SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 25th day of July 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;
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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:
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)
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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
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particular transaction, the Sub-Adviser will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker/dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker/dealer to the investment performance of the Series on a continuing
basis. Accordingly, the price to the Series in any transaction may be less
favorable than that available from another broker/dealer if the difference
is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Sub-Adviser shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Series to pay a broker for effecting a
portfolio investment transaction in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if the Sub-Adviser determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Sub-Adviser's overall responsibilities with
respect to the Series and to its other clients as to which it exercises
investment discretion. The Sub-Adviser is further authorized to place
and/or to effect orders with such brokers and dealers who may provide
research or statistical material or other services to the Series or to the
Sub-Adviser. Such allocation shall be in such amounts and proportions as
the Sub-Adviser shall determine and the Sub-Adviser will report on said
allocations regularly to the Board of Directors of the Fund and the Adviser
indicating the brokers to whom such allocations have been made and the
basis therefor.
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.
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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.
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(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
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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.
If this Agreement shall be effective for only a portion of a year, then the
Sub-Adviser's compensation for said year shall be prorated for such
portion. For purposes of this paragraph 11, the value of the net assets of
the Series shall be computed in the same manner at the end of the business
day as the value of such net assets is computed in connection with the
determination of the net asset value of the Series' shares as described in
the Fund's prospectus and statement of additional information. Payment of
the Sub-Adviser's compensation for the preceding month shall be made as
promptly as possible after the end of each month.
12. NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser are not to
be deemed to be exclusive, and the Sub-Adviser shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under
this Agreement are not impaired thereby.
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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
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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.
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 00000 Xxxxxxxx Xxxx, Xxxxx XX, 0xx
Xxxxx, Xxxxxxxxx, Xxxxxxxx 00000, and the address of the Adviser for this
purpose shall be 000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxx 00000-0000.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
SECURITY MANAGEMENT COMPANY, LLC
By: XXXXX X. XXXXXXX
--------------------------------------
Senior Vice President
ATTEST:
XXX X. XXX
----------------------------------------
Title: Secretary
Security Management Company, LLC
MERIDIAN INVESTMENT MANAGEMENT CORPORATION
By: XXXXXXX X. XXXX
--------------------------------------
President
ATTEST:
XXXXX X. XXXXXXXX
----------------------------------------
Title: CIO
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