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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.________)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SECURITY EQUITY FUND
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
SECURITY EQUITY FUND, ASSET ALLOCATION SERIES
TO BE HELD AUGUST 1, 1997
700 SW HARRISON ST., TOPEKA, KANSAS 66636-0001
TELEPHONE 1-800-888-2461
TO THE STOCKHOLDERS OF
- SECURITY EQUITY FUND
o ASSET ALLOCATION SERIES
Notice is hereby given that a special meeting of the stockholders of Asset
Allocation Series of Security Equity Fund (the "Fund"), a Kansas corporation,
will be held at the offices of the Fund, Security Benefit Group Building, 700 SW
Harrison Street, Topeka, Kansas 66636-0001, on August 1, 1997 at 9:30 a.m. local
time ("Meeting"), for the following purposes:
1. To approve a Sub-Advisory Contract, as exhibited in the attached proxy
statement, between the Fund's investment manager, Security Management
Company, LLC, and Meridian Investment Management Corporation. (Meridian
Investment Management Corporation currently provides quantitative
research services to the Fund pursuant to an agreement with Security
Management Company, LLC.)
2. To transact such other business as may properly come before the Meeting
or any adjournments thereof, and to adjourn the Meeting from time to
time.
The Board of Directors of Security Equity Fund on behalf of the Fund has
fixed the close of business on June 5, 1997, as the record date for the
determination of stockholders of the Fund entitled to notice of and to vote at
the Meeting.
THERE IS ENCLOSED A PROXY FORM SOLICITED BY THE BOARD OF DIRECTORS OF
SECURITY EQUITY FUND. ANY FORM OF PROXY WHICH IS EXECUTED AND RETURNED,
NEVERTHELESS MAY BE REVOKED PRIOR TO ITS USE. ALL SUCH PROXIES PROPERLY EXECUTED
AND RECEIVED IN TIME WILL BE VOTED AT THE MEETING.
By order of the Board of Directors of
Security Equity Fund,
AMY J. LEE
Secretary
Topeka, Kansas
June 20, 1997
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IMPORTANT: STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING
ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) TO THE
FUND AS EARLY AS POSSIBLE.
SBI 608B (R6-97) 46-06080-02
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SECURITY EQUITY FUND
o ASSET ALLOCATION SERIES
MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KANSAS 66636-0001
SPECIAL MEETNG OF STOCKHOLDERS, AUGUST 1, 1997
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Security Equity Fund for Asset Allocation Series (the "Fund") and is
revocable by timely submission to the Secretary of Security Equity Fund of
another proxy or of notice of revocation in proper written form, or by voting
the shares in person at the Meeting. A second proxy form may be obtained from
the Secretary of Security Equity Fund. The cost of soliciting proxies will be
borne by Security Management Company, LLC, 700 SW Harrison Street, Topeka,
Kansas 66636-0001 ("SMC" or the "Investment Manager"), which will be reimbursed
by the Fund. SMC is the investment adviser and administrator of the Fund. In
addition to solicitations by mail, some of the Investment Manager's officers and
employees, without extra remuneration, may conduct additional solicitation by
telephone, telegraph and personal interviews. Proxies will be mailed on or about
June 20, 1997.
VOTING SECURITIES
Only stockholders of record at the close of business on June 5, 1997 are
entitled to vote at the special Meeting. On that date, the outstanding number of
voting securities of the Fund was as follows: 300,849.998 Class A shares and
310,220.21 Class B shares, all of which are common stock of the Fund of the par
value of $0.25 per share. Each share is entitled to one vote. Approval of the
Sub-Advisory Contract, Proposal No. 1, will require the affirmative vote of a
majority of the outstanding shares of the common stock of the Fund. A "majority
vote" is defined as the vote of either 67% or more of voting securities present
at the meeting in person or by proxy, or more than 50% of the outstanding voting
securities of the Fund, whichever is less. The Class A and Class B shares of the
Fund will be voted together on each proposal due to the commonality of the
interest of the two classes of shares with respect to the proposals to be voted
upon.
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THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT CONTAINING
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 TO A
SHAREHOLDER UPON REQUEST. SUCH REQUESTS SHOULD BE DIRECTED TO AMY LEE, SECRETARY
OF THE FUND, BY WRITING THE FUND AT 700 SW HARRISON ST., TOPEKA, KANSAS
66636-0001, OR BY CALLING THE FUND'S TOLL-FREE TELEPHONE NUMBER 1-800-888-2461,
EXTENSION 3127.
1
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PROPOSAL NO. 1
APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN SMC AND
MERIDIAN INVESTMENT MANAGEMENT CORPORATION
The Fund's stockholders are asked to approve a sub-advisory agreement
between SMC and Meridian Investment Management Corporation ("Meridian" or the
"Sub-Adviser"). Meridian currently furnishes quantitative research services to
the Fund pursuant to the terms of an agreement between SMC and Meridian.
Templeton/Franklin Investment Services, Inc. ("Templeton") currently provides
analytical research services to the Fund pursuant to an agreement between
Templeton and SMC. If this Proposal No. 1 is approved by the stockholders,
Meridian will provide sub-advisory services to the Fund pursuant to a new
sub-advisory contract between SMC and Meridian (the "Sub-Advisory Contract") and
the research services agreements with Meridian and Templeton will be terminated.
The Fund's Board of Directors, including a majority of the disinterested
Directors, approved the Sub-Advisory Contract at a Meeting held on May 2, 1997.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S STOCKHOLDERS VOTE FOR APPROVAL
OF THE SUB-ADVISORY CONTRACT.
EXISTING RESEARCH SERVICES CONTRACTS
TEMPLETON RESEARCH SERVICES CONTRACT. The Investment Manager has engaged
Templeton/ Franklin Investment Services, Inc. ("Templeton"), 777 Mariners Island
Boulevard, San Mateo, California 94404, to provide certain analytical research
services to the Fund pursuant to the terms of an analytical research agreement
dated January 2, 1996 ("Templeton Research Agreement") between the Investment
Manager and Templeton. Initially the contract was entered into between SMC and
an affiliate of Templeton, and was approved by the stockholders of the Fund on
April 18, 1995. The contract has not been submitted to the stockholders for
approval since that date. The contract was renewed by the Board of Directors of
Security Equity Fund (including a majority of the directors who are not parties
to the contract or interested persons of any such party) on November 1, 1996.
The contract will continue in effect until stockholder approval of the
Sub-Advisory Contract proposed by this proxy, or, if such contract is not
approved, until January 1, 1998 and from year to year thereafter.
Under the Templeton Research Agreement, Templeton furnishes the Fund with
research, data and analysis on domestic and international equity securities for
sectors and countries identified by SMC. As compensation for the services
provided to the Fund, SMC pays Templeton, on an annual basis, a fee equal to
.30% of the first $50,000,000 of the average daily net assets of such Fund
invested in equity securities, and .25% of such average daily net assets of the
Fund in excess of $50,000,000, calculated daily and payable monthly. During the
fiscal year ended September 30, 1996, SMC paid Templeton $10,321 for services
provided under the Templeton Research Agreement. Nothing was paid directly by
the Fund to Templeton. The Templeton Research Agreement may be terminated
without penalty at any time by either party on sixty days' written notice and is
automatically terminated in the event of its assignment or in the event that the
investment advisory contract between the Investment Manager and the Fund is
terminated. The Templeton Research Agreement will be terminated if Proposal No.
1 is approved by the stockholders.
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MERIDIAN RESEARCH SERVICES CONTRACT. SMC has engaged Meridian Investment
Management Corporation, 12835 East Arapahoe Road, Tower II, 7th Floor,
Englewood, Colorado 80112, to provide the Fund with quantitative research
services, pursuant to the terms of a research agreement dated May 1, 1995
("Meridian Research Agreement") between Meridian and SMC. The contract was
renewed by the Board of Directors of Security Equity Fund (including a majority
of the directors who are not parties to the contract or interested persons of
any such party) on November 1, 1996. The contract will continue in effect until
stockholder approval of the Sub-Advisory Contract proposed by this proxy, or, if
such contract is not approved, until May 1, 1998 and from year to year
thereafter providing such continuance is specifically approved by the vote of a
majority of the Board of Directors of Security Equity Fund (including a majority
of such directors who are not parties to the contract or interested persons of
any such party) cast in person at a meeting specifically called for voting on
such renewal.
Pursuant to the contract, Meridian provides quantitative research services
to the Fund, and provides SMC with an asset allocation strategy whose objective
is to maximize total return through a quantitative investment process. For the
services provided by Meridian, Meridian receives from SMC, on an annual basis, a
fee equal to .20% of the average daily closing value of the net assets of the
Fund, calculated daily and payable quarterly. During the fiscal year ended
September 30, 1996, SMC paid Meridian $2,699.14 for services provided under the
Meridian Research Agreement from October 1 through December 31, 1995. Meridian
voluntarily waived all fees payable for calendar year 1996. Nothing was paid
directly by the Fund to Meridian during the fiscal year ended September 30,
1996. The Meridian Research Agreement may be terminated without penalty at any
time by either party on sixty days' written notice and is automatically
terminated in the event of its assignment or in the event that the investment
advisory contract between the Investment Manager and the Fund is terminated,
assigned or not renewed.
PROPOSED SUB-ADVISORY CONTRACT
The Fund proposes to enter into a sub-advisory contract ("Sub-Advisory
Contract") between SMC and Meridian attached hereto as Exhibit "A". The
Sub-Advisory Contract was proposed by SMC and was unanimously approved by the
Board of Directors of Security Equity Fund (including a majority of such
directors who are not parties to such contract or interested persons of any such
party) on May 2, 1997.
Under the Sub-Advisory Contract, the Sub-Adviser will furnish the Fund with
investment research and advice in connection with the Fund's investment in
equity securities, including but not limited to all services currently provided
under the Meridian Research Agreement, and will effect purchases and sales of
certain portfolio securities, subject to the policies and control of the Board
of Directors and the supervision of SMC. For its services, the Sub-Adviser will
receive from SMC an annual fee equal to a percentage of the average daily
closing value of the net assets of the Fund, computed on a daily basis as
follows: .40% of the average daily net assets of the Fund up to $100 million,
PLUS .35% of such assets over $100 million up to $200 million, PLUS .30% of such
assets over $200 million up to $400 million, PLUS .25% of such assets over $400
million. Such fee shall be payable monthly.
The Sub-Adviser has agreed to pay its expenses in connection with providing
the sub-advisory services, including any expenses associated with preparing
reports for the Fund's Board of Directors
3
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and expenses of any travel by employees of the Sub-Adviser in connection with
such reports as well as any expenses that it may incur in communicating with
SMC.
The Sub-Advisory Contract provides for the Fund to receive substantially
the same services it currently receives under the Meridian Research Agreement
and the Templeton Research Agreement, on substantially the same terms, except
that fees are based on different percentages of average daily net assets. Also,
in the Templeton Research Agreement, fees are based on average daily net assets
invested in equity securities, whereas the basis for calculating fees in the
Meridian Research Agreement and the Sub-Advisory Contract is not limited to
assets invested in equity securities.
During the fiscal year ended September 30, 1996, SMC incurred a total of
$18,994 payable to Meridian and Templeton for services provided under the
Meridian Research Agreement and the Templeton Research Agreement, respectively.
(However, Meridian waived $5,973.86 of the $8,673 it was entitled to receive.)
If the Sub-Advisory Contract had been in effect during the 1996 fiscal year, SMC
would have paid Meridian $17,345 for services provided under that contract,
which is 8.68% lower than the total amount incurred and payable to Meridian and
Templeton.
It is expected that the Sub-Advisory Contract will become effective on
August 1, 1997, provided that on that date it is approved by the holders of a
majority of the outstanding voting securities of the Fund. The contract will
continue in force until August 1, 1998, and from year to year thereafter,
providing such continuance is specifically approved by a majority of the Board
of Directors of the Fund (including a majority of such directors who are not
parties to the Sub-Advisory Contract or interested persons of any such party).
At the time the Sub-Advisory Contract becomes effective, the Meridian Research
Agreement will automatically terminate, and the Templeton Research Agreement
will also be terminated. The Sub-Advisory Contract may be terminated without
penalty upon sixty days' written notice by either party or by vote of the Board
of Directors or by vote of a majority of the holders of the outstanding voting
securities of the Fund. The Sub-Advisory Contract will automatically terminate
in the event of the termination of the investment advisory contract between SMC
and the Fund or in the event of its assignment.
SMC began to consider alternative sub-advisory arrangements when Templeton
advised SMC that Templeton would prefer that SMC engage another sub-adviser to
provide research services currently being provided by Templeton with respect to
equity securities. Meridian already performs other research services for the
Fund and expressed interest in providing the services currently performed by
Templeton.
In recommending the approval of the Sub-Advisory Contract to the
stockholders of the Fund, the Board of Directors considered such factors as it
deemed reasonably necessary, including (1) the nature and quality of the
services to be provided to the Fund and the quality of the services provided by
Meridian over the past two years; (2) the fairness of the compensation of the
Sub-Adviser; (3) the financial soundness of the Sub-Adviser to render all
necessary services to the Fund; (4) comparative industry advisory fee structures
and expense ratios for the Fund including, specifically, the relationship of the
proposed advisory fee rates to those typically charged similar mutual funds; and
(5) the total fees paid by the Fund, including 12b-1 plan fees. The Board gave
equal weight to each of the above factors when considering approval of the
contract. The Board believes that (a) Meridian has provided high-quality
services to the Fund over the past two years; (b) the advisory fee rates in the
Sub-Advisory Contract are fair, and similar to those typically charged similar
mutual funds; (c) the financial soundness of Meridian is sufficient for Meridian
to render all necessary services to be provided under the Sub-Advisory Contract;
and (d) approval of
4
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the Sub-Advisory Contract will not change the total fees paid by the Fund
because SMC pays all fees under the Sub-Advisory Contract and under the two
research services agreements it will replace.
Approval of the Sub-Advisory Contract will not increase any fee or expense
paid by the Fund or its stockholders because all fees under the Sub-Advisory
Contract are paid by SMC. However, the fees payable by SMC may be less under the
Sub-Advisory Contract than the total fees paid by SMC under the Meridian
Research Agreement and the Templeton Research Agreement combined.
The Board of Directors of the Fund unanimously recommends approval of the
Sub-Advisory Contract by a vote in favor of Proposal No. 1. In the event that
the proposed contract is not approved, the Board of Directors will meet to
consider what action should be taken to present another sub-advisory contract
for approval.
THE PROSPECTIVE SUB-ADVISER
Meridian Investment Management Corporation is located at 12835 East
Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado 80112. It has provided
research services to the Fund since May 1, 1995, pursuant to the terms of the
Meridian Research Agreement. Meridian manages individual portfolios on a
discretionary basis for corporations, individuals, pension and profit-sharing
plans, trusts and estates, and other organizations. It also provides research
services pertaining to sector and global asset allocations.
Meridian is a wholly-owned subsidiary of Meridian Management & Research
Corporation, 12835 East Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado
80112. Meridian Management & Research Corporation is wholly-owned by Michael Jon
Hart and Craig Thomas Callahan. The principal occupations, and positions with
Meridian, of the principal executive officer and each director of Meridian are
as follows:
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NAME* PRINCIPAL OCCUPATION POSITIONS WITH MERIDIAN
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Michael Jon Hart** President of Meridian President and Director
Craig Thomas Callahan Chief Investment Officer Chief Investment Officer,
of Meridian Secretary-Treasurer and
Director
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*All located at 12835 East Arapahoe Road, Tower II, 7th Floor, Englewood,
Colorado 80112
**Principal executive officer
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No officer or director of the Fund is an officer, employee or director of
Meridian. No officer or director of the Fund owns any securities of, or has any
other material direct or indirect interest in, Meridian or any of its
affiliates. No director of the Fund has any direct or indirect material interest
in any material transactions since October 1, 1995, or in any material proposed
transactions, to which Meridian, any parent or subsidiary of Meridian, or any
subsidiary of the parent of such entities was or is to be a party. There is no
arrangement or understanding in connection with the Sub-Advisory Contract with
respect to the composition of the Board of Directors of the Fund or of Meridian,
or with respect to the selection or appointment of any person to any office of
either such company.
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The Sub-Adviser acts as sub-adviser or provides research services for the
portfolios of registered investment companies with investment objectives similar
to the Fund's investment objective of high total return by following an asset
allocation strategy. Set forth below are the names of such funds, together with
information concerning the funds' net assets and the fees paid to Meridian for
its services.
<TABLE>
<CAPTION>
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RELATIONSHIP NET ASSETS AS ANNUAL RATE OF FEE WAIVER OR
FUND NAME OF MERIDIAN OF 12-31-96 COMPENSATION REIMBURSEMENTS
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<S> <C> <C> <C> <C>
Western Reserve Life Sub-Adviser $ 6,986,075 .40% of net assets None
Global Sector Portfolio
SBL Fund, Series M Provides Research $38,395,923 .20% of net assets None
Services*
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</TABLE>
*The stockholders of SBL Fund, Series M are being asked to approve a proposed
sub-advisory agreement between SMC and Meridian which is identical in substance
to the Sub-Advisory Contract described in this proxy statement.
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UNDERWRITER
Security Distributors, Inc. ("SDI"), 700 SW Harrison Street, Topeka, Kansas
66636-0001, is principal underwriter of the Fund. SDI is a wholly-owned
subsidiary of Security Benefit Group, Inc. For the fiscal year ended September
30, 1996, the Fund paid $7,393 in sales commissions to SDI.
PORTFOLIO BROKERAGE
Transactions in portfolio securities shall be effected in such manner as
deemed to be in the best interest of the Fund. In reaching a judgment relative
to the qualifications of a broker or dealer to obtain the best execution of a
particular transaction, all relevant factors and circumstances will be taken
into account by the Investment Manager or Sub-Adviser, including consideration
of the overall reasonableness of commissions paid to a broker, the firm's
general execution and operational capabilities, and its reliability and
financial condition. The Fund does not anticipate that it will incur a
significant amount of brokerage commissions on transactions in fixed income
securities because fixed income securities are generally traded on a "net"
basis-that is, in principal amount without the addition or deduction of a stated
brokerage commission, although the net price usually includes a profit to the
dealer. The Fund also may purchase portfolio securities in underwritings where
the price includes a fixed underwriter's concession or discount. Money market
instruments may be purchased directly from the issuer at no commission or
discount.
Portfolio transactions that require a broker may be directed to brokers who
furnish investment information or research services to the Investment Manager or
Sub-Adviser. Such investment information and research services include advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities and the availability of securities and purchasers or sellers
of securities, and furnishing analyses and reports concerning issues,
industries, securities, economic factors and trends, portfolio strategy, and
performance of accounts. Such investment
6
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information and research services may be furnished by brokers in many ways,
including: (1) on-line data base systems, the equipment for which is provided by
the broker, that enable the Investment Manager or Sub-Adviser to have real-time
access to market information, including quotations; (2) economic research
services, such as publications, chart services and advice from economists
concerning macroeconomic information; and (3) analytical investment information
concerning particular corporations. If a transaction is directed to a broker
supplying such information or services, the commission paid for such transaction
may be in excess of the commission another broker would have charged for
effecting that transaction, provided that the Investment Manager or Sub-Adviser
shall have determined in good faith that the commission is reasonable in
relation to the value of the investment information or the research services
provided, viewed in terms of either that particular transaction or the overall
responsibilities of the Investment Manager or Sub-Adviser with respect to all
accounts as to which it exercises investment discretion. The Investment Manager
or Sub-Adviser may use all, none, or some of such information and services in
providing investment advisory services to each of the mutual funds under its
management, including the Fund.
In addition, brokerage transactions may be placed with broker/dealers who
sell shares of the mutual funds managed by the Investment Manager and who may or
may not also provide investment information and research services. The
Investment Manager may, consistent with the NASD Rules of Fair Practice,
consider sales of Fund shares in the selection of a broker/dealer.
Securities held by the Fund may also be held by other investment advisory
clients of the Investment Manager or Sub-Adviser, including other investment
companies. When selecting securities for purchase or sale for a Fund, the
Investment Manager or Sub-Advisor may at the same time be purchasing or selling
the same securities for one or more of such other accounts. Subject to the
Investment Manager's or Sub-Advisor's obligation to seek best execution, such
purchases or sales may be executed simultaneously or "bunched." It is the policy
of the Investment Manager and Sub-Adviser not to favor one account over the
other. Any purchase or sale orders executed simultaneously are allocated at the
average price and as nearly as practicable on a pro rata basis (transaction
costs will also generally be shared on a pro rata basis) in proportion to the
amounts desired to be purchased or sold by each account. In those instances
where it is not practical to allocate purchase or sale orders on a pro rata
basis, then the allocation will be made on a rotating or other equitable basis.
While it is conceivable that in certain instances this procedure could adversely
affect the price or number of shares involved in the Fund's transaction, it is
believed that the procedure generally contributes to better overall execution of
the Fund's portfolio transactions. The Board of Directors has adopted guidelines
governing this procedure and will monitor the procedure to determine that the
guidelines are being followed and that the procedure continues to be in the best
interest of the Fund and its stockholders. With respect to the allocation of
initial public offerings ("IPOs"), the Investment Manager or Sub-Adviser may
determine not to purchase such offerings for certain of its clients (including
investment company clients) due to the limited number of shares typically
available in an IPO. No brokerage commissions were paid by the Fund to an
affiliated broker for the year ended September 30, 1996.
7
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following chart lists those stockholders which beneficially own in
excess of 5% of the outstanding common stock of the Fund.
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NUMBER OF SHARES BENEFICIALLY
OWNED DIRECTLY OR INDIRECTLY
NAME AND ADDRESS AS OF MARCH 31, 1997 PERCENTAGE OF CLASS
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
Security Benefit Group, Inc. 137,113.713 135,501.332 47% 44%
700 SW Harrison St.
Topeka, Kansas 66636-0001
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The following chart shows the shares of common stock of the Fund
beneficially owned by directors and executive officers of the Fund.
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NUMBER OF SHARES BENEFICIALLY
NAME AND POSITION* OWNED AS OF MARCH 31, 1997 PERCENTAGE OF CLASS
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
------- ------- ------- -------
Donald A. Chubb, Jr., Director 772.328 None 0.267% 0%
All directors and executive
officers as a group 2,755.704 None 0.953% 0%
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* No director or "named executive officer" of the Fund beneficially owned any
shares of common stock of the Fund as of March 31, 1997, except as shown in
the above chart.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
Unless otherwise required under the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
stockholders. Stockholder proposals must be received at least 120 days prior to
the next meeting of stockholders, whenever held.
OTHER MATTERS
The audited financial statements of the Fund are found in the Annual Report
for the fiscal year ended September 30, 1996, which was mailed to stockholders
on or about November 30, 1996. The unaudited Semiannual Report for the six-month
period ended March 31, 1997, was mailed to stockholders on or about June 9,
1997.
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The Board of Directors of the Fund is not aware of any other matters to
come before the special Meeting of stockholders or any adjournments thereof
other than those specified herein. If any other matters should come before the
Meeting, it is intended that the persons named as proxies in the enclosed
form(s) of proxy, or their substitutes, will vote the proxy in accordance with
their best judgment on such matters.
By order of the Board of Directors of
Security Equity Fund,
AMY J. LEE
Secretary
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EXHIBIT A
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 1st day of August 1997, by and between SECURITY
MANAGEMENT COMPANY, LLC, a Kansas limited liability company (the "Adviser"), and
MERIDIAN INVESTMENT MANAGEMENT CORPORATION, a Colorado corporation (the
"Sub-Adviser").
WITNESSETH:
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, the Adviser is the investment adviser for Security Equity Fund (the
"Fund"), and provides investment advisory services to the Fund on the terms and
conditions set forth in an investment advisory contract with the Fund;
WHEREAS, the Fund is registered as a diversified, open-end investment company
under the Investment Company Act of 1940, as amended, (the "1940 Act"), and the
rules and regulations promulgated thereunder;
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Sub-Adviser currently provides certain research services to the
Fund pursuant to a Quantitative Research Agreement between Security Management
Company, LLC and Meridian Investment Management Corporation, dated May 1, 1995;
WHEREAS, the Adviser desires to retain the Sub-Adviser as the Adviser's agent to
furnish certain advisory services to the Asset Allocation Series of Security
Equity Fund (the "Series"), on the terms and conditions hereinafter set forth;
WHEREAS, this agreement supersedes the Quantitative Research Agreement dated May
1, 1995; and
WHEREAS, the Sub-Adviser is registered under the Investment Advisers Act of
1940, as amended, and engages in the business of acting as an investment
adviser.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. APPOINTMENT. The Adviser hereby appoints Sub-Adviser to provide certain
sub-advisory and quantitative research services to the Series for the
period and on the terms set forth in this Agreement. Sub-Adviser accepts
such appointment and agrees to furnish the services herein set forth for
the compensation herein provided.
2. INVESTMENT ADVICE AND RESEARCH SERVICES. The Sub-Adviser shall furnish
the Series with investment research and advice consistent with the
investment policies set forth in the Prospectus and Statement of
Additional Information of the Fund, subject at all times to the policies
and control of the Fund's Board of Directors and the supervision of the
Adviser. In addition, the Sub-Adviser shall provide the Adviser with an
asset allocation strategy, the objective of which is to maximize total
return through a quantitative investment process. The strategy will
indicate in which categories and percentages (in the Sub-Adviser's
opinion) assets should be allocated among various investment categories
in order to achieve this objective. The Sub-Adviser shall provide the
Adviser with the underlying analytical research which supports the
recommendations made with respect to each investment category. The
Sub-Adviser may avail itself of any investment research or advice
provided by the Adviser. The Sub-Adviser shall give the Series the
benefit of its best judgment, efforts and facilities in rendering its
services as Sub-Adviser.
3. INVESTMENT ANALYSIS AND IMPLEMENTATION. In carrying out its obligation
under paragraph 2 hereof, the Sub-Adviser shall:
(a) determine which issuers and securities shall be represented in the
Series' portfolio and regularly report thereon to the Fund's Board of
Directors and the Adviser;
(b) formulate and implement continuing programs for the purchase and sale
of the securities of such issuers and regularly report thereon to the
Fund's Board of Directors, the Adviser, and as required by Item 5A of
Form N-1A under the 1940 Act, the shareholders;
(c) continuously review the Series' security holdings and the investment
program and the investment policies of the Series; and
(d) take, on behalf of the Series, all actions which appear necessary to
carry into effect such purchase and sale programs, including the
placement of orders for the purchase and sale of securities for the
Series.
4. BROKER-DEALER RELATIONSHIPS. The Adviser is responsible for decisions to
buy and sell securities for the Series, broker/dealer selection, and
negotiation of brokerage commission rates, provided, however, that the
Adviser may delegate this responsibility to the Sub-Adviser. The
Sub-Adviser's primary consideration in effecting a security transaction
will be execution at the most favorable price. In selecting a
broker/dealer to execute each particular transaction, the Sub-Adviser
will take the following into consideration: the best net price available;
the reliability, integrity and financial condition of the broker/dealer;
the size of and difficulty in executing the order; and the value of the
expected contribution of the broker/dealer to the investment performance
of the Series on a continuing basis. Accordingly, the price to the Series
in any transaction may be less favorable than that available from another
broker/dealer if the difference is reasonably justified by other aspects
of the portfolio execution services offered. Subject to such policies as
the Board of Directors may determine, the Sub-Adviser shall not be deemed
to have acted unlawfully or to have
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breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Series to pay a broker for effecting a portfolio
investment transaction in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
Sub-Adviser determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either
that particular transaction or the Sub-Adviser's overall responsibilities
with respect to the Series and to its other clients as to which it
exercises investment discretion. The Sub-Adviser is further authorized to
place and/or to effect orders with such brokers and dealers who may
provide research or statistical material or other services to the Series
or to the Sub-Adviser. Such allocation shall be in such amounts and
proportions as the Sub-Adviser shall determine and the Sub-Adviser will
report on said allocations regularly to the Board of Directors of the
Fund and the Adviser indicating the brokers to whom such allocations have
been made and the basis therefor.
5. CONTROL BY BOARD OF DIRECTORS. Any investment program undertaken by the
Sub-Adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-Adviser on behalf of the Series pursuant hereto,
shall at all times be subject to any directives of the Board of Directors
of the Fund.
6. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Sub-Adviser shall ensure that the Series
complies with:
(a) all applicable provisions of the 1940 Act;
(b) the provisions of the Registration Statement of the Fund, as amended,
under the Securities Act of 1933 and the 1940 Act;
(c) all applicable statutes and regulations necessary to qualify the
Series as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code (or any successor or similar provision), and
shall notify the Adviser immediately upon having a reasonable basis
for believing that the Series has ceased to so qualify or that it
might not so qualify in the future;
(d) the provisions of the Fund's Articles of Incorporation of the Fund,
as amended;
(e) the provisions of the Bylaws of the Fund, as amended; and
(f) any other applicable provisions of state and federal law.
7. RECORDS. The Sub-Adviser hereby agrees to maintain all records relating
to its activities and obligations under this Agreement which are required
to be maintained by Rule 31a-1 under the 1940 Act and agrees to preserve
such records for the periods prescribed by Rule 31a-2 under the Act. The
Sub-Adviser further agrees that all such records are the property of the
Fund and agrees to surrender promptly to the Fund any such records upon
the Fund's request.
8. EXPENSES. The expenses connected with the Fund shall be borne by the
Sub-Adviser as follows:
(a) The Sub-Adviser shall maintain, at its expense and without cost to
the Adviser or the Series, a trading function in order to carry out
its obligations under subparagraph (d) of paragraph 3 hereof to place
orders for the purchase and sale of portfolio securities for the
Series.
3
<PAGE>
(b) The Sub-Adviser shall pay any expenses associated with carrying out
its obligation under subparagraph (b) of paragraph 3 hereof to
prepare reports for the Fund's Board of Directors concerning issuers
and securities represented in the Series' portfolio and the expenses
of any travel by employees of the Sub-Adviser in connection with such
reports to the Fund's Board of Directors.
(c) The Sub-Adviser shall pay any expenses that it may incur in
communicating with the Adviser in connection with its obligations
under this Agreement, including the expenses of telephone calls,
special mail services and telecopier charges.
9. DELEGATION OF RESPONSIBILITIES. Upon request of the Adviser and with the
approval of the Fund's Board of Directors, the Sub-Adviser may perform
services on behalf of the Fund which are not required by this Agreement.
Such services will be performed on behalf of the Fund, and the
Sub-Adviser's cost in rendering such services may be billed monthly to
the Adviser, subject to examination by the Adviser's independent
accountants. Payment or assumption by the Sub-Adviser of any Fund expense
that the Sub-Adviser is not required to pay or assume under this
Agreement shall not relieve the Adviser or the Sub-Adviser of any of
their obligations to the Fund or obligate the Sub-Adviser to pay or
assume any similar Fund expense on any subsequent occasions.
10. DELEGATION OF DUTIES. The Sub-Adviser may, at its discretion, delegate,
assign or subcontract any of the duties, responsibilities and services
governed by this agreement to a third party, whether or not by formal
written agreement, provided that such arrangement with a third party has
been approved by the Board of Directors of the Fund. The Sub-Adviser
shall, however, retain ultimate responsibility to the Fund and shall
implement such reasonable procedures as may be necessary for assuring
that any duties, responsibilities or services so assigned, subcontracted
or delegated are performed in conformity with the terms and conditions of
this agreement.
11. COMPENSATION. For the services to be rendered and the facilities
furnished hereunder, the Adviser shall pay the Sub-Adviser an annual fee
equal to a percentage of the average daily closing value of the net
assets of the Series, computed on a daily basis as follows: .40% of the
average daily net assets of the Fund up to $100 million, PLUS .35% of
such assets over $100 million up to $200 million, PLUS .30% of such
assets over $200 million up to $400 million, PLUS .25% of such assets
over $400 million. Such fee shall be payable monthly.
If this Agreement shall be effective for only a portion of a year, then
the Sub-Adviser's compensation for said year shall be prorated for such
portion. For purposes of this paragraph 11, the value of the net assets
of the Series shall be computed in the same manner at the end of the
business day as the value of such net assets is computed in connection
with the determination of the net asset value of the Series' shares as
described in the Fund's prospectus and statement of additional
information. Payment of the Sub-Adviser's compensation for the preceding
month shall be made as promptly as possible after the end of each month.
4
<PAGE>
12. NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser are not
to be deemed to be exclusive, and the Sub-Adviser shall be free to render
investment advisory or other services to others (including other
investment companies) and to engage in other activities, so long as its
services under this Agreement are not impaired thereby.
13. TERM. This Agreement shall become effective at the close of business on
the date first shown above. It shall remain in force and effect, subject
to paragraph 14 hereof for one year from the date hereof.
14. RENEWAL. Following the expiration of its initial year term, this
Agreement shall continue in force and effect from year to year, provided
that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the Series' outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who are not
parties to this Agreement
or interested persons of a party to this Agreement (other than as a
director of the Fund), by votes cast in person at a meeting
specifically called for such purpose.
15. TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by
vote of a majority of the Series' outstanding voting securities (as
defined in Section 2(a)(42) of the 1940 Act), or by the Adviser or by the
Sub-Adviser on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its "assignment"
as that term is defined in Section 2(a)(4) of the 1940 Act. This
Agreement shall automatically terminate in the event that the investment
advisory contract between the Adviser and the Fund is terminated,
assigned or not renewed.
16. LIABILITY OF THE SUB-ADVISER. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Sub-Adviser or its officers,
directors or employees, or reckless disregard by the Sub-Adviser of its
duties under this Agreement, the Sub-Adviser shall not be liable to the
Adviser, the Fund or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security, provided the Sub-Adviser has acted in
good faith.
17. INDEMNIFICATION. The Adviser and the Sub-Adviser each agree to indemnify
the other against any claim against, loss, or liability to, such other
party (including reasonable attorney's fees) arising out of any action on
the part of the indemnifying party which constitutes willful misfeasance,
bad faith or gross negligence.
18. OTHER AGREEMENTS. This Agreement supersedes the Quantitative Research
Agreement dated May 1, 1995, between the Adviser and Sub-Adviser. The
Quantitative Research Agreement will automatically terminate upon the
effective date of this Agreement.
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<PAGE>
19. NOTICES. Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage-paid to the other party at such address
as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the
Sub-Adviser for this purpose shall be 12835 Arapahoe Road, Tower II, 7th
Floor, Englewood, Colorado 80112, and the address of the Adviser for this
purpose shall be 700 Harrison Street, Topeka, Kansas 66636-0001.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
SECURITY MANAGEMENT COMPANY, LLC
By: -----------------------------
Senior Vice President
ATTEST:
- ---------------------------------------
Title: Secretary
Security Management Company, LLC
MERIDIAN INVESTMENT
MANAGEMENT CORPORATION
By: -----------------------------
ATTEST:
- ---------------------------------------
Title:
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<PAGE>
[SBG LOGO]
The Security Benefit Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
PROXY SERVICES
P.O. BOX 9148
FARMINGDALE, NY 11735
ASSET ALLOCATION SERIES
OF
SECURITY EQUITY FUND
Special Meeting of Stockholders
August 1, 1997
This proxy is solicited on behalf of the Fund's
Board of Directors.
The undersigned hereby appoints John D. Cleland,
Donald A. Chubb, Jr., and Donald L. Hardesty, and
each of them, with full power of substitution, as
proxies of the undersigned to vote at the
above-stated special meeting, and at all
adjournments thereof, all shares of Asset
Allocation Series of Security Equity Fund held by
the undersigned at the Special Meeting of
Stockholders of the Fund to be held at 9:30 AM,
local time, on August 1, 1997, at the Security
Benefit Group Building, 700 SW Harrison Street,
Topeka, Kansas 66636-0001, and at any adjournment
thereof, in the manner directed below with respect
to the matter referred to in the proxy statement
for the meeting, receipt of which is hereby
acknowledged, and in the proxies' discretion, upon
such other matters as may properly come before the
meeting or any adjournment thereof.
In order to avoid the additional expense of
further solicitation to your Fund, we strongly
urge you to review, complete, and return your
ballot as soon as possible. Your vote is important
regardless of the number of shares you own. The
Board of Directors recommends a vote for the
following proposal. These voting instructions will
be voted as specified. If no specification is
made, this proxy will be voted in favor of
Proposal 1.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
SBLAAS KEEP THIS PORTION FOR YOUR RECORDS
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
- --------------------------------------------------------------------------------
ASSET ALLOCATION SERIES OF SECURITY EQUITY FUND
NOTE: Please sign exactly as the name appears on this card.
EACH joint owner must sign the proxy. When signing as executor,
administrator, attorney, trustee or guardian, or as custodian for
a minor, please give the FULL title of such. If a corporation,
please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.
PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
Vote On Proposal
FOR AGAINST ABSTAIN
1. To approve a Sub-Advisory Contract between the
Fund's investment manager, Security Management
Company, LLC, and Meridian Investment Management
Corporation. [ ] [ ] [ ]
____________________________________ _______________
Signature (PLEASE SIGN WITHIN BOX) DATE
____________________________________ _______________
Signature (Joint Owners) DATE
- --------------------------------------------------------------------------------
