribution from a Roth IRA, only the earnings in the account are subject to tax; contributions may be recovered tax-free (since no deduction is permitted for such contributions). Section 408A(d) provides that distributions from Roth IRAs are considered to come first from contributions, to the extent that distributions do not exceed the total amount of contributions. KEOGH PLANS -- In general, the 10% penalty tax imposed by section 72(t) of the Code will not apply to the following types of distributions from a Traditional IRA: 1. Distributions made on or after the date on which the IRA Owner attains age 59 1/2; 2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on or after the death of the IRA Owner; 3. Distributions attributable to the IRA Owner's being disabled within the meaning of section 72(m)(7) of the Code; 4. Distributions made to the IRA Owner after separation from service after age 55; 5. Distributions to unemployed individuals to the extent such distributions do not exceed the amount of unreimbursed medical expenses allowed as a deduction under section 213 of the Code; 6. Distributions to an alternate payee (e.g., a former spouse) pursuant to a qualified domestic relations order; and 7. Distributions that are part of a series of substantially equal periodic payments made at least annually for the life (or life expectancy) of the IRA Owner, or the joint lives (or life expectancies) of the IRA Owner and his or her designated beneficiary. EDUCATION IRAS -- Distributions from an education IRA are included in income unless the qualified higher education expenses of the designated beneficiary are equal to or greater than the amount of such distributions. In addition, certain special rules are provided that permit certain rollovers or changes in beneficiaries. Any distribution that is subject to tax under section 530 is also subject to the 10% penalty tax imposed by section 530(d)(4). Thus, in general, any distribution from an education IRA that exceeds the amount of qualified higher education expenses of the designated beneficiary will be subject to the 10% penalty tax. MANAGEMENT OF THE FUND AND TRUST The Board of Directors of Security Income Fund and the Board of Trustees of the Portfolio Trust (collectively, the Directors) are each composed of persons experienced in financial matters who meet throughout the year to oversee the activities of the Fund or the Portfolio, respectively. In addition, the Directors review contractual arrangements with companies that provide services to the Fund/Portfolio and review the Fund's performance. The Directors and officers of the Security Income Fund and the Portfolio Trust, their birth dates, and their principal occupations during the past five years are set forth below. Their titles may have varied during that period. Unless otherwise indicated, the address of each officer and director of Security Income Fund is 700 Harrison Street, Topeka, Kansas 66636-0001 and the address of each officer of the Portfolio Trust is One South Street, Baltimore, Maryland 21202. DIRECTORS AND OFFICERS OF SECURITY INCOME FUND --
- ------------------------------------------------------------------------------------------------------------------------------------ NAME, ADDRESS, AND AGE POSITION(S) HELD WITH FUND PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------------------ John D. Cleland* President and Director Senior Vice President and Managing Member Representative, (Birth date: May 1, 1936) Security Management Company, LLC; Senior Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Donald A. Chubb, Jr.** Director Business broker, Griffith & Blair Realtors. Prior to 1997, (Birth date: December 14, 1946) President, Neon Tube Light Company, Inc. 2222 SW 29th Street Topeka, Kansas 66611 - ------------------------------------------------------------------------------------------------------------------------------------ Penny A. Lumpkin** Director President, Vivian's (Corporate Sales); Vice President, Palmer (Birth date: August 20, 1939) News Companies, Inc. (Wholesalers, Retailers and Developers) and 3616 Canterbury Town Road Bellaire Shopping Center (Leasing and Shopping Center Topeka, Kansas 66610 Management); Secretary Treasurer, Palmer New, Inc. (Wholesale Distributors) - ------------------------------------------------------------------------------------------------------------------------------------ Mark L. Morris, Jr.** Director Retired; Former General Partner, Mark Morris Associates (Birth date: February 3, 1934) (Veterinary Research and Education) 5500 SW 7th Street Topeka, Kansas 66606 - ------------------------------------------------------------------------------------------------------------------------------------ Maynard Oliverius Director President and Chief Executive Officer, Stormont-Vail HealthCare (Birth date: December 18, 1943) 1500 SW 10th Avenue Topeka, Kansas 66604 - ------------------------------------------------------------------------------------------------------------------------------------ James R. Schmank* Director and Vice President President and Managing Member Representative, Security (Birth date: February 21, 1953) Management Company, LLC; Senior Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Amy J. Lee Secretary Secretary, Security Management Company, LLC; Vice President, (Birth date: June 5, 1961) Associate General Counsel and Assistant Secretary, Security Benefit Group, Inc. and Security Benefit Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Brenda M. Harwood Treasurer Assistant Vice President and Treasurer, Security Management (Birth date: November 3, 1963) Company, LLC; Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Steven M. Bowser Vice President Vice President and Portfolio Manager, Security Management (Birth date: February 11, 1960) Company, LLC; Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ Thomas A. Swank Vice President Senior Vice President and Portfolio Manager, Security Management (Birth date: January 10, 1960) Company, LLC; Senior Vice President and Chief Investment Officer, Security Benefit Group, Inc. and Security Benefit Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ David Eshnaur Vice President Assistant Vice President and Portfolio Manager, Security (Birth date: October 8, 1960) Management Company, LLC. Prior to July 1997, Assistant Vice President and Assistant Portfolio Manager, Waddell & Reed. - ------------------------------------------------------------------------------------------------------------------------------------ Christopher D. Swickard Assistant Secretary Assistant Secretary, Security Management Company, LLC; Assistant (Birth date: October 9, 1965) Vice President and Assistant Counsel, Security Benefit Group, Inc. and Security Benefit Life Insurance Company - ------------------------------------------------------------------------------------------------------------------------------------ *These directors are deemed to be "interested persons" of the Fund. **These directors serve on the Fund's audit committee, the purpose of which (among other things) is to meet with independent auditors, to review the work of the auditors, and to oversee the handling by Security Management Company, LLC of the accounting function for the Fund. - ------------------------------------------------------------------------------------------------------------------------------------
The officers of Security Income Fund hold identical offices with each of the other mutual funds in the Security Funds Family, except Messrs. Eshnaur, Bowser and Swank who hold the same office only with respect to SBL Fund. The directors of Security Income Fund also serve as directors of each of the other Security Funds. Ms. Lee is also Secretary of the Distributor, Messrs. Cleland and Schmank are directors and Vice Presidents of the Distributor and Ms. Harwood is a director and Treasurer of the Distributor. TRUSTEES OF BT INVESTMENT PORTFOLIOS --
- ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS, AND AGE THE TRUSTS AND PORTFOLIO PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------------------ Charles P. Biggar Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: October 13, 1930) Complex(1); Retired; former Vice President, International 12 Hitching Post Lane Business Machines ("IBM") and President, National Services and Chappaqua, New York 10514 the Field Engineering Divisions of IBM - ------------------------------------------------------------------------------------------------------------------------------------ S. Leland Dill Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: March 28, 1930) Complex; Retired; Director, Coutts (U.S.A.) International; 5070 North Ocean Drive Trustee, Phoenix-Zweig Trust(2) and Phoenix-Euclid Market Singer Island, Florida 33404 Neutral Fund(2); former Partner, KPMG Peat Marwick; Director, Vintners International Company Inc.; Director, Coutts Trust Holdings Ltd., Director, Coutts Group; General Partner, Pemco(2) - ------------------------------------------------------------------------------------------------------------------------------------ Martin J. Gruber Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: July 15, 1937) Complex; Nomura Professor of Finance, Leonard N. Stern School of 229 South Irving Street Business, New York University (since 1964); Trustee, TIAA(2); Ridgewood, New Jersey 07450 Trustee, Japan Equity Fund(2); Trustee, Taiwan Equity Fund(2) - ------------------------------------------------------------------------------------------------------------------------------------ Richard Hale* Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: July 17, 1945) Complex; Managing Director, Deutsche Asset Management; Director, 205 Woodbrook Lane Flag Investors Funds(2); Managing Director, Deutsche Banc Alex. Baltimore, Maryland 21212 Brown Incorporated; Director and President, Investment Company Capital Corp. - ------------------------------------------------------------------------------------------------------------------------------------ Richard J. Herring Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: February 18, 1946) Complex; Jacob Safra Professor of International Banking, 325 South Roberts Road Professor of Finance and Vice Dean, The Wharton School, Bryn Mawr, Pennsylvania 19010 University of Pennsylvania (since 1972) - ------------------------------------------------------------------------------------------------------------------------------------ Bruce E. Langton Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: May 10, 1931) Complex; Retired; Trustee, Allmerica Financial Mutual Funds 99 Jordan Lane (1992-present); Member, Pension and Thrift Plans and Investment Stamford, Connecticut 06903 Committee, Unilever U.S. Corporation (1989 to present)(3); Director, TWA Pilots Directed Account Plan and 401(k) Plan (1988 to present)(2) - ------------------------------------------------------------------------------------------------------------------------------------ Philip Saunders, Jr. Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: October 11, 1935) Complex; Principal, Philip Saunders Associates (Economic and 445 Glen Road Financial Analysis); former Director, Financial Industry Weston, Massachusetts 02193 Consulting, Wolf & President, John Hancock Home Mortgage Corporation; Senior Vice President of Treasury and Financial Services, John Hancock Mutual Life Insurance Company, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Harry Van Benschoten Trustee Trustee of each of the other investment companies in the BT Fund (Birth date: February 18, 1928) Complex; Retired; Director, Canada Life Insurance Corporation of 6581 Ridgewood Drive New York Naples, Florida 34108 - ------------------------------------------------------------------------------------------------------------------------------------ * "Interested Person" within the meaning of Section 2(a)(19) of the Act. Mr. Hale is a Managing Director of Deutsche Asset Management, the U.S. asset management unit of Deutsche Bank and its affiliates. 1. The "BT Fund Complex" consists of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio, Intermediate Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500 Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and BT Investment Portfolios. 2. An investment company registered under the Investment Company Act of 1940, as amended (the "Act"). 3. A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. - ------------------------------------------------------------------------------------------------------------------------------------
The Board has an Audit Committee that meets with the Trusts' and Portfolio's independent accountants to review the financial statements of the Trust, the adequacy of internal controls and the accounting procedures and policies of the Trust. Each member of the Board except Mr. Hale also is a member of the Audit Committee. OFFICERS OF BT INVESTMENT PORTFOLIOS -- Unless otherwise specified, each officer listed below holds the same position with the Trust and BT Investment Portfolios.
- ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS, AND AGE THE TRUSTS AND PORTFOLIO PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------------------ Daniel O. Hirsch Secretary Director, Deutsche Banc Alex. Brown Incorporated and Investment (Birth date: March 27, 1954) Company Capital Corp. since July 1998; Assistant General Counsel, One South Street Office of the General Counsel, United States Securities and Baltimore, Maryland 21202 Exchange Commission from 1993 to 1998 - ------------------------------------------------------------------------------------------------------------------------------------ John Y. Keffer President and Chief President, Forum Financial Group L.L.C. and its affiliates; (Birth date: July 14, 1942) Executive Officer President, ICC Distributors, Inc.(1) ICC Distributors, Inc. Two Portland Square Portland, Maine 04101 - ------------------------------------------------------------------------------------------------------------------------------------ Charles A. Rizzo Treasurer Vice President and Department Head, Deutsche Asset Management since (Birth date: August 5, 1958) 1998; Senior Manager, PricewaterhouseCoopers LLP from 1993 to 1998 One South Street Baltimore, Maryland 21202 - ------------------------------------------------------------------------------------------------------------------------------------ 1. Underwriter/distributor for the Trust. Mr. Keffer owns 100% of the shares of ICC Distributors, Inc. - ------------------------------------------------------------------------------------------------------------------------------------
Messrs. Hirsch, Keffer and Rizzo also hold similar positions for other investment companies for which ICC Distributors, or an affiliate serves as the principal underwriter. No person who is an officer or director of Bankers Trust is an officer or Trustee of the Trust. No director, officer or employee of ICC Distributors, Inc. or any of its affiliates will receive any compensation from the Trust for serving as an officer or Trustee of the Trust. SECURITY INCOME FUND DIRECTOR COMPENSATION TABLE -- - -------------------------------------------------------------------------------- AGGREGATE COMPENSATION TOTAL COMPENSATION FROM NAME FROM SECURITY INCOME FUND SECURITY FUND COMPLEX - -------------------------------------------------------------------------------- Donald A. Chubb, Jr. ..... $13,000 $26,000 John D. Cleland .......... N/A N/A Penny A. Lumpkin ......... 13,000 26,000 Mark L. Morris, Jr. ...... 13,212 26,294 Maynard Oliverius ........ 9,000 18,000 James R. Schmank ......... N/A N/A - -------------------------------------------------------------------------------- As of November 1, 1999 the officers and directors of Security Income Fund as a group beneficially owned none of the total outstanding voting shares of the Fund. BT INVESTMENT PORTFOLIO TRUSTEE COMPENSATION TABLE -- - -------------------------------------------------------------------------------- AGGREGATE AGGREGATE TOTAL COMPENSATION COMPENSATION COMPENSATION FROM FUND COMPLEX NAME OF PERSON, POSITION FROM TRUST*+ FROM PORTFOLIO+ PAID TO TRUSTEES** - -------------------------------------------------------------------------------- Charles P. Biggar, Trustee of Portfolios $ N/A $ Kelvin J. Lancaster $ N/A $ S. Leland Dill, Trustee of Trust and Portfolios N/A $ $ Philip Saunders, Jr., Trustee of Trust and Portfolios N/A $ $ - -------------------------------------------------------------------------------- *The aggregate compensation is provided for the BT Investment Funds which is comprised of 16 funds. +Information is provided for the Trust's fiscal year ended September 30, 1999. **Aggregated information is furnished for the BT Family of Funds which consists of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International Equity Portfolio, Short Intermediate U.S. Government Securities Portfolio, Intermediate Tax Free Portfolio, Asset Management Portfolio, Equity 500 Index Portfolio, and Capital Appreciation Portfolio. The compensation is provided for the fiscal year ended September 30, 1999. - -------------------------------------------------------------------------------- As of _____________, 1999, the Trustees and Officers of the Trust owned in the aggregate less than 1% of the shares of the Trust (all series taken together). As of __________, 1999, the following shareholders of record owned 5% or more of the Fund: INVESTMENT ADVISER -- Bankers Trust is the Portfolio's investment adviser. Bankers Trust is a wholly owned subsidiary of Deutsche Bank. Deutsche Bank is a banking company with limited liability organized under the laws of the Federal Republic of Germany. Deutsche Bank is the parent company of a group consisting of banks, capital markets companies, fund management companies, mortgage banks, a property finance company, installment financing and leasing companies, insurance companies, research and consultancy companies and other domestic and foreign companies. Bankers Trust may have deposit, loan and other commercial banking relationships with the issuers of obligations which may be purchased on behalf of the Portfolio, including outstanding loans to such issuers which could be repaid in whole or in part with the proceeds of securities so purchased. Such affiliates deal, trade and invest for their own accounts in such obligations and are among the leading dealers of various types of such obligations. Bankers Trust has informed the Portfolio that, in making its investment decisions, it does not obtain or use material inside information in its possession or in the possession of any of its affiliates. In making investment recommendations for the Portfolio, Bankers Trust will not inquire or take into consideration whether an issuer of securities proposed for purchase or sale by the Portfolio is a customer of Bankers Trust, its parent or its subsidiaries or affiliates and, in dealing with its customers, Bankers Trust, its parent, subsidiaries and affiliates will not inquire or take into consideration whether securities of such customers are held by any fund managed by Bankers Trust or any such affiliate. For the fiscal year ended September 30, 1999, Bankers Trust earned $__________ for compensation of investment advisory services provided to the Portfolio. For the same period, Bankers Trust reimbursed $__________ to the Portfolio to cover expenses. At a Special Meeting held on October 8, 1999, shareholders of the Portfolio also approved a new investment advisory agreement with Morgan Grenfell, Inc. As of October 5, 1999, Morgan Grenfell, Inc. has been renamed Deutsche Asset Management Inc. ("DAMI"). The new investment advisory agreement with DAMI may be implemented within two years of the date of the Special Meeting upon approval of a majority of the members of the Board of Trustees of the Portfolio who are not "interested persons" ("Independent Trustees"). Shareholders of the Portfolio also approved a new sub-investment advisory agreement among the Portfolio, DAMI and Bankers Trust under which Bankers Trust may perform certain of DAMI's responsibilities, at DAMI's expense, upon approval of the Independent Trustees, within two years of the date of the Special Meeting. DAMI is a subsidiary of Deutsche Asset Management Ltd., a wholly owned subsidiary of Deutsche Morgan Grenfell Group PLC, an investment holding company which is, in turn, a wholly owned subsidiary of Deutsche Bank. ADMINISTRATOR -- Pursuant to an Administrative Services and Transfer Agency Agreement with Security Income Fund, dated April 1, 1987 as amended April 30, 1999, Security Management Company, LLC ("SMC") acts as the administrative agent for the Fund and as such performs administrative functions and the bookkeeping, accounting and pricing function for the Fund. For these services SMC receives, on an annual basis .09% of the average net assets of the fund, calculated daily and payable monthly. Under this Agreement SMC also performs the transfer agency function for the Fund. As such, SMC performs all shareholder servicing functions, mailing shareholder communications and acting as dividend disbursing agent. For the transfer agency services, SMC receives an annual maintenance fee of $8 per account, a fee of $1 per shareholder transaction, and a fee of $1 per dividend transaction. Under a sub-administration agreement between SMC and Bankers Trust, Bankers Trust has agreed to provide certain fund accounting services to the fund, including calculation of the Fund's daily NAV. For these services, SMC pays Bankers Trust a fee of $14,000 per year. Under an administration and services agreements, Bankers Trust is obligated on a continuous basis to provide such administrative services as the Board of Trustees of the Trust and the Portfolio reasonably deem necessary for the proper administration of the Trust and the Portfolio. Bankers Trust will generally assist in all aspects of the Fund's and Portfolio's operations; supply and maintain office facilities (which may be in Bankers Trust's own offices), statistical and research data, data processing services, clerical, accounting, bookkeeping and record keeping services (including without limitation the maintenance of such books and records as are required under the 1940 Act and the rules thereunder, except as maintained by other agents), executive and administrative services, and stationary and office supplies; prepare reports to shareholders or investors; prepare and file tax returns; supply financial information and supporting data for reports to and filings with the SEC and various state Blue Sky authorities; supply supporting documentation for meetings of the Board of Trustees; provide monitoring reports and assistance regarding compliance with Declarations of Trust, by-laws, investment objectives and policies and with Federal and state securities laws; arrange for appropriate insurance coverage; calculate net asset values, net income and realized capital gains or losses; and negotiate arrangements with, and supervise and coordinate the activities of, agents and others to supply services. For the fiscal year ended September 30, 1999, Bankers Trust earned $__________ as compensation for administrative and other services provided to the Fund. During the same period, Bankers Trust reimbursed $__________to the Fund to cover expenses. Pursuant to a separate Management Services Agreement, SMC also performs certain other services on behalf of the Fund. Under this Agreement, SMC provides feeder fund management and administrative services to the Fund which include monitoring the performance of the Portfolio, coordinating the Fund's relationship with the Portfolio, communicating with the Fund's Board of Directors and shareholders regarding the Portfolio's performance and the Fund's two tier structure, and in general, assisting the Board of Directors of the Fund in all aspects of the administration and operation of the Fund. For these services, the Fund pays SMC a fee at the annual rate of .20% of its average daily net assets, calculated daily and payable monthly. During the fiscal year ended September 30, 1999, the Fund paid the following amounts to the Administrator for its services.
- ------------------------------------------------------------------------------------------------------------------------------------ ADMINISTRATIVE TRANSFER AGENCY REIMBURSEMENT EXPENSE RATIO SERVICE FEES PAID SERVICE FEES PAID OF EXPENSES BY ------------------------------- FUND YEAR TO ADMINISTRATOR TO ADMINISTRATOR ADMINISTRATOR CLASS A CLASS B CLASS C - ------------------------------------------------------------------------------------------------------------------------------------ Income Fund 1998 $81,783 $191,501 --- --- --- --- 1997 80,734 141,412 --- --- --- --- 1996 95,487 128,776 --- --- --- --- Capital Preservation Fund 1999(1) - ------------------------------------------------------------------------------------------------------------------------------------ 1. Capital Preservations Fund's figures are based on the period May 3, 1999 (date of inception) to September 30, 1999. - ------------------------------------------------------------------------------------------------------------------------------------
For the fiscal year ended September 30, 1999, the Fund paid the Administrator $_____________ for its services under the Management Services Agreement. CUSTODIAN AND TRANSFER AGENT -- Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New York, New York 10006, serves as Custodian for the Portfolio pursuant to the administration and services agreements. As Custodian, it holds the Portfolio's assets. Bankers Trust also serves as transfer agent of the Portfolio pursuant to the administration and services agreement. Bankers Trust may be reimbursed by the Portfolio for its out-of-pocket expenses. Bankers Trust will comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act. UMB Bank, N.A. 928 Grand Avenue, Kansas City, Missouri 64106 serves as Custodian for the Fund and as such, holds all the Fund's assets. BANKING REGULATORY MATTERS -- Bankers Trust has been advised by its counsel that in its opinion Bankers Trust may perform the services for the Portfolio contemplated by the Advisory Agreement and other activities for the Portfolio described in the Prospectus and this SAI without violation of the Glass-Steagall Act or other applicable banking laws or regulations. However, counsel has pointed out that future changes in either Federal or state statutes and regulations concerning the permissible activities of banks or trust companies, as well as future judicial or administrative decisions or interpretations of present and future statutes and regulations, might prevent Bankers Trust from continuing to perform those services for the Portfolio. State laws on this issue may differ from the interpretations of relevant Federal law and banks and financial institutions may be required to register as dealers pursuant to state securities law. If the circumstances described above should change, the Boards of Directors would review the relationships with Bankers Trust and consider taking all actions necessary in the circumstances. INDEPENDENT ACCOUNTANTS -- _________________, One Kansas City Place, 1200 Main Street, Kansas City, Missouri 64105, acts as independent accountants of Security Income Fund. _______________, 787 Seventh Avenue, New York, New York 10019, acts as independent accountants of the Portfolio. ORGANIZATION OF SECURITY INCOME FUND Security Income Fund was organized as a Kansas corporation on April 20, 1965 and is registered with the Securities and Exchange Commission as an investment company. Such registration does not involve supervision by the Securities and Exchange Commission of the management or policies of the Fund. The Articles of Incorporation of Security Income Fund provides for the issuance of shares of common stock in one or more classes or series. Security Income Fund has authorized the issuance of an indefinite number of shares of capital stock of $1.00 part value and currently issues its shares in five series, Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund, High Yield Fund and Capital Preservation Fund. The shares of each Series of Security Income Fund represent a pro rata beneficial interest in that Series' net assets and in the earnings and profits or losses derived from the investment of such assets. Each Series of Security Income Fund currently issues two classes of shares except Capital Preservation Fund which issues three classes of shares. Each class of shares participates proportionately based on their relative net asset values in dividends and distributions and have equal voting, liquidation and other rights except that (i) expenses related to the distribution of each class of shares or other expenses that the Board of Directors may designate as class expenses from time to time, are borne solely by each class; (ii) each class of shares has exclusive voting rights with respect to any Distribution Plan adopted for that class; (iii) each class has different exchange privileges; and (iv) each class has a different designation. When issued and paid for, the shares of each Series of Security income Fund will be fully paid and nonassessable. Shares may be exchanged as described under "Exchange Privilege," in the prospecting but will have no other preference, conversion, exchange or preemptive rights. Shares are transferable, redeemable and assignable and have cumulative voting privileges for the election of directors. On certain matters, such as the election of directors, all shares of the Series of Security Income Fund vote together with each share having one vote. Under certain circumstances, the shareholders of one series of Security Income Fund could control the outcome of these votes. On other matters affecting a particular Series, such as the investment advisory contract or the fundamental policies, only shares of that Series are entitled to vote, and a majority vote of the shares of that Series is required for approval of the proposal. Security Income Fund does not generally hold annual meetings of shareholders and will do so only when required by law. Shareholders may remove directors from office by vote cast in person or by proxy at a meeting of shareholders. Such a meeting will be called at the written request of 10% of Security Income Fund's outstanding shares. ORGANIZATION OF THE TRUST BT Investment Funds was organized on July 21, 1986, under the name BT Tax-Free Investment Trust, and assumed its current name on May 16, 1988. The shares of each series participate equally in the earnings, dividends and assets of the particular series. The Trusts may create and issue additional series of shares. Each Trust's Declaration of Trust permits the Trustees to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interest in series. Each share represents an equal proportionate interest in a series with each other share. Shares when issued are fully paid and non-assessable, except as set forth below. Shareholders are entitled to one vote for each share held. Shares of the Trust do not have cumulative voting rights, which means that holders of more than 50% of the shares voting for the election of Trustees can elect all Trustees. Shares are transferable but have no preemptive, conversion or subscription rights. Shareholders generally vote by Fund, except with respect to the election of Trustees. Massachusetts law provides that shareholders could under certain circumstances be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of this disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or a Trustee. The Declaration of Trust provides for indemnification from the Trust's property for all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations, a possibility that the Trust believes is remote. Upon payment of any liability incurred by the Trust, the shareholder paying the liability will be entitled to reimbursement from the general assets of the Trust. The Trustees intend to conduct the operations of the Trust in a manner so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the Trust. Whenever a Trust is requested to vote on matters pertaining to a Portfolio, the Trust will vote its shares without a meeting of shareholders of the respective Fund if the proposal is one, which if made with respect to the Fund, would not require the vote of shareholders of the Fund as long as such action is permissible under applicable statutory and regulatory requirements. For all other matters requiring a vote, a Trust will hold a meeting of shareholders of its respective Fund and, at the meeting of the investors in the Portfolio, the Trust will cast all of its votes in the same proportion as votes in all its shares at the Portfolio meeting, other investors with a greater pro rata ownership of the Portfolio could have effective voting control of the operations of the Portfolio. TAXATION TAXATION OF THE FUND -- The Fund intends to qualify annually to be treated as a regulated investment company under the Code. To qualify for that treatment, the Fund must, among other things, (a) derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in securities or those currencies (the "Income Requirement"), (b) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the value of its assets is represented by cash and cash items (including receivables), U.S. government securities, securities of other regulated investment companies and other securities, with such other securities of any one issuer limited to an amount not greater than 5% of the value of the Fund's total assets and not greater than 10% of the issuer's outstanding voting securities and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. government securities or the securities of other regulated investment companies), and (c) distribute for each taxable year at least 90% of its investment company taxable income (generally consisting of interest, dividends and the excess of net short-term capital gain over net long-term capital loss). The Fund will be subject to a nondeductible 4% federal excise tax to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary income for that year and capital gain net income for the one-year period ending on October 31 of that year, plus any undistributed amount from the prior year. The Fund, as an investor in the Portfolio, will be deemed to own a proportionate share of the Portfolio's assets, and to earn a proportionate share of the Portfolio's income, for purposes of determining whether the Fund satisfies all the requirements described above to qualify as a regulated investment company. See the next section for a discussion of the tax consequences to the Fund of hedging transactions engaged in by the Portfolio. TAXATION OF THE PORTFOLIO -- The Portfolio will be treated as a separate partnership for federal income tax purposes and will not be a "publicly traded partnership." As a result, the Portfolio will not be subject to federal income tax. Instead, the Fund and other investors in the Portfolio will be required to take into account, in computing their federal income tax liability, their respective shares of the Portfolio's income, gains, losses, deductions and credits, without regard to whether they have received any cash distributions from the Portfolio. The Portfolio also will not be subject to state income or franchise tax. Because, as noted above, the Fund will be deemed to own a proportionate share of the Portfolio's assets, and to earn a proportionate share of the Portfolio's income, for purposes of determining whether the Fund satisfies the requirements to qualify as a regulated investment company, the Portfolio intends to conduct its operations so that the Fund will be able to satisfy all those requirements. Distributions received by the Fund from the Portfolio (whether pursuant to a partial or complete withdrawal or otherwise) generally will not result in the Fund's recognizing any gain or loss for federal income tax purposes, except that (a) gain will be recognized to the extent any cash that is distributed exceeds the Fund's basis for its interest in the Portfolio prior to the distribution, (b) income or gain will be realized if the distribution is in liquidation of the Fund's entire interest in the Portfolio and includes a disproportionate share of any unrealized receivables held by the Portfolio, and (c) gain or loss will be recognized if a liquidation distribution consists solely of cash and/or unrealized receivables. The Fund's basis for its interest in the Portfolio generally will equal the amount of cash and the basis of any property the Fund invests in the Portfolio, increased by the Fund's share of the Portfolio's net income and gains and decreased by (i) the amount of any cash and the basis of any property distributed from the Portfolio to the Fund and (ii) the Fund's share of the Portfolio's losses, if any. The Portfolio's use of hedging strategies, such as writing (selling) and purchasing options and futures contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses it realizes in connection therewith. Gains from options and futures contracts derived by the Portfolio with respect to its business of investing in securities will qualify as permissible income for the Fund under the Income Requirement. Certain futures and foreign currency contracts in which the Portfolio may invest may be subject to section 1256 of the Code ("section 1256 contracts"). Any section 1256 contracts held by the Portfolio at the end of each taxable year, other than contracts subject to a "mixed straddle" election made by the Portfolio, must be "marked-to-market" (that is, treated as having been sold at that time for their fair market value) for federal income tax purposes, with the result that unrealized gains or losses will be treated as though they were realized. Sixty percent of any net gain or loss recognized on these deemed sales, and 60% of any net realized gain or loss from any actual sales of section 1256 contracts, will be treated as long-term capital gain or loss, and the balance will be treated as short-term capital gain or loss. Section 1256 contracts also may be marked-to-market for purposes of the 4% excise tax mentioned previously. Code section 1092 (dealing with straddles) also may affect the taxation of options and futures contracts in which the Portfolio may invest. Section 1092 defines a "straddle" as offsetting positions with respect to personal property; for these purposes, options and futures contracts are personal property. Under that section, any loss from the disposition of a position in a straddle generally may be deducted only to the extent the loss exceeds the unrealized gain on the offsetting position(s) of the straddle; in addition, these rules may apply to postpone the recognition of loss that otherwise would be recognized under the mark-to-market rules discussed above. The regulations under section 1092 also provide certain "wash sale" rules, which apply to transactions where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and "short sale" rules applicable to straddles. If the Portfolio makes certain elections, the amount, character and timing of recognition of gains and losses from the affected straddle positions would be determined under rules that vary according to the elections made. Because only a few of the regulations implementing the straddle rules have been promulgated, the tax consequences to the Portfolio of straddle transactions are not entirely clear. If the Portfolio has an "appreciated financial position"--generally, an interest (including an interest through an option, futures or forward contract, or short sale) with respect to any debt instrument (other than "straight debt") or partnership interest the fair market value of which exceeds its adjusted basis--and enters into a "constructive sale" of the same or substantially similar property, the Portfolio will be treated as having made an actual sale thereof, with the result that gain will be recognized at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract, or a futures or forward contract entered into by the Portfolio or a related person with respect to the same or substantially similar property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially similar property will be deemed a constructive sale. The foregoing will not apply, however, to any transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Portfolio holds the appreciated financial position unhedged for 60 days after that closing (I.E., at no time during that 60-day period is the Portfolio's risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially similar or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities). OTHER TAXATION --The investment by the Fund in the Portfolio should not cause the Fund to be liable for any income or franchise tax in the State of New York. The Portfolio is organized as a New York trust. The Portfolio is not subject to any income or franchise tax in the State of New York or the State of Kansas. If the Fund fails to qualify as a RIC for any taxable year, all of its taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders and such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the Fund's current and accumulated earnings and profits. In this event, distributions generally will be eligible for the dividends-received deduction for corporate shareholders. FOREIGN WITHHOLDING TAXES -- Income received and gains realized by the Portfolio from sources within foreign countries may be subject to withholding and other taxes imposed by those countries that would reduce the yield and/or total return on its securities. Tax conventions between certain countries and the United States may reduce or eliminate these foreign taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. FINANCIAL STATEMENTS The financial statements for the Fund and the Portfolio for the fiscal year ended September 30, 1999, are incorporated herein by reference to the Annual Report to shareholders for the Fund and Portfolio dated September 30, 1999. Copies of the Fund's and the Portfolio's Annual Report are provided to every person requesting the Statement of Additional Information. APPENDIX - -------------------------------------------------------------------------------- DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS Aaa -- Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa -- Bonds rated Baa are considered as medium-grade obligations, i.e. they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such, bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds rated Ba are judged to have speculative elements. Their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both (good and bad times over the future). Uncertainty of position characterizes bonds in this class. B -- Bonds rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca -- Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings. C -- Bonds rated C are the lowest-rated class of bonds and issued so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating classification from Aa through B in its corporate bond system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DESCRIPTION OF S&P'S CORPORATE BOND RATINGS AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA -- Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree. A -- Debt rated A has a strong capacity to pay interest and repay principal, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories. BB -- Debt rate BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B -- Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB- rating. CCC -- Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. CC -- Debt rated CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. C -- The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed but debt service payments are continued. CI -- The rating CI is reserved for income bonds on which no interest is being paid. D -- Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating will also be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. DUFF & PHELPS' LONG-TERM DEBT RATINGS AAA -- Highest credit quality. The risk factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. A+, A, A- -- Protection factors are average but adequate. However, risk factors are more variable and greater in periods of economic stress. BBB+, BBB, BBB- -- Below-average protection factors but still considered sufficient for prudent investment. Considerable variability in risk during economic cycles. BB+, BB, BB- -- Below investment grade but deemed likely to meet obligation when due. Present or prospective financial protection factors fluctuate according to industry conditions or company fortunes. Overall quality may move up or down frequently within this category. B+, B, B- -- Below investment grade and possessing risk that obligations will not be met when due. Financial protection factors will fluctuate widely according to economic cycles, industry conditions and/or company fortunes. Potential exists for frequent changes in the rating within this category or into a higher or lower rating grade. CCC -- Well below investment-grade securities. Considerable uncertainty exists as to timely payment of principal, interest or preferred dividends. Protection factors are narrow and risk can be substantial with unfavorable economic/industry conditions, and/or with unfavorable company developments. DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments. DP -- Preferred stock with dividend arrearages. DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leasing market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated PRIME-3 (or related supporting institutions) have an acceptable capacity for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained. DESCRIPTION OF S&P SHORT-TERM ISSUER CREDIT RATINGS A-1 -- An obligor rated `A-1' has STRONG capacity to meet its financial commitments. It is rated in the highest category by Standard & Poor's. Within this category, certain obligors are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitments is EXTREMELY STRONG. A-2 -- An obligor rated `A-2' has SATISFACTORY capacity to meet its financial commitments. However, it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in the highest rating category. A-3 -- An obligor rated `A-3' has ADEQUATE capacity to meet its financial obligations. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS D-1+ -- Highest certainty of timely payment. Short term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding, and safety is just below risk free U.S. Treasury short term obligations. D-1 -- Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. D-1- -- High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. D-2 -- Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. D-3 -- Satisfactory liquidity and other protection factors qualify issues as to investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. DESCRIPTION OF MOODY'S INSURANCE FINANCIAL STRENGTH RATINGS Aaa -- Insurance companies rated Aaa offer exceptional financial security. While the financial strength of these companies is likely to change, such changes as can be visualized are most unlikely to impair their fundamentally strong position. Aa -- Insurance companies rated Aa offer excellent financial security. Together with the Aaa group they constitute what are generally known as high grade companies. They are rated lower than Aaa companies because long-term risks appear somewhat larger. A -- Insurance companies rated A offer good financial security. However, elements may be present which suggest a susceptibility to impairment sometime in the future. Baa -- Insurance companies rated Baa offer adequate financial security. However, certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Ba -- Insurance companies rated Ba offer questionable financial security. Often the ability of these companies to meet policyholder obligations maybe very moderate and thereby not well safeguarded in the future. B -- Insurance companies rated B offer poor financial security. Assurance of punctual payment of policyholder obligations over any long period of time is small. Caa -- Insurance companies rated Caa offer very poor financial security. They may be in default on their policyholder obligations or there may be present elements of danger with respect to punctual payment of policyholder obligations and claims. Ca -- Insurance companies rated Ca offer extremely poor financial security. Such companies are often in default on their policyholder obligations or have other marked shortcomings. C -- Insurance companies rated C are the lowest rated class of insurance company and can be regarded as having extremely poor prospects of ever offering financial security. Numeric modifiers: Numeric modifiers are used to refer to the ranking within the group -- one being the highest and three being the lowest. However, the financial strength of companies within a generic rating symbol (Aa, for example) is broadly the same. DESCRIPTION OF S&P CLAIMS PAYING ABILITY RATING DEFINITIONS SECURE RANGE -- AAA to BBB "AAA" -- Superior financial security on an absolute and relative basis. Capacity to meet policyholder obligations is overwhelming under a variety of economic and underwriting conditions. "AA" -- Excellent financial security. Capacity to meet policyholder obligations is strong under a variety of economic and underwriting conditions. "A" -- Good financial security, but capacity to meet policyholder obligations is somewhat susceptible to adverse economic and underwriting conditions. "BBB" -- Adequate financial security, but capacity to meet policyholder obligations is susceptible to adverse economic and underwriting conditions. VULNERABLE RANGE -- BB to CCC "BB" -- Financial security may be adequate, but capacity to meet policyholder obligations, particularly with respect to long-term or "long-tail" policies, is vulnerable to adverse economic and underwriting conditions. "B" -- Vulnerable financial security. Currently able to meet policyholder obligations, but capacity to meet policyholder obligations is particularly vulnerable to adverse economic and underwriting conditions. "CCC" -- Extremely vulnerable financial security. Continued capacity to meet policyholder obligations is highly questionable unless favorable economic and underwriting conditions prevail. "R" -- Regulatory action. As of the date indicated, the insurer is under supervision of insurance regulators following rehabilitation, receivership, liquidation, or any other action that reflects regulatory concern about the insurer's financial condition. Information on this status is provided by the National Association of Insurance Commissioners and other regulatory bodies. Although believed to be accurate, this information is not guaranteed. The "R" rating does not apply to insurers subject only to nonfinancial actions such as market conduct violations. Plus (+) or minus (-) Ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. DUFF & PHELPS' CLAIMS PAYING ABILITY RATINGS AAA -- Highest claims paying ability. Risk factors are negligible. AA+, AA, AA- -- Very high claims paying ability. Protection factors are strong. Risk is modest, but may vary slightly over time due to economic and/or underwriting conditions. A+, A, A- -- High claims paying ability. Protection factors are average and there is an expectation of variability in risk over time due to economic and/or underwriting conditions. BBB+, BBB, BBB- -- Adequate claims paying ability. Protection factors are adequate. There is considerable variability in risk over time due to economic and/or underwriting conditions. BB+, BB, BB- -- Uncertain claims paying ability and less than investment grade quality. However, the company is deemed likely to meet these obligations when due. Protection factors will vary widely with changes in economic and/or underwriting conditions. B+, B, B- -- Possessing risk that policyholder and contractholder obligations will not be paid when due. Protection factors will vary widely with changes in economic and underwriting conditions or company fortunes. CCC -- There is substantial risk that policyholder and contractholder obligations will not be paid when due. Company has been or is likely to be placed under state insurance department supervision. DD -- Company is under an order of liquidation. PART C. OTHER INFORMATION ITEM 23. EXHIBITS (a) Articles of Incorporation (b) By-laws (c) Specimen copy of share certificate for Registrant's shares of capital stock(1) (d) Investment Advisory Contract (e) (1) Distribution Agreement (2) Class B Distribution Agreement (3) Class C Distribution Agreement (4) Underwriter-Dealer Agreement(2) (f) Form of Non-Qualified Deferred Compensation Plan(3) (g) Custodian Agreement(4) (h) (1) Third Party Feeder Fund Agreement (2) Recordkeeping and Investment Accounting Agreement (3) Management Services Agreement (4) Administrative Services and Transfer Agency Agreement (i) Legal Opinion(1) (j) Not applicable (k) Not applicable (l) Not applicable (m) (1) Distribution Plan (see exhibit 23(e)(1)) (2) Class B Distribution Plan (3) Class C Distribution Plan (n) Multiple Class Plan (o) Powers of Attorney - Bankers Trust (p) Code of Ethics(5) (1) Incorporated herein by reference to the Exhibits filed with the Registrant's Post-Effective Amendment No. 61 to Registration Statement No. 2-38414 (May 3, 1999). (2) Incorporated herein by reference to the Exhibits filed with Security Equity Fund's Post-Effective Amendment No. 84 to Registration Statement No. 2-19458 (January 28, 1999). (3) Incorporated herein by reference to the Exhibits filed with the Registrant's Post-Effective Amendment No. 58 to Registration Statement No. 2-38414 (April 30, 1997). (4) Incorporated herein by reference to the Exhibits filed with the Registrant's Post-Effective Amendment No. 62 to Registration Statement No. 2-38414 (April 30, 1999). (5) Incorporated herein by reference from the Exhibits filed with Security Equity Fund's Post-Effective Amendment No. 86 to Registration Statement 2-19458 (January 28, 2000). ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. Not applicable. ITEM 25. INDEMNIFICATION. A policy of insurance covering Security Management Company, LLC, its affiliate Security Distributors, Inc., and all of the registered investment companies advised by Security Management Company, LLC insures the Registrant's directors and officers against liability arising by reason of an alleged breach of duty caused by any negligent act, error or accidental omission in the scope of their duties. Paragraph 30 of the Registrant's Bylaws, as amended February 3, 1995, provides in relevant part as follows: 30. INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS. Each person who is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a Director or officer of another corporation (including the heirs, executors, administrators and estate of such person) shall be indemnified by the Corporation as of right to the full extent permitted or authorized by the laws of the State of Kansas, as now in effect and is hereafter amended, against any liability, judgment, fine, amount paid in settlement, cost and expense (including attorney's fees) asserted or threatened against and incurred by such person in his/her capacity as or arising out of his/her status as a Director or officer of the Corporation or, if serving at the request of the Corporation, as a Director or officer of another corporation. The indemnification provided by this bylaw provision shall not be exclusive of any other rights to which those indemnified may be entitled under the Articles of Incorporation, under any other bylaw or under any agreement, vote of stockholders or disinterested directors or otherwise, and shall not limit in any way any right which the Corporation may have to make different or further indemnification with respect to the same or different persons or classes of persons. No person shall be liable to the Corporation for any loss, damage, liability or expense suffered by it on account of any action taken or omitted to be taken by him/her as a Director or officer of the Corporation or of any other corporation which he/she serves as a Director or officer at the request of the Corporation, if such person (a) exercised the same degree of care and skill as a prudent man would have exercised under the circumstances in the conduct of his/her own affairs, or (b) took or omitted to take such action in reliance upon advice of counsel for the Corporation, or for such other corporation, or upon statement made or information furnished by Directors, officers, employees or agents of the Corporation, or of such other corporation, which he/she had no reasonable grounds to disbelieve. In the event any provision of this section 30 shall be in violation of the Investment Company Act of 1940, as amended, or of the rules and regulations promulgated thereunder, such provisions shall be void to the extent of such violations. On March 25, 1988, the shareholders approved the Board of Directors' recommendation that the Articles of Incorporation be amended by adopting the following Article Fifteenth: "A director shall not be personally liable to the corporation or to its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this sentence shall not eliminate nor limit the liability of a director: A. for any breach of his or her duty of loyalty to the corporation or to its stockholders; B. for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; C. for any unlawful dividend, stock purchase or redemption under the provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and amendments thereto; or D. for any transaction from which the director derived an improper personal benefit." Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER Not applicable. ITEM 27. PRINCIPAL UNDERWRITERS (a) Security Equity Fund Security Ultra Fund Security Growth and Income Fund Security Municipal Bond Fund Variflex Variable Annuity Account (Variflex) Variflex Variable Annuity Account (Variflex ES) Varilife Variable Separate Account Parkstone Variable Annuity Account Security Varilife Separate Account Variable Annuity Account VIII (Variflex LS) Variable Annuity Account VIII (Variflex Signature) SBL Variable Annuity Account X SBL Variable Annuity Account XI (b) (1) (2) (3) NAME AND PRINCIPAL POSITION AND OFFICES POSITION AND OFFICES BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT ------------------ -------------------- -------------------- Richard K Ryan President & Director None John D. Cleland Vice President & Director President & Director James R. Schmank Vice President & Director Vice President & Director Mark E. Young Vice President & Director None Amy J. Lee Secretary Secretary Brenda M. Harwood Treasurer and Director Treasurer *700 Harrison, Topeka, Kansas 66636-0001 (c) Not applicable. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS. Certain accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder are maintained by Security Management Company, LLC, 700 Harrison, Topeka, Kansas 66636-0001; and Bankers Trust Company, 130 Liberty Street, New York, New York 10006. Records relating to the duties of the Registrant's custodian are maintained by UMB Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64106. ITEM 29. MANAGEMENT SERVICES. Not applicable. ITEM 30. UNDERTAKINGS. Not applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Topeka, and State of Kansas on the 24th day of November, 1999. SECURITY INCOME FUND (The Fund) By: JOHN D. CLELAND ---------------------------------------- John D. Cleland, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated: Date: November 24, 1999 ---------------------------------------- DONALD A. CHUBB, JR. Director - ------------------------------------- Donald A. Chubb, Jr. JOHN D. CLELAND President and Director - ------------------------------------- John D. Cleland PENNY A. LUMPKIN Director - ------------------------------------- Penny A. Lumpkin MARK L. MORRIS, JR. Director - ------------------------------------- Mark L. Morris, Jr. MAYNARD OLIVERIUS Director - ------------------------------------- Maynard Oliverius JAMES R. SCHMANK Director - ------------------------------------- James R. Schmank BRENDA M. HARWOOD Treasurer (Principal Financial Officer) - ------------------------------------- Brenda M. Harwood This Post Effective Amendment No. 64 to the Registration Statement of Security Income Fund has been signed below by the following persons in the capacities indicated. NAME TITLE DATE By: /s/ DANIEL O. HIRSCH Secretary (Attorney in Fact November 24, 1999 Daniel O. Hirsch for the persons listed below) /s/ JOHN Y. KEFFER* President and Chief John Y. Keffer Executive Officer /s/ CHARLES A. RIZZO* Treasurer Charles A. Rizzo /s/ CHARLES P. BIGGAR* Trustee Charles P. Biggar /s/ S. LELAND DILL* Trustee S. Leland Dill /s/ PHILIP SAUNDERS, JR.* Trustee Philip Saunders, Jr. /s/ MARTIN J. GRUBER* Trustee Martin J. Gruber /s/ RICHARD HALE* Trustee Richard Hale /s/ RICHARD J. HERRING* Trustee Richard J. Herring /s/ BRUCE E. LANGTON* Trustee Bruce E. Langton /s/ HARRY VAN BENSCHOTEN* Trustee Harry Van Benschoten EX-99.A 2 ARTICLES OF INCORPORATION ARTICLES OF INCORPORATION OF SECURITY BOND FUND, INC. We, the undersigned incorporators, hereby associate ourselves together to form and establish a corporation for profit under the laws of the State of Kansas. FIRST: The name of the corporation is: SECURITY BOND FUND, INC. SECOND: The location of its registered office in Kansas is Security Benefit Life Building, 700 Harrison Street, Topeka, Kansas 66603. THIRD: The name and address of its registered agent in Kansas is Will J. Miller, Jr., Security Benefit Life Building, 700 Harrison Street, Topeka, Kansas 66603. FOURTH: This corporation is organized for profit and the nature of its business, objects and purposes to be transacted, promoted and carried on, is: (1) To engage in the business of an investment company and mutual fund and to hold, invest and reinvest its funds, and in connection therewith to hold part or all of its funds in cash, and to purchase or otherwise acquire, hold for investment or otherwise, trade, purchase on margin, sell, sell short, assign, pledge, hypothecate, negotiate, transfer, exchange or otherwise dispose of or turn to account or realize upon, securities (which term "securities" shall for the purposes of this Article, without limitation of the generality thereof, be deemed to include any stocks, bonds, shares, debentures, notes, mortgages or other obligations, and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or in any property or assets) created or issued by any persons, firms, associations, corporations, syndicates, combinations, organizations, governments or subdivisions thereof; and to exercise, as owner or holder of any securities, all rights, powers and privileges in respect thereof; and to do any and all acts and things for the preservation, protection, improvement and enhancement in value of any and all such securities. (2) To issue and sell shares of its own capital stock in such amounts and on such terms and conditions, for such purposes and for such amount or kind of consideration (including, without limitation thereof, securities) now or hereafter permitted by the laws of Kansas, by these Articles of Incorporation and the Bylaws of the corporation, as its Board of Directors may determine. (3) To purchase or otherwise acquire, redeem, hold, dispose of, resell, transfer, or reissue (all without any vote or consent of stockholders of the corporation) shares of its capital stock, in any manner and to the extent now or hereafter permitted by the laws of the State of Kansas, by these Articles of Incorporation and by the Bylaws of the corporation, provided that shares of its own capital stock belonging to it shall not be voted directly or indirectly. (4) To conduct its business in all its branches at one or more offices in Kansas and elsewhere in any part of the world, without restriction or limit as to extent. (5) To carry out all or any of the foregoing purposes as principal or agent, and alone or with associates or, to the extent now or hereafter permitted by the laws of Kansas, as a member of, or as the owner or holder of any stock of, or shares of interest in, any firm, association, corporation, trust or syndicate; and in connection therewith to make or enter into such deeds or contracts with any persons, firms, associations, corporations, syndicates, governments or sub-divisions thereof, and to do such acts and things and to exercise such powers as a natural person could lawfully make, enter into, do or exercise. (6) To do any and all such further acts and things and to exercise any and all such further powers as may be necessary, incidental, relative, conducive, appropriate or desirable for the accomplishment, carrying out or attainment of all or any of the foregoing purposes. It is the intention that each of the purposes, specified in each of the paragraphs of this Article FOURTH, shall be in no wise limited or restricted by reference to or inference from the terms of any other paragraph, but that the purposes specified in each of the paragraphs of this Article FOURTH shall be regarded as independent objects, purposes and powers. The enumeration of the specific purposes of this Article FOURTH shall not be construed to restrict in any manner the general objects, purposes and powers of this corporation, nor shall the expression of one thing be deemed to exclude another, although it be of like nature. The enumeration of purposes herein shall not be deemed to exclude or in any way limit by inference any objects, purposes or powers which this corporation has power to exercise, whether expressly or by force of the laws of the State of Kansas, now or hereafter in effect, or impliedly by any reasonable construction of such laws. FIFTH: The total number of shares which the corporation shall have authority to issue shall be 3,000,000 shares of capital stock, each of the par value of $1.00. The Board of Directors shall have the power to fix the consideration to be received by the corporation for any and all shares of stock issued by the corporation, but at not less than the par value thereof. The following provisions are hereby adopted for the purpose of setting forth the powers, rights, qualifications, limitations or restrictions of the capital stock of the corporation: (1) At all meetings of stockholders each stockholder of the corporation shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of capital stock standing in this name on the books of the corporation on the date, fixed in accordance with the Bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, on any two or more of them as he may see fit. (2) No holder of any shares of stock of the corporation shall be entitled as such, as a matter of right, to purchase or subscribe for any shares of stock of the corporation of any class, whether now or hereafter authorized or whether issued for cash, property or services or as a dividend or otherwise, or to purchase or subscribe for any obligations, bonds, notes, debentures, other securities or stock convertible into shares of stock of the corporation or carrying or evidencing any right to purchase shares of stock of any class. (3) All persons who shall acquire stock in the corporation shall acquire the same subject to the provisions of these Articles of Incorporation. SIXTH: The minimum amount of capital with which the corporation will commence business is One Thousand Dollars. SEVENTH: The name and places of residence for each of the incorporators are as follows: NAMES PLACES OF RESIDENCE Dean L. Smith 1800 W. 26th Topeka, Kansas 66611 Will J. Miller, Jr. 2824 Plass Street Topeka, Kansas 66611 Everett S. Gille 2832 Plass Street Topeka, Kansas 66611 EIGHTH: The duration of the corporate existence of the corporation is one hundred years. NINTH: The number of directors to constitute the Board of Directors of the corporation, which shall be a minimum of three and a maximum of nine, may be varied from time to time by the Board of Directors or stockholders of the corporation between said minimum and maximum. Unless otherwise provided by the Bylaws of the corporation, the directors of the corporation need not be stockholders therein. TENTH: (1) Except as may be otherwise specifically provided by (i) statute, (ii) the Articles of Incorporation of the corporation as from time to time amended or (iii) bylaw provisions adopted from time to time by the stockholders or directors of the corporation, all powers of management, direction and control of the corporation shall be, and hereby are, vested in the Board of Directors. (2) If the Bylaws so provide, the Board of Directors, by resolution adopted by a majority of the whole board, may designate two or more directors to constitute an executive committee, which committee, to the extent provided in said resolution or in the Bylaws of the corporation, shall have and exercise all of the authority of the Board of Directors in the management of the corporation. (3) Shares of stock in other corporations shall be voted by the President or a Vice President, or such officer or officers of the corporation as the Board of Directors shall from time to time designate for the purpose, or by a proxy or proxies thereunto duly authorized by the Board of Directors, except as otherwise ordered by vote of the holders of a majority of the shares of the capital stock of the corporation outstanding and entitled to vote in respect thereto. (4) Subject only to the provisions of the federal Investment Company Act of 1940 and the rules and regulations promulgated thereunder, any director, officer or employee individually, or any partnership of which any director, officer or employee may be a member, or any corporation or association of which any director, officer or employee may be an officer, director, trustee, employee or stockholder, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the corporation, and in the absence of fraud no contract or other transaction shall be thereby affected or invalidated; provided that in case a director, or a partnership, corporation or association of which a director is a member, officer, director, trustee, employee or stockholder is so interested, such fact shall be disclosed or shall have been known to the Board of Directors or a majority thereof; and any director of the corporation who is so interested, or who is also a director, officer, trustee, employee or stockholder of such other corporation or association or a member of such partnership which is so interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize any such contract or transaction, and may vote thereat to authorize any such contract or transaction, with like force and effect as if he were not such director, officer, trustee, employee or stockholder of such other corporation or association or not so interested or a member of a partnership so interested. (5) The Board of Directors is hereby empowered to authorize the issuance and sale, from time to time, of shares of the capital stock of the corporation, whether for cash at not less than the par value thereof or for such other consideration including securities as the Board of Directors may deem advisable in the manner and to the extent now or hereafter permitted by the Bylaws of the corporation and by the laws of Kansas. ELEVENTH: The private property of the stockholders shall not be a subject to the payment of the debts of the corporation. TWELFTH: Insofar as permitted under the laws of Kansas, the stockholders and directors shall have power to hold their meetings, if the Bylaws so provide, and to keep the books and records of the corporation outside of the State of Kansas, and to have one or more offices, within or without the State of Kansas, at such places as may be from time to time designated in the Bylaws or by resolution of the stockholders or directors. THIRTEENTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them, secured or unsecured, or between this corporation and its stockholders, or any class of them, any court, state or federal, of competent jurisdiction within the State of Kansas may on the application in a summary way of this corporation, or of any creditor, secured or unsecured, or stockholders thereof, or on the application of trustees in dissolution, or on the application of any receiver or receivers appointed for this corporation by any court, state or federal, of competent jurisdiction, order a meeting of the creditors of class of creditors secured or unsecured or of the stockholders or class of stockholders of the corporation, as the case may be, to be summoned in such manner as said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, or of the stockholders, or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. FOURTEENTH: The corporation reserves the right to alter, amend or repeal any provision contained in its Articles of Incorporation in the manner now or hereafter prescribed by the statutes of Kansas, and all rights and powers conferred herein are granted subject to this reservation; and, in particular, the corporation reserves the right and privilege to amend its Articles of Incorporation from time to time so as to authorize other or additional classes of shares (including preferential shares), to increase or decrease the number of shares of any class now or hereafter authorized, to establish, limit or deny to stockholders of any class the right to purchase or subscribe for any shares of stock of the corporation of any class, whether now or hereafter authorized or whether issued for cash, property or services or as a dividend or otherwise, or to purchase or subscribe for any obligations, bonds, notes, debentures, or securities or stock convertible into shares of stock of the corporation or carrying or evidencing any right to purchase shares of stock of any class, and to vary the preferences, designations, priorities, special powers, qualifications, limitations, restrictions and the special, participating, optional or relative rights or other characteristics in respect of the shares of each class, and to accept and avail itself of, or subject itself to, the provisions of any statutes of Kansas hereafter enacted pertaining to private corporations, to exercise all the rights, powers and privileges conferred upon corporations organized thereunder or accepting the provisions thereof and to assume the obligations and duties imposed therein, upon the affirmative vote of the holders of a majority of the shares of stock entitled to vote thereon, or, in the event the statutes of Kansas then in effect require a separate vote by classes of shares, upon the affirmative vote of the holders of a majority of the shares of each class whose separate vote is required thereon, or, in the event the statutes of Kansas then in effect require a larger vote, upon such larger vote of the stockholders entitled to vote thereon as may then be required by such statutes. IN WITNESS WHEREOF, we have hereunto subscribed our names this 9th day of September, 1970. DEAN L. SMITH ----------------------------------- Dean L. Smith WILL J. MILLER ----------------------------------- Will J. Miller, Jr. EVERETT S. GILLE ----------------------------------- Everett S. Gille STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Personally appeared before me, a notary public in and for Shawnee County, Kansas, the above named DEAN L. SMITH, WILL J. MILLER and EVERETT S. GILLE, who are personally known to me to be the same persons who executed the foregoing instrument of writing, and such persons duly acknowledged the execution of the same. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my official seal this 9th day of September, 1970. LOIS J. HEDRICK ----------------------------------- Notary Public My commission expires January 8, 1972 Topeka, Kansas September 9, 1970 ----------------- Date OFFICE OF SECRETARY OF STATE RECEIVED OF SECURITY BOND FUND, INC. and deposited in the State Treasury, fees on these Articles of Incorporation as follows: Application Fee $25.00 Filing and Recording Fee $2.50 Capitalization Fee $1,550.00 ELWILL M. SHANAHAN ----------------------------------- Secretary of State CHANGE OF LOCATION OF REGISTERED OFFICE AND/OR CHANGE OF RESIDENT AGENT STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, Everett S. Gille, Vice President and Larry D. Armel, Secretary of Security Bond Fund, Inc. a corporation organized and existing under and by virtue of the laws of the State of Kansas, do hereby certify that a regular meeting of the Board of Directors of said corporation held on the 11th day of July, 1975, the following resolution was duly adopted. Be it further resolved that the RESIDENT AGENT of said corporation in the State of Kansas be changed from Will J. Miller, Jr., 700 Harrison Street, Topeka, Shawnee, Kansas the same being of record in the office of Secretary of State of Kansas to Security Management Company, Inc. 700 Harrison Street, Topeka, Shawnee, Kansas 66636. The President and Secretary are hereby authorized to file and record the same in the manner as required by law: EVERETT S. GILLE ----------------------------------- Everett S. Gille, Vice-President LARRY D. ARMEL ----------------------------------- Larry D. Armel, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered that before me Lois J. Hedrick a Notary Public in and for the County and State aforesaid, came Everett S. Gille, Vice-President and Larry D. Armel, Secretary, of Security Bond Fund, Inc. a corporation personally known to me to be the persons who executed the foregoing instrument of writing as vice president and secretary respectively, and duly acknowledged the execution of the same this 11th day of July, 1975. LOIS J. HEDRICK ----------------------------------- Notary Public My commission expires January 8, 1976 NOTE: This form must be filed in duplicate. Address of Resident Agent and Registered Office, as set forth above, must be the same. The statutory fee for filing is $20.00 and must accompany this form. CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF SECURITY BOND FUND, INC. - -------------------------------------------------------------------------------- STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, Everett S. Gille, President, and Lois J. Hedrick, Assistant Secretary of Security Bond Fund, Inc., a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that at the regular meeting of the Board of Directors of said corporation held on the 7th day of January, 1977 said board adopted a resolution setting forth the following amendment to the Articles of Incorporation and declared its advisability, to wit: RESOLVED, that whereas the board of directors deems it advisable and in the best interests of the corporation to increase the authorized capitalization of the corporation, that the articles of incorporation of the Fund be amended by deleting the first paragraph of Article FIFTH in its entirety, and by inserting, in lieu thereof, the following new first paragraph of Article FIFTH: FIFTH: The total number of shares which the corporation shall have authority to issue shall be 6,000,000 shares of capital stock, each of the par valueof $1.00. The board of directors shall have the power to fix the consideration to be received by the corporation for any and all shares of stock issued by the corporation, but at not less than the par value thereof. FURTHER RESOLVED, that the foregoing proposed amendment to the Articles of Incorporation of the Fund be presented to the stockholders of the Fund for consideration at the annual meeting of stockholders to be held on March 25, 1977. That thereafter, pursuant to said resolution and in accordance with the by-laws and the laws of the State of Kansas, said directors called a meeting of stockholders for the consideration of said amendment, and thereafter, pursuant to said notice and in accordance with the statutes of the State of Kansas, on the 25th day of March, 1977, said stockholders met and convened and considered said proposed amendment. That at said meeting the stockholders entitled to vote did vote upon said amendment, and the majority of voting stockholders of the corporation had voted for the proposed amendment certifying that the votes were 534,468 (common) shares in favor of the proposed amendment and 9,925 (common) against the amendment. That said amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602. That the capital of said corporation will not be reduced under or by reason of said amendment. IN WITNESS WHEREOF we have hereunto set out hands and affixed the seal of said corporation this 30th day of March, 1977. EVERETT S. GILLE ------------------------------------ Everett S. Gille, Vice-President LOIS J. HEDRICK ------------------------------------ Lois J. Hedrick, Assistant Secretary STATE OF KANSAS ) ) ss COUNTY OF SHAWNEE) Be it remembered, that before me, Janet M. Ladd a Notary Public in and for the County and State aforesaid, came Everett S. Gille, President and Lois J. Hedrick, Assistant Secretary of Security Bond Fund, Inc. a corporation, personally known to me to be the persons who executed the foregoing instrument of writing as president and assistant secretary respectively, and duly acknowledged the execution of the same this 30th day of March, 1977. JANET M. LADD ------------------------------------ Notary Public My commission expires September 3, 1980. CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF SECURITY BOND FUND, INC. - -------------------------------------------------------------------------------- STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, Everett S. Gille, President, and Larry D. Armel, Secretary of Security Bond Fund, Inc. a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that at the regular meeting of the Board of Directors of said corporation held on the 5th day of January, 1979, said board adopted a resolution setting forth the following amendment to the Articles of Incorporation and declared its advisability, to wit: RESOLVED, that whereas the board of directors deems it advisable and in the best interests of the corporation to increase the authorized capitalization of the corporation, that the articles of incorporation of the Fund be amended by deleting the first paragraph of Article FIFTH in its entirety, and by inserting, in lieu thereof, the following new first paragraph of Article FIFTH: FIFTH: The total number of shares which the corporation shall have authority to issue shall be 10,000,000 shares of capital stock, each of the par value of $1.00. The board of directors shall have the power to fix the consideration to be received by the corporation for any and all shares of stock issued by the corporation, but at not less than the par value thereof. FURTHER RESOLVED, that the foregoing proposed amendment to the Articles of Incorporation of the Fund be presented to the stockholders of the Fund for consideration at the annual meeting of stockholders to be held on March 23, 1979. That thereafter, pursuant to said resolution and in accordance with the by-laws and the laws of the State of Kansas, said directors called a meeting of stockholders for the consideration of said amendment, and thereafter, pursuant to said notice and in accordance with the statutes of the State of Kansas, on the 23rd day of March, 1979, said stockholders met and convened and considered said proposed amendment. That at said meeting the stockholders entitled to vote did vote upon said amendment, and the majority of voting stockholders of the corporation had voted for the proposed amendment certifying that the votes were 1,987,933 (common) shares in favor of the proposed amendment and 95,636 (common) shares against the amendment. That said amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602. That the capital of said corporation will not be reduced under or by reason of said amendment. IN WITNESS WHEREOF we have hereunto set out hands and affixed the seal of said corporation this 23rd day of March, 1979. EVERETT S. GILLE ----------------------------------- Everett S. Gille, President LARRY D. ARMEL ----------------------------------- Larry D. Armel, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Lois J. Hedrick a Notary Public in and for the County and State aforesaid, came Everett S. Gille, President and Larry D. Armel, Secretary of Security Bond Fund, Inc. a corporation, personally known to me to be the persons who executed the foregoing instrument of writing as president and assistant secretary respectively, and duly acknowledged the execution of the same this 23rd day of March, 1979. LOIS J. HEDRICK ----------------------------------- Notary Public My commission expires January 8, 1980. CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF SECURITY BOND FUND, INC. We, Everett S. Gille, President, and Larry D. Armel, Secretary of Security Bond Fund, Inc., a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Kansas, 66636, do hereby certify that at the regular meeting of the board of directors of said corporation held on the 9th day of January, 1981, said board adopted resolutions setting forth the following amendments to the articles of incorporation and declared their advisability: "RESOLVED, that the articles of incorporation of Security Bond Fund, Inc. as heretofore amended, be further amended by deleting Article FIRST in its entirety and by inserting, in lieu thereof, the following new Article FIRST: `FIRST: The name of the corporation is: SECURITY BOND FUND.'" "RESOLVED, that the articles of incorporation of Security Bond Fund, Inc., as heretofore amended, be further amended by deleting the first paragraph of Article FIFTH and by inserting, in lieu thereof, the following: `FIFTH: The total number of shares which the corporation shall have authority to issue is 100,000,000 shares of capital stock, each of the par value of $1.00 per share. The board of directors shall have the power to fix the consideration to be received by the corporation for any and all shares of stock issued by the corporation, but at not less than the par value thereof'. FURTHER RESOLVED, that the board of directors of this corporation hereby declares the advisability of the foregoing amendments to the articles of incorporation of this corporation and hereby recommends that the stockholders of this corporation adopt said amendments. FURTHER RESOLVED, that at the annual meeting of the stockholders of this corporation to be held at the offices of the corporation in Topeka, Kansas, on March 27, 1981, beginning at 10:00 a.m. on that day, the matter of the aforesaid proposed amendments to the articles of incorporation of this corporation shall be submitted to the stockholders entitled to vote thereon. FURTHER RESOLVED, that in the event the stockholders of this corporation shall approve and adopt the proposed amendments to the articles of incorporation of this corporation as heretofore adopted and recommended by this board of directors, the appropriate officers of this corporation be, and they hereby are authorized and directed, for and in behalf of this corporation, to make, execute, verify, acknowledge and file or record in any and all appropriate governmental offices any and all certificates and other instruments, and to take any and all other action as may be necessary to effectuate the said proposed amendments to the articles of incorporation of this corporation." That thereafter, pursuant to said resolutions and in accordance with the bylaws and the laws of the State of Kansas, said directors called a meeting of stockholders for the consideration of said amendments and thereafter, pursuant to said notice and in accordance with the statutes of the State of Kansas, on the 27th day of March, 1981, said stockholders met and convened and considered said proposed amendments. That at said meeting the stockholders entitled to vote did vote upon the amendment to Article FIRST, and the majority of voting stockholders of the corporation had voted for the proposed amendment certifying that the votes were (Common Stock) 2,559,350 shares in favor of the proposed amendment, (Common Stock) 223,217 shares against the amendment, and (Common Stock) 477 shares abstained; and That at said meeting the stockholders entitled to vote did vote upon the amendment to Article FIFTH, and the majority of voting stockholders of the corporation had voted for the proposed amendment certifying that the votes were (Common Stock) 2,546,301 shares in favor of the proposed amendment, (Common Stock) 236,266 shares against the amendment, and (Common Stock) 477 shares abstained. That said amendments were duly adopted in accordance with the provisions of K.S.A. 16-6602, as amended. That the capital of said corporation will not be reduced under or by reason of said amendments. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of said corporation, this 30th day of March, 1981. [Seal] EVERETT S. GILLE ----------------------------------- Everett S. Gille, President LARRY D. ARMEL ----------------------------------- Larry D. Armel, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Lois J. Hedrick, a Notary Public in and for the County and State aforesaid, came Everett S. Gille, President, and Larry D. Armel, Secretary, of Security Bond Fund, Inc., a corporation, personally known to me to be the persons who executed the foregoing instrument of writing as president and secretary, respectively, and duly acknowledged the execution of the same this 30th day of March, 1981. LOIS J. HEDRICK ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: January 8, 1984. Submit in duplicate A fee of $20.00 must accompany this form. CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF SECURITY BOND FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, Everett S. Gille, President, and Larry D. Armel, Secretary of Security Bond Fund, Inc., a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that at the regular meeting of the Board of Directors of said Corporation held on the 7th day of January, 1983, said board adopted resolutions setting forth the following amendments to the Articles of Incorporation and declared their advisability, to wit: "RESOLVED, that the articles of incorporation of Security Bond Fund, as heretofore amended, be further amended by deleting Article FIFTH in its entirety and by inserting, in lieu thereof, the following new Article FIFTH: `FIFTH: The total number of shares of stock which the Corporation shall have authority to issue is Five Hundred Million (500,000,000) shares of common stock, of the par value of One Dollar ($1.00) per share. The board of directors of the corporation is expressly authorized to cause shares of common stock of the corporation authorized herein to be issued in one or more series and to increase or decrease the number of shares so authorized to be issued in any such series. The following provisions are hereby adopted for the purpose of setting forth the powers, rights, qualifications, limitations or restrictions of the capital stock of the corporation: (1) At all meetings of stockholders each stockholder of the corporation of any class or series shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of capital stock of any class or series standing in his name on the books of the corporation on the date, fixed in accordance with the Bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder of any class or series shall be entitled to as many votes as shall equal the number of shares of stock of any class or series multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit. (2) All shares of stock of the corporation of any class or series shall be nonassessable. (3) No holder of any shares of stock of the corporation of any class or series shall be entitled as such, as a matter of right, to subscribe for or purchase any shares of stock of the corporation of any class or series, whether now or hereafter authorized or whether issued for cash, property or services or as a dividend or otherwise, or to subscribe for or purchase any obligations, bonds, notes, debentures, other securities or stock convertible into shares of stock of the corporation of any class or series or carrying or evidencing any right to purchase shares of stock of any class or series. (4) All persons who shall acquire stock in the corporation shall acquire the same subject to the provisions of these articles of incorporation". FURTHER RESOLVED, that the board of directors of this corporation hereby declares the advisability of the foregoing amendment to the articles of incorporation of this corporation and hereby recommends that the stockholders of this corporation adopt said amendment. FURTHER RESOLVED, that at the annual meeting of the stockholders of this corporation to be held at the offices of the corporation in Topeka, Kansas, on March 25, 1983, beginning at 10:00 a.m. on that day, the matter of the aforesaid proposed amendment to the articles of incorporation of this corporation shall be submitted to the stockholders entitled to vote thereon. FURTHER RESOLVED, that in the event the stockholders of this corporation shall approve and adopt the proposed amendment to the articles of incorporation of this corporation as heretofore adopted and recommended by this board of directors, the appropriate officers of this corporation be, and they hereby are authorized and directed, for and in behalf of this corporation, to make, execute, verify, acknowledge and file or record in any and all appropriate governmental offices any and all certificates and other instruments, and to take any and all other action as may be necessary to effectuate the proposed amendment to the articles of incorporation of this corporation. That thereafter, pursuant to said resolution and in accordance with the by-laws and the laws of the State of Kansas, said directors called a meeting of stockholders for the consideration of said amendment, and thereafter, pursuant to said notice and in accordance with the statutes of the State of Kansas, on the 25th day of March, 1983, said stockholders met and convened and considered said proposed amendment. That at said meeting the stockholders entitled to vote did vote upon said amendment, and the majority of voting stockholders of the corporation had voted for the proposed amendment certifying that the votes were 3,242,059 Common Stock shares in favor of the proposed amendment, 170,544 Common Stock shares against the amendment, and 3,642 Common Stock shares abstained from voting on the amendment. That said amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602, as amended. That the capital of said corporation will not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of said Corporation, this 30th day of March, 1983. [Seal] EVERETT S. GILLE ----------------------------------- Everett S. Gille, President LARRY D. ARMEL ----------------------------------- Larry D. Armel, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Lois J. Hedrick, a Notary Public in and for the County and State aforesaid, came Everett S. Gille, President, and Larry D. Armel, Secretary, of Security Bond Fund, a corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 30th day of March, 1983. LOIS J. HEDRICK ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: January 8, 1984. Submit to this office in duplicate. A fee of $20.00 must accompany this form. CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF SECURITY BOND FUND We, Everett S. Gille, President, and Barbara W. Rankin, Secretary, of Security Bond Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is at 700 Harrison Street, in the city of Topeka, county of Shawnee, 66636, Kansas, do hereby certify that at the special meeting of the Board of Directors of said corporation held on the 3rd day of May, 1985, said board adopted a resolution setting forth the following amendments to the Articles of Incorporation and declared its advisability: "RESOLVED, that the articles of incorporation of Security Bond Fund, as heretofore amended, be further amended by deleting Article FIRST in its entirety and by inserting, in lieu thereof, the following new Article FIRST: "FIRST: The name of the corporation (hereinafter called the Corporation) is SECURITY INCOME FUND." FURTHER RESOLVED, that the board of directors of this corporation hereby declares the advisability of the foregoing amendment to the articles of incorporation of this corporation and hereby recommends that the stockholders of this corporation adopt said amendment. FURTHER RESOLVED, that in the event the stockholders of this corporation shall approve and adopt the proposed amendment to the articles of incorporation of this corporation as heretofore adopted and recommended by this board of directors, the appropriate officers of this corporation be, and they hereby are authorized and directed, for and in behalf of this corporation, to make, execute, verify, acknowledge and file or record in any and all appropriate governmental offices any and all certificates and other instruments, and to take any and all other action as may be necessary to effectuate the proposed amendment to the articles of incorporation of this corporation." We further certify that thereafter, pursuant to said resolution, and in accordance with the by-laws of the corporation and the laws of the State of Kansas, the Board of Directors called a meeting of stockholders for consideration of the proposed amendment, and thereafter, pursuant to notice and in accordance with the statutes of the State of Kansas, on the 12th day of July, 1985, said stockholders convened and considered the proposed amendment. We further certify that at said meeting a majority of the stockholders entitled to vote voted in favor of the proposed amendment, and that the votes were 2,996,852 common shares in favor of the proposed amendment and 406,842 common shares against the amendment. We further certify that the amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602, as amended. We further certify that the capital of said corporation will not be reduced under or by reason of said amendment. IN WITNESS WHEREOF we have hereunto set our hands and affixed the seal of said corporation this 23rd day of July, 1985. [Seal] EVERETT S. GILLE ----------------------------------- Everett S. Gille, President BARBARA W. RANKIN ----------------------------------- Barbara W. Rankin, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, a Notary Public in and for the aforesaid county and state, personally appeared Everett S. Gille, President, and Barbara W. Rankin, Secretary, of Security Bond Fund, a corporation, who are known to me to be the same persons who executed the foregoing Certificate of Amendment to Articles of Incorporation, and duly acknowledged the execution of the same this 23rd day of July, 1985. LOIS J. HEDRICK ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: June 1, 1988 THIS FORM MUST BE SUBMITTED TO THIS OFFICE IN DUPLICATE. THE FILING FEE OF $20 MUST ACCOMPANY THIS DOCUMENT. MAIL THIS DOCUMENT, WITH FEE, TO: Secretary of State Capitol, 2nd Floor Topeka, KS 66612 CERTIFICATE OF DESIGNATION OF SERIES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) )ss.: COUNTY OF SHAWNEE) We, Everett S. Gille, President, and Barbara W. Rankin, Secretary, of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is the Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the authority expressly vested in the board of directors by the provisions of the corporation's articles of incorporation, the board of directors of said corporation at its regular meeting duly convened and held on the 3rd day of May, 1985, adopted resolutions establishing two separate series of common stock of the corporation and setting forth the preferences, rights, privileges and restrictions of such series, which resolutions provided in their entirety as follows: RESOLVED, that, pursuant to Article FIFTH of the Fund's articles of incorporation, the Fund shall be authorized to issue 200,000 shares of common stock of the Fund, each of the par value of One Dollar ($1.00) per share, in the Corporate Bond Series, the investment objective of which shall be identical to that of current investment objective of the Fund, to wit: to conserve principal while generating interest income by investing in upper medium to high-grade debt securities, primarily those issued by U.S. and Canadian corporations and securities which are obligations of or guaranteed by the U.S. Government or any of its agencies. The Fund shall also be authorized to issue 200,000 shares of common stock of the Fund, each of the par value of One Dollar ($1.00) per share, in the U.S. Government Series, the investment objective of which is to provide a high level of interest income with security of principal by investing in securities which are guaranteed or issued by the U.S. Government, its agencies or instrumentalities. FURTHER RESOLVED, that the powers, rights, qualifications, limitations and restrictions of the shares of the Fund's series of common stock, as set forth in the minutes of the January 7, 1983 meeting of this board of directors, are hereby reaffirmed and incorporated by reference in the minutes of this meeting. FURTHER RESOLVED, that the issuance of shares in the above described series shall take place upon the effectiveness of the Fund's post-effective amendment, filed with the Securities and Exchange Commission, updating the material contained in the Fund's registration statement and reflecting the conversion of the Fund into an investment company of the Series type, as further authorized below. FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they hereby are authorized and directed, for and in behalf of this corporation, to make, execute, verify, acknowledge and file or record in any and all appropriate governmental offices any and all other action as may be necessary to effectuate the proposed conversion. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 26th day of July, 1985. EVERETT S. GILLE ----------------------------------- EVERETT S. GILLE, President BARBARA W. RANKIN ----------------------------------- BARBARA W. RANKIN, Secretary STATE OF KANSAS ) ) ss.: COUNTY OF SHAWNEE) Be it remembered, that before me, Lois J. Hedrick, a Notary Public in and for the County and State aforesaid, came EVERETT S. GILLE, President, and BARBARA W. RANKIN, Secretary, of Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as president and secretary, respectively, and duly acknowledged the execution of the same this 26th day of July, 1985. LOIS J. HEDRICK ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: June 1, 1988. CERTIFICATE OF DESIGNATION OF SERIES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss.: COUNTY OF SHAWNEE) We, Everett S. Gille, President, and Barbara W. Rankin, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is the Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the authority expressly vested in the board of directors by the provisions of the corporation's articles of incorporation, the board of directors of said corporation at its regular meeting duly convened and held on the 10th day of January, 1986, adopted resolutions establishing a third separate series of common stock of the corporation and setting forth the preferences, rights, privileges and restrictions of such series, which resolutions provided in their entirety as follows: RESOLVED, that, pursuant to the Article FIFTH of the Fund's articles of incorporation, the Fund shall be authorized to issue 100,000,000 shares of common stock of the Fund, each of the par value of One Dollar ($1.00) per share, in the High-Yield Series, the investment objective of which is to seek high current income by investing in higher yielding, long-term securities. FURTHER RESOLVED, that, the powers, rights, qualifications, limitations and restrictions of the shares of the Fund's series of common stock, as set forth in the minutes of the January 7, 1983 meeting of this board of directors, are hereby reaffirmed and incorporated by reference into the minutes of this meeting. FURTHER RESOLVED, that, the issuance of shares in the above described series shall take place upon the effectiveness of the Fund's post-effective amendment, filed with the Securities and Exchange Commission, updating the material contained in the Fund's registration statement and reflecting the conversion of the Fund into an investment company of the Series type, as further authorized below. FURTHER RESOLVED, that the appropriate officers of the corporation be, and they hereby are authorized and directed, for and in behalf of this corporation, to make, execute, verify, acknowledge and file or record in any and all appropriate governmental offices any and all appropriate governmental offices any and all other action as may be necessary to effectuate the proposed conversion. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 6th day of February, 1986. EVERETT S. GILLE ----------------------------------- EVERETT S. GILLE, President BARBARA W. RANKIN ----------------------------------- BARBARA W. RANKIN, Secretary STATE OF KANSAS ) ) ss.: COUNTY OF SHAWNEE) Be it remembered, that before me, Glenda J. Overstreet, a Notary Public in and for the County and State aforesaid, came EVERETT S. GILLE, President, and BARBARA W. RANKIN,Secretary, of Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as president and secretary, respectively, and duly acknowledged the execution of the same this 6th day of February, 1986. GLENDA J. OVERSTREET ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: February 1, 1990 AMENDED CERTIFICATE OF DESIGNATION OF SERIES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss.: COUNTY OF SHAWNEE) We, Everett S. Gille, President, and Barbara W. Rankin, Secretary, of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is the Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the authority expressly vested in the board of directors by the provisions of the corporation's articles of incorporation, the board of directors of said corporation at its regular meeting duly convened and held on the 10th day of January, 1986, adopted resolutions establishing two separate series of common stock of the corporation and setting forth the preferences, rights, privileges and restrictions of such series, which resolutions provided in their entirety as follows: RESOLVED, that, pursuant to the Article FIFTH of the Fund's articles of incorporation, the Fund shall be authorized to issue 200,000,000 shares of common stock of the Fund, each of the par value of One Dollar ($1.00) per share, in the Corporate Bond Series, the investment objective of which shall be identical to that of current investment objective of the Fund, to wit: to conserve principal while generating interest income by investing in upper medium to high-grade debt securities primarily those issued by U.S. and Canadian corporations and securities which are obligations of or guaranteed by the U.S. Government or any of its agencies. The Fund shall also be authorized to issue 200,000,000 shares of common stock of the Fund, each of the par value of One Dollar ($1.00) per share, in the U.S. Government Series, the investment objective of which is to provide a high level of interest income with security of principal by investing in securities which are guaranteed or issued by the U.S. Government, its agencies or instrumentalities. FURTHER RESOLVED, that, the powers, rights, qualifications, limitations and restrictions of the shares of the Fund's series of common stock, as set forth in the minutes of the January 7, 1983 meeting of this board of directors, are hereby reaffirmed and incorporated by reference into the minutes of this meeting. FURTHER RESOLVED, that, the issuance of shares in the above described series shall take place upon the effectiveness of the Fund's post-effective amendment, filed with the Securities and Exchange Commission, updating the material contained in the Fund's registration statement and reflecting the conversion of the Fund into an investment company of the Series type, as further authorized below. FURTHER RESOLVED, that the appropriate officers of the corporation be, and they hereby are authorized and directed, for and in behalf of this corporation, to make, execute, verify, acknowledge and file or record in any and all appropriate governmental offices any and all appropriate governmental offices any and all other action as may be necessary to effectuate the proposed conversion. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 6th day of February, 1986. EVERETT S. GILLE ----------------------------------- EVERETT S. GILLE, President BARBARA W. RANKIN ----------------------------------- BARBARA W. RANKIN, Secretary STATE OF KANSAS ) ) ss.: COUNTY OF SHAWNEE) Be it remembered, that before me, Glenda J. Overstreet, a Notary Public in and for the County and State aforesaid, came EVERETT S. GILLE, President, and BARBARA W. RANKIN, Secretary, of Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as president and secretary, respectively, and duly acknowledged the execution of the same this 6th day of February, 1986. GLENDA J. OVERSTREET ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: February 1, 1990 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF SECURITY INCOME FUND We, Michael J Provines, President , and Amy J. Lee, Secretary of the above named corporation, a corporation organized and existing under the laws of the State of Kansas, do hereby certify that at a meeting of the Board of Directors of said corporation, the board adopted a resolution setting forth the following amendment to the Articles of Incorporation and declaring its advisability; "A director shall not be personally liable to the corporation or to its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this sentence shall not eliminate nor limit the liability of a director: A. for any breach of his or her duty of loyalty to the corporation or to itstockholders: B. for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; C. for an unlawful dividend, stock purchase or redemption under the provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and amendments thereto; or D. for any transaction from which the director derived an improper personal benefit." We further certify that thereafter, pursuant to said resolution, and in accordance with the by-laws of the corporation and the laws of the State of Kansas, the Board of Directors called a meeting of stockholders for consideration of the proposed amendment, and thereafter, pursuant to notice and in accordance with the statutes of the State of Kansas, the stockholders convened and considered the proposed amendment. We further certify that at the meeting a majority of the stockholders entitled to vote voted in favor of the proposed amendment. We further certify that the amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602, as amended. We further certify that the capital of said corporation will not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of said corporation this 19th day of April, 1988. MICHAEL J. PROVINES ----------------------------------- Michael J. Provines, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, a Notary Public in and for the aforesaid county and state, personally appeared Michael J. Provines, President, and Amy J. Lee, Secretary, of the corporation named in this document, who are known to me to be the same persons who executed the foregoing certificate, and duly acknowledged the execution of the same this 19th day of April, 1988. CONNIE BRUNGARDT ----------------------------------- Notary Public My Commission Expires: November 30, 1991. PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20.00 FILING FEE, TO: Secretary of State Capitol. 2nd Floor Topeka, KS 66612 (913) 296-2236 CERTIFICATE OF DISSOLUTION OF SERIES OF COMMON STOCK OF SECURITY INCOME FUND PURSUANT TO K.S.A. SECTION 17-6401(g) STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, Michael J. Provines, President, and Amy J. Lee, Secretary, of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is the Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation by unanimous written consent dated December 9, 1991, adopted a resolution dissolving the High Yield Series of common stock of the corporation, which resolution provided in its entirety as follows: RESOLVED, that as of December 9, 1991, there are no authorized shares of the High Yield Series of Security Income Fund outstanding and none will be issued in the future. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 9th day of December, 1991. MICHAEL J. PROVINES ----------------------------------- Michael J. Provines, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary Be it remembered, that on this 9th day of December, 1991, before me, the undersigned a notary public in and for the county and state aforesaid, came Michael J. Provines, President, and Amy J. Lee, Secretary of Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same to be the act and deed of said corporation. In testimony whereof, I have hereunto set my hand and affixed my notarial seal the day and year last above written. LINDA K. GIFFORD ----------------------------------- Notary Public My Commission Expires: November 1, 1993. CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF SECURITY INCOME FUND We, Michael J Provines, President , and Amy J. Lee, Secretary of the above named corporation, a corporation organized and existing under the laws of the State of Kansas, do hereby certify that at a meeting of the Board of Directors of said corporation, the board adopted a resolution setting forth the following amendment to the Articles of Incorporation and declaring its advisability: See attached amendment We further certify that thereafter, pursuant to said resolution, and in accordance with the by-laws of the corporation and the laws of the State of Kansas, the Board of Directors called a meeting of stockholders for consideration of the proposed amendment, and thereafter, pursuant to notice and in accordance with the statutes of the State of Kansas, the stockholders convened and considered the proposed amendment. We further certify that at a meeting a majority of the stockholders entitled to vote voted in favor of the proposed amendment. We further certify that the amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602, as amended. IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of said corporation this 27th day of July, 1993. MICHAEL J. PROVINES ----------------------------------- Michael J. Provines, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered that before me, a Notary Public in and for the aforesaid county and state, personally appeared Michael J. Provines, President, and Amy J. Lee, Secretary, the corporation named in this document, who are known to me to be the same persons who executed the foregoing certificate, and duly acknowledged the execution of the same this 27th day of July, 1993. PEGGY S. AVEY ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: November 21, 1996. PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20 FILING FEE, TO: Secretary of State 2nd Floor, State Capitol Topeka, KS 66612-1594 (913) 296-4564 SECURITY INCOME FUND The Board of Directors of Security Income Fund recommends that the Articles of Incorporation be amended by deleting Article Fifth in its entirety and by inserting, in lieu therefor, the following new Article: FIFTH: The total number of shares of stock which the corporation shall have authority to issue shall be Four Hundred Million (400,000,000) shares of common stock, each of the par value of One Dollar ($1.00) per share. The board of directors of the corporation is expressly authorized to cause shares of common stock of the corporation authorized herein to be issued in one or more classes or series as may be established from time to time by setting or changing in one or more respects the voting powers, rights, qualifications, limitations or restrictions of such shares of stock and to increase or decrease the number of shares so authorized to be issued in any such class or series. The following provisions are hereby adopted for the purpose of setting forth the powers, rights, qualifications, limitations or restrictions of the capital stock of the corporation (unless provided otherwise by the board of directors with respect to any such additional class or series at the time of establishing and designating such additional class or series): (1) At all meetings of stockholders each stockholder of the corporation of any class or series shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of capital stock of any class or series standing in the stockholder's name on the books of the corporation on the date, fixed in accordance with the Bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder of any class or series shall be entitled to as many votes as shall equal the number of shares of stock of any class or series multiplied by the number of directors to be elected, and stockholders may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as they may see fit. (2) All shares of stock of the corporation of any class or series shall be nonassessable. (3) No holder of any shares of stock of the corporation of any class or series shall be entitled as such, as a matter of right, to subscribe for or purchase any shares of stock of the corporation of any class or series, whether now or hereafter authorized or whether issued for cash, property or services or as a dividend or otherwise, or to subscribe for or purchase any obligations, bonds, notes, debentures, other securities or stock convertible into shares of stock of the corporation of any class or series or carrying or evidencing any right to purchase shares of stock of any class or series. (4) All persons who shall acquire stock in the corporation shall acquire the same subject to the provisions of these articles of incorporation. CERTIFICATE OF DESIGNATION OF SERIES AND CLASSES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) )ss. COUNTY OF SHAWNEE) We, Michael J. Provines, President, and Brenda M. Luthi, Assistant Secretary, of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is the Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that pursuant to the authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 23rd day of July, 1993, adopted resolutions establishing two new series of common stock in addition to those series of common stock currently being issued by the corporation. Resolutions were also adopted which set forth the preferences, rights, privileges and restrictions of the separate series of stock of Security Income Fund, which resolutions are provided in their entirety as follows: RESOLVED that, pursuant to the authority vested in the Board of Directors of Security Income Fund by its Articles of Incorporation, the officers of the Fund are hereby directed and authorized to establish two new series of the Fund and to redesignate the existing series. The existing series shall be known as Corporate Bond Series A and U.S. Government Series A. The new series hereby established shall be known as Corporate Bond Series B and U.S. Government Series B. The officers of the Fund are hereby directed and authorized to allocate 100,000,000 $1.00 par value shares of the Fund's authorized capital stock of 400,000,000 shares to each series. FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of the shares of each series of Security Income Fund shall be as follows: 1. Except as set forth below and as may be hereafter established by the Board of Directors of the corporation all shares of the corporation, regardless of series, shall be equal. 2. At all meetings of stockholders each stockholder of the corporation shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of common stock standing in his or her name on the books of the corporation on the date, fixed in accordance with the bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares of stock multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he or she may see fit. Notwithstanding the foregoing, (i) if any matter is submitted to the stockholders which does not affect the interest of all series, then only stockholders of the affected series shall be entitled to vote and (ii) in the event the Investment Company Act of 1940, as amended, or the rules and regulations promulgated thereunder shall require a greater or different vote than would otherwise be required herein or by the Articles of Incorporation of the corporation, such greater or different voting requirement shall also be satisfied. 3. (a) The corporation shall redeem any of its shares for which it has received payment in full that may be presented to the corporation on any date after the issue date of any such shares at the net asset value thereof, such redemption and the valuation and payment in connection therewith to be made in compliance with the provisions of the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder and with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., as from time to time amended. (b) From and after the close of business on the day when the shares are properly tendered for repurchase the owner shall, with respect of said shares, cease to be a stockholder of the corporation and shall have only the right to receive the repurchase price in accordance with the provisions hereof. The shares so repurchased may, as the Board of Directors determines, be held in the treasury of the Corporation and may be resold, or, if the laws of Kansas shall permit, may be retired. Repurchase of shares is conditional upon the corporation having funds or property legally available thereof. 4. All shares of the corporation, upon issuance and sale, shall be fully paid, nonassessable and redeemable. Within the respective series of the corporation, all shares have equal voting, participation and liquidation rights, but have no subscription or preemptive rights. 5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of U.S. Government Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. (b) All cash and other property received by the corporation from the sale of shares of Corporate Bond Series A and B and the U.S. Government Series A and B, respectively, all securities and other property held as a result of the investment and reinvestment of such cash and other property, all revenues and income received or receivable with respect to such cash, other property, investments and reinvestments, and all proceeds derived from the sale, exchange, liquidation or other disposition of any of the foregoing, shall be allocated to the Corporate Bond Series A and B or U.S. Government Series A and B to which they relate and held for the benefit of the stockholders owning shares of such series. (c) All losses, liabilities and expenses of the corporation (including accrued liabilities and expenses and such reserves as the Board of Directors may determine are appropriate) shall be allocated and charged to the series to which such loss, liability or expense relates. Where any loss, liability or expense relates to more than one series, the Board of Directors shall allocate the same between or among such series pro rata based on the respective net asset values of such series or on such other basis as the Board of Directors deems appropriate. (d) All allocations made hereunder by the Board of Directors shall be conclusive and binding upon all stockholders and upon the corporation. 6. Each share of stock of a series shall have the same preferences, rights, privileges and restrictions as each other share of stock of that series. Each fractional share of stock of a series proportionately shall have the same preferences, rights, privileges and restrictions as a whole share. 7. Dividends may be paid when, as and if declared by the Board of Directors out of funds legally available therefor. Shares of Corporate Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Corporate Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Corporate Bond Series. Stockholders of the Corporate Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of U.S. Government Series A and B represent a stockholder interest in a particular fund of assets held by the corporation and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and shall be paid at the same dividend rate, except that expenses attributable to a particular series and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected U.S. Government Series. Stockholders of the U.S. Government Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Whenever dividends are declared and paid with respect to the Corporate Bond Series A and B or the U.S. Government Series A and B, the holders of shares of the other series shall have no rights in or to such dividends. 8. In the event of liquidation, stockholders of each series shall be entitled to share in the assets of the corporation that are allocated to such series and that are available for distribution to the stockholders of such series. Liquidating distributions shall be made to the stockholders of each series pro rata based on their share ownership of such series. 9. On the eighth anniversary of the purchase of shares of the Corporate Bond Series B or the U.S. Government Series B (except those purchased through the reinvestment of dividends and other distributions) will automatically convert to Corporate Bond Series A or U.S. Government Series A, respectively, at the relative net asset values of each of the series without the imposition of any sales load, fee or other charge. All shares in a stockholder's account that were purchased through the reinvestment of dividends and other distributions will be considered to be held in a separate sub-account. Each time Series B shares are converted to Series A shares, a pro rata portion of the Series B shares held in the sub-account will also convert to Series A shares. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the Corporation this 19th day of October, 1993. MICHAEL J. PROVINES ------------------------------------ Michael J. Provines, President BRENDA M. LUTHI ------------------------------------ Brenda M. Luthi, Assistant Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Peggy S. Avey, a Notary Public in and for the County and State aforesaid, came Michael J. Provines, President, and Brenda M. Luthi, Assistant Secretary, of Security Income Fund, a Kansas Corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 19th day of October, 1993. PEGGY S. AVEY ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: November 21, 1996 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF SECURITY INCOME FUND We, John D. Cleland, President , and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, do hereby certify that at a meeting of the Board of Directors of said corporation, the board adopted a resolution setting forth the following amendment to the Articles of Incorporation and declaring its advisability: See attached amendment We further certify that thereafter, pursuant to said resolution, and in accordance with the by-laws of the corporation and the laws of the State of Kansas, the Board of Directors called a meeting of stockholders for consideration of the proposed amendment, and thereafter, pursuant to notice and in accordance with the statutes of the State of Kansas, the stockholders convened and considered the proposed amendment. We further certify that at a meeting a majority of the stockholders entitled to vote, voted in favor of the proposed amendment. We further certify that the amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602, as amended. IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of the corporation this 21st day of December, 1994. JOHN D. CLELAND ----------------------------------- John D. Cleland, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, a Notary Public in and for the aforesaid county and state, personally appeared John D. Cleland, President, and Amy J. Lee, Secretary, of Security Income Fund, who are known to me to be the same persons who executed the foregoing certificate and duly acknowledged the execution, of the same this 21st day of December, 1994 JUDITH M. RALSTON ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: January 1, 1995. PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20 FILING FEE, TO: Secretary of State 2nd Floor, State Capitol Topeka, KS 66612-1594 (913) 296-4564 SECURITY INCOME FUND The Board of Directors of Security Income Fund recommends that the Articles of Incorporation be amended by deleting the first paragraph of Article Fifth and by inserting, in lieu therefor, the following new Article: FIFTH: The total number of shares of stock which the corporation shall have authority to issue shall be one billion (1,000,000,000) shares of common stock, each of the par value of one dollar ($1.00) per share. The board of directors of the corporation is expressly authorized to cause shares of common stock of the corporation authorized herein to be issued in one or more classes or series as may be established from time to time by setting or changing in one or more respects the voting powers, rights, qualifications, limitations or restrictions of such shares of stock and to increase or decrease the number of shares so authorized to be issued in any such class or series. CERTIFICATE OF DESIGNATION OF SERIES AND CLASSES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) )ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 21st day of October, 1994, adopted resolutions (i) establishing two new series of common stock in addition to those four series of common stock currently being issued by the corporation, and (ii) allocating the corporation's authorized capital stock among the six separate series of common stock of the corporation. Resolutions were also adopted which for the two new series set forth and for the existing four series reaffirmed, the preferences, rights, privileges and restrictions of separate series of stock of Security Income Fund, which resolutions are provided in their entirety as follows: WHEREAS, the Board of Directors has approved the establishment of two new series of common stock of Security Income Fund in addition to the four separate series of common stock presently issued by the fund designated as U.S. Government Series A, U.S. Government Series B, Corporate Bond Series A and Corporate Bond Series B. WHEREAS, the corporation's shareholders will consider an amendment to the corporation's articles of incorporation to increase the authorized capital stock of the corporation from 400,000,000 to 1,000,000,000 shares, at a meeting of shareholders to be held December 21, 1994; and WHEREAS, upon approval by shareholders of the proposed amendment to the corporation's articles of incorporation, the Board of Directors wishes to reallocate the 1,000,000,000 shares of authorized capital stock among the series. NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby directed and authorized to establish two new series of the Security Income Fund designated as Limited Maturity Bond Series A and Limited Maturity Bond Series B. FURTHER RESOLVED, that, upon approval by shareholders of an amendment increasing the corporation's authorized capital stock from 400,000,000 to 1,000,000,000 shares, the officers of the corporation are hereby directed and authorized to allocate the corporation's authorized capital stock of 1,000,000,000 shares as follows: 200,000,000 $1.00 par value shares to each of Corporate Bond Series A and B; 100,000,000 $1.00 par value shares to each of U.S. Government Series A and B; 100,000,000 $1.00 par value shares to each of Limited Maturity Bond Series A and B; and 200,000,000 $1.00 par value shares shall remain unallocated. FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of the shares of each series of Security Income Fund shall be as follows: 1. Except as set forth below and as may be hereafter established by the Board of Directors of the corporation all shares of the corporation, regardless of series, shall be equal. 2. At all meetings of stockholders each stockholder of the corporation shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of common stock standing in his or her name on the books of the corporation on the date, fixed in accordance with the bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares of stock multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he or she may see fit. Notwithstanding the foregoing, (i) if any matter is submitted to the stockholders which does not affect the interests of all series, then only stockholders of the affected series shall be entitled to vote and (ii) in the event the Investment Company Act of 1940, as amended, or the rules and regulations promulgated thereunder shall require a greater or different vote than would otherwise be required herein or by the Articles of Incorporation of the corporation, such greater or different voting requirement shall also be satisfied. 3. (a) The corporation shall redeem any of its shares for which it has received payment in full that may be presented to the corporation on any date after the issue date of any such shares at the net asset value thereof, such redemption and the valuation and payment in connection therewith to be made in compliance with the provisions of the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder and with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., as from time to time amended. (b) From and after the close of business on the day when the shares are properly tendered for repurchase the owner shall, with respect of said shares, cease to be a stockholder of the corporation and shall have only the right to receive the repurchase price in accordance with the provisions hereof. The shares so repurchased may, as the Board of Directors determines, be held in the treasury of the Corporation and may be resold, or, if the laws of Kansas shall permit, may be retired. Repurchase of shares is conditional upon the corporation having funds or property legally available therefor. 4. All shares of the corporation, upon issuance and sale, shall be fully paid, nonassessable and redeemable. Within the respective series of the corporation, all shares have equal voting, participation and liquidation rights, but have no subscription or preemptive rights. 5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of U.S. Government Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Limited Maturity Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. (b) All cash and other property received by the corporation from the sale of shares of Corporate Bond Series A and B, the U.S. Government Series A and B, and Limited Maturity Bond Series A and B, respectively, all securities and other property held as a result of the investment and reinvestment of such cash and other property, all revenues and income received or receivable with respect to such cash, other property, investments and reinvestments, and all proceeds derived from the sale, exchange, liquidation or other disposition of any of the foregoing, shall be allocated to the Corporate Bond Series A and B, U.S. Government Series A and B, or Limited Maturity Bond Series A and B, to which they relate and held for the benefit of the stockholders owning shares of such series. (c) All losses, liabilities and expenses of the corporation (including accrued liabilities and expenses and such reserves as the Board of Directors may determine are appropriate) shall be allocated and charged to the series to which such loss, liability or expense relates. Where any loss, liability or expense relates to more than one series, the Board of Directors shall allocate the same between or among such series pro rata based on the respective net asset values of such series or on such other basis as the Board of Directors deems appropriate. (d) All allocations made hereunder by the Board of Directors shall be conclusive and binding upon all stockholders and upon the corporation. 6. Each share of stock of a series shall have the same preferences, rights, privileges and restrictions as each other share of stock of that series. Each fractional share of stock of a series proportionately shall have the same preferences, rights, privileges and restrictions as a whole share. 7. Dividends may be paid when, as and if declared by the Board of Directors out of funds legally available therefor. Shares of Corporate Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Corporate Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Corporate Bond Series. Stockholders of the Corporate Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of U.S. Government Series A and B represent a stockholder interest in a particular fund of assets held by the corporation and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and shall be paid at the same dividend rate, except that expenses attributable to a particular series and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected U.S. Government Series. Stockholders of the U.S. Government Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Limited Maturity Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Whenever dividends are declared and paid with respect to the Corporate Bond Series A and B, U.S. Government Series A and B, or Limited Maturity Bond Series A and B, the holders of shares of the other series shall have no rights in or to such dividends. 8. In the event of liquidation, stockholders of each series shall be entitled to share in the assets of the corporation that are allocated to such series and that are available for distribution to the stockholders of such series. Liquidating distributions shall be made to the stockholders of each series pro rata based on their share ownership of such series. 9. On the eighth anniversary of the purchase of shares of the Corporate Bond Series B, U.S. Government Series B, or Limited Maturity Bond Series B, (except those purchased through the reinvestment of dividends and other distributions), such shares will automatically convert to shares of Corporate Bond Series A, U.S. Government Series A, Limited Maturity Bond Series A, respectively, at the relative net asset values of each of the series without the imposition of any sales load, fee or other charge. All shares in a stockholder's account that were purchased through the reinvestment of dividends and other distributions paid with respect to Series B shares will be considered to be held in a separate sub-account. Each time Series B shares are converted to Series A shares, a pro rata portion of the Series B shares held in the sub-account will also convert to Series A shares. We hereby certify that pursuant to said resolution, and in accordance with the by-laws of the corporation and the laws of the State of Kansas, the Board of Directors called a meeting of stockholders for consideration of the proposed amendment to the articles of incorporation, and thereafter, pursuant to notice and in accordance with the statutes of the State of Kansas, the stockholders convened and considered the proposed amendment. We further certify that at the meeting a majority of the stockholders entitled to vote voted in favor of the proposed amendment which was duly adopted in accordance with the provisions of K.S.A. 17-6602, as amended. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 21st day of December, 1994. JOHN D. CLELAND ----------------------------------- John D. Cleland, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary JUDITH M. RALSTON ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: January 1, 1995. CERTIFICATE OF DESIGNATION OF SERIES AND CLASSES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) )ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 3rd day of February, 1995, adopted resolutions (i) establishing two new series of common stock in addition to those six series of common stock currently being issued by the corporation, and (ii) allocating the corporation's authorized capital stock among the eight separate series of common stock of the corporation. Resolutions were also adopted which for the two new series set forth and for the existing six reaffirmed the preferences, rights, privileges and restrictions of separate series of stock of Security Income Fund, which resolutions are provided in their entirety as follows: WHEREAS, the Board of Directors has approved the establishment of two new series of common stock of Security Income Fund in addition to the six separate series of common stock presently issued by the fund designated as U.S. Government Series A, U.S. Government Series B, Corporate Bond Series A, Corporate Bond Series B, Limited Maturity Bond Series A and Limited Maturity Bond Series B. WHEREAS, the Board of Directors wishes to reallocate the 1,000,000,000 shares of authorized capital stock among the series. NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby directed and authorized to establish two new series of the Security Income Fund designated as Global Aggressive Bond Series A and Global Aggressive Bond Series B. FURTHER RESOLVED, that, the officers of the corporation are hereby directed and authorized to allocate the corporation's authorized capital stock of 1,000,000,000 shares as follows: 200,000,000 $1.00 par value shares to each of Corporate Bond Series A and B; 100,000,000 $1.00 par value shares to each of U.S. Government Series A and B; 100,000,000 $1.00 par value shares to each of Limited Maturity Bond Series A and B; and 100,000,000 $1.00 par value shares to each of Global Aggressive Bond Series A and B. FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of the shares of each series of Security Income Fund shall be as follows: 1. Except as set forth below and as may be hereafter established by the Board of Directors of the corporation all shares of the corporation, regardless of series, shall be equal. 2. At all meetings of stockholders each stockholder of the corporation shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of common stock standing in his or her name on the books of the corporation on the date, fixed in accordance with the bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares of stock multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he or she may see fit. Notwithstanding the foregoing, (i) if any matter is submitted to the stockholders which does not affect the interests of all series, then only stockholders of the affected series shall be entitled to vote and (ii) in the event the Investment Company Act of 1940, as amended, or the rules and regulations promulgated thereunder shall require a greater or different vote than would otherwise be required herein or by the Articles of Incorporation of the corporation, such greater or different voting requirement shall also be satisfied. 3. (a) The corporation shall redeem any of its shares for which it has received payment in full that may be presented to the corporation on any date after the issue date of any such shares at the net asset value thereof, such redemption and the valuation and payment in connection therewith to be made in compliance with the provisions of the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder and with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., as from time to time amended. (b) From and after the close of business on the day when the shares are properly tendered for repurchase the owner shall, with respect of said shares, cease to be a stockholder of the corporation and shall have only the right to receive the repurchase price in accordance with the provisions hereof. The shares so repurchased may, as the Board of Directors determines, be held in the treasury of the Corporation and may be resold, or, if the laws of Kansas shall permit, may be retired. Repurchase of shares is conditional upon the corporation having funds or property legally available therefor. 4. All shares of the corporation, upon issuance and sale, shall be fully paid, nonassessable and redeemable. Within the respective series of the corporation, all shares have equal voting, participation and liquidation rights, but have no subscription or preemptive rights. 5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of U.S. Government Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Limited Maturity Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Global Aggressive Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. (b) All cash and other property received by the corporation from the sale of shares of Corporate Bond Series A and B, the U.S. Government Series A and B, Limited Maturity Bond Series A and B, and Global Aggressive Bond Series A and B respectively, all securities and other property held as a result of the investment and reinvestment of such cash and other property, all revenues and income received or receivable with respect to such cash, other property, investments and reinvestments, and all proceeds derived from the sale, exchange, liquidation or other disposition of any of the foregoing, shall be allocated to the Corporate Bond Series A and B, U.S. Government Series A and B, or Limited Maturity Bond Series A and B, or Global Aggressive Bond Series A and B, to which they relate and held for the benefit of the stockholders owning shares of such series. (c) All losses, liabilities and expenses of the corporation (including accrued liabilities and expenses and such reserves as the Board of Directors may determine are appropriate) shall be allocated and charged to the series to which such loss, liability or expense relates. Where any loss, liability or expense relates to more than one series, the Board of Directors shall allocate the same between or among such series pro rata based on the respective net asset values of such series or on such other basis as the Board of Directors deems appropriate. (d) All allocations made hereunder by the Board of Directors shall be conclusive and binding upon all stockholders and upon the corporation. 6. Each share of stock of a series shall have the same preferences, rights, privileges and restrictions as each other share of stock of that series. Each fractional share of stock of a series proportionately shall have the same preferences, rights, privileges and restrictions as a whole share. 7. Dividends may be paid when, as and if declared by the Board of Directors out of funds legally available therefor. Shares of Corporate Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Corporate Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Corporate Bond Series. Stockholders of the Corporate Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of U.S. Government Series A and B represent a stockholder interest in a particular fund of assets held by the corporation and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and shall be paid at the same dividend rate, except that expenses attributable to a particular series and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected U.S. Government Series. Stockholders of the U.S. Government Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Limited Maturity Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Global Aggressive Bond Series A and B represent a stockholder interest in a particular fund of assets and accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Global Aggressive Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be born exclusively by the affected Global Aggressive Bond Series. Stockholders of the Global Aggressive Bond Series A and B shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Whenever dividends are declared and paid with respect to the Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, or Global Aggressive Bond Series A and B, the holders of shares of the other series shall have no rights in or to such dividends. 8. In the event of liquidation, stockholders of each series shall be entitled to share in the assets of the corporation that are allocated to such series and that are available for distribution to the stockholders of such series. Liquidating distributions shall be made to the stockholders of each series pro rata based on their share ownership of such series. 9. On the eighth anniversary of the purchase of shares of the Corporate Bond Series B, U.S. Government Series B, Limited Maturity Bond Series B, or Global Aggressive Bond Series B, (except those purchased through the reinvestment of dividends and other distributions), such shares will automatically convert to shares of Corporate Bond Series A, U.S. Government Series A, Limited Maturity Bond Series A, or Global Aggressive Bond Series A respectively, at the relative net asset values of each of the series without the imposition of any sales load, fee or other charge. All shares in a stockholder's account that were purchased through the reinvestment of dividends and other distributions paid with respect to Series B shares will be considered to be held in a separate sub-account. Each time Series B shares are converted to Series A shares, a pro rata portion of the Series B shares held in the sub-account will also convert to Series A shares. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 3rd day of February, 1995. JOHN D. CLELAND ----------------------------------- John D. Cleland, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Connie Brungardt a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution, of the same this 3rd day of February, 1995. CONNIE BRUNGARDT ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: November 30, 1998 CERTIFICATE OF DESIGNATIONS OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 2nd day of February, 1996, adopted resolutions authorizing the corporation to issue an indefinite number of shares of capital stock of each of the eight series of common stock of the corporation. Resolutions were also adopted which reaffirmed the preferences, rights, privileges and restrictions of separate series of stock of Security Income Fund, which resolutions are provided in their entirety as follows: WHEREAS, K.S.A. 17-6602 has been amended to allow the board of directors of a corporation that is registered as an open-end investment company under the Investment Company Act of 1940 (the "1940 Act") to approve, by resolution, an amendment of the corporation's Articles of Incorporation, to allow the issuance of an indefinite number of shares of the capital stock of the corporation; WHEREAS, the corporation is registered as an open-end investment company under the 1940 Act; and WHEREAS, the Board of Directors desire to authorize the issuance of an indefinite number of shares of capital stock of each of the eight series of common stock of the corporation; NOW THEREFORE BE IT RESOLVED, that, the officers of the corporation are hereby directed and authorized to issue an indefinite number of $1.00 par value shares of capital stock of each series of the corporation, which consist of U.S. Government Series A, U.S. Government Series B, Corporate Bond Series A, Corporate Bond Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global Aggressive Bond Series A, and Global Aggressive Bond Series B; FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of the shares of each of the corporation's series of common stock, as set forth in the minutes of the February 3, 1995, meeting of this Board of Directors, are hereby reaffirmed and incorporated by reference into the minutes of this meeting; and FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they hereby are, authorized and directed to take such action as may be necessary under the laws of the State of Kansas or as they deem appropriate to cause the foregoing resolutions to become effective. The undersigned do hereby certify that the foregoing amendment to the corporation's Articles of Incorporation has been duly adopted in accordance with the provisions of K.S.A. 17-6602. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 2nd day of February, 1996. JOHN D. CLELAND ----------------------------------- John D. Cleland, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for the aforesaid County and State, came John D. Cleland, President, and Amy J. Lee, Secretary, of Security Income Fund, a Kansas corporation, personally known to me to be the same persons who executed the foregoing instrument of writing and duly acknowledged the execution of the same this 2nd day of February, 1996. L. CHARMAINE LUCAS ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: April 1, 1998 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF SECURITY INCOME FUND We, John D. Cleland, President , and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, do hereby certify that at a regular meeting of the Board of Directors of said corporation, held on the 2nd day of February, 1996, the board adopted a resolution setting forth the following amendment to the Articles of Incorporation and declaring its advisability: RESOLVED The Board of Directors of Security Income Fund recommends that the Articles of Incorporation be amended by deleting Article Fifth in its entirety and by inserting, in lieu thereof, the following new Article: FIFTH: The corporation shall have authority to issue an indefinite number of shares of common stock, of the par value of one dollar ($1.00) per share. The board of directors of the Corporation is expressly authorized to cause shares of common stock of the Corporation authorized herein to be issued in one or more series as may be established from time to time by setting or changing in one or more respects the voting powers, rights, qualifications, limitations or restrictions of such shares of stock and to increase or decrease the number of shares so authorized to be issued in any such series. We further certify that the amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602, as amended. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of said corporation this 2nd day of February, 1996. JOHN D. CLELAND ----------------------------------- John D. Cleland, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) BE IT REMEMBERED, that before me, L. Charmaine Lucas, a Notary Public in and for the aforesaid county and state, personally appeared John D. Cleland, President, and Amy J. Lee, Secretary, of Security Income Fund, who are known to me to be the same persons who executed the foregoing certificate and duly acknowledged the execution of the same this 2nd day of February, 1996. L. CHARMAINE LUCAS ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: April 1, 1998 PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20 FILING FEE, TO: Secretary of State 2nd Floor, State Capitol Topeka, KS 66612-1594 CERTIFICATE OF DESIGNATION OF SERIES AND CLASSES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) )ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 3rd day of May, 1996, adopted resolutions (i) establishing two new series of common stock in addition to those eight series of common stock currently being issued by the corporation, and (ii) allocating the corporation's authorized capital stock among the ten separate series of common stock of the corporation. Resolutions were also adopted which for the two new series set forth and for the existing eight reaffirmed the preferences, rights, privileges and restrictions of separate series of stock of Security Income Fund, which resolutions are provided in their entirety as follows: WHEREAS, the Board of Directors has approved the establishment of two new series of common stock of Security Income Fund in addition to the eight separate series of common stock presently issued by the fund designated as Corporate Bond Series A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global Aggressive Bond Series A and Global Aggressive Bond Series B; and WHEREAS, the Board of Directors desires to authorize the issuance of an indefinite number of shares of capital stock of each of the ten series of common stock of the corporation. NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby directed and authorized to establish two new series of the Security Income Fund designated as High Yield Series A and High Yield Series B. FURTHER RESOLVED, that, the officers of the corporation are hereby directed and authorized to issue an indefinite number of $1.00 par value shares of capital stock of each series of the corporation, which consist of Corporate Bond Series A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global Aggressive Bond Series A, Global Aggressive Bond Series B, High Yield Series A and High Yield Series B. FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of the shares of each series of Security Income Fund shall be as follows: 1. Except as set forth below and as may be hereafter established by the Board of Directors of the corporation all shares of the corporation, regardless of series, shall be equal. 2. At all meetings of stockholders each stockholder of the corporation shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of common stock standing in his or her name on the books of the corporation on the date, fixed in accordance with the bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares of stock multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he or she may see fit. Notwithstanding the foregoing, (i) if any matter is submitted to the stockholders which does not affect the interests of all series, then only stockholders of the affected series shall be entitled to vote and (ii) in the event the Investment Company Act of 1940, as amended, or the rules and regulations promulgated thereunder shall require a greater or different vote than would otherwise be required herein or by the Articles of Incorporation of the corporation, such greater or different voting requirement shall also be satisfied. 3. (a) The corporation shall redeem any of its shares for which it has received payment in full that may be presented to the corporation on any date after the issue date of any such shares at the net asset value thereof, such redemption and the valuation and payment in connection therewith to be made in compliance with the provisions of the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder and with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., as from time to time amended. (b) From and after the close of business on the day when the shares are properly tendered for repurchase the owner shall, with respect of said shares, cease to be a stockholder of the corporation and shall have only the right to receive the repurchase price in accordance with the provisions hereof. The shares so repurchased may, as the Board of Directors determines, be held in the treasury of the Corporation and may be resold, or, if the laws of Kansas shall permit, may be retired. Repurchase of shares is conditional upon the corporation having funds or property legally available therefor. 4. All shares of the corporation, upon issuance and sale, shall be fully paid, nonassessable and redeemable. Within the respective series of the corporation, all shares have equal voting, participation and liquidation rights, but have no subscription or preemptive rights. 5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of U.S. Government Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Limited Maturity Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Global Aggressive Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of High Yield Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. (b) All cash and other property received by the corporation from the sale of shares of Corporate Bond Series A and B, the U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global Aggressive Bond Series A and B, and High Yield Series A and B, respectively, all securities and other property held as a result of the investment and reinvestment of such cash and other property, all revenues and income received or receivable with respect to such cash, other property, investments and reinvestments, and all proceeds derived from the sale, exchange, liquidation or other disposition of any of the foregoing, shall be allocated to the Corporate Bond Series A and B, U.S. Government Series A and B, or Limited Maturity Bond Series A and B, Global Aggressive Bond Series A and B, or High Yield Series A and B, to which they relate and held for the benefit of the stockholders owning shares of such series. (c) All losses, liabilities and expenses of the corporation (including accrued liabilities and expenses and such reserves as the Board of Directors may determine are appropriate) shall be allocated and charged to the series to which such loss, liability or expense relates. Where any loss, liability or expense relates to more than one series, the Board of Directors shall allocate the same between or among such series pro rata based on the respective net asset values of such series or on such other basis as the Board of Directors deems appropriate. (d) All allocations made hereunder by the Board of Directors shall be conclusive and binding upon all stockholders and upon the corporation. 6. Each share of stock of a series shall have the same preferences, rights, privileges and restrictions as each other share of stock of that series. Each fractional share of stock of a series proportionately shall have the same preferences, rights, privileges and restrictions as a whole share. 7. Dividends may be paid when, as and if declared by the Board of Directors out of funds legally available therefor. Shares of Corporate Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Corporate Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Corporate Bond Series. Stockholders of the Corporate Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of U.S. Government Series A and B represent a stockholder interest in a particular fund of assets held by the corporation and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and shall be paid at the same dividend rate, except that expenses attributable to a particular series and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected U.S. Government Series. Stockholders of the U.S. Government Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Limited Maturity Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Global Aggressive Bond Series A and B represent a stockholder interest in a particular fund of assets and accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Global Aggressive Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be born exclusively by the affected Global Aggressive Bond Series. Stockholders of the Global Aggressive Bond Series A and B shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of High Yield Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to High Yield Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected High Yield Series. Stockholders of the High Yield Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Whenever dividends are declared and paid with respect to the Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global Aggressive Bond Series A and B, or High Yield Series A and B, the holders of shares of the other series shall have no rights in or to such dividends. 8. In the event of liquidation, stockholders of each series shall be entitled to share in the assets of the corporation that are allocated to such series and that are available for distribution to the stockholders of such series. Liquidating distributions shall be made to the stockholders of each series pro rata based on their share ownership of such series. 9. On the eighth anniversary of the purchase of shares of the Corporate Bond Series B, U.S. Government Series B, Limited Maturity Bond Series B, Global Aggressive Bond Series B, or High Yield Series B, (except those purchased through the reinvestment of dividends and other distributions), such shares will automatically convert to shares of Corporate Bond Series A, U.S. Government Series A, Limited Maturity Bond Series A, Global Aggressive Bond Series A, or High Yield Series A, respectively, at the relative net asset values of each of the series without the imposition of any sales load, fee or other charge. All shares in a stockholder's account that were purchased through the reinvestment of dividends and other distributions paid with respect to Series B shares will be considered to be held in a separate sub-account. Each time Series B shares are converted to Series A shares, a pro rata portion of the Series B shares held in the sub-account will also convert to Series A shares. FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they hereby are, authorized and directed to take such action as may be necessary under the laws of the State of Kansas or as they deem appropriate to cause the foregoing resolutions to become effective. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 13th day of May, 1996. JOHN D. CLELAND ----------------------------------- John D. Cleland, President AMY J. LEE ----------------------------------- Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Jana R. Selley a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 13th day of May, 1996. JANA R. SELLEY ----------------------------------- Notary Public (NOTARIAL SEAL) My commission expires: June 14, 1996 CERTIFICATE CHANGING NAME OF SERIES OF STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 7th day of February, 1997, adopted resolutions changing the name of Global Aggressive Bond Series A and Global Aggressive Bond Series B, existing series of common stock of Security Income Fund, which resolutions are provided in their entirety as follows: WHEREAS, the Board of Directors has approved the change in name of an existing series of common stock, from Global Aggressive Bond Series A and B to Global High Yield Series A and B to more accurately reflect the investment objectives of the series. WHEREAS, there are no changes in the voting powers, designations, preferences and relative, participating, optional or other rights, if any, or the qualifications, limitations or restrictions of the series requiring stockholder approval; NOW, THEREFORE, BE IT RESOLVED, that, the name of Global Aggressive Bond Series A and Global Aggressive Bond Series B of Security Income Fund is hereby changed to Global High Yield Series A and Global High Yield Series B, respectively; FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they hereby are, authorized and directed to take such action as may be necessary under the laws of the State of Kansas or as they deem appropriate to cause the foregoing resolutions to become effective. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 12th day of March, 1997. JOHN D. CLELAND ------------------------------------------ John D. Cleland, President AMY J. LEE ------------------------------------------ Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of the Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 12th day of March, 1997. L. CHARMAINE LUCAS ------------------------------------------ Notary Public (NOTARIAL SEAL) My commission expires April 1, 1998 CERTIFICATE OF DESIGNATION OF SERIES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 7th day of February, 1997, adopted resolutions (i) establishing four new series of common stock in addition to those ten series of common stock currently being issued by the corporation, and (ii) allocating the corporation's authorized capital stock among the fourteen separate series of common stock of the corporation. Resolutions were also adopted, which for the four new series set forth and for the existing ten reaffirmed the preferences, rights, privileges and restrictions of separate series of stock of Security Income Fund, which resolutions are provided in their entirety as follows: WHEREAS, the Board of Directors has approved the establishment of four new series of common stock of Security Income Fund in addition to the ten separate series of common stock presently issued by the fund designated as Corporate Bond Series A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global Aggressive Bond Series A, Global Aggressive Bond Series B, High Yield Series A and High Yield Series B; and WHEREAS, the Board of Directors desires to authorize the issuance of an indefinite number of shares of capital stock of each of the fourteen series of common stock of the corporation. NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby directed and authorized to establish four new series of Security Income Fund designated as Emerging Markets Total Return Series A, Emerging Markets Total Return Series B, Global Asset Allocation Series A and Global Asset Allocation Series B. FURTHER RESOLVED, that, the officers of the corporation are hereby directed and authorized to issue an indefinite number of $1.00 par value shares of capital stock of each series of the corporation, which consist of Corporate Bond Series A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global Aggressive Bond Series A, Global Aggressive Bond Series B, High Yield Series A, High Yield Series B, Emerging Markets Total Return Series A, Emerging Markets Total Return Series B, Global Asset Allocation Series A and Global Asset Allocation Series B. FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of the shares of each series of Security Income Fund shall be as follows: 1. Except as set forth below and as may be hereafter established by the Board of Directors of the corporation all shares of the corporation, regardless of series, shall be equal. 2. At all meetings of stockholders each stockholder of the corporation shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of common stock standing in his or her name on the books of the corporation on the date, fixed in accordance with the bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares of stock multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he or she may see fit. Notwithstanding the foregoing, (i) if any matter is submitted to the stockholders which does not affect the interests of all series, then only stockholders of the affected series shall be entitled to vote and (ii) in the event the Investment Company Act of 1940, as amended, or the rules and regulations promulgated thereunder shall require a greater or different vote than would otherwise be required herein or by the Articles of Incorporation of the corporation, such greater or different voting requirement shall also be satisfied. 3. (a) The corporation shall redeem any of its shares for which it has received payment in full that may be presented to the corporation on any date after the issue date of any such shares at the net asset value thereof, such redemption and the valuation and payment in connection therewith to be made in compliance with the provisions of the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder and with the Rules of Fair Practice of the National Association of Securities Dealers, Inc., as from time to time amended. (b) From and after the close of business on the day when the shares are properly tendered for repurchase the owner shall, with respect of said shares, cease to be a stockholder of the corporation and shall have only the right to receive the repurchase price in accordance with the provisions hereof. The shares so repurchased may, as the Board of Directors determines, be held in the treasury of the Corporation and may be resold, or, if the laws of Kansas shall permit, may be retired. Repurchase of shares is conditional upon the corporation having funds or property legally available therefor. 4. All shares of the corporation, upon issuance and sale, shall be fully paid, nonassessable and redeemable. Within the respective series of the corporation, all shares have equal voting, participation and liquidation rights, but have no subscription or preemptive rights. 5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of U.S. Government Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Limited Maturity Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Global Aggressive Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of High Yield Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Emerging Markets Total Return Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Global Asset Allocation Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. (b) All cash and other property received by the corporation from the sale of shares of Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global Aggressive Bond Series A and B, High Yield Series A and B, Emerging Markets Total Return Series A and B, and Global Asset Allocation Series A and B, respectively, all securities and other property held as a result of the investment and reinvestment of such cash and other property, all revenues and income received or receivable with respect to such cash, other property, investments and reinvestments, and all proceeds derived from the sale, exchange, liquidation or other disposition of any of the foregoing, shall be allocated to the Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global Aggressive Bond Series A and B, High Yield Series A and B, Emerging Markets Total Return Series A and B, or Global Asset Allocation Series A and B, to which they relate and held for the benefit of the stockholders owning shares of such series. (c) All losses, liabilities and expenses of the corporation (including accrued liabilities and expenses and such reserves as the Board of Directors may determine are appropriate) shall be allocated and charged to the series to which such loss, liability or expense relates. Where any loss, liability or expense relates to more than one series, the Board of Directors shall allocate the same between or among such series pro rata based on the respective net asset values of such series or on such other basis as the Board of Directors deems appropriate. (d) All allocations made hereunder by the Board of Directors shall be conclusive and binding upon all stockholders and upon the corporation. 6. Each share of stock of a series shall have the same preferences, rights, privileges and restrictions as each other share of stock of that series. Each fractional share of stock of a series proportionately shall have the same preferences, rights, privileges and restrictions as a whole share. 7. Dividends may be paid when, as and if declared by the Board of Directors out of funds legally available therefor. Shares of Corporate Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Corporate Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Corporate Bond Series. Stockholders of the Corporate Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of U.S. Government Series A and B represent a stockholder interest in a particular fund of assets held by the corporation and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and shall be paid at the same dividend rate, except that expenses attributable to a particular series and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected U.S. Government Series. Stockholders of the U.S. Government Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Limited Maturity Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Global Aggressive Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Global Aggressive Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Global Aggressive Bond Series. Stockholders of the Global Aggressive Bond Series A and B shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of High Yield Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to High Yield Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected High Yield Series. Stockholders of the High Yield Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Emerging Markets Total Return Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Emerging Markets Total Return Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Emerging Markets Total Return Series. Stockholders of the Emerging Markets Total Return Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Global Asset Allocation Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Global Asset Allocation Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Global Asset Allocation Series. Stockholders of the Global Asset Allocation Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Whenever dividends are declared and paid with respect to the Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global Aggressive Bond Series A and B, High Yield Series A and B, Emerging Markets Total Return Series A and B, or Global Asset Allocation Series A and B, the holders of shares of the other series shall have no rights in or to such dividends. 8. In the event of liquidation, stockholders of each series shall be entitled to share in the assets of the corporation that are allocated to such series and that are available for distribution to the stockholders of such series. Liquidating distributions shall be made to the stockholders of each series pro rata based on their share ownership of such series. 9. On the eighth anniversary of the purchase of shares of the Corporate Bond Series B, U.S. Government Series B, Limited Maturity Bond Series B, Global Aggressive Bond Series B, High Yield Series B, Emerging Markets Total Return Series B, or Global Asset Allocation Series B, (except those purchased through the reinvestment of dividends and other distributions), such shares will automatically convert to shares of Corporate Bond Series A, U.S. Government Series A, Limited Maturity Bond Series A, Global Aggressive Bond Series A, High Yield Series A, Emerging Markets Total Return Series A, or Global Asset Allocation Series A, respectively, at the relative net asset values of each of the series without the imposition of any sales load, fee or other charge. All shares in a stockholder's account that were purchased through the reinvestment of dividends and other distributions paid with respect to Series B shares will be considered to be held in a separate sub-account. Each time Series B shares are converted to Series A shares, a pro rata portion of the Series B shares held in the sub-account will also convert to Series A shares. FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they hereby are, authorized and directed to take such action as may be necessary under the laws of the State of Kansas or as they deem appropriate to cause the foregoing resolutions to become effective. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 12th day of March, 1997. JOHN D. CLELAND ------------------------------------------ John D. Cleland, President AMY J. LEE ------------------------------------------ Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of the Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 12th day of March, 1997. L. CHARMAINE LUCAS ------------------------------------------ Notary Public (NOTARIAL SEAL) My commission expires April 1, 1998 CERTIFICATE OF DESIGNATION OF SERIES AND CLASSES OF COMMON STOCK OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority expressly vested in the Board of Directors by the provisions of the corporation's Articles of Incorporation, the Board of Directors of said corporation at a meeting duly convened and held on the 10th day of February, 1999, adopted resolutions (i) establishing three new series of common stock in addition to those fourteen series of common stock currently being issued by the corporation, and (ii) allocating the corporation's authorized capital stock among the seventeen separate series of common stock of the corporation. Resolutions were also adopted, which for the three new series set forth and for the existing fourteen reaffirmed the preferences, rights, privileges and restrictions of separate series of stock of Security Income Fund, which resolutions are provided in their entirety as follows: WHEREAS, the Board of Directors has approved the establishment of three new series of common stock of Security Income Fund in addition to the fourteen separate series of common stock presently issued by the fund designated as Corporate Bond Series A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global High Yield Series A, Global High Yield Series B, High Yield Series A, High Yield Series B, Emerging Markets Total Return Series A, Emerging Markets Total Return Series B, Global Asset Allocation Series A and Global Asset Allocation Series B; and WHEREAS, the Board of Directors desires to authorize the issuance of an indefinite number of shares of capital stock of each of the seventeen series of common stock of the corporation. NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby directed and authorized to establish three new series of Security Income Fund designated as Capital Preservation Series A, Capital Preservation Series B and Capital Preservation Series C. FURTHER RESOLVED, that, the officers of the corporation are hereby directed and authorized to issue an indefinite number of $1.00 par value shares of capital stock of each series of the corporation, which consist of Corporate Bond Series A, Corporate Bond Series B, Corporate Bond Series C, U.S. Government Series A, U.S. Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global High Yield Series A, Global High Yield Series B, High Yield Series A, High Yield Series B, Emerging Markets Total Return Series A, Emerging Markets Total Return Series B, Global Asset Allocation Series A, Global Asset Allocation Series B, Capital Preservation Series A, Capital Preservation Series B and Capital Preservation Series C. FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of the shares of each series of Security Income Fund shall be as follows: 1. Except as set forth below and as may be hereafter established by the Board of Directors of the corporation all shares of the corporation, regardless of series, shall be equal. 2. At all meetings of stockholders each stockholder of the corporation shall be entitled to one vote in person or by proxy on each matter submitted to a vote at such meeting for each share of common stock standing in his or her name on the books of the corporation on the date, fixed in accordance with the bylaws, for determination of stockholders entitled to vote at such meeting. At all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares of stock multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he or she may see fit. Notwithstanding the foregoing, (i) if any matter is submitted to the stockholders which does not affect the interests of all series, then only stockholders of the affected series shall be entitled to vote and (ii) in the event the Investment Company Act of 1940, as amended, or the rules and regulations promulgated thereunder shall require a greater or different vote than would otherwise be required herein or by the Articles of Incorporation of the corporation, such greater or different voting requirement shall also be satisfied. 3. (a) The corporation shall redeem any of its shares for which it has received payment in full that may be presented to the corporation on any date after the issue date of any such shares at the net asset value thereof, such redemption and the valuation and payment in connection therewith to be made in compliance with the provisions of the Investment Company Act of 1940 and the Rules and Regulations promulgated thereunder and with the Conduct Rules of the National Association of Securities Dealers, Inc., as from time to time amended. (b) From and after the close of business on the day when the shares are properly tendered for repurchase the owner shall, with respect of said shares, cease to be a stockholder of the corporation and shall have only the right to receive the repurchase price in accordance with the provisions hereof. The shares so repurchased may, as the Board of Directors determines, be held in the treasury of the Corporation and may be resold, or, if the laws of Kansas shall permit, may be retired. Repurchase of shares is conditional upon the corporation having funds or property legally available therefor. 4. All shares of the corporation, upon issuance and sale, shall be fully paid, nonassessable and redeemable. Within the respective series of the corporation, all shares have equal voting, participation and liquidation rights, but have no subscription or preemptive rights. 5. (a) Outstanding shares of Corporate Bond Series A, and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of U.S. Government Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Limited Maturity Bond Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Global High Yield Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of High Yield Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Emerging Markets Total Return Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Global Asset Allocation Series A and B shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. Outstanding shares of Capital Preservation Series A, B and C shall represent a stockholder interest in a particular fund of assets held by the corporation which fund shall be invested and reinvested in accordance with policies and objectives established by the Board of Directors. (b) All cash and other property received by the corporation from the sale of shares of Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global High Yield Series A and B, High Yield Series A and B, Emerging Markets Total Return Series A and B, Global Asset Allocation Series A and B and Capital Preservation Series A, B and C respectively, all securities and other property held as a result of the investment and reinvestment of such cash and other property, all revenues and income received or receivable with respect to such cash, other property, investments and reinvestments, and all proceeds derived from the sale, exchange, liquidation or other disposition of any of the foregoing, shall be allocated to the Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global High Yield Series A and B, High Yield Series A and B, Emerging Markets Total Return Series A and B, Global Asset Allocation Series A and B, or Capital Preservation Series A, B and C to which they relate and held for the benefit of the stockholders owning shares of such series. (c) All losses, liabilities and expenses of the corporation (including accrued liabilities and expenses and such reserves as the Board of Directors may determine are appropriate) shall be allocated and charged to the series to which such loss, liability or expense relates. Where any loss, liability or expense relates to more than one series, the Board of Directors shall allocate the same between or among such series pro rata based on the respective net asset values of such series or on such other basis as the Board of Directors deems appropriate. (d) All allocations made hereunder by the Board of Directors shall be conclusive and binding upon all stockholders and upon the corporation. 6. Each share of stock of a series shall have the same preferences, rights, privileges and restrictions as each other share of stock of that series. Each fractional share of stock of a series proportionately shall have the same preferences, rights, privileges and restrictions as a whole share. 7. Dividends may be paid when, as and if declared by the Board of Directors out of funds legally available therefor. Shares of Corporate Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Corporate Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Corporate Bond Series. Stockholders of the Corporate Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of U.S. Government Series A and B represent a stockholder interest in a particular fund of assets held by the corporation and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and shall be paid at the same dividend rate, except that expenses attributable to a particular series and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected U.S. Government Series. Stockholders of the U.S. Government Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Limited Maturity Bond Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Global High Yield Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Global High Yield Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Global High Yield Series. Stockholders of the Global High Yield Series A and B shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of High Yield Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to High Yield Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected High Yield Series. Stockholders of the High Yield Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Emerging Markets Total Return Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Emerging Markets Total Return Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Emerging Markets Total Return Series. Stockholders of the Emerging Markets Total Return Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Global Asset Allocation Series A and B represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Global Asset Allocation Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Global Asset Allocation Series. Stockholders of the Global Asset Allocation Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Shares of Capital Preservation Series A, B and C represent a stockholder interest in a particular fund of assets and, accordingly, dividends shall be calculated and declared for these series in the same manner, at the same time, on the same day, and will be paid at the same dividend rate except that expenses attributable to Capital Preservation Series A, B or C and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the affected Capital Preservation Series. Stockholders of the Capital Preservation Series shall share in dividends declared and paid with respect to such series pro rata based on their ownership of shares of such series. Whenever dividends are declared and paid with respect to the Corporate Bond Series A and B, U.S. Government Series A and B, Limited Maturity Bond Series A and B, Global High Yield Series A and B, High Yield Series A and B, Emerging Markets Total Return Series A and B, Global Asset Allocation Series A and B, or Capital Preservation Series A, B and C the holders of shares of the other series shall have no rights in or to such dividends. 8. In the event of liquidation, stockholders of each series shall be entitled to share in the assets of the corporation that are allocated to such series and that are available for distribution to the stockholders of such series. Liquidating distributions shall be made to the stockholders of each series pro rata based on their share ownership of such series. 9. On the eighth anniversary of the purchase of shares of the Corporate Bond Series B, U.S. Government Series B, Limited Maturity Bond Series B, Global High Yield Series B, High Yield Series B, Emerging Markets Total Return Series B, Global Asset Allocation Series B, or Capital Preservation Series B (except those purchased through the reinvestment of dividends and other distributions), such shares will automatically convert to shares of Corporate Bond Series A, U.S. Government Series A, Limited Maturity Bond Series A, Global High Yield Series A, High Yield Series A, Emerging Markets Total Return Series A, Global Asset Allocation Series A, or Capital Preservation Series A, respectively, at the relative net asset values of each of the series without the imposition of any sales load, fee or other charge. All shares in a stockholder's account that were purchased through the reinvestment of dividends and other distributions paid with respect to Series B shares will be considered to be held in a separate sub-account. Each time Series B shares are converted to Series A shares, a pro rata portion of the Series B shares held in the sub-account will also convert to Series A shares. FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they hereby are, authorized and directed to take such action as may be necessary under the laws of the State of Kansas or as they deem appropriate to cause the foregoing resolutions to become effective. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 22nd day of April, 1999. JOHN D. CLELAND ------------------------------------------ John D. Cleland, President AMY J. LEE ------------------------------------------ Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Annette E. Cripps, a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of the Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 22nd day of April, 1999. ANNETTE E. CRIPPS ------------------------------------------ Notary Public My commission expires 7-8-2001. AMENDED CERTIFICATE OF DESIGNATION OF GLOBAL HIGH YIELD SERIES OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, file this Amended Certificate of Designation in accordance with Section 17-6401 of the Kansas Statutes Annotated and do hereby declare the following: WHEREAS, the Board of Directors of Security Income Fund approved the liquidation and dissolution of the Global High Yield Series A and B of the Fund pursuant to the Plan of Liquidation and Dissolution for the Series; and WHEREAS, the Plan of Liquidation and Dissolution was approved by the vote of the holders of a majority of outstanding voting securities of Global High Yield Series A and B of Security Income Fund at the Fund's special meeting of stockholders held on April 26, 1999; and WHEREAS, the assets of the Global High Yield Series A and Global High Yield Series B of the Security Income Fund were liquidated on May 6, 1999; and WHEREAS, a pro rata share of the liquidation proceeds was sent to each shareholder of record of the Series as of the date of liquidation; NOW, THEREFORE, BE IT RESOLVED, that, there are no shares outstanding of Global High Yield Series A or Global High Yield Series B and no shares of the Series will be issued. FURTHER RESOLVED, that the officers of the Fund are hereby authorized to file an Amended Certificate of Designation pursuant to K.S.A. 17-6401 in order to eliminate Global High Yield Series A and Global High Yield Series B from Security Income Fund's Articles of Incorporation. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 6th day of May, 1999. JOHN D. CLELAND ------------------------------------------ John D. Cleland, President AMY J. LEE ------------------------------------------ Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Annette E. Cripps, a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of the Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 6th day of May, 1999. ANNETTE E. CRIPPS ------------------------------------------ Notary Public My commission expires 7-8-2001. AMENDED CERTIFICATE OF DESIGNATION OF EMERGING MARKETS TOTAL RETURN SERIES OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary, of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, file this Amended Certificate of Designation in accordance with Section 17-6401 of the Kansas Statutes Annotated and do hereby declare the following: WHEREAS, the Board of Directors of Security Income Fund approved the liquidation and dissolution of the Emerging Markets Total Return Series A and B of the Fund pursuant to the Plan of Liquidation and Dissolution for the Series; and WHEREAS, the Plan of Liquidation and Dissolution was approved by the vote of the holders of a majority of outstanding voting securities of Emerging Markets Total Return Series A and B of Security Income Fund at the Fund's special meeting of stockholders held on April 26, 1999; and WHEREAS, substantially all of the assets of the Emerging Markets Total Return Series A and Series B of the Security Income Fund were distributed ratably to shareholders of record as of May 6, 1999; and WHEREAS, all remaining assets of the Emerging Markets Total Return Series A and Series B of the Security Income Fund were distributed ratably to each shareholder of record of the Series as of the date of liquidation, September 2, 1999; NOW, THEREFORE, BE IT RESOLVED, that, there are no shares outstanding of Emerging Markets Total Return Series A or Emerging Markets Total Return Series B and no shares of the Series will be issued. FURTHER RESOLVED, that the officers of the Fund are hereby authorized to file an Amended Certificate of Designation pursuant to K.S.A. 17-6401 in order to eliminate Emerging Markets Total Return Series A and Emerging Markets Total Return Series B from Security Income Fund's Articles of Incorporation. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 13th day of September, 1999. JOHN D. CLELAND ------------------------------------------ John D. Cleland, President AMY J. LEE ------------------------------------------ Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Annette E. Cripps, a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of the Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 13th day of September, 1999. ANNETTE E. CRIPPS ------------------------------------------ Notary Public My commission expires 7-8-2001. AMENDED CERTIFICATE OF DESIGNATION OF GLOBAL ASSET ALLOCATION SERIES OF SECURITY INCOME FUND STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) We, John D. Cleland, President, and Amy J. Lee, Secretary, of Security Income Fund, a corporation organized and existing under the laws of the State of Kansas, and whose registered office is Security Benefit Life Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, file this Amended Certificate of Designation in accordance with Section 17-6401 of the Kansas Statutes Annotated and do hereby declare the following: WHEREAS, the Board of Directors of Security Income Fund approved the liquidation and dissolution of the Global Asset Allocation Series A and B of the Fund pursuant to the Plan of Liquidation and Dissolution for the Series; and WHEREAS, the Plan of Liquidation and Dissolution was approved by the vote of the holders of a majority of outstanding voting securities of Global Asset Allocation Series A and B of Security Income Fund at the Fund's special meeting of stockholders held on April 26, 1999; and WHEREAS, substantially all of the assets of the Global Asset Allocation Series A and Series B of the Security Income Fund were distributed ratably to shareholders of record as of May 6, 1999; and WHEREAS, all remaining assets of the Global Asset Allocation Series A and Series B were distributed ratably to each shareholder of record of the Series as of the date of liquidation, September 2, 1999; NOW, THEREFORE, BE IT RESOLVED, that, there are no shares outstanding of Global Asset Allocation Series A or Global Asset Allocation Series B and no shares of the Series will be issued. FURTHER RESOLVED, that the officers of the Fund are hereby authorized to file an Amended Certificate of Designation pursuant to K.S.A. 17-6401 in order to eliminate Global Asset Allocation Series A and Global Asset Allocation Series B from Security Income Fund's Articles of Incorporation. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this 13th day of September, 1999. JOHN D. CLELAND ------------------------------------------ John D. Cleland, President AMY J. LEE ------------------------------------------ Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me, Annette E. Cripps, a Notary Public in and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE, Secretary, of the Security Income Fund, a Kansas corporation, personally known to me to be the persons who executed the foregoing instrument of writing as President and Secretary, respectively, and duly acknowledged the execution of the same this 13th day of September, 1999. ANNETTE E. CRIPPS ------------------------------------------ Notary Public My commission expires 7-8-2001. EX-99.B 3 BYLAWS BYLAWS OF SECURITY INCOME FUND OFFICES 1. REGISTERED OFFICE AND REGISTERED AGENT. The location of the registered office and the name of the registered agent of the Corporation in the State of Kansas shall be as stated in the Articles of Incorporation or as shall be determined from time the time by the Board of Directors and on file in the appropriate public offices of the State of Kansas pursuant to applicable provisions of law. 2. CORPORATE OFFICES. The Corporation may have such other corporate offices and places of business anywhere within or without the State of Kansas as the Board of Directors may from time to time designate or the business of the Corporation may require. 3. CORPORATE RECORDS. The books and records of the Corporation may be kept at any one or more offices of the Corporation within or without the State of Kansas, except that the original or duplicate stock ledger containing the names and addresses of the stockholders, and the number of shares held by them, respectively, shall be kept at the registered office of the Corporation in the State of Kansas. 4. STOCKHOLDERS' RIGHT OF INSPECTION. A stockholder of record, upon written demand to inspect the records of the Corporation pursuant to any statutory or other legal right, shall be privileged to inspect such records only during the usual and customary hours of business and in such manner will not unduly interfere with the regular conduct of the business of the Corporation. A stockholder may delegate his/her right of inspection to a certified or public accountant on the condition, to be enforced at the option of the Corporation, that the stockholder and accountant agree with the Corporation to furnish to the Corporation promptly a true and correct copy of each report with respect to such inspection made by such accountant. No stockholder shall use, permit to be used or acquiesce in the use by others of any information so obtained to the detriment competitively of the Corporation, nor shall he/she furnish or permit to be furnished any information so obtained to any competitor or prospective competitor of the Corporation. The Corporation as a condition precedent to any stockholder's inspection of the records of the Corporation may require the stockholder to indemnify the Corporation, in such manner and for such amount as may be determined by the Board of Directors, against any loss or damage which may be suffered by it arising out of or resulting from any unauthorized disclosure made or permitted to be made by such stockholder of information obtained in the course of such inspection. SEAL 5. SEAL. The Corporation shall have a corporate seal inscribed with the name of the Corporation and the words "Corporate Seal - Kansas". The form of the seal may be altered at pleasure and shall be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise used. STOCKHOLDERS' MEETINGS 6. PLACE OF MEETINGS. Meetings of the stockholders may be held at any place within or without the State of Kansas, as shall be determined from time to time by the Board of Directors. All meetings of the stockholders for the election of Directors shall be held at the principal office of the Corporation in Kansas. Meetings of the stockholders for any purpose other than the election of Directors may be held at such place as shall be specified in the notice thereof. 7. ANNUAL MEETING. No annual meeting of stockholders is required to be held for the purpose of electing directors or any other reason, except when specifically and expressly required under state or federal law. When an annual meeting is held for the purpose of electing directors, such directors shall hold office until the next annual meeting at which directors are to be elected and until their successors are elected and qualified, or until their earlier resignation or removal herein. 8. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President, or a Vice President, by the Board of Directors or by the holders of not less than 10% of all outstanding shares of stock entitled to vote at any annual meeting; and shall be called by any officer directed to do so by the Board of Directors. The "call" and the "notice" of any such meeting shall be deemed to be synonymous. 9. NOTICE OF MEETINGS. Written or printed notice of each meeting of the stockholders, whether annual or special, stating the place, date and time thereof and in case of a special meeting, the purpose or purposes thereof shall be delivered or mailed to each stockholder entitled to vote thereat, not less than ten (10) days nor more than fifty (50) days prior to the meeting. unless as to a particular matter, other or further notice is required by law, in which case such other or further notice shall be given. The Board of Directors may fix in advance a date, which shall not be more than sixty (60) days nor less than ten (10) days preceding the date of any meeting of the stockholders, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof; provided, however, that the Board of Directors may fix a new record date for any adjourned meeting. Any notice of a stockholders' meeting sent by mail shall be deemed to be delivered when deposited in the United States mail with postage prepaid thereon, addressed to the stockholder at his/her address as it appears on the books of the Corporation. 10. REGISTERED STOCKHOLDERS - EXCEPTIONS - STOCK OWNERSHIP PRESUMED. The Corporation shall be entitled to treat the holders of the shares of stock of the Corporation, as recorded on the stock record or transfer books of the Corporation, as the holders of record and as the holders and owners in fact thereof and, accordingly, the Corporation shall not be required to recognize any equitable or other claim to or interest in any such shares on the part of any other person or other claim to or interest in any such shares on the part of any other person, firm, partnership, corporation or association, whether or not the Corporation shall have express or other notice thereof, except as is otherwise expressly required by law, and the term "stockholder" as used in these Bylaws means one who is a holder of record of shares of the Corporation; provided, however, that if permitted by law, (a) shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine; (b) shares held by a person in a fiduciary capacity may be voted by such person; and, (c) a stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer of the shares by the pledgor on the books of the Corporation, he/she shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee or his/her proxy may represent said stock and vote thereon. 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. To the extent, if any, and in the manner permitted by statute and unless otherwise provided in the Articles of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken by written consent without a meeting. 12. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of these Bylaws, the Articles of Incorporation of the Corporation, or of any law, a waiver thereof, if not expressly prohibited by law, in writing signed by the person or persons entitled to notice shall, whether before or after the time stated therein, be deemed the equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when a person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 13. QUORUM. Except as otherwise may be provided by law, by the Articles of Incorporation of the Corporation or by these Bylaws, the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be required for and shall constitute a quorum at all meetings of the stockholders for the transaction of any business. Every decision of a majority in amount of shares of such quorum shall be valid as a corporate act, except in those specific instances in which a larger vote is required by law or by the Articles of Incorporation or by these Bylaws. If a quorum be not present at any meeting, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. If the adjournment is for more than thirty (30) days, or if after adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At any subsequent session of the meeting at which a quorum is present in person or by proxy any business may be transacted which could have been transacted at the initial session of the meeting if a quorum had been present. 14. PROXIES. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy executed by an instrument in writing subscribed by such a stockholder and bearing a date not more than three (3) years prior to said meeting unless said instrument provides that it shall be valid for a longer period. 15. VOTING. Each stockholder shall have one vote for each share of stock having voting power registered in his/her name on the books of the Corporation and except where the transfer books of the Corporation shall have been closed or a date shall have been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted at any election for directors which shall have been transferred on the books of the Corporation within twenty (20) days next preceding such election of Directors. At all elections of Directors, cumulative voting shall prevail, so that each stockholder shall be entitled to as many votes as shall equal the number of his/her shares of stock multiplied by the number of Directors to be elected, and he/she may cast all of such votes for a single Director or may distribute them among the number to be voted for, or any two or more as he/she sees fit. Voting shall be ballot for the election of Directors and on such matters as may be required by law, provided that voting by ballot on any matter may be waived by the unanimous consent of those stockholders entitled to vote present at the meeting. A stockholder holding stock in a fiduciary capacity shall be entitled to vote the shares so held, and a stockholder whose stock is pledged shall be entitled to vote unless, in the transfer by the pledgor on the books of the Corporation, (s)he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee or his/her proxy may represent said stock and vote thereon. 16. STOCKHOLDERS' LISTS. A complete list of the stockholders entitled to vote at every election of Directors, arranged in alphabetical order, with the address of and the number of voting shares held by each stockholder, shall be prepared by the officer having charge of the stock books of the Corporation and for at least ten (10) days prior to the date of the election shall be open at the place where the election is to be held, during the usual hours for business, to the examination of any stockholder and shall be produced and kept open at the place of the election during the whole time thereof for the inspection of any stockholder present. The original or duplicate stock ledger shall be the only evidence as to who are stockholders entitled to examine such lists, or the books of the Corporation, or to vote in person or by proxy, at such election. Failure to comply with the foregoing shall not affect the validity or any action taken at any such meeting. 17. PRESIDING OFFICIALS. Every meeting of the stockholders, for whatever object, shall be convened by the President, or by the officer or person who called the meeting by notice as above provided, but it shall be presided over by the officers specified in paragraphs 37 and 38 of these Bylaws; provided, however, that the stockholders at any meeting, by a majority vote in amount of shares represented thereat, and notwithstanding anything to the contrary contained elsewhere in these Bylaws, may select any persons of their choosing to act as Chairman and Secretary of such meeting or any session thereof. BOARD OF DIRECTORS 18. OFFICES. The Directors may have one or more offices, and keep the books of the Corporation (except the original or duplicated stock ledgers, and such other books and records as may by law be required to be kept at a particular place) at such place or places within or without the State of Kansas as the Board of Directors may from time to time determine. 19. MANAGEMENT. The management of all affairs, property and business of the corporation shall be vested in a Board of Directors, consisting of a minimum of six (6) and a maximum of nine (9) directors. Unless required by the Articles of Incorporation, Directors need not be stockholders. Each person who shall serve on the Board of Directors and who shall be recommended and nominated for election or reelection as a director shall be a person who is in good standing in his/her community and who shall not, at the time of election or reelection, have attained his/her 70th birthday. In addition to the power and authorities by these Bylaws and the Articles of Incorporation expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation, and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. 20. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, though less than a quorum, or by a sole remaining Director, unless it is otherwise provided in the Articles of Incorporation or these Bylaws, and the Directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal. If there are no Directors in office, then an election of Directors may be held in the manner provided by statute. 21. MEETINGS OF THE NEWLY ELECTED BOARD -- NOTICE. The first meeting of the members of each newly elected Board of Directors shall be held (a) at such time and place either within or without the State of Kansas as shall be suggested or provided by resolution of the stockholders at the meeting at which such newly elected Board was elected, and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present, or (b) if not so suggested or provided for by resolution of the stockholders or if a quorum shall not be present, at such time and place as shall be consented to in writing by a majority of the newly elected Directors, provided that written or printed notice of such meeting shall be given to each of the other Directors in the same manner as provided in section 23 of these Bylaws with respect to the giving of notice for special meetings of the Board except that it shall not be necessary to state the purpose of the meeting in such notice, or (c) regardless of whether or not the time and place of such meeting shall be suggested or provided for by resolution of the stockholders, at such time and place as shall be consented to in writing by all of the newly elected Directors. Every Director of the Corporation, upon his/her election, shall qualify by accepting the office of the Director, and his/her attendance at, or his/her written approval of the minutes of, any meeting of the Board subsequent to his/her election shall constitute his/her acceptance of such office; or he/she may execute such acceptance by a separate writing, which shall be placed in the minute book. 22. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such times and places either within or without the State of Kansas as shall from time to time be fixed by resolution adopted by the full Board of Directors. Any business may be transacted at a regular meeting. 23. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President, and Vice President or the Secretary, or by any two (2) or more of the Directors. The place may be within or without the State of Kansas as designated in the notice. 24. NOTICE OF SPECIAL MEETINGS. Written or printed notice of each special meeting of the Board, stating the place, day and hour of the meeting and the purpose or purposes thereof, shall be mailed to each Director addressed to him/her at his/her residence or usual place of business at least three (3) days before the day on which the meeting is to be held, or shall be sent to him/her by telegram, or delivered to him/her personally, at least two (2) days before the day on which the meeting is to be held. If mailed, such notice shall be deemed to be delivered when it is deposited in the United States mail with postage thereon addressed to the Director at his/her residence or usual place of business. If given by telegraph, such notice shall be deemed to be delivered when it is delivered to the telegraph company. The notice may be given by any officer having authority to call the meeting. "Notice" and "call" with respect to such meetings shall be deemed to be synonymous. Any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all Directors shall be present. 25. MEETINGS BY CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT. Unless otherwise restricted by law, the Articles of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the board, may participate in a meeting of the board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant hereto shall constitute presence in person at such meeting. 26. QUORUM. Unless otherwise required by law, the Articles of Incorporation or these Bylaws, a majority of the total number of Directors shall be necessary at all meetings to constitute a quorum for the transaction of business, and except as may be otherwise provided by law, the Articles of Incorporation or these Bylaws, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If at least two (2) Directors or one-third (1/3) of the whole Board of Directors, whichever is greater, is present at any meeting at which a quorum is not present, a majority of the Directors present at such meeting shall have power successively to adjourn the meeting from time to time to a subsequent date, without notice to any Directors other than announcement at the meeting. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting with was adjourned. 27. STANDING OR TEMPORARY COMMITTEES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one (1) or more committees, each committee to consist of one (1) or more Directors of the Corporation. The Board may designate one (1) or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he/she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these Bylaws, shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power of authority of the Board of Directors with respect to amending the Articles of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution, these Bylaws or the Articles of Incorporation expressly so provide, no such committee shall have power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. All committees so appointed shall, unless otherwise provided by the Board of Directors, keep regular minutes of the transactions at their meetings and shall cause them to be recorded in books kept for that purpose in the office of the Corporation and shall report the same to the Board of Directors at its next meeting. The Secretary or an Assistant Secretary of the Corporation may act as Secretary of the committee if the committee so requests. 28. COMPENSATION. Unless otherwise restricted by the Articles of Incorporation, the Board of Directors may, by resolution, fix the compensation to be paid Directors for serving as Directors of the Corporation and may, by resolution, fix a sum which shall be allowed and paid for attendance at each meeting of the Board of Directors and may provide for reimbursement of expenses incurred by Directors in attending each meeting; provided that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving his/her regular compensation therefor. Members of special or standing committees may be allowed similar compensation for attending committee meetings. Nothing herein contained shall be construed to preclude any Director or committee member from serving the Corporation in any other capacity and receiving compensation therefor. 29. RESIGNATIONS. Any Director may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the time specified therein or shall take effect upon receipt thereof by the Corporation if no time is specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 30. INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS. Each person who is or was a Director or officer of the Corporation or is or was serving at the request of the Corporation as a Director or officer of another corporation (including the heirs, executors, administrators and estate of such person) shall be indemnified by the Corporation as of right to the full extent permitted or authorized by the laws of the State of Kansas, as now in effect and is hereafter amended, against any liability, judgment, fine, amount paid in settlement, cost and expense (including attorneys' fees) asserted or threatened against and incurred by such person in his/her capacity as or arising out of his/her status as a Director or officer of the Corporation or, if serving at the request of the Corporation, as a Director or officer of another corporation. The indemnification provided by this bylaw provision shall not be exclusive of any other rights to which those indemnified may be entitled under the Articles of Incorporation, under any other bylaw or under any agreement, vote of stockholders or disinterested directors or otherwise, and shall not limit in any way any right which the Corporation may have to make different or further indemnification with respect to the same or different persons or classes of persons. No person shall be liable to the Corporation for any loss, damage, liability or expense suffered by it on account of any action taken or omitted to be taken by him/her as a Director or officer of the Corporation or of any other corporation which he/she serves as a Director or officer at the request of the Corporation, if such person (a) exercised the same degree of care and skill as a prudent man would have exercised under the circumstances in the conduct of his/her own affairs, or (b) took or omitted to take such action in reliance upon advice of counsel for the Corporation, or for such other corporation, or upon statement made or information furnished by Directors, officers, employees or agents of the Corporation, or of such other corporation, which he/she had no reasonable grounds to disbelieve. In the event any provision of this section 30 shall be in violation of the Investment Company Act of 1940, as amended, or of the rules and regulations promulgated thereunder, such provisions shall be void to the extent of such violations. 31. ACTION WITHOUT A MEETING. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. 32. NUMBERS AND POWERS OF THE BOARD. The property and business of this Corporation shall be managed by a Board of Directors, and the number of Directors to constitute the Board shall be not less than six (6) nor more than nine (9). Directors need not be stockholders. In addition to the powers and authorities by these Bylaws expressly conferred upon the Board of Directors, the Board may exercise all such powers of the corporation and do or cause to be done all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws prohibited, or required to be exercised or done by the stockholders only. 33. TERM OF OFFICE. The first Board of Directors shall be elected at the first duly held meeting of the incorporators and thereafter they shall be elected at the annual meetings of the stockholders. Except as may otherwise be provided by law, the Articles of Incorporation or these Bylaws, each Director shall hold office until the next annual election and until a successor shall be duly elected and qualified, or until his/her written resignation shall have been filed with the Secretary of the Corporation. Each Director, upon his/her election, shall qualify by accepting the office of Director by executing and filing with the Corporation a written acceptance of his/her election which shall be placed in the minute book. 34. WAIVER. Any notice provided or required to be given to the Directors may be waived in writing by any of them. Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting except where he/she attends for the express purpose of objecting to the transaction of any business thereat because the meeting is not lawfully called or convened. OFFICERS 35. (a) OFFICERS - WHO SHALL CONSTITUTE. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries and one or more Assistant Treasurers. The Board shall elect a President, a Secretary and a Treasurer at its first meeting after each annual meeting of the stockholders. The Board then, or from time to time, may elect one or more of the other prescribed officers as it may deem advisable, but need not elect any officers other than a President, a Secretary and a Treasurer. The Board may, if it desires, elect or appoint additional officers and may further identify or describe any one or more of the officers of the Corporation. In the discretion of the Board of Directors, the office of Chairman of the Board of Directors may remain unfilled. The Chairman of the Board of Directors, if any, shall at all times be, and other officers may be, members of the Board of Directors. Officers of the Corporation need not be members of the Board of Directors. Any two (2) or more offices may be held by the same person. An officer shall be deemed qualified when he/she enters upon the duties of the office to which he/she has been elected or appointed and furnishes any bond required by the Board; but the Board may also require his/her written acceptance and promise faithfully to discharge the duties of such office. (b) TERM OF OFFICE. Each officer of the Corporation shall hold his/her office at the pleasure of the Board of Directors or for such other period as the Board may specify at the time of his/her election or appointment, or until his/her death, resignation or removal by the Board, whichever first occurs. In any event, each officer of the Corporation who is not reelected or reappointed at the annual election of officers by the Board next succeeding his/her election or appointment shall be deemed to have been removed by the Board, unless the Board provides otherwise at the time of his/her election or appointment. (c) OTHER AGENTS. The Board from time to time may also appoint such other agents for the Corporation as it shall deem necessary or advisable, each of whom shall serve at the pleasure of the Board or for such period as the Board may specify, and shall exercise such powers, have such titles and perform such duties as shall be determined from time to time by the Board or by an officer empowered by the Board to make such determinations. 36. CHAIRMAN OF THE BOARD. If a Chairman of the Board be elected, he/she shall preside at all meetings of the stockholders and Directors at which he/she may be present and shall have such other duties, powers and authority as any be prescribed elsewhere in these Bylaws. The Board of Directors may delegate such other authority and assign such additional duties to the Chairman of the Board, other than those conferred by law exclusively upon the President, as it may from time to time determine, and, to the extent permissible by law, the Board may designate the Chairman of the Board as the Chief Executive Officer of the Corporation with all of the powers otherwise conferred upon the President of the Corporation under paragraph 37 of these Bylaws, or it may, from time to time, divide the responsibilities, duties and authority for the general control and management of the Corporation's business and affairs between the Chairman of the Board and the President. 37. THE PRESIDENT. Unless the Board otherwise provides, the President shall be the Chief Executive Officer of the Corporation with such general executive powers and duties of supervision and management as are usually vested in the office of the Chief Executive Officer of a corporation, and he/she shall carry into effect all directions and resolutions of the Board. The President, in the absence of the Chairman of the Board or if there be no Chairman of the Board, shall preside at all meetings of the stockholders and Directors. The President may execute all bonds, notes, debentures, mortgages and other instruments for and in the name of the Corporation, may cause the corporate seal to be affixed thereto, and may execute all other instruments for and in the name of the Corporation. Unless the Board otherwise provides, the President, or any person designated in writing by him/her, shall have full power and authority on behalf of this Corporation (a) to attend and vote or take action at any meeting of the holders of securities of corporations in which this Corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to being a holder of such securities, and (b) to execute and deliver waivers of notice and proxies for and in the name of the Corporation with respect to any securities held by this Corporation. He/she shall, unless the Board otherwise provides, be ex officio a member of all standing committees. He/she shall have such other or further duties and authority as may be prescribed elsewhere in these Bylaws or from time to time by the Board of Directors. If a Chairman of the Board be elected or appointed and designated as the Chief Executive Officer of the Corporation, as provided in paragraph 36 of these Bylaws, the President shall perform such duties as may be specifically delegated to him/her by the Board of Directors or are conferred by law exclusively upon him/her, and in the absence, disability, or inability or refusal to act of the Chairman of the Board, the President shall perform the duties and exercise the powers of the Chairman of the Board. 38. VICE PRESIDENT. In the absence of the President or in the event of his/her disability or inability or refusal to act, any Vice President may perform the duties and exercise the powers of the President until the Board otherwise provides. Vice Presidents shall perform such other duties as the Board may from time to time prescribe. 39. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall attend all sessions of the Board and all meetings of the stockholders, shall prepare minutes of all proceedings at such meetings and shall preserve them in a minute book of the Corporation. He/she shall perform similar duties for the executive and other standing committees when requested by the Board or any such committee. It shall be the principal responsibility of the Secretary to give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, but this shall not lessen the authority of others to give such notice as is authorized elsewhere in these Bylaws. The Secretary shall see that all books, records, lists and information, or duplicates, required to be maintained in Kansas, or elsewhere, are so maintained. The Secretary shall keep in safe custody the seal of the Corporation, and shall have authority to affix the seal to any instrument requiring a corporate seal and, when so affixed, he/she shall attest the seal by his/her signature. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his/her signature. The Secretary shall have the general duties, responsibilities and authorities of a Secretary of a Corporation and shall perform such other duties and have such other responsibility and authority as may be prescribed elsewhere in these Bylaws or from time to time by the Board of Directors or the Chief Executive Officer of the Corporation, under whose direct supervision (s)he shall be. In the absence of the Secretary or in the event of his/her disability, or inability or refusal to act, any Assistant Secretary may perform the duties and exercise the powers of the Secretary until the Board otherwise provides. Assistant Secretaries shall perform such other duties as the Board of Directors may from time to time prescribe. 40. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall have responsibility for the safekeeping of the funds and securities of the Corporation, shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall keep, or cause to be kept, all other books of account and accounting records of the Corporation. He/she shall deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or by any officer of the Corporation to whom such authority has been granted by the Board. He/she shall disburse, or permit to be disbursed, the funds of the Corporation as may be ordered, or authorized generally, by the Board, and shall render to the Chief Executive Officer of the Corporation and the Directors whenever they may require it, an account of all his/her transactions as Treasurer and of those under his/her jurisdiction, and of the financial condition of the Corporation. He/she shall perform such other duties and shall have such other responsibility and authority as may be prescribed elsewhere in these Bylaws or from time to time by the Board of Directors. He/she shall have the general duties, powers and responsibility of a Treasurer of a corporation and shall, unless otherwise provided by the Board, be the Chief Financial and Accounting Officer of the Corporation. If required by the Board, he/she shall give the Corporation a bond in a sum and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his/her office and for the restoration to the Corporation, in the case of his/her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his/her possession or under his/her control which belong to the Corporation. In the absence of the Treasurer or in the event of his/her disability, or inability or refusal to act, any Assistant Treasurer may perform the duties and exercise the powers of the Treasurer until the Board otherwise provides. Assistant Treasurers shall perform such other duties and have such other authority as the Board of Directors may from time to time prescribe. 41. DUTIES OF OFFICERS MAY BE DELEGATED. If any officer of the Corporation be absent or unable to act, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, some or all of the functions, duties, powers and responsibilities of any officer to any other officer, or to any other agent or employee of the Corporation or other responsible person, provided a majority of the whole Board concurs. 42. REMOVAL. Any officer or agent elected or appointed by the Board of Directors, and any employee, may be removed or discharged by the Board whenever in its judgment the best interests of the Corporation would be served thereby, but such removal or discharge shall be without prejudice to the contract rights, if any, of the person so removed or discharged. 43. SALARIES AND COMPENSATION. Salaries and compensation of all elected officers of the Corporation shall be fixed, increased or decreased by the Board of Directors, but this power, except as to the salary or compensation of the Chairman of the Board and the President, may, unless prohibited by law, be delegated by the Board to the Chairman of the Board or the President, or may be delegated to a committee. Salaries and compensation of all appointed officer, agents, and employees of the Corporation may be fixed, increased or decreased by the Board of Directors, but until action is taken with respect thereto by the Board of Directors the same fixed, increased or decreased by the Chairman of the Board, the President or such other officer or officers as may be empowered by the Board of Directors to do so. 44. DELEGATION OF AUTHORITY TO HIRE, DISCHARGE AND DESIGNATE DUTIES. The Board from time to time may delegate to the Chairman of the Board, the President or other officer or executive employee of the Corporation, authority to hire, discharge and fix and modify the duties, salary or other compensation of employees of the Corporation under their jurisdiction, and the Board may delegate to such officer or executive employee similar authority with respect to obtaining and retaining for the Corporation the services of attorneys, accountants and other experts. STOCK 45. CERTIFICATES FOR SHARES OF STOCK. Certificates for shares of stock shall be issued in numerical order, and each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chairman of the Board or the President or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares owned by him/her. To the extent permitted by statute, any of or all of the signatures on such certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar who signed such certificate, or whose facsimile signature shall have been used thereon, had not ceased to be such officer, transfer agent or registrar of the Corporation. 46. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the transfer books of the Corporation, kept at the office of the Corporation or of the transfer agent designated to transfer the class of stock, and before a new certificate is issued the old certificate shall be surrendered for cancellation. Until and unless the Board appoints some other person, firm or corporation as its transfer agent (and upon the revocation of any such appointment, thereafter, until a new appointment is similarly made) the Secretary of the Corporation shall be the transfer agent of the Corporation without the necessity of any formal action of the Board, and the Secretary, or any person designated by him/her, shall perform all of the duties thereof. 47. REGISTERED STOCKHOLDERS. Only registered stockholders shall be entitled to be treated by the Corporation as the holders and owner in fact of the shares standing in their respective names, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Kansas. 48. LOST CERTIFICATES. The Board of Directors may authorize the Secretary to direct that a new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the Corporation, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate or certificates to be lost, stolen or destroyed. When authorizing such issue of a replacement certificate or certificates, the Secretary may, as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his/her legal representative, to give the Corporation and its transfer agents and registrars, if any, a bond in such sum as it may direct to indemnify it against any claim that may be made against it with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or with respect to the issuance of such new certificate or certificates. 49. REGULATIONS. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, conversion and registration of certificates for shares of stock of the Corporation, not inconsistent with the laws of the State of Kansas, the Articles of Incorporation of the Corporation and these Bylaws. 50. FIXING RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days not less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. DIVIDENDS AND FINANCE 51. DIVIDENDS. Dividends upon the outstanding shares of stock of the Corporation, subject to the provisions of the Articles of Incorporation and of any applicable law and of these Bylaws, may be declared by the Board of Directors at any meeting. Subject to such provisions, dividends may be paid in cash, in property, or in shares of stock of the Corporation. 52. CREATION OF RESERVES. The Directors may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose or may abolish any such reserve in the manner in which it was created. 53. DEPOSITORIES. The moneys of the Corporation shall be deposited in the name of the Corporation in such bank or banks or other depositories as the Board of Directors shall designate, and shall be drawn out only by check signed by persons designated by resolution adopted by the Board of Directors, except that the Board of Directors may delegate said powers in the manner hereinafter provided in this bylaw 53. The Board of Directors may by resolution authorize an officer or officers of the Corporation to designate any bank or banks or other depositories in which moneys of the Corporation may be deposited, and to designate the persons who may sign checks drawn on any particular account or accounts of the Corporation, whether created by direct designation of the Board of Directors or by authorized officer or officers as aforesaid. 54. FISCAL YEAR. The Board of Directors shall have power to fix and from time to time change the fiscal year of the Corporation. In the absence of action by the Board of Directors, the fiscal year of the Corporation shall end each year on the date which the Corporation treated as the close of its first fiscal year, until such time, if any, as the fiscal year shall be changed by the Board of Directors. 55. DIRECTORS' STATEMENT. The Board of Directors may present at each annual meeting of the stockholders, and when called for by vote of the stockholders shall present to any annual or special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. 56. FIXING OF CAPITAL, TRANSFERS OF SURPLUS. Except as may be specifically otherwise provided in the Articles of Incorporation, the Board of Directors is expressly empowered to exercise all authority conferred upon it or the Corporation by any law or statute, and in conformity therewith, relative to: (a) the determination of what part of the consideration received for shares of the Corporation shall be capital; (b) increasing or reducing capital; (c) transferring surplus to capital or capital to surplus; (d) all similar or related matters; provided that any concurrent action or consent by or of the Corporation and its stockholders required to be taken or given pursuant to law shall be duly taken or given in connection therewith. 57. LOANS TO OFFICERS AND DIRECTORS PROHIBITED. The Corporation shall not loan money to any officer or director of the Corporation. 58. BOOKS, ACCOUNTS AND RECORDS. The books, accounts and records of the Corporation, except as may be otherwise required by the laws of the State of Kansas, may be kept outside the State of Kansas, at such place or places as the Board of Directors may from time to time determine. The Board of Directors shall determine whether, to what extent and the conditions upon which the book, accounts and records of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any book, account or record of the Corporation, except as conferred by law or by resolution of the stockholders or Directors. INVESTMENT AND MANAGEMENT POLICIES 59. CUSTODY OF SECURITIES. Without limitation as to any restriction imposed by the Articles of Incorporation of the Corporation or by operation of law on the conduct of the Corporation's investment company business, the custody of the Corporation's securities shall be subject to the following requirements: (a) The securities of the Corporation shall be placed in the custody and care of a custodian which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. (b) Upon the resignation or inability to serve of the custodian, the officers and directors shall be required to use their best efforts to locate a successor, to whom all cash and securities must be delivered directly, and in the event that no successor can be found, to submit to stockholders the question of whether the corporation should be liquidated or shall function without a custodian. (c) Any agreement with the custodian shall require it to deliver securities owned by the Corporation only (1) upon sale of such securities for the account of the Corporation and receipt of payment; (2) to the broker or dealer selling the securities in accordance with "street delivery" custom; (3) on redemption, retirement of maturity; (4) on conversion or exchange into other securities pursuant to a conversion or exchange privilege, or plan of merger, consolidation, reorganization, recapitalization, readjustment, share split-up, change of par value, deposit in or withdrawal from a voting trust, or similar transaction or event affecting the issuer; or (5) pursuant to the redemption in kind of any securities of the Corporation. (d) Any agreement with the custodian shall require it to deliver funds of the Corporation only (1) upon the purchase of securities for the portfolio of the Corporation and delivery of such securities to the custodian, or (2) for the redemption of shares by the Corporation, the payment of interest, dividend disbursements, taxes, management fees, the making of payments in connection with the conversion, exchange or surrender of securities owned by the Corporation and the payment of operating expenses of the Corporation. 60. RESTRICTIONS ON THE INVESTMENT OF FUNDS. Without limitation as to any restrictions imposed by the Articles of Incorporation of the Corporation or by operation of law on the conduct of the Corporation's investment company business, the officers and Directors of the Corporation shall not permit the Corporation to take any action not permitted by its fundamental investment policies, as amended, set forth in the Corporation's registration statement. 61. DISTRIBUTION OF EARNINGS. A. The Directors by appropriate resolution shall from time to time distribute the net earnings of the Corporation to its shareholders pro-rata by mailing checks to the shareholders at the address shown on the books of the Company. B. In addition to paying all current expenses, it shall be the duty of the officers and Directors to set up adequate reserves to cover taxes, auditors' fees, and any and all necessary expenses that can be anticipated but are not currently payable, and same shall be deducted from gross earnings before net earnings may be distributed. C. If any of the net earnings of this Corporation is profit from sale of its securities or from any source that would be considered as capital gains, this information shall be clearly revealed to the stockholders and the basis of calculation of such gains set forth. D. The officers and Directors shall distribute not less than that amount of net earnings of this Corporation to its shareholders as may be required or advisable under applicable law and special distribution of net earnings may be made at the discretion of the Directors at any time to meet this requirement or for any other reason. 62. UNDERWRITING OR PRINCIPAL BROKER AGREEMENT. A. The officers and Directors of this Corporation shall not enter into an agreement or contract with any person or corporation to act as underwriter or principal broker for the sale and/or distribution of its shares, unless said person or corporation is fully qualified as a broker and has net all the requirements of the Kansas Corporation Commission and United States Securities and Exchange Commission and is currently in good standing with said Commissions. B. No commission, sales load or discount from the offering price of said shares shall be greater than that which is permitted under the Investment Company Act of 1940 and the rules, regulations and orders promulgated thereunder. C. Any such contract so made shall not endure for a period of more than on year, unless such extension has been duly ratified and approved by a majority vote of the Directors of the Corporation, and such contract shall contain a provision that it may be terminated for cause upon sixty days written notice by either party. MISCELLANEOUS 63. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the statutes of Kansas, or of the Articles of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, Directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the Articles of Incorporation of these Bylaws. 64. CONTRACTS. The Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. 65. AMENDMENTS. These Bylaws may be altered, amended or repealed, or new Bylaws may be adopted, in any of the following ways: (i) by the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote, or (ii) by a majority of the full Board of Directors and any change so made by the stockholders may thereafter be further changed by a majority of the directors; provided, however, that the power of the Board of Directors to alter, amend or repeal the Bylaws, or to adopt new Bylaws, may be denied as to any Bylaws or portion thereof as the stockholders shall so expressly provide. CERTIFICATE The undersigned Secretary of Security Income Fund, a Kansas Corporation, hereby certifies that the foregoing Bylaws are the amended/restated Bylaws of said Corporation adopted by the Directors of the Corporation. Dated: February 3, 1995 AMY J. LEE ------------------------------ Amy J. Lee Secretary AMENDMENT TO THE BYLAWS OF SECURITY INCOME FUND The following amendment was made to the Bylaws of Security Income Fund, dated February 3, 1995, at the regular meeting of the Board of Directors held on July 23, 1999, deleting paragraph 14 in its entirety and inserting in lieu thereof: 14. PROXIES. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy executed by an instrument in writing subscribed by such a stockholder and bearing a date not more than three (3) years prior to said meeting unless said instrument provides that it shall be valid for a longer period. A stockholder voting by proxy may do so via electronic, including via the Internet, or telephonic transmission provided that any such electronic transmission must either contain or be accompanied by information from which it can be determined that the stockholder authorized the transmission. A copy, facsimile or other reliable reproduction of the instrument may be substituted for the original instrument for any purpose for which the original instrument could be used. Dated: July 23, 1999 AMY J. LEE ------------------------------ Amy J. Lee, Secretary EX-99.D 4 BT INVESTMENT ADVISORY AGREEMENT - CAPITAL PRES. INVESTMENT ADVISORY AGREEMENT AGREEMENT made as of June 4, 1999 by and between BT INVESTMENT PORTFOLIOS, a New York trust (herein called the "Trust") and BANKERS TRUST COMPANY (herein called the "Investment Adviser"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940; WHEREAS, the Trust desires to retain the Investment Adviser to render investment advisory and other services to the Trust with respect to certain of its series of shares of beneficial interests as may currently exist or be created in the future (each, a "Fund") as listed on Exhibit A hereto, and the Investment Adviser is willing to so render such services on the terms hereinafter set forth; NOW, THEREFORE, this Agreement WITNESSETH: In consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. APPOINTMENT. The Trust hereby appoints the Investment Adviser to act as investment adviser to each Fund for the period and on the terms set forth in this Agreement. The Investment Adviser accepts such appointment and agrees to render the services herein set forth for the compensation herein provided. 2. MANAGEMENT. Subject to the supervision of the Board of Trustees of the Trust, the Investment Adviser will provide a continuous investment program for the Fund, including investment research and management with respect to all securities, investments, cash and cash equivalents in the Fund. The Investment Adviser will determine from time to time what securities and other investments will be purchased, retained or sold by each Fund. The Investment Adviser will provide the services rendered by it hereunder in accordance with the investment objective(s) and policies of each Fund as stated in the Fund's then-current prospectus and statement of additional information (or the Fund's then current registration statement on Form N-1A as filed with the Securities and Exchange Commission (the "SEC") and the then-current offering memorandum if the Fund is not registered under the Securities Act of 1933, as amended ("1933 Act"). The Investment Adviser further agrees that it: (a) will conform with all applicable rules and regulations of the SEC (herein called the "Rules") and with all applicable provisions of the 1933 Act; as amended, the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Investment Company Act of 1940, as amended (the "1940 Act"); and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and will, in addition, conduct its activities under this Agreement in accordance with regulations of the Board of Governors of the Federal Reserve System pertaining to the investment advisory activities of bank holding companies and their subsidiaries; (b) will place orders pursuant to its investment determinations for each Fund either directly with the issuer or with any broker or dealer selected by it. In placing orders with brokers and dealers, the Investment Adviser will use its reasonable best efforts to obtain the best net price and the most favorable execution of its orders, after taking into account all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. Consistent with this obligation, the Investment Adviser may, to the extent permitted by law, purchase and sell portfolio securities to and from brokers and dealers who provide brokerage and research services (within the meaning of Section 28(e) of the 1934 Act) to or for the benefit of any fund and/or other accounts over which the Investment Adviser or any of its affiliates exercises investment discretion. Subject to the review of the Trust's Board of Trustees from time to time with respect to the extent and continuation of the policy, the Investment Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for effecting a securities transaction which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Investment Adviser determines in good faith that such 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 overall responsibilities of the Investment Adviser with respect to the accounts as to which it exercises investment discretion; and (c) will maintain books and records with respect to the securities transactions of each Fund and will render to the Trust's Board of Trustees such periodic and special reports as the Board may request. 3. SERVICES NOT EXCLUSIVE. The investment advisory services rendered by the Investment Adviser hereunder are not to be deemed exclusive, and the Investment Adviser shall be free to render similar services to others so long as its services under this Agreement are not impaired thereby. 4. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3 of the Rules under the 1940 Act, the Investment Adviser hereby agrees that all records which it maintains for the Trust are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon request of the Trust. The Investment Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act and to comply in full with the requirements of Rule 204-2 under the Advisers Act pertaining to the maintenance of books and records. 5. EXPENSES. During the term of this Agreement, the Investment Adviser will pay all expenses incurred by it in connection with its activities under this Agreement other than the cost of purchasing securities (including brokerage commissions, if any) for the Fund. 6. COMPENSATION. For the services provided and the expenses assumed pursuant to this Agreement, the Trust will pay the Investment Adviser, and the Investment Adviser will accept as full compensation therefor, fees, computed daily and payable monthly, on an annual basis equal to the percentage set forth on Exhibit A hereto of that Fund's average daily net assets. 7. LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER: INDEMNIFICATION. (a) The Investment Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the matters to which this Agreement relates, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Investment Adviser in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement; (b) Subject to the exceptions and limitations contained in Section 7(c) below: (i) the Investment Adviser (hereinafter referred to as a "Covered Person") shall be indemnified by the respective Fund to the fullest extent permitted by law, against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved, as a party or otherwise, by virtue of his being or having been the Investment Adviser of the Fund, and against amounts paid or incurred by him in the settlement thereof; (ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened while in office or thereafter, and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. (c) No indemnification shall be provided hereunder to a Covered Person: (i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or to one or more Funds' investors by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of a Fund; or (ii) in the event of a settlement, unless there has been a determination that such Covered Person did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (A) by the court or other body approving the settlement; or (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry); provided, however, that any investor in a Fund may, by appropriate legal proceedings, challenge any such determination by the Trustees or by independent counsel. (d) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be a Covered Person and shall inure to the benefit of the successors and assigns of such person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel and any other persons, other than a Covered Person, may be entitled by contract or otherwise under law. (e) Expenses in connection with the preparation and presentation of a defense to any claim, suit or proceeding of the character described in subsection (b) of this Section 7 may be paid by the Trust on behalf of the respective Fund from time to time prior to final disposition thereto upon receipt of an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust on behalf of the respective Fund if it is ultimately determined that he is not entitled to indemnification under this Section 7; provided, however, that either (i) such Covered Person shall have provided appropriate security for such undertaking or (ii) the Trust shall be insured against losses arising out of any such advance payments, or (iii) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts as opposed to a trial-type inquiry or full investigation, that there is reason to believe that such Covered Person will be entitled to indemnification under this Section 7. 8. DURATION AND TERMINATION. This Agreement shall be effective as to a Fund as of the date the Fund commences investment operations after this Agreement shall have been approved by the Board of Trustees of the Trust with respect to that Fund and the Investor(s) in the Fund in the manner contemplated by Section 15 of the 1940 Act and, unless sooner terminated as provided herein, shall continue until the second anniversary of such date. Thereafter, if not terminated, this Agreement shall continue in effect as to such Fund for successive periods of 12 months each, provided such continuance is specifically approved at least annually (a) by the vote of a majority of those members of the Board of Trustees of the Trust 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, or (b) by Vote of a Majority of the Outstanding Voting Securities of the Trust; provided, however, that this Agreement may be terminated by the Trust at any time, without the payment of any penalty, by the Board of Trustees of the Trust, by Vote of a Majority of the Outstanding Voting Securities of the Trust on 60 days' written notice to the Investment Adviser, or by the Investment Adviser as to the Trust at any time, without payment of any penalty, on 90 days' written notice to the Trust. This Agreement will immediately terminate in the event of its assignment (as used in this Agreement, the terms "Vote of a Majority of the Outstanding Voting Securities," "Interested Person" and "Assignment' shall have the same meanings as such terms have in the 1940 Act and the rules and regulatory constructions thereunder.) 9. AMENDMENT OF THIS AGREEMENT. No material term of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no amendment of a material term of this Agreement shall be effective with respect to a Fund, until approved by Vote of a Majority of the Outstanding Voting Securities of that Fund. 10. REPRESENTATIONS AND WARRANTIES. The Investment Adviser hereby represents and warrants as follows: (a) The Investment Adviser is exempt from registration under the 1940 Act: (b) The Investment Adviser has all requisite authority to enter into, execute, deliver and perform its obligations under this Agreement; (c) This Agreement is legal, valid and binding, and enforceable in accordance with its terms; and (d) The performance by the Investment Adviser of its obligations under this Agreement does not conflict with any law to which it is subject. 11. COVENANTS. The Investment Adviser hereby covenants and agrees that, so long as this Agreement shall remain in effect: (a) The Investment Adviser shall remain either exempt from, or registered under, the registration provisions of the Advisers Act; and (b) The performance by the Investment Adviser of its obligations under this Agreement shall not conflict with any law to which it is then subject. 12. NOTICES. Any notice required to be given pursuant to this Agreement shall be deemed duly given if delivered or mailed by registered mail, postage prepaid, (a) to the Investment Adviser, Mutual Funds Services, 130 Liberty Street (One Bankers Trust Plaza), New York, New York 10006 or (b) to the Trust, c/o BT Alex. Brown, Inc., One South Street, Baltimore, Maryland 21202. 13. WAIVER. With full knowledge of the circumstances and the effect of its action, the Investment Adviser hereby waives any and all rights which it may acquire in the future against the property of any investor in a Fund, other than shares in that Fund, which arise out of any action or inaction of the Trust under this Agreement. 14. MISCELLANEOUS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and shall be governed by the laws of the State of New York, without reference to principles of conflicts of law. The Trust is organized under the laws of the State of New York pursuant to a Declaration of Trust dated March 27, 1993. No Trustee, officer or employee of the Trust shall be personally bound by or liable hereunder, nor shall resort be had to their private property for the satisfaction of any obligation or claim hereunder. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. BT INVESTMENT PORTFOLIOS By: DANIEL O. HIRSCH --------------------------- Name: Daniel O. Hirsch Title: Secretary BANKERS TRUST COMPANY By: ROSS YOUNGMAN --------------------------- Name: Ross Youngman Title: Managing Director EXHIBIT A --------- TO INVESTMENT ADVISORY AGREEMENT MADE AS OF JUNE 4, 1999 BETWEEN BT INVESTMENT PORTFOLIOS AND BANKERS TRUST COMPANY FUND INVESTMENT ADVISORY FEE ---- ----------------------- Latin American Equity Portfolio 1.00% Small Cap Portfolio 0.65% Pacific Basin Equity Portfolio 0.75% Asset Management Portfolio II 0.65% Asset Management Portfolio III 0.65% Liquid Assets Portfolio 0.15% BT PreservationPlus Portfolio 0.35% BT PreservationPlus Income Portfolio 0.70% US Bond Index Portfolio 0.15% EAFE Equity Index Portfolio 0.25% Small Cap Index Portfolio 0.15% European Equity Portfolio 0.65% Global Equity Portfolio 0.75% EX-99.E1 5 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT THIS AGREEMENT, made this 14th day of September, 1970, between SECURITY BOND FUND, INC., a Kansas corporation (hereinafter referred to as the "Company"), and SECURITY DISTRIBUTORS, INC., a Kansas corporation (hereinafter referred to as the "Distributor"). WITNESSETH: WHEREAS, the Company is engaged in business as an open-end, management investment company registered under the federal Investment Company Act of 1940; and WHEREAS, the Distributor is willing to act as principal underwriter for the Company to offer for sale, sell and deliver after sale shares of the Company's $1 par value common stock (hereinafter referred to as the "Shares") on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the parties hereto agree as follows: 1. EMPLOYMENT OF DISTRIBUTOR. The Company hereby employs the Distributor to act as principal underwriter for the Company and hereby agrees that during the term of this Agreement, and any renewal or extension thereof, or until any prior termination thereof, the Distributor shall have the exclusive right to offer for sale and to distribute any and all Shares issued or to be issued by the Company. The Distributor hereby accepts such employment and agrees to act as the distributor of the Shares issued or to be issues by the Company during the period this Agreement is in effect and agrees during such period to offer for sale such Shares as long as such Shares remain available for sale, unless the Distributor is unable legally to make such offer for sale as the result of any law or governmental regulation. 2. OFFERING PRICE AND COMMISSIONS. Prior to the issuance of any Shares by the Company pursuant to any subscription tendered by or through the Distributor and confirmed for sale to or through the Distributor, the Distributor shall pay or cause to be paid to the Custodian of the Company in cash, an amount equal to the net asset value of such Shares at the time of acceptance of each such subscription and confirmation by the Company of the sale of such Shares. The Distributor shall be entitled to charge a commission on each such sale of Shares in the amount set forth in the Company's Prospectus, such commission to be an amount equal to the difference between the net asset value and the offering price of the Shares, as such offering price may from time to time be determined by the board of directors of the Company. All Shares shall be sold to the public only at their public offering price at the time of such sale, and the Company shall receive not less than the full net asset value thereof. 3. ALLOCATION OF EXPENSES AND CHARGES. During the period this Agreement is in effect, the Company shall pay all costs and expenses in connection with the registration of Shares under the Securities Act of 1933, including all expenses in connection with the preparation and printing of any registration statements and prospectuses necessary for registration thereunder but excluding any additional costs and expenses incurred in furnishing the Distributor with prospectuses. During the period this Agreement is in effect the Distributor will pay or reimburse the Company for: (a) All costs, expenses and fees incurred in connection with the qualification of the Shares under the applicable Blue Sky laws of the states in which the Shares are offered; (b) All costs and expenses of printing and mailing prospectuses (other than to existing shareholders) and confirmations, and all costs and expenses of preparing, printing and mailing advertising material sales literature, circulars, applications, and other materials used or to be used in connection with the offering for sale and the sale of Shares; and (c) All clerical and administrative costs in processing the applications for and in connection with the sale of Shares. The Distributor agrees to submit to the Company for its prior approval all advertising material, sales literature, circulars and any other material which the Distributor proposes to use in connection with the offering for sale of Shares. 4. DISTRIBUTOR MAY ACT AS BROKER AND RECEIVE COMMISSIONS. Notwithstanding any other provisions of this Agreement, it is understood and agreed that the Distributor may act as a broker, on behalf of the Company, in the purchase and sale of securities not effected on a securities exchange, provided that any such transactions and any commission paid in connection therewith shall comply in every respect with the requirements of the Federal Investment Company Act of 1940 and in particular with Section 17(c) of said statute and the Rules and Regulations of the Securities and Exchange Commission promulgated thereunder. 5. AGREEMENT SUBJECT TO APPLICABLE LAW AND REGULATIONS. The parties hereto agree that all provisions of this Agreement will be performed in strict accordance with the requirements of the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, and the rules and regulations of the Securities and exchange Commission under said statutes, in strict accordance with all applicable state "Blue Sky" laws and the rules and regulations thereunder, and in strict accordance with the provisions of the Articles of Incorporation and Bylaws of the Company. 6. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become effective at the date and time that the Company's prospectus, reflecting the underwriting arrangements provided by this Agreement, shall become effective under the Securities Act of 1933, and shall continue in force until December 31, 1971, and from year to year thereafter, but only if such continuance is specifically approved at least annually by the board of directors of the Company and the majority of the board of directors who are not parties to this Agreement or affiliated persons of any such party, or by the vote of a majority of the outstanding voting securities of the Company. Written notice of any such approval by the board of directors or by the holders of a majority of the outstanding voting securities of the Company shall be given promptly to the Distributor. This Agreement may be terminated by the Company at any time by giving the Distributor at least sixty (60) days previous written notice of such intention to terminate. This Agreement may be terminated by the Distributor at any time by giving the Company at least sixty (60) days previous written notice of such intention to terminate. This Agreement shall terminate automatically in the event of its assignment by the Distributor. As used in the preceding sentence, the word "assignment" shall have the meaning set forth in Section 2(a)(4) of the Investment Company Act of 1940. 7. CONSTRUCTION OF AGREEMENT. No provision of this Agreement is intended to or shall be construed as protecting the Distributor against any liability to the Company or to the Company's security holders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the Distributor's reckless disregard of its obligations and duties under this Agreement. Terms or words used in this Agreement, which also occur in the Articles of Incorporation or Bylaws of the Company, shall have the same meaning herein as given to such terms or words in Articles of Incorporation or Bylaws of the Company. 8. DISTRIBUTOR AN INDEPENDENT CONTRIBUTOR. The Distributor shall be deemed to be an independent contractor and, except as expressly provided or authorized by the Company, shall have no authority to act for or represent the Company. 9. NOTICE. Any notice required or permitted to be given hereunder to either of the parties hereto shall be deemed to have been given if mailed by certified mail in a postage prepaid envelope addressed to the respective party as follows, unless any such party has notified the other party hereto that notices thereafter intended for such party shall be mailed to some other address, in which event notices thereafter shall be addressed to such party at the address designated in such request: Security Bond Fund, Inc. Security Benefit Life Building 700 Harrison Street Topeka, Kansas Security Distributors, Inc. Security Benefit Life Building 700 Harrison Street Topeka, Kansas 10. AMENDMENT OF AGREEMENT. No amendment to this Agreement shall be effective until approved by (a) a majority of the board of directors of the Company and a majority of the board of directors of the Company who are not parties to this Agreement or affiliated persons of any such party, or (b) a vote of the holders of a majority of the outstanding voting securities of the Company. 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 BOND FUND, INC. By DEAN L. SMITH ------------------------------ President ATTEST: WILL J. MILLER, JR. - ------------------------------ Secretary (SEAL) SECURITY DISTRIBUTORS, INC. By DAVE E. DAVIDSON ------------------------------ President ATTEST: WILL J. MILLER, JR. - ------------------------------ Secretary AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Bond Fund, Inc. (the "Company") and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated as of September 14, 1970, (the "Distribution Agreement ) under which the Distributor agrees to act as principal underwriter in connection with sales of the shares of the Company's capital stock; and, WHEREAS, certain provisions of the Federal Investment Company Act of 1940 have been amended, and those amendments have an effect upon the relationship between the Company and the Distributor, and the Distribution Agreement; and, WHEREAS, The Company and the Distributor wish to amend the Distribution Agreement to conform to the requirements of the Federal Investment Company Act of 1940, as amended: NOW, THEREFORE, The Company and Distributor hereby amend the Distribution Agreement, effective immediately, as follows: 1. Section 6 of the Distribution Agreement is amended to provide as follows: "6. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become effective at the date and time that the Company's prospectus, reflecting the underwriting arrangements provided by this Agreement, shall become effective under the Securities Act of 1933, and shall continue in force until December 31, 1971, and from year to year thereafter, provided that such continuance for each successive year after April 30, 1972, is specifically approved in advance at least annually by the vote of the board of directors (including approval by the vote of a majority of the directors of the Company who are not parties to the Agreement or interested persons of any such party) cast in person at a meeting called for the purpose of voting upon such approval, or by the vote of a majority (as defined in the Investment Company Act of 1940) of the outstanding voting securities of the Company and by such a vote of the board of directors. As used in the preceding sentence, the words "interested persons" shall have the meaning set forth in Section 2(a)(19) of the Investment Company Act of 1940. Written notice of any such approval by the board of directors or by the holders of a majority of the outstanding voting securities of the Company shall be given promptly to the Distributor. This Agreement may be terminated by the Company at any time by giving the Distributor at least sixty (60) days previous written notice of such intention to terminate. This Agreement may be terminated by the Distributor at any time by giving the Company at least sixty (60) days previous written notice of such intention to terminate. This Agreement shall terminate automatically in the event of its assignment. As used in the preceding sentence, the word "assignment" shall have the meaning set forth in Section 2(a)(4) of the Investment Company Act of 1940." IN WITNESS WHEREOF, the parties hereto have made this Amendment to the Distribution Agreement this 14th day of January 1972. SECURITY BOND FUND, INC. By DEAN L. SMITH ------------------------------ President (Corporate Seal) ATTEST: WILL J. MILLER, JR. - ------------------------------ Secretary SECURITY DISTRIBUTORS, INC. By DAVE E. DAVIDSON ------------------------------ President (Corporate Seal) ATTEST: WILL J. MILLER, JR. - ------------------------------ Secretary AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Company"), formerly Security Bond Fund, and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated as of September 14, 1970, (the "Distribution Agreement") under which the Distributor agrees to act as principal underwriter in connection with the sales of shares of the Company's capital stock; and WHEREAS, a Distribution Plan (the "Plan") has been adopted by the directors and shareholders of Security Income Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act"), the provisions of which have an effect upon the relationship between the Company and the Distributor, and the Distribution Agreement; and WHEREAS, the Company and Distributor wish to amend the Distribution Agreement to conform to the requirements of Rule 12b-1 under the Act and to incorporate the necessary provisions into the Agreement. NOW THEREFORE, the Company and Distributor hereby amend the Distribution Agreement, effective immediately, as follows: 1. New Section 4A is added to the Agreement, which provides as follows: 4A. DISTRIBUTION PLAN. (a) Pursuant to a Distribution Plan adopted by the Fund, the Fund agrees to make monthly payments to the Distributor in an amount computed at an annual rate of .25 of 1% of the Fund's average daily net assets, to finance activities undertaken by the Distributor for the purpose of distributing the Fund's shares to investors. The Distributor is obligated to and hereby agrees to use the entire amount of said fee to finance the following distribution-related activities: (i) Preparation, printing and distribution of the Prospectus and Statement of Additional Information and any supplement thereto used in connection with the offering of shares to the public; (ii) Printing of additional copies for use by the Distributor as sales literature, of reports and other communications which were prepared by the Fund for distribution to existing shareholders; (iii) Preparation, printing and distribution of any other sales literature used in connection with the offering of shares to the public; (iv) Expenses incurred in advertising, promoting and selling shares of the Fund to the public; and (v) Any fees paid by the Distributor to securities dealers as distribution or service fees who have executed a Dealer's Distribution Agreement with the Distributor. (b) All payments to the Distributor pursuant to this paragraph are subject to the following conditions being met by the Distributor: (i) For the fiscal year of the Fund during which this Plan becomes effective and for each subsequent fiscal year of the Fund during which this Plan remains in effect, the Distributor shall submit to the Fund a budget setting forth in reasonable detail the distribution-related activities to which the Distributor proposes to apply payments made by the Fund hereunder; (ii) Before any payment is made to the Distributor in respect of any fiscal year, the budget relating thereto shall be approved by vote of the Fund's Directors, including the affirmative vote of a majority of the Independent Directors. (iii) The Distributor shall furnish the Fund with quarterly reports of its expenditures pursuant to each budget so approved, together with receipts or other appropriate written evidence of the amounts expended, and such other information relating to such budget or expenditures or to the other distribution-related activities undertaken or proposed to be undertaken by the Distributor during such fiscal year under its Distribution Agreement with the Fund as the Fund may reasonably request; (c) The Dealer's Distribution Agreement (the "Agreement") contemplated by paragraph 2(v) above shall permit payments to securities dealers by the Distributor only in accordance with the provisions of this paragraph and shall have the approval of the majority of the Board of Directors of the Fund including a majority of the directors who are not interested persons of the Fund as required by the Rule. The Distributor may pay to the other party to any Agreement a quarterly fee for distribution and marketing services provided by such other party. Such quarterly fee shall be payable in arrears in an amount equal to such percentage (not in excess of .000685% per day) of the aggregate net asset value of the shares held by such other party's customers or clients at the close of business each day as determined from time to time by the Distributor. The distribution and marketing services contemplated hereby shall include, but are not limited to, answering inquiries regarding the Fund, account designations and addresses, maintaining the investment of such other party's customers or clients in the Fund and similar services. In determining the extent of such other party's assistance in maintaining such investment by its customers or clients, the Distributor may take into account the possibility that the shares held by such customer or client would be redeemed in the absence of such quarterly fee. (d) The provisions of the Distribution Plan approved by the Shareholders of the Fund on July 12, 1985, and by the Board of Directors of the Fund on May 3, 1985, are fully incorporated herein by reference. In the event the Distribution Plan is terminated by the Board of Directors or Shareholders of the Fund as provided therein, this paragraph shall no longer be effective. IN WITNESS WHEREOF, the parties hereto have made this Amendment to the Distribution Agreement this 15th day of August 1985. SECURITY INCOME FUND By EVERETT S. GILLE ------------------------------ President ATTEST: BARBARA W. RANKIN - ------------------------------ Secretary SECURITY DISTRIBUTORS, INC. By EVERETT S. GILLE ------------------------------ President ATTEST: BARBARA W. RANKIN - ------------------------------ Secretary AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund"), formerly Security Bond Fund, and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated September 14, 1970, as amended January 14, 1972, and August 15, 1985, (the "Distribution Agreement") under which the Distributor agrees to act as principal underwriter in connection with the sales of shares of the Fund's capital stock; WHEREAS, a Distribution Plan (the "Plan") has been adopted by the directors and shareholders of the Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Act"), certain provisions of which have been incorporated into the Distribution Agreement; WHEREAS, the Board of Directors of the Fund (including all directors who are not interested persons of the Fund as defined in the Act) have approved an amendment to the Plan to provide for expenditures under the Plan to promote sales of shares of the Fund by securities dealers; and WHEREAS, the Fund and Distributor wish to amend the Distribution Agreement to incorporate the Plan amendments into the Agreement. NOW, THEREFORE, the Fund and Distributor hereby amend the Distribution Agreement, effective November 26, 1990, as follows: Section 4A., Distribution Plan, is amended by adding the following Section 4A.(a)(vi): (vi) Expenses incurred in promoting sales of shares of the Fund by securities dealers, including the costs of preparation of materials for presentations, travel expenses, costs of entertainment, and other expenses incurred in connection with promoting sales of Fund shares by dealers. IN WITNESS WHEREOF, the parties hereto have made this Amendment to the Distribution Agreement this 26th day of November 1990. SECURITY INCOME FUND By MICHAEL J. PROVINES ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary SECURITY DISTRIBUTORS, INC. By HOWARD R. FRICKE ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Company") and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated September 14, 1970, as amended (the "Distribution Agreement"), under which the Distributor agreed to act as principal underwriter in connection with sales of the shares of the Company's capital stock; and WHEREAS, the Company expects to receive an exemptive order from the Securities and Exchange Commission allowing the Company to issue and offer for sale two or more classes of the Company's capital stock; and WHEREAS, the Company and the Distributor wish to amend the Distribution Agreement to clarify that the Distribution Agreement applies only to the sale of Class A shares of the capital stock of the Corporate Bond Series and U.S. Government Series of the Company and the Class A shares of all other Series subsequently established by the Company: NOW THEREFORE, the Company and Distributor hereby amend the Distribution Agreement, effective immediately, as follows: 1. The term "Shares" as referred to in the Distribution Agreement shall refer to the Class A Shares of the Company's $1.00 par value stock. IN WITNESS WHEREOF, the parties hereto have made this Amendment to the Distribution Agreement this 1st day of October 1993. SECURITY INCOME FUND By: MICHAEL J. PROVINES ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary (SEAL) SECURITY DISTRIBUTORS, INC. By: HOWARD R. FRICKE ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary (SEAL) AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated September 14, 1970, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class A common stock; WHEREAS, on October 21, 1994, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Limited Maturity Bond Series, in addition to its presently offered series of common stock of Corporate Bond Series and U.S. Government Series; WHEREAS, on October 21, 1994, the Board of Directors of the Fund further authorized the Fund to offer shares of the Limited Maturity Bond Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on October 21, 1994, the Board of Directors of the Fund approved an amendment to the Distribution Agreement between the Fund and the Distributor to include the sale of Class A shares of the Limited Maturity Bond Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Distribution Agreement to include the sale of Class A shares of the Limited Maturity Bond Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Distribution Agreement this 30th day of December 1994. SECURITY INCOME FUND By: JOHN D. CLELAND ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary SECURITY DISTRIBUTORS, INC. By: RICHARD K RYAN ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated September 14, 1970, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class A common stock; WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Global Aggressive Bond Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series and U.S. Government Series; WHEREAS, on February 3, 1995, the Board of Directors of the Fund further authorized the Fund to offer shares of the Global Aggressive Bond Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on February 3, 1995, the Board of Directors of the Fund approved an amendment to the Distribution Agreement between the Fund and the Distributor to include the sale of Class A shares of the Global Aggressive Bond Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Distribution Agreement to include the sale of Class A shares of the Global Aggressive Bond Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Distribution Agreement this 18th day of April, 1995. ATTEST: SECURITY INCOME FUND AMY J. LEE By: JOHN D. CLELAND - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary John D. Cleland, President ATTEST: SECURITY DISTRIBUTORS, INC. AMY J. LEE By: RICHARD K RYAN - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary Richard K Ryan, President AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated September 14, 1970, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class A common stock; WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the High Yield Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series, U.S. Government Series and Global Aggressive Bond Series; WHEREAS, on May 3, 1996, the Board of Directors of the Fund further authorized the Fund to offer shares of the High Yield Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on May 3, 1996, the Board of Directors of the Fund approved an amendment to the Distribution Agreement between the Fund and the Distributor to include the sale of Class A shares of the High Yield Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Distribution Agreement to include the sale of Class A shares of the High Yield Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Distribution Agreement this 13th day of May, 1996. ATTEST: SECURITY INCOME FUND AMY J. LEE By: JOHN D. CLELAND - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary John D. Cleland, President ATTEST: SECURITY DISTRIBUTORS, INC. AMY J. LEE By: RICHARD K RYAN - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary Richard K Ryan, President AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated September 14, 1970, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class A common stock; WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the Fund to offer its common stock in two new series designated as the Emerging Markets Total Return Series and Global Asset Allocation Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series, U.S. Government Series, Global Aggressive Bond Series and High Yield Series; WHEREAS, on February 7, 1997, the Board of Directors of the Fund further authorized the Fund to offer shares for each of the Emerging Markets Total Return Series and Global Asset Allocation Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved an amendment to the Distribution Agreement between the Fund and the Distributor to include the sale of Class A shares for each of the Emerging Markets Total Return Series and Global Asset Allocation Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Distribution Agreement to include the sale of Class A shares for each of the Emerging Markets Total Return Series and Global Asset Allocation Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Distribution Agreement this 12th day of March, 1997. ATTEST: SECURITY INCOME FUND By: AMY J. LEE By: JOHN D. CLELAND -------------------------------- -------------------------------- Amy J. Lee, Secretary John D. Cleland, President ATTEST: SECURITY DISTRIBUTORS, INC. By: AMY J. LEE By: RICHARD K RYAN -------------------------------- -------------------------------- Amy J. Lee, Secretary Richard K Ryan, President AMENDMENT TO DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement dated September 14, 1970, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class A common stock; WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Capital Preservation Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series, U.S. Government Series, Global High Yield Series, High Yield Series, Emerging Markets Total Return Series and Global Asset Allocation Series; WHEREAS, on February 10, 1999, the Board of Directors of the Fund further authorized the Fund to offer shares of the Capital Preservation Series in three classes, designated Class A shares, Class B shares and Class C shares; and WHEREAS, on February 10, 1999, the Board of Directors of the Fund approved an amendment to the Distribution Agreement between the Fund and the Distributor to include the sale of Class A shares of the Capital Preservation Series. NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Distribution Agreement to include the sale of Class A shares for the Capital Preservation Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Distribution Agreement this 30th day of April, 1999. ATTEST: SECURITY INCOME FUND By: AMY J. LEE By: JAMES R. SCHMANK -------------------------------- -------------------------------- Amy J. Lee, Secretary James R. Schmank, Vice President ATTEST: SECURITY DISTRIBUTORS, INC. By: AMY J. LEE By: RICHARD K RYAN -------------------------------- -------------------------------- Amy J. Lee, Secretary Richard K Ryan, President EX-99.E2 6 CLASS B DISTRIBUTION AGREEMENT CLASS B DISTRIBUTION AGREEMENT THIS AGREEMENT, made this 1st day of October 1993, between Security Income Fund, a Kansas corporation (hereinafter referred to as the "Company"), and Security Distributors, Inc., a Kansas corporation (hereinafter referred to as the "Distributor"). WITNESSETH: WHEREAS, the Company 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 Distributor is willing to act as principal underwriter for the Company to offer for sale, sell and deliver after sale, the Class B Shares of the Company's $1.00 par value common stock (hereinafter referred to as the "Shares") on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the parties hereto agree as follows: 1. EMPLOYMENT OF DISTRIBUTOR. The Company hereby employs the Distributor to act as principal underwriter for the Company with respect to its Class B Shares and hereby agrees that during the term of this Agreement, and any renewal or extension thereof, or until any prior termination thereof, the Distributor shall have the exclusive right to offer for sale and to distribute any and all of its Class B Shares issued or to be issued by the Company. The Distributor hereby accepts such employment and agrees to act as the distributor of the Class B Shares issued or to be issued by the Company during the period this Agreement is in effect and agrees during such period to offer for sale such Shares as long as such Shares remain available for sale, unless the Distributor is unable legally to make such offer for sale as the result of any law or governmental regulation. 2. OFFERING PRICE AND COMMISSIONS. Prior to the issuance of any Shares by the Company pursuant to any subscription tendered by or through the Distributor and confirmed for sale to or through the Distributor, the Distributor shall pay or cause to be paid to the custodian of the Company in cash, an amount equal to the net asset value of such Shares at the time of acceptance of each such subscription and confirmation by the Company of the sale of such Shares. All Shares shall be sold to the public only at their public offering price at the time of such sale, and the Company shall receive not less than the full net asset value thereof. 3. ALLOCATION OF EXPENSES AND CHARGES. During the period this Agreement is in effect, the Company shall pay all costs and expenses in connection with the registration of Shares under the Securities Act of 1933 (the "1933 Act"), including all expenses in connection with the preparation and printing of any registration statements and prospectuses necessary for registration thereunder but excluding any additional costs and expenses incurred in furnishing the Distributor with prospectuses. The Company will also pay all costs, expenses and fees incurred in connection with the qualification of the Shares under the applicable Blue Sky laws of the states in which the Shares are offered. During the period this Agreement is in effect, the Distributor will pay or reimburse the Company for: (a) All costs and expenses of printing and mailing prospectuses (other than to existing shareholders) and confirmations, and all costs and expenses of preparing, printing and mailing advertising material, sales literature, circulars, applications, and other materials used or to be used in connection with the offering for sale and the sale of Shares; and (b) All clerical and administrative costs in processing the applications for and in connection with the sale of Shares. The Distributor agrees to submit to the Company for its prior approval all advertising material, sales literature, circulars and any other material which the Distributor proposes to use in connection with the offering for sale of Shares. 4. REDEMPTION OF SHARES. The Distributor, as agent of and for the account of the Fund, may redeem Shares of the Fund offered for resale to it at the net asset value of such Shares (determined as provided in the Articles of Incorporation or Bylaws) and not in excess of such maximum amounts as may be fixed from time to time by an officer of the Fund. Whenever the officers of the Fund deem it advisable for the protection of the shareholders of the Fund, they may suspend or cancel such authority. 5. SALES CHARGES. A contingent deferred sales charge shall be retained by the Distributor from the net asset value of Shares of the Fund that it has redeemed, it being understood that such amounts will not be in excess of that set forth in the then-current registration statement of the Fund. Furthermore, the Distributor may retain any amounts authorized for payment to it under the Fund's Distribution Plan. 6. DISTRIBUTOR MAY ACT AS BROKER AND RECEIVE COMMISSIONS. Notwithstanding any other provisions of this Agreement, it is understood and agreed that the Distributor may act as a broker, on behalf of the Company, in the purchase and sale of securities not effected on a securities exchange, provided that any such transactions and any commission paid in connection therewith shall comply in every respect with the requirements of the 1940 Act and in particular with Section 17(e) of that Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. 7. AGREEMENTS SUBJECT TO APPLICABLE LAW AND REGULATIONS. The parties hereto agree that all provisions of this Agreement will be performed in strict accordance with the requirements of: the 1940 Act, the 1933 Act, the Securities Exchange Act of 1934, the rules and regulations of the Securities and Exchange Commission under said statutes, all applicable state Blue Sky laws and the rules and regulations thereunder, the rules of the National Association of Securities Dealers, Inc., and, in strict accordance with, the provisions of the Articles of Incorporation and Bylaws of the Company. 8. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become effective at the date and time that the Company's prospectus, reflecting the underwriting arrangements provided by this Agreement, shall become effective under the 1933 Act, and shall, unless terminated as provided herein, continue in force for two years from that date, and from year to year thereafter, provided that such continuance for each successive year is specifically approved in advance at least annually by either the Board of Directors or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Company and, in either event, by the vote of a majority of the directors of the Company 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 upon such approval. As used in the preceding sentence, the words "interested persons" shall have the meaning set forth in Section 2(a)(19) of the 1940 Act. Written notice of any such approval by the Board of Directors or by the holders of a majority of the outstanding voting securities of the Company and by the directors who are not such interested persons shall be given promptly to the Distributor. This Agreement may be terminated at any time without the payment of any penalty by the Company by giving the Distributor at least sixty (60) days' previous written notice of such intention to terminate. This Agreement may be terminated by the Distributor at any time by giving the Company at least sixty (60) days' previous written notice of such intention to terminate. This Agreement shall terminate automatically in the event of its assignment. As used in the preceding sentence, the word "assignment" shall have the meaning set forth in Section 2(a)(4) of the 1940 Act. 9. CONSTRUCTION OF AGREEMENT. No provision of this Agreement is intended to or shall be construed as protecting the Distributor against any liability to the Company or to the Company's security holders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties under this Agreement. Terms or words used in the Agreement, which also occur in the Articles of Incorporation or Bylaws of the Company, shall have the same meaning herein as given to such terms or words in the Articles of Incorporation or Bylaws of the Company. 10. DISTRIBUTOR AN INDEPENDENT CONTRACTOR. The Distributor shall be deemed to be an independent contractor and, except as expressly provided or authorized by the Company, shall have no authority to act for or represent the Company. 11. NOTICE. Any notice required or permitted to be given hereunder to either of the parties hereto shall be deemed to have been given if mailed by certified mail in a postage-prepaid envelope addressed to the respective party as follows, unless any such party has notified the other party hereto that notices thereafter intended for such party shall be mailed to some other address, in which event notices thereafter shall be addressed to such party at the address designated in such request: Security Income Fund Security Benefit Group Building 700 Harrison Topeka, Kansas Security Distributors, Inc. Security Benefit Group Building 700 Harrison Topeka, Kansas 12. AMENDMENT OF AGREEMENT. No amendment to this Agreement shall be effective until approved by (a) a majority of the Board of Directors of the Company and a majority of the directors of the Company who are not parties to this Agreement or affiliated persons of any such party, or (b) a vote of the holders of a majority of the outstanding voting securities of the Company. IN WITNESS WHEREOF, the parties 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 INCOME FUND BY: MICHAEL J. PROVINES ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary (SEAL) SECURITY DISTRIBUTORS, INC. BY: HOWARD R. FRICKE ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary (SEAL) AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Class B Distribution Agreement dated October 1, 1994 (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class B common stock; WHEREAS, on October 21, 1994, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Limited Maturity Bond Series, in addition to its presently offered series of common stock of Corporate Bond Series and U.S. Government Series; WHEREAS, on October 21, 1994, the Board of Directors of the Fund further authorized the Fund to offer shares of the Limited Maturity Bond Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on October 21, 1994, the Board of Directors of the Fund approved an amendment to the Class B Distribution Agreement between the Fund and the Distributor to include the sale of Class B shares of the Limited Maturity Bond Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Class B Distribution Agreement to include the sale of Class B shares of the Limited Maturity Bond Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class B Distribution Agreement this 30th day of December 1994. SECURITY INCOME FUND By: JOHN D. CLELAND ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary SECURITY DISTRIBUTORS, INC. By: RICHARD K RYAN ------------------------------ President ATTEST: AMY J. LEE - ------------------------------ Secretary AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Class B Distribution Agreement dated October 1, 1993 (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class B common stock; WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Global Aggressive Bond Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series and U.S. Government Series; WHEREAS, on February 3, 1995, the Board of Directors of the Fund further authorized the Fund to offer shares of the Global Aggressive Bond Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on February 3, 1995, the Board of Directors of the Fund approved an amendment to the Class B Distribution Agreement between the Fund and the Distributor to include the sale of Class B shares of the Global Aggressive Bond Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Class B Distribution Agreement to include the sale of Class B shares of the Global Aggressive Bond Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class B Distribution Agreement this 18th day of April, 1995. ATTEST: SECURITY INCOME FUND AMY J. LEE By: JOHN D. CLELAND - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary John D. Cleland, President ATTEST: SECURITY DISTRIBUTORS, INC. AMY J. LEE By: RICHARD K RYAN - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary Richard K Ryan, President AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Class B Distribution Agreement dated October 1, 1993, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class B common stock; WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the High Yield Series, in addition to its presently offered series of common stock of Corporate Bond Series, U.S. Government Series, Limited Maturity Bond Series, and Global Aggressive Bond Series; WHEREAS, on May 3, 1996, the Board of Directors of the Fund further authorized the Fund to offer shares of the High Yield Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on May 3, 1996, the Board of Directors of the Fund approved an amendment to the Class B Distribution Agreement between the Fund and the Distributor to include the sale of Class B shares of the High Yield Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Class B Distribution Agreement to include the sale of Class B shares of the High Yield Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class B Distribution Agreement this 13th day of May 1996. ATTEST: SECURITY INCOME FUND AMY J. LEE By: JOHN D. CLELAND - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary John D. Cleland, President ATTEST: SECURITY DISTRIBUTORS, INC. AMY J. LEE By: RICHARD K RYAN - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary Richard K Ryan, President AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Class B Distribution Agreement dated October 1, 1993, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class B common stock; WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the Fund to offer its common stock in two new series designated as the Emerging Markets Total Return Series and the Global Asset Allocation Series, in addition to its presently offered series of common stock of Corporate Bond Series, U.S. Government Series, Limited Maturity Bond Series, Global Aggressive Bond Series, and High Yield Series; WHEREAS, on February 7, 1997, the Board of Directors of the Fund further authorized the Fund to offer shares for each of the Emerging Markets Total Return Series and the Global Asset Allocation Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved an amendment to the Class B Distribution Agreement between the Fund and the Distributor to include the sale of Class B shares for each of the Emerging Markets Total Return Series and the Global Asset Allocation Series; NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Class B Distribution Agreement to include the sale of Class B shares for each of the Emerging Markets Total Return Series and the Global Asset Allocation Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class B Distribution Agreement this 12th day of March, 1997. ATTEST: SECURITY INCOME FUND By: AMY J. LEE By: JOHN D. CLELAND -------------------------------- -------------------------------- Amy J. Lee, Secretary John D. Cleland, President ATTEST: SECURITY DISTRIBUTORS, INC. By: AMY J. LEE By: RICHARD K RYAN -------------------------------- -------------------------------- Amy J. Lee, Secretary Richard K Ryan, President AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the "Distributor") are parties to a Class B Distribution Agreement dated October 1, 1993, as amended (the "Distribution Agreement"), under which the Distributor has agreed to act as principal underwriter in connection with sales of the shares of the Fund's Class B common stock; WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Capital Preservation Series, in addition to its presently offered series of common stock of Corporate Bond Series, U.S. Government Series, Limited Maturity Bond Series, Global High Yield Series, High Yield Series, Emerging Markets Total Return Series and Global Asset Allocation Series; WHEREAS, on February 10, 1999, the Board of Directors of the Fund further authorized the Fund to offer shares of the Capital Preservation Series in three classes, designated Class A shares, Class B shares and Class C shares; and WHEREAS, on February 10, 1999, the Board of Directors of the Fund approved an amendment to the Class B Distribution Agreement between the Fund and the Distributor to include the sale of Class B shares for the Capital Preservation Series. NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the Class B Distribution Agreement to include the sale of Class B shares for the Capital Preservation Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class B Distribution Agreement this 30th day of April, 1999. ATTEST: SECURITY INCOME FUND By: AMY J. LEE By: JAMES R. SCHMANK -------------------------------- -------------------------------- Amy J. Lee, Secretary James R. Schmank, Vice President ATTEST: SECURITY DISTRIBUTORS, INC. By: AMY J. LEE By: RICHARD K RYAN -------------------------------- -------------------------------- Amy J. Lee, Secretary Richard K Ryan, President EX-99.E3 7 CLASS C DISTRIBUTION AGREEMENT CLASS C DISTRIBUTION AGREEMENT THIS AGREEMENT, made this 30th day of April, 1999, between Security Income Fund, a Kansas corporation (hereinafter referred to as the "Company"), and Security Distributors, Inc., a Kansas corporation (hereinafter referred to as the "Distributor"). WITNESSETH: WHEREAS, the Company is engaged in business as an open-end, management investment company registered under the federal Investment Company Act of 1940 (the "1940 Act"); WHEREAS, the Company issues its stock in several series; and WHEREAS, the Distributor is willing to act as principal underwriter for the Company to offer for sale, sell and deliver after sale, the Class C Shares of the Company's Capital Preservation Series of common stock (hereinafter referred to as the "Shares") on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the parties hereto agree as follows: 1. Employment of Distributor. The Company hereby employs the Distributor to act as principal underwriter for the Company with respect to its Class C Shares and hereby agrees that during the term of this Agreement, and any renewal or extension thereof, or until any prior termination thereof, the Distributor shall have the exclusive right to offer for sale and to distribute any and all of the Class C Shares issued or to be issued by the Company. The Distributor hereby accepts such employment and agrees to act as the distributor of the Class C Shares issued or to be issued by the Company during the period this Agreement is in effect and agrees during such period to offer for sale such Shares as long as such Shares remain available for sale, unless the Distributor is unable legally to make such offer for sale as the result of any law or governmental regulation. 2. Offering Price and Commissions. Prior to the issuance of any Shares by the Company pursuant to any subscription tendered by or through the Distributor and confirmed for sale to or through the Distributor, the Distributor shall pay or cause to be paid to the custodian of the Company in cash, an amount equal to the net asset value of such Shares at the time of acceptance of each such subscription and confirmation by the Company of the sale of such Shares. All Shares shall be sold to the public only at their public offering price at the time of such sale, and the Company shall receive not less than the full net asset value thereof. 3. Allocation of Expenses and Charges. During the period this Agreement is in effect, the Company shall pay all costs and expenses in connection with the registration of Shares under the Securities Act of 1933 (the "1933 Act"), including all expenses in connection with the preparation and printing of any registration statements and prospectuses necessary for registration thereunder but excluding any additional costs and expenses incurred in furnishing the Distributor with prospectuses. The Company also will pay all costs, expenses and fees incurred in connection with the qualification of the Shares under the applicable Blue Sky laws of the states in which the Shares are offered. During the period this Agreement is in effect, the Distributor will pay or reimburse the Company for: (a) All costs and expenses of printing and mailing prospectuses (other than to existing shareholders) and confirmations, and all costs and expenses of preparing, printing and mailing advertising material, sales literature, circulars, applications, and other materials used or to be used in connection with the offering for sale and the sale of Shares; and (b) All clerical and administrative costs in processing the applications for and in connection with the sale of Shares. The Distributor agrees to submit to the Company for its prior approval all advertising material, sales literature, circulars and any other material which the Distributor proposes to use in connection with the offering for sale of Shares. 4. Redemption of Shares. The Distributor, as agent of and for the account of the Fund, may redeem Shares of the Fund offered for resale to it at the net asset value of such Shares (determined as provided in the then-current registration statement of the Fund) and not in excess of such maximum amounts as may be fixed from time to time by an officer of the Fund. Whenever the officers of the Fund deem it advisable for the protection of the shareholders of the Fund, they may suspend or cancel such authority. 5. Sales Charges. A contingent deferred sales charge shall be retained by the Distributor from the net asset value of Shares of the Fund that it has redeemed, it being understood that such amounts will not be in excess of that set forth in the then-current registration statement of the Fund. Furthermore, the Distributor may retain any amounts authorized for payment to it under the Fund's Distribution Plan. 6. Distributor May Act as Broker and Receive Commissions. Notwithstanding any other provisions of this Agreement, it is understood and agreed that the Distributor may act as a broker, on behalf of the Company, in the purchase and sale of securities not effected on a securities exchange, provided that any such transactions and any commission paid in connection therewith shall comply in every respect with the requirements of the 1940 Act and in particular with Section 17(e) of that Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. 7. Agreements Subject to Applicable Law and Regulations. The parties hereto agree that all provisions of this Agreement will be performed in strict accordance with the requirements of: the 1940 Act, the 1933 Act, the Securities Exchange Act of 1934, the rules and regulations of the Securities and Exchange Commission under said statutes, all applicable state Blue Sky laws and the rules and regulations thereunder, the rules of the National Association of Securities Dealers, Inc., and, in strict accordance with, the provisions of the Articles of Incorporation and Bylaws of the Company. 8. Duration and Termination of Agreement. This Agreement shall become effective at the date and time that the Company's prospectus, reflecting the underwriting arrangements provided by this Agreement, shall become effective under the 1933 Act, and shall, unless terminated as provided herein, continue in force for two years from that date, and from year to year thereafter, provided that such continuance for each successive year is specifically approved in advance at least annually by either the Board of Directors or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Class C shares of the Series and, in either event, by the vote of a majority of the directors of the Company 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 upon such approval. As used in the preceding sentence, the words "interested persons" shall have the meaning set forth in Section 2(a)(19) of the 1940 Act. This Agreement may be terminated at any time without the payment of any penalty by the Company by giving the Distributor at least sixty (60) days' previous written notice of such intention to terminate. This Agreement may be terminated by the Distributor at any time by giving the Company at least sixty (60) days' previous written notice of such intention to terminate. This Agreement shall terminate automatically in the event of its assignment. As used in the preceding sentence, the word "assignment" shall have the meaning set forth in Section 2(a)(4) of the 1940 Act. 9. Construction of Agreement. No provision of this Agreement is intended to or shall be construed as protecting the Distributor against any liability to the Company or to the Company's security holders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties under this Agreement. Terms or words used in the Agreement, which also occur in the Articles of Incorporation or Bylaws of the Company, shall have the same meaning herein as given to such terms or words in the Articles of Incorporation or Bylaws of the Company. 10. Distributor an Independent Contractor. The Distributor shall be deemed to be an independent contractor and, except as expressly provided or authorized by the Company, shall have no authority to act for or represent the Company. 11. Notice. Any notice required or permitted to be given hereunder to either of the parties hereto shall be deemed to have been given if mailed by certified mail in a postage-prepaid envelope addressed to the respective party as follows, unless any such party has notified the other party hereto that notices thereafter intended for such party shall be mailed to some other address, in which event notices thereafter shall be addressed to such party at the address designated in such request: Security Income Fund Security Benefit Group Building 700 Harrison Topeka, Kansas Security Distributors, Inc. Security Benefit Group Building 700 Harrison Topeka, Kansas 12. Amendment of Agreement. No amendment to this Agreement shall be effective until approved by (a) a majority of the Board of Directors of the Company and a majority of the directors of the Company who are not parties to this Agreement or affiliated persons of any such party, or (b) a vote of the holders of a majority of the outstanding voting securities of the Class C shares of the Series. IN WITNESS WHEREOF, the parties 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 INCOME FUND BY: JAMES R. SCHMANK -------------------------------- James R. Schmank, Vice President ATTEST: AMY J. LEE - ------------------------------ Secretary SECURITY DISTRIBUTORS, INC. BY: RICHARD K RYAN -------------------------------- Richard K Ryan, President ATTEST: AMY J. LEE - ------------------------------ Secretary EX-99.H1 8 THIRD PARTY FEEDER FUND AGRMT. - CAP. PRESERVATION 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 700 SW Harrison Street Topeka, Kansas 66636-0001 Attention: General Counsel If to the Portfolio or Bankers: Mutual Fund Services BT Alex.Brown Incorporated One South Street Baltimore, MD 21202 Attention: Richard T. Hale 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: JAMES R. SCHMANK --------------------------------- Name: James R. Schmank --------------------------------- Title: President --------------------------------- SECURITY DISTRIBUTORS, INC. By: RICHARD K RYAN --------------------------------- Name: Richard K Ryan --------------------------------- Title: President --------------------------------- SECURITY INCOME FUND on behalf of itself and the Capital Preservation Series, a series thereof By: JAMES R. SCHMANK --------------------------------- Name: James R. Schmank --------------------------------- Title: Vice President --------------------------------- BT PRESERVATIONPLUS INCOME PORTFOLIO By: DANIEL O. HIRSCH --------------------------------- Name: Daniel O. Hirsch --------------------------------- Title: Secretary --------------------------------- BANKERS TRUST COMPANY By: ERIC KIRSCH --------------------------------- Name: Eric Kirsch --------------------------------- Title: Managing Director --------------------------------- EX-99.H2 9 RECORDKEEPING AND INVESTMENT ACCTING. AGRMT. RECORDKEEPING AND INVESTMENT ACCOUNTING AGREEMENT The parties to this Agreement are Security Management Company, LLC, ("Security Management"), a Kansas limited liability company, having its principal place of business at 700 SW Harrison Street, Topeka, Kansas 66636, and Bankers Trust Company ("Bankers"), a New York banking corporation, having its principal place of business at 130 Liberty Street, New York, New York 10006. This Agreement is made effective as of May 4, 1999. WITNESS WHEREAS, Security Management provides general administrative, fund accounting, dividend disbursing and transfer agency services to the Capital Preservation Series (the "Fund") of Security Income Fund (the "Company") pursuant to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, as amended April 30, 1999; and WHEREAS, under the terms of said agreement, Security Management is authorized to delegate, assign or subcontract any of its duties under the agreement to a third party provided that such arrangement is approved by the board of directors of the Company; and WHEREAS, the board of directors of the Company approved the form of this Recordkeeping and Investment Accounting Agreement at a meeting held February 10, 1999; and WHEREAS, the Company is registered as an "investment company" under the Investment Company Act of 1940 (the "1940 Act") and the Fund is a duly authorized series of the Company; and WHEREAS, Bankers performs certain investment accounting and recordkeeping services on a computerized accounting system (the "Portfolio Accounting System") in connection with maintaining certain accounting records of the Fund; WHEREAS, Security Management desires to appoint Bankers as recordkeeping and investment accounting sub-agent for the Fund, and Bankers is willing to accept such appointment; NOW, THEREFORE, in consideration of the mutual promises herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties, intending to be legally bound, mutually covenant and agree as follows: 1. APPOINTMENT OF INVESTMENT ACCOUNTING AND RECORDKEEPING SUB-AGENT. Security Management hereby constitutes and appoints Bankers as investment accounting and recordkeeping sub-agent for the Fund to perform accounting and recordkeeping functions related to portfolio transactions required of the Fund under Rule 31a-1 under the 1940 Act and to calculate the net asset value of the Fund. 2. REPRESENTATIONS AND WARRANTIES OF SECURITY MANAGEMENT. Security Management hereby represents, warrants and acknowledges to Bankers: (a) That it is a limited liability company duly organized and existing and in good standing under the laws of Kansas; (b) That it has the requisite power and authority under applicable law, its charter and its bylaws to enter into this Agreement; that it has taken all requisite action necessary to appoint Bankers as investment accounting and recordkeeping sub-agent for Fund; that this Agreement has been duly executed and delivered by Security Management; and that this Agreement constitutes a legal, valid and binding obligation of Security Management, enforceable in accordance with its terms; and (c) That it has determined to its satisfaction that the Portfolio Accounting System is appropriate and suitable for its needs. 3. REPRESENTATIONS AND WARRANTIES OF BANKERS. Bankers hereby represents, warrants and acknowledges to Security Management: (a) That it is a New York banking corporation duly organized and existing and in good standing under the laws of the State of New York; (b) That it has the requisite power and authority under applicable law, its charter and its bylaws to enter into and perform this Agreement; that this Agreement has been duly executed and delivered by Bankers; and that this Agreement constitutes a legal, valid and binding obligation of Bankers, enforceable in accordance with its terms; and (c) That the accounts and records maintained and preserved by Bankers shall be the property of the Fund and that it will not use any information made available to it under the terms hereof for any purpose other than complying with its duties and responsibilities hereunder or as specifically authorized by Security Management in writing. (d) YEAR 2000 PREPAREDNESS. Bankers 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. 4. Duties and Responsibilities of Security Management. (a) Security Management shall turn over to Bankers all of Fund's accounts and records previously maintained, if any. (b) Security Management shall provide to Bankers the information reasonably necessary to perform Bankers` duties and responsibilities hereunder prior to the close of the New York Stock Exchange on each day on which Bankers prices the Funds' securities. Security Management will provide information requested as necessary in a written or printed instrument, or in an electronic format mutually agreed upon with Bankers, prior to the close of the New York Stock Exchange on each day on which Bankers prices the Funds' securities. (c) Security Management shall pay to Bankers such compensation at such time as may from time to time be agreed upon in writing by Bankers and Security Management. The initial compensation schedule is attached as Exhibit A. (d) Security Management shall provide to Bankers, as conclusive proof of any fact or matter required to be ascertained from Security Management as reasonably determined by Bankers, a certificate signed by Security Management's president or other officer of Security Management, or other authorized individual, as reasonably requested by Bankers. Security Management shall also provide to Bankers instructions with respect to any matter concerning this Agreement requested by Bankers. Bankers may rely upon any instruction or information furnished by any person reasonably believed by it to be an officer or agent of Security Management, and shall not be held to have notice of any change of authority of any such person until receipt of written notice thereof from Security Management. (e) Security Management shall preserve the confidentiality of the Portfolio Accounting System and the tapes, books, reference manuals, instructions, records, programs, documentation and information of, and other materials relevant to, the Portfolio Accounting System and the business of Bankers (collectively, "Confidential Information"). Security Management shall not voluntarily disclose such Confidential Information to any other person other than its own employees or agents who reasonably have a need to know such information pursuant to this Agreement, or as may be required by applicable law. Security Management shall return all such Confidential Information to Bankers upon termination or expiration of this Agreement. (f) If Bankers shall provide Security Management direct access to the computerized recordkeeping and reporting system used hereunder or if Bankers and Security Management shall agree to utilize any electronic system of communication, Security Management shall be fully responsible for any and all consequences of the use or misuse of the terminal device, passwords, access instructions and other means of access to such system(s) which are utilized by, assigned to or otherwise made available to Security Management. Security Management agrees to implement and enforce appropriate security policies and procedures to prevent unauthorized or improper access to or use of such system(s). Bankers shall be fully protected in acting hereunder upon any instructions, communications, data or other information received by Bankers by such means as fully and to the same effect as if delivered to Bankers by written instrument signed by the requisite authorized representative(s) of Security Management. 5. Duties and Responsibilities of Bankers. (a) Bankers shall calculate Fund's net asset value in accordance with Fund's registration statement and applicable regulations. (b) Bankers shall prepare and maintain, in complete, accurate, and current form, all accounts and records necessary as a basis for calculation of Fund's net asset value, and shall preserve such records in the manner and for the periods required by law or for such longer period as the parties may agree upon in writing. (c) Bankers shall make available to Security Management and Fund for inspection or reproduction within a reasonable time, upon demand, all accounts and records of Fund maintained and preserved by Bankers. (d) Bankers shall be entitled to rely conclusively on the completeness and correctness of any and all accounts and records turned over to it by Security Management. (e) Bankers shall assist Fund's independent accountants, or upon approval of Security Management or Fund or upon demand, any regulatory body, in any requested review of Fund's accounts and records maintained by Bankers but shall be reimbursed by Security Management for all expenses and employee time invested in any such review outside of routine and normal periodic reviews. Inspections conducted by the Securities and Exchange Commission shall be considered routine. (f) Bankers shall respond to reasonable requests for information from Fund or Security Management for books and records maintained by Bankers. Reasonable requests include information necessary for Security Management or Fund to prepare tax returns, questionnaires, periodic reports to shareholders and other such other reports as Security Management and Bankers shall agree upon from time to time. (g) Bankers shall not have any responsibility hereunder to Fund, Fund's shareowners or any other person or entity for moneys or securities of Fund, whether held by Fund or Fund's custodians. 6. INDEMNIFICATION. (a) Security Management shall indemnify and hold Bankers harmless from and against any and all costs, expenses, losses, damages (including consequential, special and punitive damages), charges, reasonable counsel fees, payments and liabilities (including amounts paid in settlement, provided that Security Management shall have approved such settlement) which may be asserted against or incurred by Bankers, or for which it may be liable, arising out of or attributable to: 1. Security Management's refusal or failure to substantially comply with the terms of this Agreement. 2. Security Management's negligent or willful misconduct in connection with the performance of its duties under this Agreement, or the failure of any representation or warranty of Security Management hereunder to be and remain materially true and correct at all times. 3. The failure of Security Management to comply with applicable law in connection with the performance of its duties under this Agreement. 4. Any error, omission, inaccuracy or other deficiency in Fund's accounts and records or other information provided by or on behalf of Security Management to Bankers, or the failure of Security Management to provide, or provide in a timely manner, the information needed by Bankers to perform its functions. 5. Payment of money by Bankers at the request of Security Management, or the taking of any action by Bankers at the request of Security Management which might make Bankers liable for payment of money; provided, however, that notwithstanding this indemnification, Bankers shall not be obligated to expend its own moneys or to take any action to pay money except in Bankers' sole discretion. 6. The legality of the issue, sale or purchase of any shares of the Fund, the sufficiency of the purchase or sale price, or the declaration of any dividend by the Fund, whether paid in cash or stock. 7. The misuse, whether authorized or unauthorized, of the Portfolio Accounting System or other computerized recordkeeping and reporting system to which Bankers provides Security Management direct access hereunder or by any person who acquires access to such system(s) through the terminal device, passwords, access instruction or other means of access to such system(s) which are utilized by, assigned to or otherwise made available to Security Management, except to the extent attributable to any negligence or willful misconduct by Bankers. 8. Bankers' action or omission to act under this Agreement upon any instructions, advice, notice, request, consent, certificate or other instrument or paper which it reasonably believes to have originated from Security Management, the Fund, the Fund's custodian, or the Fund's independent public accountant and which it reasonably believes to be genuine and to have been properly executed. 9. Bankers' action or omission to act under this Agreement in good faith reliance on the advice or opinion of counsel acceptable to both Security Management and Bankers concerning the subject matter of this Agreement. 10. Banker's action or omission to act under this Agreement in good faith reliance on statements of counsel to the Fund, the Fund's independent accountants, and the Fund's officers or other authorized individuals provided by Fund resolution concerning the subject matter of this Agreement. (b) Bankers shall indemnify and hold Security Management and Fund harmless from and against any and all costs, expenses, losses, damages (including consequential, special and punitive damages), charges, reasonable counsel fees, payments and liabilities (including amounts paid in settlement, provided that Bankers shall have approved such settlement) which may be asserted against or incurred by Security Management or Fund, or for which it may be liable, arising out of or attributable to: 1. Bankers' refusal or failure to substantially comply with the terms of this Agreement. 2. Bankers' negligent or willful misconduct in connection with the performance of its duties under this Agreement or the failure of any representation or warranty of Bankers hereunder to be and remain materially true and correct at all times. 3. The failure of Bankers to comply with applicable law in connection with the performance of its duties under this Agreement. 4. Any error, omission, inaccuracy or other deficiency in Fund's accounts and records or other information provided by or on behalf of Bankers to Security Management, or the failure of Bankers to provide, or provide in a timely manner, the information needed by Security Management to perform its functions. 5. Security Management's action or omission to act under this Agreement upon any instructions, advice, notice, request, consent, certificate or other instrument or paper which it reasonably believes to have originated from Bankers or Bankers' independent public accountant and which it reasonably believes to be genuine and to have been properly executed. 6. Security Management's action or omission to act under this Agreement in good faith reliance on the advice or opinion of counsel acceptable to both Security Management and Bankers concerning the subject matter of this Agreement. 7. Security Management's action or omission to act under this Agreement in good faith reliance on statements of counsel to Bankers, Bankers' independent accountants, and Bankers' officers or Bankers' authorized employees. (c) A party shall not be liable under this Section 6 with respect to any claim made against an otherwise indemnified party unless the party seeking indemnification shall have notified the indemnifying party in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the party seeking indemnification. Failure to provide notice as provided above shall relieve a party from liability only to the extent that the party is actually harmed or disadvantaged by the failure to provide timely notice, and shall not relieve a party from any liability that it may otherwise have without regard to Section 6. An indemnifying party shall be entitled to: 1. participate, at its own expense, in the defense of an action for which indemnity may be had against that party hereunder, and 2. to assume control of the defense of an action for which the indemnifying party may be liable hereunder if the indemnifying party engages counsel agreeable to the indemnified party to prosecute the defense; agreement to the selection of counsel not to be unreasonably withheld. (d) In the event of losses occasioned by the negligent error of Bankers in calculating the Fund's net asset value, Security Management shall accept Bankers' offer to minimize or eliminate any resulting monetary damages by employing such alternatives as reprocessing fund shareowner transactions. Bankers shall bear the reasonable costs of reprocessing such transactions. 7. FORCE MAJEURE. Bankers shall not be responsible or liable for its failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control or ability to minimize or redress, including, without limitation: any interruption, loss or malfunction of any utility, transportation, computer (hardware or software) or communication service; inability to obtain labor, material, equipment or transportation, or a delay in mails; governmental or exchange action, statute, ordinance, rulings, regulations or direction; war, strike, riot, emergency, civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes, floods, fires, tornadoes, acts of God or public enemy, revolutions, or insurrection. 8. PROCEDURES. Bankers and Security Management may from time to time adopt procedures as they agree upon, and Bankers may conclusively assume that any procedure approved or directed by Security Management does not conflict with or violate any requirements of Fund's prospectus, charter or declaration of trust, bylaws, any applicable law, rule or regulation, or any order, decree or agreement by which the Fund may be bound. 9. TERM AND TERMINATION. This Agreement may be terminated by either party by notice in writing received by the other party not less than one hundred twenty (120) days prior to the date upon which such termination shall take effect. This Agreement shall terminate automatically in the event of the termination of the (i) Administrative Services and Transfer Agency Agreement between Security Management and Company, or (ii) Third Party Feeder Fund Agreement dated May 4, 1999 between Security Management and Bankers. Upon termination of this Agreement: (a) Security Management shall pay to Bankers its fees and compensation due hereunder. (b) Security Management shall designate a successor (which may be Security Management) by notice in writing to Bankers on or before the termination date. (c) Bankers shall deliver to the successor, or if none has been designated, to Security Management, at Bankers' office, all records, funds and other properties of Fund deposited with or held by Bankers hereunder. In the event that neither a successor nor Security Management takes delivery of all records, funds and other properties of Fund by the termination date, Bankers' sole obligation with respect thereto from the termination date until delivery to a successor or Security Management shall be to exercise reasonable care to hold the same in custody in its form and condition as of the termination date, and Bankers shall be entitled to reasonable compensation therefor, including but not limited to all of its out-of-pocket costs and expenses incurred in connection therewith. 10. NOTICES. All notices, requests, instructions and other writings shall be deemed to have been properly given hereunder if addressed as follows: If to Security Management: Security Management Company, LLC 700 SW Harrison Street Topeka, Kansas 66636-0001 Attention: General Counsel If to Bankers Trust Company: Mutual Fund Services BT Alex.Brown Incorporated One South Street Baltimore, MD 21202 Attention: Richard T. Hale or to such other address as a party may designate, in writing, to each other party. 11. MISCELLANEOUS. (a) This Agreement shall be construed according to, and the rights and liabilities of the parties hereto shall be governed by, the laws of the State of New York, without reference to the choice of laws principles thereof. (b) All terms and provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. (c) The representations and warranties and the indemnification extended hereunder, are intended to and shall continue after and survive the expiration, termination or cancellation of this Agreement. (d) The confidentiality provisions of Sections 4.E. and 4.F. shall continue after and survive the expiration, termination or cancellation of this Agreement. (e) No provisions of the Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by each party hereto. (f) The failure of either party to insist upon the performance of any terms or conditions of this Agreement or to enforce any rights resulting from any breach of any of the terms or conditions of this Agreement, including the payment of damages, shall not be construed as a continuing or permanent waiver of any such terms, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. (g) The captions in this Agreement are included for convenience of reference only, and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. (h) This Agreement may be executed in two or more separate counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (i) If any provision of this Agreement shall be determined to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, and every provision of this Agreement shall remain in full force and effect and shall remain enforceable to the fullest extent permitted by applicable law. (j) This Agreement may not be assigned by either party hereto without the prior written consent of the other. The parties hereby consent to the acquisition of Bankers by Deutsche Bank AG or an affiliate of Deutsche Bank AG. (k) Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and between Security Management and Bankers. (l) Except as specifically provided herein, this Agreement does not in any way affect any other agreements entered into among the parties hereto and any actions taken or omitted by any party hereunder shall not affect any rights or obligations of any other party hereunder. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective and duly authorized officers, to be effective as of the day and year first above written. BANKERS TRUST COMPANY By: ERIC KIRSCH -------------------------------- Name: Eric Kirsch Title: Managing Director SECURITY MANAGEMENT COMPANY, LLC By: JAMES R. SCHMANK -------------------------------- Name: James R. Schmank Title: President EXHIBIT A FEES For one fund and one class of that fund $10,000.00 For each additional class $ 2,000.00 EX-99.H3 10 MANAGEMENT SERVICES AGREEMENT MANAGEMENT SERVICES AGREEMENT AGREEMENT, made this 30th day of April, 1999, between Security Income Fund, a Kansas corporation (the "Fund"), and Security Management Company, LLC, a Kansas corporation ("Manager"). WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund is authorized to issue its shares in multiple series with each such series representing a separate portfolio of securities and other assets; and WHEREAS, one of the series of the Fund is the Capital Preservation Series (referred to hereinafter as the "Series"); and WHEREAS, the Fund desires to engage the Manager to provide certain services to the Series; and WHEREAS, the Manager is willing, in accordance with the terms and conditions hereof, to provide such services to the Series; and NOW THEREFORE, in consideration of the mutual agreements set forth herein and intending to be legally bound hereby, the parties agree as follows: 1. APPOINTMENT AND DUTIES OF MANAGER (a) The Fund, on behalf of the Series, hereby employs the Manager to perform the services set forth in this Agreement, subject to the supervision of the Board of Directors of the Fund, for the period and on the terms set forth in this Agreement. The Manager hereby accepts such employment and undertakes to pay the salaries and expense of all personnel of the Manager who perform services relating to the services it performs hereunder. The Manager shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. (b) Notwithstanding the foregoing, the Manager shall not be deemed to have assumed any duties hereunder with respect to, and shall not, by the execution of this Agreement be responsible for, the management of the Funds' assets or the rendering of investment advice and supervision with respect thereto, or the distribution of shares of the Funds, nor shall the Manager be deemed to have assumed any responsibility hereunder with respect to functions specifically assumed by any administrator, transfer agent, custodian or shareholder servicing agent of the Fund or the Series. (c) Without limiting the generality of the foregoing, the Manager shall provide the following services to the Series (as well as the services set forth in Section1(d) below): i. Provide information to and coordinate the Series' relationship with registered investment advisors and other securities professionals who have discretionary authority over Series shareholder accounts, assist in facilitating instructions received by such persons relating to Fund business and furnish facilities and personnel necessary to perform such activities. ii. Assist as appropriate and coordinate with the Fund's service providers in administering the affairs of the Series and perform services on the Series' behalf. iii. Pay the salaries and expenses of all officers and Directors of the Fund who are employees of the Manager. (d) It is intended that the assets of the Series will be invested in a portfolio (the Portfolio") having substantially the same investment objective, policies and restrictions as the Series. In addition to its duties hereunder, set forth in paragraph 1(c), above, with respect to the Series, the Manager shall perform the following: i. Monitor the performance of the Portfolio; ii. Coordinate the relationship of the Series with the Portfolio; iii. Communicate with the Board of Directors of the Fund regarding the performance of the Portfolio and the Series; iv. Furnish reports regarding the Portfolio as reasonably requested from time-to-time by the Fund's Board of Directors. v. Perform such other necessary and desirable services regarding the "Master Feeder" structure of the Series as the Directors may reasonably request from time to time, including providing certain indemnification to the Portfolio and the investment advisor on behalf of the Series. (e) In carrying out its responsibilities under this Agreement, the Manager shall at all times act in accordance with applicable provisions of the 1940 Act and the rules and regulations promulgated thereunder and other applicable federal securities laws. (f) The Manager shall render regular reports as requested by the Board of Directors, and will, at the reasonable request of the Board, attend meetings of the board or its validly constituted committees, and will make its officers and employees available to meet with the Board to discuss its duties hereunder. 2. EXPENSES AND COMPENSATION (a) Allocation of Expenses. The Manager shall, at its expense, employ or associate with itself such persons as it believes appropriate to assist in performing its obligations under this Agreement and provide all services, equipment, facilities and personnel necessary to perform it obligations under this Agreement. The Fund shall be responsible for all its expenses and liabilities not otherwise specifically assumed by the Manager hereunder. (b) Compensation. For its services under this Agreement, Manager shall be entitled to receive a fee at the annual rate of 20% of the average daily net asset value of the Series payable monthly. For the purpose of accruing compensation, the net asset value of the Series will be determined in the manner provided in the then-current Prospectus of the Fund. 3. LIABILITY OF MANAGER. Neither the Manager nor its officers, directors, employees, agents or controlling person ("Associated Person") of the Manager shall be liable for any error of judgment or mistake of law or for any loss suffered by the Fund or Series in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of Manager or such Associated Persons in the performance of their duties or from reckless disregard by them of their duties under this Agreement. 4. DURATION AND TERMINATION OF THIS AGREEMENT (a) DURATION. This Agreement shall become effective on the date hereof. Unless terminated as herein provided, this Agreement shall remain in full force and effect for two years from the date hereof. Subsequent to such initial period of effectiveness, this Agreement shall continue in full force and effect for successive periods of one year thereafter so long as such continuance is approved at least annually by the Directors of the Fund, including the vote of a majority of the Directors of the Fund who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of any such party. (b) AMENDMENT. Any amendment to this Agreement shall become effective only upon the written approval of the Manager and the Fund. (c) TERMINATION. This Agreement may be terminated at any time, without payment of any penalty, by vote of the Directors or by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the Series, or by the Manager, in each case upon sixty (60) days' prior written notice to the other party. Any termination of this Agreement will be without prejudice to the completion of transactions already initiated by the Manager on behalf of the Series at the time of such termination. The Manager shall take all steps reasonably necessary after such termination to complete any such transactions and is hereby authorized to take such steps. (d) AUTOMATIC TERMINATION. This Agreement shall automatically and immediately terminate in the event of its assignment (as defined in the 1940 Act). 5. SERVICES NOT EXCLUSIVE. The services of the Manager to the Series of the Fund hereunder are not to be deemed exclusive, and the Manager shall be free to render similar services to others so long as its services hereunder are not impaired thereby. 6. MISCELLANEOUS (a) NOTICE. Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, to the other party at such address as such other party may designate in writing for the receipt of such notices. (b) SEVERABILITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder shall not be thereby affected. (c) APPLICABLE LAW. This Agreement shall be construed in accordance with and governed by the laws of Kansas. Security Management Company, LLC Security Income Fund JAMES R. SCHMANK JOHN D. CLELAND - ---------------------------------- ------------------------------- By: James R. Schmank By: John D. Cleland Title: President Title: President Attest: AMY J. LEE Attest: AMY J. LEE --------------------------- ------------------------- Amy J. Lee, Secretary Amy J. Lee, Secretary EX-99.H4 11 ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGRMT. ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT This Agreement, made and entered into this 1st day of April, 1987, by and between Security Income Fund, a Kansas corporation ("Fund"), and Security Management Company, a Kansas corporation, ("SMC"). WHEREAS, the Fund is engaged in business as an open-end management investment company registered under the Investment Company Act of 1940; and WHEREAS, Security Management Company is willing to provide general administrative, fund accounting, transfer agency, and dividend disbursing services to the Fund under the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual agreements made herein, the parties agree as follows: 1. EMPLOYMENT OF SECURITY MANAGEMENT COMPANY SMC will provide the Fund with general administrative, fund accounting, transfer agency, and dividend disbursing services described and set forth in Schedule A attached hereto and made a part of this agreement by reference. SMC agrees to maintain sufficient trained personnel and equipment and supplies to perform such services in conformity with the current prospectus of the Fund and such other reasonable standards of performance as the Fund may from time to time specify, and otherwise in an accurate, timely, and efficient manner. 2. COMPENSATION As consideration for the services described in Section I, the Fund agrees to pay SMC a fee as described and set forth in Schedule B attached hereto and made a part of this agreement by reference, as it may be amended from time to time, such fee to be calculated and accrued daily and payable monthly. 3. EXPENSES A. EXPENSES OF SMC. SMC shall pay all of the expenses incurred in providing Fund the services and facilities described in this agreement, whether or not such expenses are billed to SMC or the fund, except as otherwise provided herein. B. DIRECT EXPENSES. Anything in this agreement to the contrary notwithstanding, the Fund shall pay, or reimburse SMC for the payment of, the following described expenses of the Fund (hereinafter called "direct expenses") whether or not billed to the Fund, SMC or any related entity: 1. Fees and expenses of its independent directors and the meetings thereof; 2. Fees and costs of investment advisory services; 3. Fees and costs of independent auditors and income tax preparation; 4. Fees and costs of outside legal counsel and any legal counsel directly employed by the Fund or its Board of Directors; 5. Custodian and banking services, fees and costs; 6. Costs of printing and mailing prospectuses to existing shareholders, proxy statements and other reports to shareholders, where such costs are incurred through the use of unaffiliated vendors or mail services. 7. Fees and costs for the registration of its securities with the Securities and Exchange Commission and the jurisdictions in which it qualifies its share for sale, including the fees and costs of registering and bonding brokers, dealers and salesmen as required; 8. Dues and expenses associated with membership in the Investment Company Institute; 9. Expenses of fidelity and liability insurance and bonding covering Fund; 10. Organizational costs. 4. INSURANCE The Fund and SMC agree to procure and maintain, separately or as joint insureds with themselves, their directors, employees, agents and others, and other investment companies for which SMC acts as investment advisor and transfer agent, a policy or policies of insurance against loss arising from breaches of trust, errors and omissions, and a fidelity bond meeting the requirements of the Investment Company Act of 1940, in the amounts and with such deductibles as may be agreed upon from time to time, and to pay such portions of the premiums therefor as amount of the coverage attributable to each party is to the aggregate amount of the coverage for all parties. 5. REGISTRATION AND COMPLIANCE A. SMC represents that as of the date of this agreement it is registered as a transfer agent with the Securities and Exchange Commission ("SEC") pursuant to Subsection 17A of the Securities and Exchange Act of 1934 and the rules and regulations thereunder, and agrees to maintain said registration and comply with all of the requirements of said Act, rules and regulations so long as this agreement remains in force. B. The Fund represents that it is a diversified management investment company registered with the SEC in accordance with the Investment Company Act of 1940 and the rules and regulations thereunder, and authorized to sell its shares pursuant to said Act, the Securities Act of 1933 and the rules and regulations thereunder. 6. LIABILITIES AND INDEMNIFICATION SMC shall be liable for any actual losses, claims, damages or expenses (including any reasonable counsel fees and expenses) resulting from SMC's bad faith, willful misfeasance, reckless disregard of its obligations and duties, negligence or failure to properly perform any of its responsibilities or duties under this agreement. SMC shall not be liable and shall be indemnified and held harmless by the Fund, for any claim, demand or action brought against it arising out of, or in connection with: A. Bad faith, willful misfeasance, reckless disregard of its duties or negligence of the Board of Directors of the Fund, or SMC's acting upon any instructions properly executed and authorized by the Board of Directors of the Fund; B. SMC acting in reliance upon advice given by independent counsel retained by the Board of Directors of the Fund. In the event that SMC requests the Fund to indemnify or hold it harmless hereunder, SMC shall use its best efforts to inform the Fund of the relevant facts concerning the matter in question. SMC shall use reasonable care to identify and promptly notify the Fund concerning any matter which presents, or appears likely to present, a claim for indemnification against the Fund. The Fund shall have the election of defending SMC against any claim which may be the subject of indemnification hereunder. In the event the Fund so elects, it will so notify SMC and thereupon the Fund shall take over defenses of the claim, and (if so requested by the Fund, SMC shall incur no further legal or other claims related thereto for which it would be entitled to indemnity hereunder provided, however, that nothing herein contained shall prevent SMC from retaining, at its own expense, counsel to defend any claim. Except with the Fund's prior consent, SMC shall in no event confess any claim or make any compromise in any matter in which the Fund will be asked to indemnify or hold SMC harmless hereunder. PUNITIVE DAMAGES. SMC shall not be liable to the Fund, or any third party, for punitive, exemplary, indirect, special or consequential damages (even if SMC has been advised of the possibility of such damages) arising from its obligations and the services provided under this agreement, including but not limited to loss of profits, loss of use of the shareholder accounting system, cost of capital and expenses of substitute facilities, programs or services. FORCE MAJEURE. Anything in this agreement to the contrary notwithstanding, SMC shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, earthquake, acts of God, insurrection, war, riot, failure of communication or interruption. 7. DELEGATION OF DUTIES SMC may, at its discretion, delegate, assign or subcontract any of the duties, responsibilities and services governed by this agreement, to its parent company, Security Benefit Group, Inc., whether or not by formal written agreement. SMC 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. 8. AMENDMENT This agreement and the schedules forming a part hereof may be amended at any time, without shareholder approval, by a writing signed by each of the parties hereto. Any change in the Fund's registration statements or other documents of compliance or in the forms relating to any plan, program or service offered by its current prospectus which would require a change in SMC's obligations hereunder shall be subject to SMC's approval, which shall not be unreasonably withheld. 9. TERMINATION This agreement may be terminated by either party without cause upon 120 days' written notice to the other, and at any time for cause in the event that such cause remains unremedied for more than 30 days after receipt by the other party of written specification of such cause. In the event Fund designates a successor to any of SMC's obligations hereunder, SMC shall, at the expense and pursuant to the direction of the Fund, transfer to such successor all relevant books, records and other data of Fund in the possession or under the control of SMC. 10. SEVERABILITY If any clause or provision of this agreement is determined to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, then such clause or provision shall be considered severed herefrom and the remainder of this agreement shall continue in full force and effect. 11. TERM This agreement initially shall become effective upon its approval by a majority vote of the Board of Directors of the Fund, including a majority vote of the Directors who are not "interested persons" of Fund or SMC, as defined in the Investment Company Act of 1940, and shall continue until terminated pursuant to its provisions. 12. APPLICABLE LAW This agreement shall be subject to and construed in accordance with the laws of the State of Kansas. SECURITY MANAGEMENT COMPANY BY: Everett S. Gille, President ------------------------------ ATTEST: Barbara W. Rankin, Secretary SECURITY INCOME FUND BY: Everett S. Gille, President ------------------------------ ATTEST: Barbara W. Rankin, Secretary SCHEDULE A ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT Schedule of Administrative and Fund Accounting Facilities and Services Security Management Company agrees to provide the Fund the following Administrative facilities and services: 1. FUND AND PORTFOLIO ACCOUNTING A. Maintenance of Fund General Ledger and Journal. B. Preparing and recording disbursements for direct fund expenses. C. Preparing daily money transfers. D. Reconciliation of all Fund bank and custodian accounts. E. Assisting Fund independent auditors as appropriate. F. Prepare daily projection of available cash balances. G. Record trading activity for purposes of determining net asset values and daily dividend. H. Prepare daily portfolio evaluation report to value portfolio securities and determine daily accrued income. I. Determine the daily net asset value per share. J. Determine the daily, monthly, quarterly, semiannual or annual dividend per share. K. Prepare monthly, quarterly, semiannual and annual financial statements. L. Provide financial information for reports to the securities and exchange commission in compliance with the provisions of the Investment Company Act of 1940 and the Securities Act of 1933, the Internal Revenue Service and other regulatory agencies as required. M. Provide financial, yield, net asset value, etc. information to NASD and other survey and statistical agencies as instructed by the Fund. N. Report to the Audit Committee of the Board of Directors, if applicable. 2. LEGAL A. Provide registration and other administrative services necessary to qualify the shares of the Fund for sale in those jurisdictions determined from time to time by the Fund's Board of Directors (commonly known as "Blue Sky Registration"). B. Provide registration with and reports to the Securities and Exchange Commission in compliance with the provisions of the Investment Company Act of 1940 and the Securities Act of 1933. C. Prepare and review Fund prospectus and Statement of Additional Information. D. Prepare proxy statements and oversee proxy tabulation for annual meetings. E. Prepare Board materials and maintain minutes of Board meetings. F. Draft, review and maintain contractual agreements between Fund and Investment Advisor, Custodian, Distributor and Transfer Agent. G. Oversee printing of proxy statements, financial reports to shareholders, prospectuses and Statements of Additional Information. H. Provide legal advice and oversight regarding shareholder transactions, administrative services, compliance with contractual agreements and the provisions of the 1940 and 1933 Acts. (Notwithstanding the above, outside counsel for the Funds may provide the services listed above as a direct Fund expense or at the option of the Funds, the Funds may employ their own counsel to perform any of these services.) SCHEDULE OF SHARE TRANSFER AND DIVIDEND DISBURSING SERVICES Security Management Company agrees to provide the Fund the following transfer agency and dividend disbursing services: 1. Maintenance of shareholder accounts, including processing of new accounts. 2. Posting address changes and other file maintenance for shareholder accounts. 3. Posting all transactions to the shareholder file, including: A. Direct purchases B. Wire order purchases C. Direct redemptions D. Wire order redemptions E. Draft redemptions F. Direct exchanges G. Transfers H. Certificate issuances I. Certificate deposits 4. Monitor fiduciary processing, insuring accuracy and deduction of fees. 5. Prepare daily reconciliations of shareholder processing to money movement instructions. 6. Handle bounced check collections. Immediately liquidate shares purchased and return to the shareholder the check and confirmation of the transaction. 7. Issuing all checks and stopping and replacing lost checks. 8. Draft clearing services. A. Maintenance of signature cards and appropriate corporate resolutions. B. Comparison of the signature on the check to the signatures on the signature card for the purpose of paying the face amount of the check only. C. Receiving checks presented for payment and liquidating shares after verifying account balance. D. Ordering checks in quantity specified by the Fund for the shareholder. 9. Mailing confirmations, checks and/or certificates resulting from transaction requests to shareholders. 10. Performing all of the Fund's other mailings, including: A. Dividend and capital gain distributions. B. Semiannual and annual reports. C. 1099/year-end shareholder reporting. D. Systematic withdrawal plan payments. E. Daily confirmations. 11. Answering all service related telephone inquiries from shareholders and others, including: A. General and policy inquiries (research and resolve problems). B. Fund yield inquiries. C. Taking shareholder processing requests and account maintenance changes by telephone as described above. D. Submit pending requests to correspondence. E. Monitor online statistical performance of unit. F. Develop reports on telephone activity. 12. Respond to written inquiries (research and resolve problems), including: A. Initiate shareholder account reconciliation proceeding when appropriate. B. Notify shareholder of bounced investment checks. C. Respond to financial institutions regarding verification of deposit. D. Initiate proceedings regarding lost certificates. E. Respond to complaints and log activities. F. Correspondence control. 13. Maintaining and retrieving all required past history for shareholders and provide research capabilities as follows: A. Daily monitoring of all processing activity to verify back-up documentation. B. Provide exception reports. C. Microfilming. D. Storage, retrieval and archive. 14. Prepare materials for annual meetings. A. Address and mail annual proxy and related material. B. Prepare and submit to Fund and affidavit of mailing. C. Furnish certified list of shareholders (hard copy or microfilm) and inspectors of election. 15. Report and remit as necessary for state escheat requirements. Approved: Fund _________________________________________SMC Everette S. Gille --------------------------------------------------------------- MODEL: MONTHLY FUNDS ------------- MAINTENANCE FEE.................................. $8.00 TRANSACTIONS..................................... $1.00 DIVIDENDS........................................ $0.50 ADMINISTRATION FEE............................... 0.00045 (BASED ON DAILY NET ASSET VALUE) ---------------------------------------------------------------- MASTER WORKSHEET BOND GOV HIGH YIELD ----------------------------------------------- 1986: TRANSACTIONS - 6,897 603 260 DIVIDENDS - 23,264 2,195 314 SHAREHOLDER ACCTS - 3,574 226 258 AVERAGE NET ASSETS - 45,164,242.34 2,260,755.40 2,948,233.60 INCOME - 4,804,113.27 207,258.25 223,104.47 EXPENSES - 449,036.13 21,101.91 17,675.96 SERVICE FEES - 50,806.27 962.23 1,118.94 1986 1986 SERVICE TRANSFER & EXPENSE EXPENSE FEES ADMINISTRATION PERCENT RATIO RATIO ACTUAL MODEL INCREASE ACTUAL MODEL ----------------------------------------------------------------- BOND 50,806.27 67,444.91 32.75% 0.994% 1.031% GOVERNMENT 962.23 4,525.84 370.35% 0.933% 1.091% HIGH YIELD 1,118.94 2,603.71 132.69% 0.600% 0.862% SCHEDULE B AMENDMENT TO SECURITY INCOME FUND ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT Schedule of Fees Annual Maintenance Fee........................$8.00 per account Transactions..................................$1.00 per transaction Administration Fee............................0.09% of the average net assets of the Fund (calculated daily and payable monthly). This amendment shall take effect as of April 28, 1989. In witness thereof, the parties hereto have caused this amendment to be executed on the date indicated. Security Income Fund By: MICHAEL J. PROVINES Date: January 27, 1989 ------------------------------ Michael J. Provines, President Attest: AMY J. LEE - ------------------------------ Amy J. Lee, Secretary Security Management Company By: MICHAEL J. PROVINES ------------------------------ Michael J. Provines, President Date: January 27, 1989 Attest: AMY J. LEE - ------------------------------ Amy J. Lee, Secretary AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (hereinafter referred to as the "Fund") and Security Management Company (hereinafter referred to as "SMC") are parties to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, (the "Administrative Services Agreement") under which SMC agrees to provide general administrative, fund accounting, transfer agency, and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Services Agreement; and WHEREAS, on July 7, 1989, the Board of Directors of the Fund voted to amend the Administrative Services Agreement to provide for payment by the Fund of the fees of all directors; NOW THEREFORE, the Fund and the Management Company hereby amend the Administrative Services Agreement, dated April 1, 1987, effective July 7, 1989, as follows: Paragraph 3.B.1. shall be deleted in its entirety and the following paragraph inserted in lieu thereof: 3. EXPENSES B. DIRECT EXPENSES 1. Fees and expenses of its directors (including the fees of those directors who are deemed to be "interested persons" of the Fund as that term is defined in the Investment Company Act of 1940) and the meetings thereof; IN WITNESS WHEREOF, the parties hereto have made this Amendment to the Administrative Services Agreement this 7th day of July, 1989. SECURITY INCOME FUND By: MICHAEL J. PROVINES ------------------------------ Michael J. Provines, President Attest: AMY J. LEE - ------------------------------ Amy J. Lee, Secretary SECURITY MANAGEMENT COMPANY By: MICHAEL J. PROVINES ------------------------------ Michael J. Provines, President Attest: AMY J. LEE - ------------------------------ Amy J. Lee, Secretary AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (hereinafter referred to as the "Fund") and Security Management Company (hereinafter referred to as "SMC") are parties to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, as amended January 27, 1989, and July 7, 1989, (the "Administrative Services Agreement") under which SMC agrees to provide general administrative, fund accounting, transfer agency, and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Services Agreement; and WHEREAS, on July 27, 1990, the Board of Directors of the Fund voted to amend the Administrative Services Agreement to provide for payment by the Fund of the fees of only those directors who are not "interested persons" of the Fund; NOW THEREFORE, the Fund and SMC hereby amend the Administrative Services Agreement, dated April 1, 1987, effective July 27, 1990, as follows: Paragraph 3.B.1. shall be deleted in its entirety and the following paragraph inserted in lieu thereof: 3. EXPENSES B. DIRECT EXPENSES 1. Fees and expenses of its directors (including the fees of those directors who are deemed to be "interested persons" of the Fund as that term is defined in the Investment Company Act of 1940) and the meetings thereof; IN WITNESS WHEREOF, the parties hereto have made this Amendment to the Administrative Services Agreement this 27th day of July, 1990. SECURITY INCOME FUND By: MICHAEL J. PROVINES ------------------------------ Michael J. Provines, President Attest: AMY J. LEE - ------------------------------ Amy J. Lee, Secretary SECURITY MANAGEMENT COMPANY By: MICHAEL J. PROVINES ------------------------------ Michael J. Provines, President Attest: AMY J. LEE - ------------------------------ Amy J. Lee, Secretary AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the "Management Company") are parties to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, as amended (the "Administrative Agreement"), under which the Management Company provides general administrative, fund accounting, transfer agency and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Agreement; WHEREAS, on October 21, 1994, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Limited Maturity Bond Series, in addition to its presently offered series of common stock of Corporate Bond Series and U.S. Government Series; WHEREAS, on October 21, 1994, the Board of Directors of the Fund further authorized the Fund to offer shares of the Limited Maturity Bond Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on October 21, 1994, the Board of Directors approved the amendment of the Administrative Agreement to provide that the Management Company would provide general administrative, fund accounting, transfer agency, and dividend disbursing services to each class of the Limited Maturity Bond Series under the terms and conditions of the Administrative Agreement; NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend the Administrative Agreement, to provide that the Management Company shall provide those administrative and other services described in the Administrative Contract, and each of the Management Company and the Fund shall fulfill all of their respective obligations under the Administrative Contract, as to each of the Series of the Fund, including the Limited Maturity Bond Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Administrative Agreement this 30th day of December 1994. SECURITY INCOME FUND By: John D. Cleland ----------------------------------- John D. Cleland, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary SECURITY MANAGEMENT COMPANY By: Jeffrey B. Pantages ----------------------------------- Jeffrey B. Pantages, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the "Management Company") are parties to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, as amended (the "Administrative Agreement"), under which the Management Company provides general administrative, fund accounting, transfer agency and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Agreement; WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Global Aggressive Bond Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series and U.S. Government Series; WHEREAS, on February 3, 1995, the Board of Directors of the Fund further authorized the Fund to offer shares of the Global Aggressive Bond Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on February 3, 1995, the Board of Directors approved the amendment of the Administrative Agreement to provide that the Management Company would provide general administrative, fund accounting, transfer agency, and dividend disbursing services to each class of the Global Aggressive Bond Series under the terms and conditions of the Administrative Agreement; NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend the Administrative Agreement, dated April 1, 1987, as follows, effective May 1, 1995, 1. Schedule B shall be deleted in its entirety and the attached Schedule B inserted in lieu thereof. 2. The Administrative Agreement is hereby amended to cover the Global Aggressive Bond Series of the Fund. 3. Paragraph 7 shall be deleted in its entirety and the following paragraph inserted in lieu thereof: DELEGATION OF DUTIES The Management Company may, at its discretion, delegate, assign or subcontract any of the duties, responsibilities and services governed by this agreement, to its parent company, Security Benefit Group, Inc., whether or not by formal written agreement, or to any third party, provided that such arrangement with a third party has been approved by the Board of Directors of the Fund. The Management Company 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. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Administrative Agreement this 28th day of April, 1995. SECURITY INCOME FUND By: John D. Cleland ----------------------------------- John D. Cleland, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary SECURITY MANAGEMENT COMPANY By: Jeffrey B. Pantages ----------------------------------- Jeffrey B. Pantages, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary SECURITY INCOME FUND ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT SCHEDULE B The following charges apply to all Series of Security Income Fund: Maintenance Fee: $8.00 per account Transaction Fee: $1.00 Dividend Fee: $1.00 Annual Administration Fee: 0.45% (based on daily net asset value) The following charges apply only to Global Aggressive Bond Series of the Security Income Fund: Global Administration Fee: In addition to the above fees, Global Aggressive Bond Series shall pay an annual fee equal to the greater of .10 percent of its average net assets or (i) $30,000 in the year ending April 29, 1996; (ii) $45,000 in the year ending April 29, 1997; and (iii) $60,000 thereafter. If this Agreement shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees set forth above. AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (hereinafter referred to as the "Fund") and Security Management Company (hereinafter referred to as "SMC") are parties to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, as amended, (the "Administrative Agreement"), under which SMC provides general administrative, fund accounting, transfer agency and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Agreement; WHEREAS, on February 2, 1996, the Board of Directors of the Fund voted to amend the Administrative Agreement to provide for payment by the Fund for costs associated with preparing and transmitting electronic filings to the Securities and Exchange Commission or any other regulating authority; NOW THEREFORE, the Fund and SMC hereby amend paragraph 3B of the Administrative Agreement, effective February 2, 1996, by adding the following language at the end of paragraph 3B: 11. Costs associated with the preparation and transmission of any electronic filings to the Securities and Exchange Commission or any other regulating authority. IN WITNESS WHEREOF, the parties hereto have made this Amendment to the Administrative Agreement this 2nd day of February, 1996. SECURITY INCOME FUND By: John D. Cleland ----------------------------------- John D. Cleland, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary SECURITY MANAGEMENT COMPANY By: Jeffrey B. Pantages ----------------------------------- Jeffrey B. Pantages, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the "Management Company") are parties to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, as amended (the "Administrative Agreement"), under which the Management Company provides general administrative, fund accounting, transfer agency and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Agreement; WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the High Yield Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series, U.S. Government Series, and Global Aggressive Bond Series; WHEREAS, on May 3, 1996, the Board of Directors of the Fund further authorized the Fund to offer shares of the High Yield Series in two classes, designated Class A shares and Class B shares; and WHEREAS, on May 3, 1996, the Board of Directors approved the amendment of the Administrative Agreement to provide that the Management Company would provide general administrative, fund accounting, transfer agency, and dividend disbursing services to each class of the High Yield Series under the terms and conditions of the Administrative Agreement; NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend the Administrative Agreement, dated April 1, 1987, as follows, effective July 1, 1996, 1. Schedule B shall be deleted in its entirety and the attached Schedule B inserted in lieu thereof. 2. The Administrative Agreement is hereby amended to cover the High Yield Series of the Fund. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Administrative Agreement this 13th day of May, 1996. SECURITY INCOME FUND By: John D. Cleland ----------------------------------- John D. Cleland, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary SECURITY MANAGEMENT COMPANY By: Jeffrey B. Pantages ----------------------------------- Jeffrey B. Pantages, President ATTEST: Amy J. Lee - ----------------------------------- Amy J. Lee, Secretary SECURITY INCOME FUND ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT SCHEDULE B The following charges apply to all Series of Security Income Fund: Maintenance Fee: $8.00 per account Transaction Fee: $1.00 Dividend Fee: $1.00 Annual Administration Fee: 0.09% (based on daily net asset value) The following charges apply only to Global Aggressive Bond Series of the Security Income Fund: Global Administration Fee: In addition to the above fees, Global Aggressive Bond Series shall pay an annual fee equal to (i) the greater of .10 percent of its average net assets or $30,000 in the year beginning April 30, 1995 and ending April 29, 1996; (ii) the greater of .10 percent of its average net assets or $45,000 in the year beginning April 30, 1996 and ending April 29, 1997; and (iii) the greater of .10 percent of its average net assets or $60,000 thereafter. If this Agreement shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees set forth above. AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the "Management Company") are parties to an Administrative Services and Transfer Agency Agreement, dated April 1, 1987, as amended (the "Administrative Agreement"), under which the Management Company provides general administrative, fund accounting, transfer agency and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Agreement; WHEREAS, on October 31, 1996, the operations of the Management Company, a Kansas corporation, will be transferred to Security Management Company, LLC ("SMC, LLC"), a Kansas limited liability company; and WHEREAS, SMC, LLC desires to assume all rights, duties and obligations of the Management Company under the Administrative Agreement. NOW THEREFORE, in consideration of the premises and mutual agreements made herein, the parties hereto agree as follows: 1. The Administrative Agreement is hereby amended to substitute SMC, LLC for Security Management Company, with the same effect as though SMC, LLC were the originally named management company, effective November 1, 1996; 2. SMC, LLC agrees to assume the rights, duties and obligations of Security Management Company pursuant to the terms of the Administrative Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Administrative Services and Transfer Agency Agreement this 1st day of November, 1996. SECURITY INCOME FUND SECURITY MANAGEMENT COMPANY, LLC By: JOHN D. CLELAND By: JAMES R. SCHMANK ------------------------------ ------------------------------ John D. Cleland, President James R. Schmank, President ATTEST: ATTEST: AMY J. LEE AMY J. LEE - ----------------------------------- ----------------------------------- Amy J. Lee, Secretary Amy J. Lee, Secretary AMENDMENT TO ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT WHEREAS, Security Income Fund (the "Fund") and Security Management Company, LLC ("SMC") are parties to an Administrative Services and Transfer Agency Agreement dated April 1, 1987, as amended (the "Administrative Agreement"), under which the Management Company provides general administrative, fund accounting, transfer agency and dividend disbursing services to the Fund in return for the compensation specified in the Administrative Agreement; WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated as the Capital Preservation Series, in addition to its presently offered series of common stock of Corporate Bond Series, Limited Maturity Bond Series, U.S. Government Series, Global High Yield Series, High Yield Series, Emerging Markets Total Return Series and Global Asset Allocation Series; WHEREAS, on February 10, 1999, the Board of Directors of the Fund further authorized the Fund to offer shares of the Capital Preservation Series in three classes, designated Class A shares, Class B shares and Class C shares; and WHEREAS, on February 10, 1999, the Board of Directors approved the amendment of the Administrative Agreement to provide that SMC would provide general administrative, fund accounting, transfer agency, and dividend disbursing services to each class of the Capital Preservation Series under the terms and conditions of the Administrative Agreement; NOW, THEREFORE BE IT RESOLVED, that the Fund and SMC hereby amend the Administrative Agreement, dated April 1, 1987, as follows, effective April 30, 1999: 1. Schedule B shall be deleted in its entirety and the attached Schedule B inserted in lieu thereof. 2. The Administrative Agreement is hereby amended to cover the Capital Preservation Series of the Fund. 3. The following paragraph 2(a) is added: a) For each of the Fund's full fiscal years this Administrative Agreement remains in force, SMC agrees that if total annual expenses of the Capital Preservation Series of the Fund, exclusive of interest, taxes, extraordinary expenses (such as litigation), and brokerage fees and commissions, and Rule 12b-1 fees, but inclusive of SMC's compensation, exceeds the amount of 1.50% (the "Expense Cap"), SMC will contribute to such Series such funds or waive such portion of its fee, adjusted monthly, as may be required to insure that the total annual expenses of the Series will not exceed the Expense Cap. If this Administrative Agreement shall be effective for only a portion of the Series' fiscal year, then the maximum annual expenses shall be prorated for such portion. 4. Paragraph 7 shall be deleted in its entirety and the following paragraph inserted in lieu thereof: DELEGATION OF DUTIES SMC may, at is discretion, delegate, assign or subcontract any of the duties, responsibilities and services governed by this agreement, to an affiliated company, whether or not be formal written agreement, or to any third party, provided that such arrangement with a third party has been approved by the Board of Directors of the Fund. SMC 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. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Administrative Agreement this 30th day of April, 1999. ATTEST: SECURITY INCOME FUND AMY J. LEE By: JAMES R. SCHMANK - ---------------------------------- ---------------------------------- Amy J. Lee, Secretary James R. Schmank, President ATTEST: SECURITY MANAGEMENT COMPANY, LLC AMY J. LEE By: JAMES R. SCHMANK - ---------------------------------- ---------------------------------- Amy J. Lee, Secretary James R. Schmank, President SECURITY INCOME FUND ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT SCHEDULE B The following charges apply to all Series of Security Income Fund: Maintenance Fee: $8.00 per account Transaction Fee: $1.00 Dividend Fee: $1.00 Annual Administration Fee: 0.09% (based on daily net asset value) The following charges apply only to Global High Yield Series of the Security Income Fund: Global Administration Fee: In addition to the above fees, Global High Yield Series shall pay an annual fee equal to (i) the greater of .10 percent of its average net assets or $30,000 in the year beginning April 30, 1995 and ending April 29, 1996; (ii) the greater of .10 percent of its average net assets or $45,000 in the year beginning April 30, 1996 and ending April 29, 1997; and (iii) the greater of .10 percent of its average net assets or $60,000 thereafter. If this Agreement shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees set forth above. EX-99.M2 12 CLASS B DISTRIBUTION PLAN SECURITY INCOME FUND CLASS B DISTRIBUTION PLAN 1. THE PLAN. This Distribution Plan (the "Plan"), provides for the financing by Security Income Fund (the "Fund") of activities which are, or may be deemed to be, primarily intended to result in the sale of class B shares of the Fund (hereinafter called "distribution-related activities"). The principal purpose of this Plan is to enable the Fund to supplement expenditures by Security Distributors, Inc., the Distributor of its shares (the "Distributor") for distribution-related activities. This Plan is intended to comply with the requirements of Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940 Act"). The Board of Directors, in considering whether the Fund should implement the Plan, has requested and evaluated such information as it deemed necessary to make an informed determination as to whether the Plan should be implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes. In voting to approve the implementation of the Plan, the Directors have concluded, in the exercise of their reasonable business judgment and in light of their respective fiduciary duties, that there is a reasonable likelihood that the Plan will benefit the Fund and its shareholders. 2. COVERED EXPENSES. (a) The Fund may make payments under this Plan, or any agreement relating to the implementation of this Plan, in connection with any activities or expenses primarily intended to result in the sale of class B shares of the Fund, including, but not limited to, the following distribution-related activities: (i) Preparation, printing and distribution of the Prospectus and Statement of Additional Information and any supplement thereto used in connection with the offering of shares to the public; (ii) Printing of additional copies for use by the Distributor as sales literature, of reports and other communications which were prepared by the Fund for distribution to existing shareholders; (iii) Preparation, printing and distribution of any other sales literature used in connection with the offering of shares to the public; (iv) Expenses incurred in advertising, promoting and selling shares of the Fund to the public; (v) Any fees paid by the Distributor to securities dealers who have executed a Dealer's Distribution Agreement with the Distributor for account maintenance and personal service to shareholders (a "Service Fee"); (vi) Commissions to sales personnel for selling shares of the Fund and interest expenses related thereto; and (vii) Expenses incurred in promoting sales of shares of the Fund by securities dealers, including the costs of preparation of materials for presentations, travel expenses, costs of entertainment, and other expenses incurred in connection with promoting sales of Fund shares by dealers. (b) Any payments for distribution-related activities shall be made pursuant to an agreement. As required by the Rule, each agreement relating to the implementation of this Plan shall be in writing and subject to approval and termination pursuant to the provisions of Section 7 of this Plan. However, this Plan shall not obligate the Fund or any other party to enter into such agreement. 3. AGREEMENT WITH DISTRIBUTOR. All payments to the Distributor pursuant to this Plan shall be subject to and be made in compliance with a written agreement between the Fund and the Distributor containing a provision that the Distributor shall furnish the Fund with quarterly written reports of the amounts expended and the purposes for which such expenditures were made and such other information relating to such expenditures or to the other distribution-related activities undertaken or proposed to be undertaken by the Distributor during such fiscal year under its Distribution Agreement with the Fund as the Fund may reasonably request. 4. DEALER'S DISTRIBUTION AGREEMENT. The Dealer's Distribution Agreement (the "Agreement") contemplated by Section 2(a)(v) above shall permit payment of Service Fees to securities dealers by the Distributor only in accordance with the provisions of this paragraph and shall have the approval of the majority of the Board of Directors of the Fund, including the affirmative vote of a majority of those Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or any agreement related to the Plan ("Independent Directors"), as required by the Rule. The Distributor may pay to the other party to any Agreement a Service Fee for distribution and marketing services provided by such other party. Such Service Fee shall be payable (a) for the first year, initially, in any amount equal to .25 percent annually of the aggregate net asset value of the shares purchased by such other party's customers or clients, and (b) for each year thereafter, quarterly, in arrears in an amount equal to such percentage (not in excess of .000685 percent per day or .25 percent annually) of the aggregate net asset value of the shares held by such other party's customers or clients at the close of business each day as determined from time to time by the Distributor. The distribution and marketing services contemplated hereby shall include, but are not limited to, answering inquiries regarding the Fund, account designations and addresses, maintaining the investment of such other party's customers or clients in the Fund and similar services. In determining the extent of such other party's assistance in maintaining such investment by its customers or clients, the Distributor may take into account the possibility that the shares held by such customer or client would be redeemed in the absence of such fee. 5. LIMITATIONS ON COVERED EXPENSES. The basic limitation on the expenses incurred by the Fund under Section 2 of this Plan (including Service Fees) in any fiscal year of the Fund shall be one percent (1.00%) of the Fund's average daily net assets for such fiscal year. The payments to be paid pursuant to this Plan shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine, subject to any applicable restriction imposed by rules of the National Association of Securities Dealers, Inc. 6. INDEPENDENT DIRECTORS. While this Plan is in effect, the selection and nomination of Independent Directors of the Fund shall be committed to the discretion of the Independent Directors. Nothing herein shall prevent the involvement of others in such selection and nomination if the final decision on any such selection and nomination is approved by a majority of the Independent Directors. 7. EFFECTIVENESS, CONTINUATION, TERMINATION AND AMENDMENT. This Plan and each Agreement relating to the implementation of this Plan shall go into effect when approved. (a) By vote of the Fund's Directors, including the affirmative vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on the Plan or the Agreement; (b) By a vote of holders of at least a majority of the outstanding voting securities of the Fund; and (c) Upon the effectiveness of an amendment to the Fund's registration statement, reflecting this Plan, filed with the Securities and Exchange Commission under the Securities Act of 1933. This Plan and any Agreements relating to the implementation of this Plan shall, unless terminated as hereinafter provided, continue in effect from year to year only so long as such continuance is specifically approved at least annually by vote of the Fund's Directors, including the affirmative vote of a majority of its Independent Directors, cast in person at a meeting called for the purpose of voting on such continuance. This Plan and any Agreements relating to the implementation of this Plan may be terminated, in the case of the plan, at any time or, in the case of any agreements upon not more than sixty (60) days' written notice to any other party to the Agreement by vote of a majority of the Independent Directors or by the vote of the holders of a majority of the outstanding voting securities of the Fund. Any Agreement relating to the implementation of this Plan shall terminate automatically in the event it is assigned. Any material amendment to this Plan shall require approval by vote of the Fund's Directors, including the affirmative vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such amendment and, if such amendment materially increases the limitations on expenses payable under the Plan, it shall also require approval by a vote of holders of at least a majority of the outstanding voting securities of the Fund. As applied to the Fund the phrase "majority of the outstanding voting securities" shall have the meaning specified in Section 2(a) of the 1940 Act. In the event this Plan should be terminated by the shareholders or Directors of the Fund, the payments paid to the Distributor pursuant to the Plan up to the date of termination shall be retained by the Distributor. Any expenses incurred by the Distributor in excess of those payments will be the sole responsibility of the Distributor. 8. RECORDS. The Fund shall preserve copies of this Plan and any related Agreements and all reports made pursuant to Section 3 hereof, for a period of not less than six (6) years from the date of this Plan, any such Agreement or any such report, as the case may be, the first two years in an easily accessible place. SECURITY INCOME FUND Date: September 24, 1993 By: AMY J. LEE ------------------------------- ---------------------------------- AMENDMENT TO CLASS B DISTRIBUTION PLAN WHEREAS, Security Income Fund (the "Fund") has adopted a Class B Distribution Plan dated September 24, 1993 (the "Distribution Plan"), under which the Fund supplements the expenditures of its principal underwriter, Security Distributors, Inc. (the "Distributor") for distribution related activities with respect to Fund shares; WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the Fund to offer its common stock in a new series designated Capital Preservation Series, in addition to its presently offered series of common stock of Corporate Bond Series, U.S. Government Series, Limited Maturity Bond Series, Global High Yield Series, High Yield Series, Emerging Markets Total Return Series and Global Asset Allocation Series; WHEREAS, on February 10, 1999 the Board of Directors of the Fund further authorized the Capital Preservation Series of the Fund in three classes, designated Class A, Class B and Class C shares; and WHEREAS, on February 10, 1999, the Board of Directors of the Fund approved an amendment to the Class B Distribution Plan with respect to Class B shares of the Capital Preservation Series. NOW, THEREFORE BE IT RESOLVED, that the Fund amend its Distribution Plan as follows: Paragraph 5 shall be deleted in its entirety and replaced with the following new Paragraph: 5. LIMITATION ON COVERED EXPENSES. The basic limitation on the expenses incurred by each Series of the Fund, other than the Capital Preservation Series, under Section 2 of this Plan (including Service Fees) in any fiscal year of the Fund shall be one percent (1.00%) of the Fund's average daily net assets for such fiscal year, and with respect to the Capital Preservation Series, shall be .75% (75 basis points) of its average daily net assets for its fiscal year. The payments to be paid pursuant to this Plan shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine, subject to any applicable restrictions imposed by the National Association of Securities Dealers, Inc. IN WITNESS WHEREOF, the Security Income Fund has adopted this Amendment to the Class B Distribution Plan this 30th day of April, 1999. SECURITY INCOME FUND By: AMY J. LEE -------------------------------- Amy J. Lee Title: Secretary EX-99.M3 13 CLASS C DISTRIBUTION PLAN SECURITY INCOME FUND CLASS C DISTRIBUTION PLAN 1. THE PLAN. This Distribution Plan (the "Plan"), provides for the financing by Security Income Fund (the "Fund") of activities which are, or may be deemed to be, primarily intended to result in the sale of class C shares of the Fund (hereinafter called "distribution-related activities") with respect to those Series of the Fund set forth in Appendix A to the Plan (referred to herein as the "Series"). Appendix A, as it may be amended from time to time, is incorporated herein by reference. The principal purpose of this Plan is to enable the Fund to supplement expenditures by Security Distributors, Inc., the Distributor of its shares (the "Distributor") for distribution-related activities. This Plan is intended to comply with the requirements of Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940 Act"). The Board of Directors, in considering whether the Fund should implement the Plan, has requested and evaluated such information as it deemed necessary to make an informed determination as to whether the Plan should be implemented and has considered such pertinent factors as it deemed necessary to form the basis for a decision to use assets of the Fund for such purposes. In voting to approve the implementation of the Plan, the Directors have concluded, in the exercise of their reasonable business judgment and in light of their respective fiduciary duties, that there is a reasonable likelihood that the Plan will benefit the Series and its shareholders. 2. COVERED EXPENSES. (a) The Fund may make payments under this Plan, or any agreement relating to the implementation of this Plan, in connection with any activities or expenses primarily intended to result in the sale of Class C shares of the Series, including, but not limited to, the following distribution-related activities: (i) Preparation, printing and distribution of the Prospectus and Statement of Additional Information and any supplement thereto used in connection with the offering of Series' shares to the public; (ii) Printing of additional copies for use by the Distributor as sales literature, of reports and other communications which were prepared by the Fund for distribution to existing shareholders; (iii) Preparation, printing and distribution of any other sales literature used in connection with the offering of Series' shares to the public; (iv) Expenses incurred in advertising, promoting and selling shares of the Series to the public; (v) Any fees paid by the Distributor to securities dealers who have executed a Dealer's Distribution Agreement with the Distributor for account maintenance and personal service to shareholders (a "Service Fee"); (vi) Commissions to sales personnel for selling shares of the Series and interest expenses related thereto; and (vii) Expenses incurred in promoting sales of shares of the Fund by securities dealers, including the costs of preparation of materials for presentations, travel expenses, costs of entertainment, and other expenses incurred in connection with promoting sales of Series shares by dealers. (b) Any payments for distribution-related activities shall be made pursuant to an agreement. As required by the Rule, each agreement relating to the implementation of this Plan shall be in writing and subject to approval and termination pursuant to the provisions of Section 7 of this Plan. However, this Plan shall not obligate the Fund or any other party to enter into such agreement. 3. AGREEMENT WITH DISTRIBUTOR. All payments to the Distributor pursuant to this Plan shall be subject to and be made in compliance with a written agreement between the Fund and the Distributor containing a provision that the Distributor shall furnish the Fund with quarterly written reports of the amounts expended and the purposes for which such expenditures were made and such other information relating to such expenditures or to the other distribution-related activities undertaken or proposed to be undertaken by the Distributor during such fiscal year under its Distribution Agreement with the Fund as the Fund may reasonably request. 4. DEALER'S DISTRIBUTION AGREEMENT. The Dealer's Distribution Agreement (the "Agreement") contemplated by Section 2(a)(v) above shall permit payment of Service Fees to securities dealers by the Distributor only in accordance with the provisions of this paragraph and shall have the approval of the majority of the Board of Directors of the Fund, including the affirmative vote of a majority of those Directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or any agreement related to the Plan ("Independent Directors"), as required by the Rule. The Distributor may pay to the other party to any Agreement a Service Fee for account maintenance and shareholder services provided by such other party. Such Service Fee shall be payable (a) for the first year, initially, in any amount equal to 0.25 percent annually of the aggregate net asset value of the shares purchased by such other party's customers or clients, and (b) for each year thereafter, quarterly, in arrears in an amount equal to such percentage (not in excess of .000685 percent per day or 0.25 percent annually) of the aggregate net asset value of the shares held by such other party's customers or clients at the close of business each day as determined from time to time by the Distributor. The distribution and marketing services contemplated hereby shall include, but are not limited to, answering inquiries regarding the Series, account designations and addresses, maintaining the investment of such other party's customers or clients in the Series and similar services. In determining the extent of such other party's assistance in maintaining such investment by its customers or clients, the Distributor may take into account the possibility that the shares held by such customer or client would be redeemed in the absence of such fee. 5. LIMITATIONS ON COVERED EXPENSES. The basic limitation on the expenses incurred by each Series of the Fund identified in Appendix A, other than the Capital Preservation Series under Section 2 of this Plan (including Service Fees) in any fiscal year of the Fund shall be one percent (1.00%) of the Fund's average daily net assets for such fiscal year, with respect to the Capital Preservation Series, shall be 0.50% (50 basis points) of its average daily net assets for its fiscal year. The payments to be paid pursuant to this Plan shall be calculated and accrued daily and paid monthly or at such other intervals as the Directors shall determine, subject to any applicable restrictions imposed by the National Association of Securities Dealers, Inc. 6. INDEPENDENT DIRECTORS. While this Plan is in effect, the selection and nomination of Independent Directors of the Fund shall be committed to the discretion of the Independent Directors. Nothing herein shall prevent the involvement of others in such selection and nomination if the final decision on any such selection and nomination is approved by a majority of the Independent Directors. 7. EFFECTIVENESS, CONTINUATION, TERMINATION AND AMENDMENT. This Plan and each Agreement relating to the implementation of this Plan shall go into effect when approved. (a) By vote of the Fund's Directors, including the affirmative vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on the Plan or the Agreement; (b) By a vote of holders of at least a majority of the outstanding voting securities of the Fund; and (c) Upon the effectiveness of an amendment to the Fund's registration statement, reflecting this Plan, filed with the Securities and Exchange Commission under the Securities Act of 1933. This Plan and any Agreements relating to the implementation of this Plan shall, unless terminated as hereinafter provided, continue in effect from year to year only so long as such continuance is specifically approved at least annually by vote of the Fund's Directors, including the affirmative vote of a majority of its Independent Directors, cast in person at a meeting called for the purpose of voting on such continuance. This Plan and any Agreements relating to the implementation of this Plan may be terminated, in the case of the plan, at any time or, in the case of any agreements upon not more than sixty (60) days' written notice to any other party to the Agreement by vote of a majority of the Independent Directors or by the vote of the holders of a majority of the outstanding voting securities of the Fund. Any Agreement relating to the implementation of this Plan shall terminate automatically in the event it is assigned. Any material amendment to this Plan shall require approval by vote of the Fund's Directors, including the affirmative vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such amendment and, if such amendment materially increases the limitations on expenses payable under the Plan, it shall also require approval by a vote of holders of at least a majority of the outstanding voting securities of the Fund. As applied to the Fund the phrase "majority of the outstanding voting securities" shall have the meaning specified in Section 2(a) of the 1940 Act. In the event this Plan should be terminated by the shareholders or Directors of the Fund, the payments paid to the Distributor pursuant to the Plan up to the date of termination shall be retained by the Distributor. Any expenses incurred by the Distributor in excess of those payments will be the sole responsibility of the Distributor. 8. RECORDS. The Fund shall preserve copies of this Plan and any related Agreements and all reports made pursuant to Section 3 hereof, for a period of not less than six (6) years from the date of this Plan, any such Agreement or any such report, as the case may be, the first two years in an easily accessible place. SECURITY INCOME FUND Date: April 30, 1999 By: AMY J. LEE ----------------------- --------------------------------- APPENDIX A Series of Security Income Fund: Capital Preservation Series EX-99.N 14 MULTIPLE CLASS PLAN SECURITY FUNDS MULTIPLE CLASS PLAN JULY 23, 1999 1. THE PLAN. This Plan is the written multiple class plan for each of the open-end management investment companies (individually the "Fund" and collectively the "Funds") named on Exhibit A hereto, which exhibit may be revised from time to time, for Security Distributors, Inc. (the "Distributor"), the general distributor of shares of the Funds, and Security Management Company, LLC (the "Advisor"), the investment advisor of the Funds. In instances where such investment companies issue shares representing interests in different portfolios ("Series"), the term "Fund" and "Funds" shall separately refer to each Series. It is the written plan contemplated by Rule 18f-3 (the "Rule") under the Investment Company Act of 1940 (the "1940 Act"), pursuant to which the Funds may issue multiple classes of shares. The terms and provisions of this Plan shall be interpreted and defined in a manner consistent with the provisions and definitions contained in the Rule. 2. FEATURES OF THE CLASSES. Each class of a Fund shall represent an equal pro rata interest in such Fund and generally shall have identical voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications and terms and conditions, except that each class: (i) shall have a different designation; (ii) shall bear any Class Expenses as defined below; (iii) shall have exclusive voting rights on any matters that relate solely to that class's arrangements, including, without limitation, voting with respect to a 12b-1 Plan for that class; and (iv) shall have separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of any other class. Certain classes have adopted a service plan or distribution and service plan ("12b-1 Plan"), and shall pay all of the expenses incurred pursuant to that arrangement. Expenses incurred in connection with a class's 12b-1 Plan are referred to herein as "Class Expenses." Because Class Expenses may be accrued at different rates for each class of a Fund, dividends distributable to shareholders and net asset values per share may differ for shares of different classes of the same Fund. 3. ALLOCATIONS OF INCOME AND EXPENSES. The gross income of each Fund, and expenses of each Fund other than Class Expenses, are allocated among the classes on the basis of the relative net assets of each class of such Fund. Each class of shares may at the Directors' discretion also pay a different share of expenses, not including advisory fees or other expenses related to management of the Fund's assets, if such expenses are actually incurred in a different amount by that class, or if the class received services of a different kind or to a different degree than that of other classes. 4. FEE WAIVERS AND REIMBURSEMENTS. The investment advisor may waive or reimburse its management fee in whole or in part provided that the fee is waived or reimbursed to all shares of a Fund in proportion to their relative average daily net asset values. The investment advisor, or an entity related to the investment advisor, who charges a fee for a Class Expense may waive or reimburse that fee in whole or in part only if the revised fee more accurately reflects the relative costs of providing to each class the service for which the Class Expense is charged. A distributor of a Fund may waive or reimburse a Rule 12b-1 Plan fee in whole or in part. 5. EXCHANGE PRIVILEGES. Shareholders may exchange shares of one class of a Fund for shares of an identical class of any other Fund based upon each Fund's relative net asset value per share. Shareholders may also exchange shares of one class of a Fund for shares of the Security Cash Fund. Any applicable contingent deferred sales charge will be calculated from the date of initial purchase without regard to the time that shares are invested in Security Cash Fund. Because Cash Fund does not impose a sales charge, any exchange of Cash Fund shares acquired through direct purchase will be based upon the respective net asset values of the shares involved and subject to any applicable sales charges. 6. CONVERSIONS OF SHARES. Class B shares automatically convert to Class A shares on the eighth anniversary of purchase. This is advantageous because Class A shares are subject to a lower distribution fee than Class B shares. A pro rata amount of Class B shares purchased through the reinvestment of dividends or other distributions is also converted to Class A shares each time that shares purchased directly are converted. 7. DISCLOSURE. The classes of shares to be offered by each Fund, and the initial, asset-based or contingent deferred sales charges and other material distribution arrangements with respect to such classes, shall be disclosed in the prospectus and/or statement of additional information used to offer that class of shares. Such prospectus or statement of additional information shall be supplemented or amended to reflect any change(s) in classes of shares to be offered or in the material distribution arrangements with respect to such classes. 8. INDEPENDENT AUDIT. The methodology and procedures for calculating the net asset value, dividends and distributions of each class shall be reviewed by an independent auditing firm (the "Expert"). At least annually, the Expert, or an appropriate substitute expert, will render a report to the Funds on policies and procedures placed in operation and tests of operating effectiveness as defined and described in SAS 70 of the AICPA. 9. RULE 12B-1 PAYMENTS. The Treasurer of each Fund shall provide to the Directors of that Fund, and the Directors shall review, at least quarterly, the written report required by that Fund's distribution and service plan(s) and/or service plan (the "Plan"), if any, adopted pursuant to 1940 Act Rule 12b-1. The report shall include information on (i) the amounts expended pursuant to the Plan, (ii) the purposes for which such expenditures were made and (iii) the amount of the Distributor's unreimbursed distribution costs (if recovery of such costs in future periods is permitted by that Plan), taking into account Plan payments and contingent deferred sales charges paid to the Distributor. 10. CONFLICTS. On an ongoing basis, the Directors of the Funds, pursuant to their fiduciary responsibilities under the 1940 Act and otherwise, will monitor the Funds for the existence of any material conflicts among the interests of the classes. The Advisor and the Distributor will be responsible for reporting any potential or existing conflicts to the Directors. In the event a conflict arises, the Directors shall take such action as they deem appropriate. 11. EFFECTIVENESS AND AMENDMENT. This Plan, as amended, takes effect as of the date first shown above. This Plan, as amended, has been approved by a majority vote of the Board of each Fund and of each Fund's Board members who are not "interested persons" (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operation of the Plan or any agreements relating to the Plan (the "Independent Directors") of each Fund at a meeting called for the Security Funds listed on Exhibit A on July 23, 1999. Prior to that vote, (i) the Board was furnished by Security Distributors, Inc. with information necessary to permit it to evaluate the Plan, including without limitation the methodology used for net asset value and dividend and distribution determinations for the Funds, and (ii) a majority of each Board and its Independent Directors determined that the Plan as proposed to be amended, including the expense allocation, is in the best interests of each Fund as a whole and to each class of each Fund individually. Prior to any material amendment to the Plan, each Board shall request and evaluate, and Security Distributors, Inc. shall furnish, such information as may be reasonably necessary to evaluate such amendment, and a majority of each Board and its Independent Directors shall find that the Plan as proposed to be amended, including the expense allocation, is in the best interests of each class, each Fund as a whole and each class of each Fund individually. Adopted by the Board of Directors of the Funds on July 23, 1999. AMY J. LEE ------------------------------- Amy J. Lee, Secretary Security Equity Fund Security Growth and Income Fund Security Ultra Fund Security Income Fund Security Municipal Bond Fund EXHIBIT A SECURITY FUNDS Security Equity Fund Security Growth and Income Fund Security Ultra Fund Security Income Fund Security Municipal Bond Fund EX-99.O 15 POWER OF ATTORNEY - BANKERS TRUST POWER OF ATTORNEY This Power of Attorney will be contingent upon the election of the Trustee nominees at the Special Shareholder Meetings to be held in September and October 1999. The undersigned Trustees and officers, as indicated respectively below, of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, and BT Advisor Funds (each, a "Trust") and Cash Management Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International Equity Portfolio, Equity 500 Index Portfolio, Asset Management Portfolio, Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes and appoints the Secretary, each Assistant Secretary and each authorized signatory of each Trust and each Portfolio Trust, each of them with full powers of substitution, as his true and lawful attorney-in-fact and agent to execute in his name and on his behalf in any and all capacities the Registration Statements on Form N-1A, and any and all amendments thereto, and all other documents, filed by a Trust or a Portfolio Trust with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended, and (as applicable) the Securities Act of 1933, as amended, and any and all instruments which such attorneys and agents, or any of them, deem necessary or advisable to enable the Trust or Portfolio Trust to comply with such Acts, the rules, regulations and requirements of the SEC, and the securities or Blue Sky laws of any state or other jurisdiction and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC and such other jurisdictions, and the undersigned each hereby ratifies and confirms as his own act and deed any and all acts that such attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. Any one of such attorneys and agents has, and may exercise, all of the powers hereby conferred. The undersigned each hereby revokes any Powers of Attorney previously granted with respect to any Trust or Portfolio Trust concerning the filings and actions described herein. IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of the 8th day of September, 1999. SIGNATURES TITLE /s/ John Y. Keffer President and Chief Executive Officer of John Y. Keffer each Trust and Portfolio Trust /s/ Charles A. Rizzo Treasurer (Principal Financial and Charles A. Rizzo Accounting Officer) of each Trust and Portfolio Trust /s/ Charles P. Biggar Trustee of each Trust and Portfolio Trust Charles P. Biggar /s/ S. Leland Dill Trustee of each Trust and Portfolio Trust S. Leland Dill /s/ Richard T. Hale Trustee of each Trust and Portfolio Trust Richard T. Hale /s/ Richard J. Herring Trustee of each Trust and Portfolio Trust Richard J. Herring /s/ Bruce E. Langton Trustee of each Trust and Portfolio Trust Bruce E. Langton /s/ Martin J. Gruber Trustee of each Trust and Portfolio Trust Martin J. Gruber /s/ Philip Saunders, Jr. Trustee of each Trust and Portfolio Trust Philip Saunders, Jr. /s/ Harry Van Benschoten Trustee of each Trust and Portfolio Trust Harry Van Benschoten -----END PRIVACY-ENHANCED MESSAGE-----