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
SBL 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:
NOTICE TO CONTRACTHOLDERS OF SBL VARIABLE ANNUITY
ACCOUNTS III, IV, VIII, AND VARIFLEX AND SBL VARIABLE LIFE INSURANCE
ACCOUNT VARILIFE AND SECURITY VARILIFE SEPARATE ACCOUNT
OF THE SPECIAL MEETING OF STOCKHOLDERS OF SBL FUND, SERIES M
TO BE HELD AUGUST 1, 1997
700 SW HARRISON ST., TOPEKA, KANSAS 66636-0001
TELEPHONE 1-800-888-2461
TO THE BENEFICIAL OWNERS OF
- SBL FUND
o SERIES M (Specialized Asset Allocation Series)
Notice is hereby given that a special meeting of the stockholders of Series
M (Specialized Asset Allocation Series) of SBL 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 SBL 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.
AS A BENEFICIAL OWNER OF SHARES OF THE FUND, YOU HAVE CERTAIN VOTING RIGHTS
AT THIS MEETING. THERE IS ENCLOSED A VOTING INSTRUCTION FORM SOLICITED BY THE
BOARD OF DIRECTORS OF SBL FUND. ANY VOTING INSTRUCTION FORM WHICH IS EXECUTED
AND RETURNED, NEVERTHELESS MAY BE REVOKED PRIOR TO ITS USE. ALL SUCH
INSTRUCTIONS PROPERLY EXECUTED AND RECEIVED IN TIME WILL BE VOTED BY SECURITY
BENEFIT LIFE INSURANCE COMPANY OR ITS APPOINTEE AT THE MEETING.
By order of the Board of Directors of
SBL Fund,
AMY J. LEE
Secretary
Topeka, Kansas
June 20, 1997
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IMPORTANT: CONTRACTHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE
MEETING ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED VOTING
INSTRUCTION FORM TO THE FUND AS EARLY AS POSSIBLE.
SDI 608A (R6-97) 46-06080-01
SBL FUND
o SERIES M
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
BENEFICIAL OWNERSHIP OF FUND SHARES
Investments made through SBL Variable Annuity Accounts III, IV, VIII, and
Variflex and through SBL Variable Life Insurance Account Varilife and Security
Varilife Separate Account do not constitute direct ownership of Fund shares.
Rather, a variable annuity contract or a variable life policy represents an
interest in one of six Security Benefit Life Insurance Company ("SBL") separate
accounts. SBL has record ownership of all Fund shares. Such contractowners and
policyowners (herein referred to as "Beneficial Owners") have a beneficial
interest in the underlying Fund shares, and retain certain voting rights with
respect to the beneficially owned shares. SBL, or its appointee, will vote the
shares beneficially owned by each Beneficial Owner in accordance with each
Beneficial Owner's instructions. The enclosed voting instruction form is
provided for this purpose. All shares for which the Beneficial Owners do not
provide voting instructions, and any shares which SBL holds for its own account,
will be voted in the same proportion as those shares for which voting
instructions have been received.
SOLICITATION AND REVOCATION OF PROXIES
The enclosed voting instruction form is solicited by and on behalf of the
Board of Directors of SBL Fund for Series M (the "Fund") and is revocable by
timely submission to SBL or its appointee, of another voting instruction form or
of notice of revocation in proper written form, or by voting the shares in
person at the Meeting. A second voting instruction form may be obtained from the
Secretary of the Fund. The cost of soliciting voting instructions 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. Voting
instruction forms will be mailed on or about June 20, 1997.
VOTING SECURITIES
Only Beneficial Owners 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 3,607,717.026 shares of common stock
of the par value of $1.00 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.
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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 DECEMBER 31, 1996 TO A
BENEFICIAL OWNER 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
VOTING OF PROXIES
SBL or its appointee will vote in accordance with all instructions received
prior to the Meeting. It is the present intention that unless otherwise
directed, SBL, or its appointee, will vote for Proposal No. 1, approval of a new
sub-advisory agreement between SMC and Meridian Investment Management
Corporation, and, in the discretion of the persons designated as proxies, upon
such other matters not now known or determined which may properly come before
the Meeting.
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 Beneficial Owners on April
18, 1995. The contract has not been submitted to the Beneficial Owners for
approval since that date. The contract was renewed by the Board of Directors of
SBL Fund (including a majority of the directors who are not parties to the
contract or interested persons of any such party) on February 7, 1997. 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
2
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 December 31, 1996, SMC paid Templeton $62,584 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.
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 SBL Fund (including a majority of the
directors who are not parties to the contract or interested persons of any such
party) on February 7, 1997. 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 SBL 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
December 31, 1996, SMC paid Meridian $86,186.69 for services provided under the
Meridian Research Agreement. Nothing was paid directly by the Fund to Meridian.
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 SBL 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
3
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 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 December 31, 1996, SMC paid a total of
$148,770.69 to Meridian and Templeton for services provided under the Meridian
Research Agreement and the Templeton Research Agreement, respectively. If the
Sub-Advisory Contract had been in effect during the 1996 fiscal year, SMC would
have paid Meridian $113,979 for services provided under that contract, which is
23% lower than the total amount actually paid 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. The Board gave equal weight to each of the
4
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 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 Chief Investment Officer,
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 January 1, 1996, or in any material proposed
transactions, to which Meridian, any parent or subsidiary of Meridian, or any
subsidiary of the parent of such
5
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.
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.
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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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Western Reserve Life Sub-Adviser $6,986,075 .40% of net assets None
Global Sector Portfolio
Security Equity Fund Provides Research $6,222,540 .20% of net assets (2)
Asset Allocation Series Services(1)
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(1) The stockholders of Security Equity Fund, Asset Allocation Series 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.
(2) Meridian voluntarily waived all fees payable for calendar year 1996.
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UNDERWRITER
SBL Fund serves as the underlying investment vehicle for the following
variable insurance products currently issued by Security Benefit Life Insurance
Company: Variflex, Variflex LS, and Security Elite Benefit. Security
Distributors, Inc., 700 SW Harrison Street, Topeka, Kansas 66636-0001, a
wholly-owned subsidiary of Security Benefit Group, Inc., is the principal
underwriter of the foregoing variable insurance products.
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
6
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 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 variable contracts offered by Security Benefit Life Insurance Company or
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-Adviser 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-Adviser'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
7
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 December 31, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Fund is not aware of any Beneficial Owner which beneficially owns in
excess of 5% of the outstanding common stock of the Fund. No director or
executive officer of the Fund beneficially owned any shares of common stock of
the Fund as of March 31, 1997.
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 December 31, 1996, which was mailed to Beneficial
Owners on or about March 7, 1997.
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 SBL or its appointee will vote the proxy in
accordance with its best judgment on such matters.
By order of the Board of Directors of SBL Fund,
AMY J. LEE
Secretary
8
EXHIBIT A
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of 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 SBL 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 and research services to Series M of SBL 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) 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
2
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;
(f) any other applicable provisions of state and federal law; and
(g) the diversification provisions of Section 817(h) of the Internal
Revenue Code and the regulations issued thereunder relating to the
diversification requirements for variable insurance contracts and any
prospective amendments or other modifications to Section 817 or
regulations thereunder, and shall notify the Adviser immediately upon
having a reasonable basis for believing that the Series has ceased to
comply.
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.
3
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.
(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
4
the determination of the net asset value of the Series' shares as
described in the Fund's prospectus and statement of additional
information. Payment of the Sub-Adviser's compensation for the preceding
month shall be made as promptly as possible after the end of each month.
12. NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser are not
to be deemed to be exclusive, and the Sub-Adviser shall be free to render
investment advisory or other services to others (including other
investment companies) and to engage in other activities, so long as its
services under this Agreement are not impaired thereby.
13. TERM. This Agreement shall become effective at the close of business on
the date first shown above. It shall remain in force and effect, subject
to paragraph 14 hereof for one year from the date hereof.
14. RENEWAL. Following the expiration of its initial year term, this
Agreement shall continue in force and effect from year to year, provided
that such continuance is specifically approved at least annually:
(a) 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.
6
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 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:
6
[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
SERIES M OF SBL 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 Series M of
SBL Fund beneficially owned 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]
SBLSEM KEEP THIS PORTION FOR YOUR RECORDS
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
- --------------------------------------------------------------------------------
SERIES M OF SBL 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 five 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
- --------------------------------------------------------------------------------