NINETEEN HUNDRED NINETY EIGHT
ANNUAL REPORT
SIFE
<PAGE>
When we use checks, credit cards, debit cards, or ATM's, we are depending on the
financial services industry. Current trends indicate that these types of
transactions will become even more prevalent during the next millennium. We at
SIFE believe that our 37 years of financial industry experience helps us select
investments that will benefit most from long-term trends like these.
Bruce W. Woods
President & CEO
<PAGE>
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Letter to Investors
February 12, 1999
Dear Fellow SIFE Investors:
The turbulence that spread throughout the equities market in 1998 extended to
the financial services sector as well. During this period, SIFE remained focused
on fundamental values, adhering to our time-tested investment philosophy.
The accompanying "Discussion of Fund Performance" examines the market conditions
that affected returns and discusses our view of the future of financial stocks.
SIFE believes that our 37 years of experience as financial service specialists
has provided us with the knowledge to deliver long-term performance. Even with
the below-average return in financial stocks during 1998, we still believe that
they offer excellent long-term potential.
SIFE intends to stay close to our heritage of investing in financial equities.
Despite the short-term lure, we have not invested in companies outside our area
of expertise, particularly those that trade at prices we believe are unjustified
by future income projections.
During 1998, our investors family grew to over 24,000 shareholders, largely
because of SIFE's stable approach to the financial services sector of the
market, a sector we believe represents sound fundamentals and excellent future
prospects.
Sincerely,
/s/ Bruce W. Woods
Bruce W. Woods
President & Chief Executive Officer
[Photo of Bruce W. Woods]
1998 ANNUAL REPORT
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Chief Investment Officer's Discussion of Fund Performance
February 12, 1999
[Photo of Mike Stead
Portfolio Manager and CIO]
1998 will be remembered by investors as a watershed year for volatility in the
financial markets. As the second oldest financial services mutual fund in the
country, we have learned that times such as these are when discipline and
patience are among our most valuable assets.
For the financial services sector, the first half of 1998 was highlighted by the
largest mergers in history. In April, three mergers were announced that were of
a scale previously unseen in the financial services sector. Prior to these three
mergers, SIFE's stock selection process led to the portfolio holding stock in
Citigroup, Bank of America, and First Chicago, banks involved in these April
mergers. In June 1998, another SIFE holding, Wells Fargo, announced that it
would be merging with Norwest Bank.(1)
During this same period, SIFE completed a realignment of its portfolio that
began in 1997. This realignment was the result of the portfolio team's research
leading SIFE to believe the global economy was slowing while the US economy
would remain relatively strong. For this reason SIFE felt that long term
investor value would be best served by investing in regional banks, rather than
money center banks having significant foreign exposure.
The second-half of 1998 was dominated by renewed concern over the default of
Russia, Brazil's failing economy, continued poor economic conditions in Asia,
and the near failure of hedge fund "Long Term Capital." Starting in late July,
these events rattled the financial markets, particularly the money center banks
and brokerage stocks, since as a group they have the greatest exposure to
overseas financial markets and hedge funds. Unfortunately, the rapid sell-off
that occurred affected all financial stocks, regardless of their international
exposure, and erased all of the earlier gains SIFE made during the year.
Fortunately, just as rapidly as the market sell-off occurred, the market began
to rally back. This rally was brought on in large part by three interest rate
decreases from the Federal Reserve Board. The Federal Reserve's move lessened
investor worries about problems overseas and helped moderate the losses at many
large hedge funds. By the year end, bank stocks recovered but still had not yet
returned to the all time highs set in early July.
As we start 1999, SIFE still believes that the financial services sector has
better long term growth prospects than the overall stock market. The
Price/Earnings ratio of the S&P 500 is currently more than 30 times earnings.
This is an historic high and combined with earnings growth expectations of only
3-5% for 1999, it would seem unsustainable. For bank stocks, we believe the
risk/reward relationship is much more favorable. Banks are projected to grow
earnings per share at low double digit rates (versus low single digits for the
S&P 500) but yet currently sell at much lower P/E ratios; currently about 18
times earnings.(2)
Second, while there is still the risk of financial problems overseas affecting
the US economy, the financial services sector is less exposed to the turmoil in
Asia and South America than a year ago. This general decrease in exposure as
well as SIFE's investment focus in regional banks instead of money center banks
should serve to enhance long-term returns while minimizing negative exposure.
Lastly, the effect of consolidation and regulatory reform should continue to
improve the value of the banking and financial services industries. During 1999,
we may see mergers and acquisition activity pause due to the "Year 2000" bug,
but SIFE believes that merger activity will continue for many years to come.
Merger activity may be further fueled if there is successful regulatory bank
reform, which would lower the barriers between banks, brokerages, and insurance
companies, and serve to accelerate merger activity between these types of firms.
In summary, while performance during 1998 was lower than the record years seen
during most of the 1990's, SIFE believes the foundations for strong long term
performance still remain solid.
1) For a list of SIFE's top ten holdings as of December 31, 1998, please
see page 16.
2) The financial services sector may exhibit greater volatility than the
overall stock market.
1998 ANNUAL REPORT
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<TABLE>
Statement of Assets and Liabilities
<CAPTION>
- -------------------------------------------------------------------------------------------
December 31, 1998
- -------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments in securities, at market (cost $584,392,089) ............ $1,055,681,459
Repurchase agreements ............................................... 111,331,000
Cash ................................................................ 1,534,234
Receivables for:
Fund shares sold .............................................. 5,406,802
Investment securities sold ..................................... 2,566,331
Dividends ...................................................... 2,057,167
Interest ....................................................... 13,143
--------------
Total assets .............................................. 1,178,590,136
--------------
Liabilities:
Payables for:
Fund shares repurchased ........................................ 1,697,535
SIFE (the "Management Company") ................................ 1,262,051
Dividends ...................................................... 744,018
--------------
Total liabilities ......................................... 3,703,604
--------------
Net assets ..................................................... $1,174,886,532
==============
Class A-I:
Net asset value per share
($1,015,390,282 divided by 162,157,151 shares outstanding) $ 6.26
==============
Maximum offering price per share (100/95 of $6.26) $ 6.59
==============
Class A-II:
Net asset value per share
($116,651,184 divided by 18,628,573 shares outstanding) ........ $ 6.26
==============
Maximum offering price per share (100/95 of $6.26) $ 6.59
==============
Class B:
Net asset value and offering price per share
($39,293,754 divided by 6,275,136 shares outstanding) ......... $ 6.26
==============
Class C:
Net asset value per share
($3,551,312 divided by 568,831 shares outstanding) ............ $ 6.24
==============
Maximum offering price per share (100/99 of $6.24) .................. $ 6.30
==============
<FN>
See Notes To Financial Statements
</FN>
</TABLE>
1998 ANNUAL REPORT
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Investment Portfolio
- --------------------------------------------------------------------------------
December 31, 1998 Number of Shares Market Value
- --------------------------------------------------------------------------------
Common Stocks: 89.90/0
Banks: 77.5%
AmSouth Bancorporation .................. 686,400 $31,317,000
Banc One Corp. .......................... 860,968 43,963,179
BankBoston Corp. ........................ 400,000 15,575,000
Banknorth Group Inc. .................... 15,000 564,375
Bank of New York Company, Inc. .......... 800,000 32,200,000
BB&T Corporation ........................ 300,096 12,097,620
Centura Banks, Inc. ..................... 100,000 7,437,500
Chase Manhattan Corp. ................... 769,000 52,340,063
Chittenden Corporation .................. 110,156 3,524,992
Citigroup Inc. .......................... 500,000 24,750,000
City National Corporation ............... 216,283 9,002,780
Colonial BancGroup, Inc. ................ 300,000 3,600,000
Comerica Incorporated ................... 518,550 35,358,628
Community First Bankshares, Inc. ........ 400,024 8,425,506
Compass Bancshares, Inc. ................ 356,600 13,573,087
Crestar Financial Corp. ................. 250,000 18,000,000
Cullen/Frost Bankers, Inc. .............. 118,400 6,497,200
D & N Financial Corp. ................... 11,000 259,875
Fifth Third Bancorp ..................... 40,000 2,852,500
First American Corp. .................... 376,050 16,687,219
First Tennessee National Corporation .... 782,000 29,764,875
First Union Corporation ................. 162,000 9,851,625
Firstar Corporation ..................... 353,700 32,982,525
Fleet Financial Group, Inc. ............. 1,422,000 63,545,625
Florida Banks, Inc. ..................... 125,000 968,750
Hibernia Corporation .................... 250,000 4,343,750
Imperial Bancorp* ....................... 600,000 9,975,000
Independent Bank Corp. .................. 541,000 9,399,875
J.P. Morgan & Co. Incorporated .......... 15,000 1,575,938
KeyCorp ................................. 1,000,000 32,000,000
M & T Bank Corp. ........................ 39,100 20,290,456
Mellon Bank Corp. ....................... 556,900 38,286,875
See Notes To Financial Statements
1998 ANNUAL REPORT
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Investment Portfolio
- --------------------------------------------------------------------------------
December 31, 1998 Number of Shares Market Value
- --------------------------------------------------------------------------------
Common Stocks, continued
Banks, continued
Mercantile Bancorporation, Inc. .......... 135,000 $ 6,226,875
Mercantile Bankshares Corp. .............. 60,000 2,310,000
National City Corporation ................ 530,000 38,425,000
National Commerce Bancorporation ......... 126,000 2,370,375
Northern Trust Corp. ..................... 151,600 13,236,575
North Fork Bancorp Inc. .................. 1,119,300 26,793,244
PNC Bank Corporation ..................... 365,000 19,755,625
Provident Financial Group ................ 65,000 2,453,750
Regions Financial Corp. .................. 190,000 7,659,375
Republic Bancorp, Inc. ................... 50,000 643,750
Silicon Valley Bancshares* ............... 97,100 1,653,734
SouthTrust Corporation ................... 120,000 4,432,500
Sterling Bancshares, Inc. ................ 300,000 4,462,500
Summit Bancorp ........................... 427,830 18,690,823
Summit Bancshares, Inc. .................. 290,000 5,365,000
SunTrust Banks, Inc. ..................... 200,000 15,300,000
TCF Financial Corporation ................ 253,200 6,124,275
Union Planters Corp. ..................... 305,000 13,820,312
United Bankshares, Inc. .................. 184,595 4,891,741
U.S. Bancorp ............................. 1,093,000 38,801,500
UST Corp. ................................ 67,000 1,578,688
Valley National Bancorp .................. 45,500 1,282,531
Wachovia Corporation ..................... 530,100 46,350,619
Wells Fargo & Company .................... 320,001 12,780,040
Westamerica Bancorporation ............... 435,000 15,986,250
Zions Bancorporation ..................... 134,700 8,401,912
-----------
910,808,812
Consumer Financial Services: 6.4%
Federal Home Loan Mortgage Co ............ 133,300 8,589,519
Federal National Mortgage Association .... 300,000 22,200,000
Household International .................. 105,000 4,160,625
MBNA Corporation ......................... 97,500 2,431,406
See Notes To Financial Statements
1998 ANNUAL REPORT
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Investment Portfolio
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December 31, 1998 Number of Shares Market Value
- --------------------------------------------------------------------------------
Common Stocks, continued
Consumer Financial Services, continued
MGIC Investment Corp. ..................... 65,000 $ 2,587,812
State Street Corporation .................. 500,000 34,781,250
--------------
74,750,612
Thrifts: 2.7%
Charter One Financial, Inc. ............... 603,281 16,741,048
FirstFed Financial Corp.* ................. 102,100 1,825,037
Peoples Heritage Financial Group, Inc. .... 310,270 6,205,400
Sovereign Bancorp, Inc. ................... 145,000 2,066,250
Webster Financial Corp. ................... 163,600 4,488,775
--------------
31,326,510
Insurance: 1.7%
American Express Company .................. 50,000 5,112,500
Fremont General Corp. ..................... 44,000 1,089,000
SunAmerica Inc. ........................... 135,000 10,951,875
Transatlantic Holdings, Inc. .............. 35,000 2,644,688
--------------
19,798,063
Brokerages: 1.6%
Alliance Capital Management L.P. .......... 89,700 2,309,775
The Charles Schwab Corporation ............ 297,000 16,687,687
--------------
18,997,462
--------------
Total Common Stocks (cost $584,392,089) ........... 1,055,681,459
--------------
Repurchase agreements: 9.5%
State Street Bank and Trust Company,
4.25%, due 0 1/04/99
Collateral: U.S. government obligations,
market value of $113,564,284 ............ 111,331,000
--------------
Total Investments (cost $695,723,089): 99.4% ...... 1,167,012,459
--------------
Other Assets and Liabilities, net: 0.6% ........... 7,874,073
--------------
Net Assets: 100.0% ................................ $1,174,886,532
==============
*Non-income producing
See Notes To Financial Statements
1998 ANNUAL REPORT
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<TABLE>
Statement of Operations
<CAPTION>
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment income:
Income:
Dividends ...................................... $ 20,378,750
Interest ....................................... 6,135,258
Other income ................................... 6,537
------------
Total investment income ........................ $ 26,520,545
Expenses:
Management fees ................................ 14,504,536
Service and distribution expenses
Class A-II .................................... 253,933
Class B ....................................... 303,129
Class C ....................................... 26,343
------------
Total expenses ............................ 15,087,941
------------
Net investment income ..................... 11,432,604
------------
Realized and unrealized gain/(loss) on investments:
Net realized gain .............................. 66,518,964
Gain on expiration of option contracts ......... 4,364,607
Net decrease in unrealized appreciation
of investments during the period ............ (26,982,915)
------------
------------
Net gain on investments ......................... 43,900,656
------------
Net increase in net assets resulting from operations ... $ 55,333,260
============
<FN>
See Notes To Financial Statements
</FN>
</TABLE>
1998 ANNUAL REPORT
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<TABLE>
Statements of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------
Years Ended December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income ........................... $ 11,432,604 $ 12,980,870
Net realized gain from investment transactions .. 70,883,571 64,683,150
Net (decrease)/increase in unrealized
appreciation of investments ................... (26,982,915) 277,075,662
----------------------------------
Net increase in net assets resulting from
operations ............................... 55,333,260 354,739,682
Distributions paid to investors:
From net investment income:
Class A-I ..................................... (10,625,303) (12,317,564)
Class A-II .................................... (801,182) (616,821)
Class B ....................................... (15,045) (49,266)
Class C ....................................... (995) (3,982)
From net realized gain on investments:
Class A-I ..................................... (66,062,653) (74,370,251)
Class A-Il .................................... (7,169,547) (5,742,617)
Class B ....................................... (2,512,490) (1,018,791)
Class C ....................................... (190,198) (85,524)
----------------------------------
Total distributions ........................ (87,377,413) (94,204,816)
Capital share transactions:
Increase from capital shares sold and reinvested 441,334,161 275,018,698
Decrease from capital shares repurchased ........ (386,217,042) (171,123,189)
----------------------------------
Net increase from capital share transactions 55,117,119 103,895,509
Total increase in net assets .................... 23,072,966 364,430,375
Net assets:
Beginning of year ............................... 1,151,813,566 787,383,191
----------------------------------
End of year ..................................... $ 1,174,886,532 $ 1,151,813,566
==================================
Net assets consist of:
Shares of beneficial interests .................. $ 704,211,971 $ 649,094,852
Undistributed net investment income ............. 31,622 41,543
Undistributed net realized (loss)/gain on sale of
investment securities and option contracts ..... (646,431) 4,404,886
Unrealized appreciation of investment securities 471,289,370 498,272,285
----------------------------------
$ 1,174,886,532 $ 1,151,813,566
==================================
<FN>
See Notes To Financial Statements
</FN>
</TABLE>
1998 ANNUAL REPORT
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Notes to Financial Statements
Note 1.
Significant Accounting Policies
SIFE Trust Fund (the "Trust Fund") is an openend diversified management
investment company offering its shares on a continuous basis to the public. The
Trust Fund was organized as a business trust under the laws of the State of
Delaware on February 28, 1997. The Trust Fund is the successor-in-interest to
SIFE Trust Fund, a California trust organized on September 26, 1960 which had
operated as a mutual fund since July 2, 1962. The Trust Fund is registered under
the Investment Company Act of 1940, as amended, (the "1940 Act").
The Trust Fund offers four classes of shares: Class A-I, Class A-II, Class B and
Class C. Class A-I shares are available for purchase only by (i) a Trust Fund
account which was established on or prior to April 30, 1996; (ii) directors,
employees and registered representatives of SIFE (the "Management Company") and
the Trust Fund, and their immediate family members; and (iii) broker/dealers and
certain other institutional purchasers. The offering of Class A-II shares began
May 1, 1996 and the offering of Class B and C shares began May 1, 1997. Realized
and unrealized gains or losses and investment income, net of management fees,
are allocated daily to each class of shares based upon the relative proportion
of net assets of each class. Each class of shares differs in its respective
distribution expenses and certain other class-specific fees and expenses.
The following is a summary of significant accounting policies consistently
followed by the Trust Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
registered investment companies.
Portfolio valuation:
Portfolio securities which are listed on a national stock exchange are valued at
the closing price on the stock exchange on which they are primarily traded. If
there has been no daily trading in a listed security, that security is valued at
the last available closing price. Securities which are traded over-the-counter
and for which closing prices are readily available (such as NASDAQ) are valued
at the closing price. Other securities which are traded over-the-counter but for
which closing prices are not readily available are valued at the closing bid
price. Short-term obligations having 60 days or less to maturity are valued at
amortized cost, which approximates market value. Temporary investments in
repurchase agreements are valued at cost.
Security transactions and related investment income:
Security transactions are accounted for on the trade date (the date the order to
buy or sell is executed). Realized gains or losses on security transactions
are recorded on the specific identified cost basis. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis.
Distributions to investors:
Distributions paid to investors are recorded on the ex-distribution date. Net
investment income is distributed proportionately to each investor's account as
of the last business day in February, May, August and December. Realized gains,
net of losses, from securities held for more than one year are distributed
annually as of the last business day in November. Realized gains, net of losses,
from securities held for less than one year are distributed annually as of the
last business day in December.
Income taxes:
The Trust Fund's policy is to comply with the requirements of the Internal
Revenue Code and regulations thereunder applicable to regulated investment
companies and to distribute all of its taxable income to its investors.
Therefore, no provision for federal income taxes is recorded in the financial
statements.
Covered call and put options:
The Trust Fund may write covered call options on securities held by the Trust
Fund for non-speculative or hedging purposes, may write covered put options on
securities for the same purposes, and may enter into closing purchase
transactions with respect to such options. Options written by the Trust Fund
normally will have expiration dates between three and nine months from the date
written.
All call and put options written by the Trust Fund must be "covered." A call
option will be considered covered if the Trust Fund, so long as it remains
obligated as a writer, owns the securities underlying the options. A put option
will be covered if the Trust Fund, so long as it remains obligated as a writer,
maintains in a segregated account held by State Street Bank and Trust Company
("State Street Bank") as custodian of the Trust Fund, cash, U.S. Treasury Bills
or high-grade short-term debt securities in an amount equal to or greater than
the exercise price of the put option.
The exercise price of an option may be below, equal to or above the current
market value of the underlying security at the time the option is written. When
the Trust Fund writes an option, an amount equal to the premium received by the
Trust Fund is recorded as an asset and equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market value
of the option written. The current market value of a written option is the last
sale price or in the absence of a sale, the last bid price on that day. If a
written option expires on the stipulated expiration date or if the Trust Fund
enters into a closing purchase transaction, the Trust Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
If a
1998 ANNUAL REPORT
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Notes to Financial Statements
written call option is exercised, the Trust Fund realizes a gain or a loss from
the sale of the underlying security and the proceeds of the sale are increased
by the premium originally received. If a written put option is exercised, the
cost basis of the underlying security is reduced by the premium originally
received.
Repurchase agreements:
The Trust Fund may invest in repurchase agreements secured by U.S. Government
obligations or by other securities. Securities pledged as collateral for
repurchase agreements are held by the Trust Fund's custodian bank until maturity
of the repurchase agreements. Provisions of the agreements are intended to
ensure that the market value of the collateral is sufficient in the event of
default; however, in the event of default or bankruptcy by the other party to
the agreements, realization and/or retention of the collateral may be subject to
legal proceedings and other uncertainties and expenses.
Note 2.
Affiliated Party Transactions - Agreements with SIFE (the "Management Company")
The Management Company is the investment advisor, administrator, transfer agent,
and underwriter for the Trust Fund and has acted in such capacities since the
formation of the Trust Fund. State Street Bank serves as custodian, sub-transfer
agent and service provider to existing Trust Fund investors.
Transfer agency agreement and administrative services agreement:
Pursuant to a transfer agency agreement, the Management Company acts as the
Trust Fund's transfer agent, as well as providing fund accounting services.
Effective March 24, 1997 the Management Company, in turn, engaged State Street
Bank to provide certain transfer agency functions for the Trust Fund. Effective
April 1, 1996, all expenses related to the operation of the Trust Fund are the
responsibility of the Management Company (see "Investment Advisory Agreement"
below). Under the terms of a prior investment advisory agreement, certain Trust
Fund expenses were paid by the Management Company and reimbursed by the Trust
Fund monthly.
Investment advisory agreement:
The Trust Fund has entered into an investment advisory agreement with the
Management Company. Under the terms of the current investment advisory
agreement, the Management Company provides investment advice, a broad range of
administrative, regulatory and other services for the Trust Fund and the
investors, and receives an all-inclusive management fee of 1.25% of the Trust
Fund's average daily net assets, per annum. During the year ended December 31,
1998, management fees incurred by the Trust Fund totaled $14,504,536.
Distribution plan and underwriting agreement:
Pursuant to Rule 12b-1 under the 1940 Act, the Management Company's Board of
Directors has adopted separate distribution plans with respect to the Trust
Fund's Class A-II, Class B and Class C shares, pursuant to which the Trust Fund
reimburses the Management Company for a portion of its shareholder servicing and
distribution expenses.
Under the Class A-II Plan, the Trust Fund may pay the Management Company a
distribution fee at the annualized rate of 0.25% of the average daily net assets
of the Trust Fund's Class A-II shares for expenditures incurred by the
Management Company in providing services as principal underwriter to the Trust
Fund for such shares. Under the Class B and Class C Plan, the Trust Fund may pay
the Management Company a distribution fee at the annualized rate of 0.75% of the
average daily net assets of the Trust Fund's Class B and Class C shares for its
expenditures incurred in providing services as principal underwriter for such
shares, and may pay the Management Company a service fee at the annualized rate
of 0.25% of the average daily net assets of the Trust Fund's Class B and Class C
shares, for the Management Company's expenditures incurred in servicing and
maintaining shareholder accounts.
In its capacity as principal underwriter for the Trust Fund, the Management
Company receives commissions of 2.5% to 5.0% on sales of the Trust Fund's Class
A-I and Class A-II shares. No sales charge is assessed on purchases of
$1,000,000 or more, purchases by directors, trustees, employees and registered
representatives of the Management Company and the Trust Fund, and their
immediate family members, as well as broker-dealers and certain other
institutional purchasers.
Class B shares are offered at net asset value per share, without the imposition
of a sales charge, but are subject to a contingent deferred sales charge
("CDSC") of up to 5.0% if redeemed within six years of purchase. Class B shares
automatically convert into Class A-II shares, based on relative net asset
values, on the sixth anniversary of their purchase. The Management Company will
pay to the selling dealer, out of its own resources, a sales commission of 4.0%
of the Class B shares purchased.
Class C shares are subject to an initial sales charge of 1%. Any shares redeemed
prior to one year following the initial purchase are subject to a 1% CDSC.
Commissions are deducted from the gross proceeds received from the sale of
investment shares, and as such are not expenses of the Trust Fund.
Commissions retained by the Management Company totaled $462,660 for the year
ended December 31, 1998.
Certain officers and directors of the Trust Fund are also officers and
1998 ANNUAL REPORT
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Notes to Financial Statements
directors of the Management Company. On December 31,1998, the Management Company
owned 469,682 Class A-I shares of the Trust Fund.
Note 3.
Unrealized Appreciation of Investments
On December 31, 1998, the net unrealized appreciation for all securities was as
follows:
Aggregate gross unrealized appreciation for all investments
in which there is an excess of value over tax cost ....... $ 475,354,065
Aggregate gross unrealized depreciation for all investments
in which there is an excess of tax cost over value ....... (4,064,695)
-------------
Net unrealized appreciation ................................... $ 471,289,370
=============
The tax cost basis used in the above calculation is the same as that used for
financial statement purposes.
Note 4.
Capital Share Transactions
<TABLE>
The following is a summary of share transactions for the years ended December
31, 1998 and December 31, 1997:
<CAPTION>
1998 1997
-------------------------------------------------------------
Class A-I Shares Amount Shares Amount
- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ......................... 10,264,524 $ 65,303,921 9,188,773 $ 52,531,297
Shares issued in connection with
reinvestment of distributions 11,734,641 71,066,418 12,831,281 80,769,497
--------------------------------------------------------------
21,999,165 136,370,339 22,020,054 133,300,794
Shares repurchased .................. (22,439,728) (142,308,295) (17,565,092) (100,565,902)
--------------------------------------------------------------
Net (decrease) increase ............. (440,563) $ (5,937,956) 4,454,962 $ 32,734,892
==============================================================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------
Class A-II Shares Amount Shares Amount
- ---------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ......................... 41,331,298 $ 266,163,815 19,597,918 $ 118,440,103
Shares issued in connection with
reinvestment of distributions 1,269,318 7,751,784 985,802 6,240,462
--------------------------------------------------------------
42,600,676 213,915,599 20,583,720 124,680,565
Shares repurchased .................. (37,124,813) (239,844,067) (11,185,753) (10,366,119)
--------------------------------------------------------------
Net increase ........................ 5,475,863 $ 34,071,532 9,397,967 $ 54,314,446
==============================================================
</TABLE>
<TABLE>
The following is a summary of share transactions for the year ended December 31,
1998 and for the period May 1, 1997 (commencement of operations) to December 31,
1997:
<CAPTION>
1998 1997
--------------------------------------------------------------
Class B Shares Amount Shares Amount
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .......................... 3,922,688 $ 25,579,740 2,376,117 $ 14,801,210
Shares issued in connection with
reinvestment of distributions .... 366,593 2,218,133 146,092 928,642
--------------------------------------------------------------
4,289,281 27,797,873 2,522,209 15,729,852
Shares repurchased ................... (511,127) (3,220,808) (25,227) (158,546)
--------------------------------------------------------------
Net increase ......................... 3,778,154 $ 24,577,065 2,496,982 $ 15,571,306
==============================================================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------
Class C Shares Amount Shares Amount
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .......................... 419,012 $ 3,083,299 198,347 $ 1,237,034
Shares issued in connection with
reinvestment of distributions .... 27,638 167,051 11,059 70,453
--------------------------------------------------------------
506,650 3,250,350 209,406 1,307,487
Shares repurchased ................... (142,207) (843,872) (5,018) (32,622)
--------------------------------------------------------------
Net increase ......................... 364,443 $ 2,406,478 204,388 $ 1,274,865
==============================================================
</TABLE>
Note 5.
Purchases and Sales of Securities
Purchases and sales of investment securities were $354,986,187 and $425,649,219,
respectively for the year ended December 31, 1998.
Note 6.
Concentration of Credit Risk
On December 31, 1998, approximately $1,055,681,459 (89.9% of net assets) of the
Trust Fund's investments were in equities of financial institutions.
Note 7.
Financial Instruments
The Trust Fund may trade in financial instruments with offbalance sheet risk
during the normal course of investing activities to assist in managing exposure
to various market risks. These financial instruments include written covered
call and put options and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes. As of
December 31, 1998 there were no covered call or put options outstanding.
1998 ANNUAL REPORT
- ------------------
<PAGE>
SIFE Trust Fund page
- ------------------------------------------------------------------------- 13
----
<TABLE>
Financial Highlights
<CAPTION>
Class A-I
---------------------------------------------------------------
Years Ended, December 31 1998 1997 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Per Share Data
(For one share outstanding throughout each period):
Net asset value, beginning of period ................... $ 6.45 $ 4.86 $ 4.58 $ 3.55 $ 3.83
---------------------------------------------------------------
Income from investment operations:
Net investment income ............................. 0.07 0.08 0.09 0.10 0.09
Net realized and unrealized
gain (loss) on investments ...................... 0.24 2.07 1.16 1.68 (0.13)
---------------------------------------------------------------
Total from investment operations ............. 0.31 2.15 1.25 1.78 (0.04)
---------------------------------------------------------------
Less distributions to investors:
Distributions from net investment income .......... (0.07) (0.08) (0.09) (0.10) (0.09)
Distributions from capital gains .................. (0.43) (0.48) (0.88) (0.65) (0.15)
---------------------------------------------------------------
Total distributions .......................... (0.50) (0.56) (0.97) (0.75) (0.24)
---------------------------------------------------------------
Net asset value, end of period ........................ $ 6.26 $ 6.45 $ 4.86 $ 4.58 $ 3.55
===============================================================
Total Return*** ............................................. 5.1% 44.8% 27.4% 49.9% (1.5%)
Ratios and Supplemental Data
Net assets, end of period (in millions) ................ $ 1,015 $ 1,049 $ 769 $ 614 $ 410
===============================================================
Ratios to average net assets:
Expenses ......................................... 1.25% 1.25% 1.20% 1.03% 0.94%
===============================================================
Net investment income ............................ 1.04% 1.38% 1.82% 2.25% 2.27%
===============================================================
Portfolio turnover rate ................................ 31.0% 63.0% 140.2% 93.5% 25.2%
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Class A-II Class B Class C
--------------------------------------------------------------------
Years Ended, December 31 1998 1997 1996* 1998 1997** 1998 1997**
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Per Share Data
(For one share outstanding throughout each period):
Net asset value, beginning of period .............. $ 6.46 $ 4.86 $ 4.73 $ 6.45 $ 5.41 $ 6.46 $ 5.41
--------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ 0.05 0.07 0.07 -- 0.01 -- 0.01
Net realized and unrealized
gain (loss) on investments ................. 0.23 2.07 1.01 0.24 1.53 0.21 1.54
--------------------------------------------------------------------
Total from investment operations ........ 0.28 2.14 1.08 0.24 1.54 0.21 1.55
--------------------------------------------------------------------
Less distributions to investors:
Distributions from net investment income ..... (0.05) (0.06) (0.07) -- (0.02) -- (0.02)
Distributions from capital gains ............. (0.43) (0.48) (0.88) (0.43) (0.48) (0.43)
--------------------------------------------------------------------
Total distributions ..................... (0.48) (0.54) (0.95) (0.43) (0.50) (0.43)
--------------------------------------------------------------------
Net asset value, end of period .................... $ 6.26 $ 6.46 $ 4.86 $ 6.26 $ 6.45 $ 6.24 $ 6.46
====================================================================
Total Return*** ................................... 4.7% 44.6% 22.8% 4.1% 28.9% 3.6% 29.1%
====================================================================
Ratios and Supplemental Data
Net assets, end of period (in millions) ........... $ 117 $ 85 $ 18 $ 39 $ 16 $ 4 $ 1
====================================================================
Ratios to average net assets:
Expenses ................................... 1.50% 1.50% 1.48% 2.25% 2.22% 2.25% 2.25%
====================================================================
Net investment income ...................... 0.79% 1.11% 1.77% 0.00% 0.30% 0.00% 0.30%
====================================================================
Portfolio turnover rate ........................... 31.0% 63.0% 140.2% 31.0% 63.0% 31.0% 63.0%
====================================================================
<FN>
* For the period May 1, 1996 (commencement of operations) to December 31,
1996.
** For the period May 1, 1997 (commencement of operations) to December 31,
1997.
*** Sales loads are not reflected in total return.
See Notes To Financial Statements
</FN>
</TABLE>
1998 ANNUAL REPORT
- ------------------
<PAGE>
page SIFE Trust Fund
14 -------------------------------------------------------------------------
- -----
Independent Auditors' Report
To the Investors and Board of Trustees of SIFE Trust Fund:
We have audited the accompanying statement of assets and
liabilities of SIFE Trust Fund (the "Fund"), including the schedule of
investments, as of December 31, 1998, the related statements of
operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the three years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits. The Financial highlights of the Class
A-I units for the years ended December 31, 1994 and 1995 were audited
by other auditors whose report dated January 30, 1996 expressed an
unqualified opinion on such financial highlights.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material respects,
the financial position of SIFE Trust Fund as of December 31, 1998, the
results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the three years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Francisco, California
January 29, 1999
1998 ANNUAL REPORT
- ------------------
<PAGE>
SIFE Trust Fund page
- ------------------------------------------------------------------------- 15
----
SIFE Performance
- ------------------------------------------------------
Average Annual Compounded Total Return
years min. load 0% max. load 5% S & P 500 Index
- ------------------------------------------------------
1 5.14% -0.12% 28.58%
- ------------------------------------------------------
5 23.41% 22.15% 24.06%
- ------------------------------------------------------
10 19.17% 18.56% 19.21%
- ------------------------------------------------------
SIFE's Investment Portfolio
- ------------------------------------------------------
(as of December 31, 1998)
[GRAPHIC OMMITTED]
Banks 77.5% o
Repurchase Agreements 9.5% o
Consumer Financial Services 6.4% o
Thrifts 2.7$ o
Insurance 1.7% o
Brokerages 1.6% o
Comparison to the S & P 500 Index
- ------------------------------------------------------
[PLOT POINTS TO BE SUPPLIED BY CUSTOMER]
The above graph represents a hypothetical illustration comparing a $9,500
investment made in SIFE Trust Fund on December 31, 1988 ($9,500 represents a
$10,000 investment with the maximum sales charge deducted) to a $10,000
investment made in the Standard and Poor's 500 Composite Price Index and
includes reinvestments of dividends and capital gains. The Standard and Poor's
500 Index is an unmanaged value-weighted price index composed of 500 large
capitalized U.S. stocks and is regarded as a broad based benchmark for market
conditions.
The above chart represents a hypothetical illustration comparing a $9,500
investment and a $10,000 investment made in SIFE Trust Fund on December 31, 1998
to a $10,000 investment made in the Standard and Poor's 500 Composite Price
Index and includes reinvestments of dividends and capital gains.
Please be aware that the return information in the chart and graph for SIFE
includes operating expenses (such as management fees) that reduce returns, while
the return for the Standard and Poor's 500 Composite Price Index does not.
Performance data quoted represents past performance and does not predict future
results. Investment return and principal value will fluctuate, and redemption
value may be more or less than original cost. Data is quoted for Class A-I only
(performance for other classes will vary due to differences in fee structures)
and does not reflect the effect of any market volatility that has occurred since
the date of the information. As a result, returns after the date of this report
may be substantially more or less than those shown.
SIFE Trust Fund is a sector fund and as such may exhibit higher volatility than
the overall stock market. Please refer to the prospectus for a complete
disclosure of the risks associated with the financial services sector, as well
as the expenses, investment objectives, and operating policies of the Fund. You
should read the prospectus carefully before investing in any fund. For a free
copy of the SIFE prospectus, please call (800) 524-7433.
1998 ANNUAL REPORT
- ------------------
<PAGE>
page SIFE Trust Fund
16 -------------------------------------------------------------------------
- -----
SIFE's Top Ten Holdings (as of December 31, 1998)
- --------------------------------------------------------------------------------
Fleet Financial Group, Inc. 5.4% National City Corporation 3.3%
Chase Manhattan Corp. 4.5% Mellon Bank Corp. 3.3%
Wachovia Corporation 3.9% Comerica Incorporated 3.0%
Banc One Corp. 3.7% State Street Corporation 3.0%
U.S. Bancorp 3.3% Firstar Corporation 2.8%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Officers And Trustees of the SIFE Trust Fund
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Haig G. Mardikian* Charles W. Froehlich, Jr. Sam A. Marchese
Chairman of the Board and Trustee Secretary and Trustee Trustee Emeritus
Walter S. Newman* John A. Meany* Diane Howard Belding
Vice Chairman of the Board and Trustee Trustee Trustee
Bruce W. Woods Neil L. Diver* Gary A. Isaacson
President and Trustee Trustee Treasurer
*Independent Trustees
</TABLE>
<TABLE>
<CAPTION>
Officers And Directors of SIFE (the "Management Company")
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce W. Woods
President, Chief Executive Officer and Charles W. Froeblich, Jr. Sharon E. Tudisco
Chairman Secretary and Director Director
Michael J. Stead John W. Woods Diane Howard Belding
Chief Investment Officer and Director Director Director
Gary A. Isaacson Sam A. Marchese
Chief Financial Officer Director
</TABLE>
Custodian Additional SIFE Services
- ----------------------------------- ----------------------------------------
State Street Bank and Trust Company SIFE Trust Fund provides continuing
225 Franklin Street individual services to the Investor,
Boston, MA 02110 including assistance for changes of
beneficiary, assignments, collateral
Transfer Agent bank loans, redemptions and the purchase
- ----------------------------------- of additional fund shares. SIFE
Boston Financial Data Services representatives are prepared to assist
P.O. Box 8244 you in establishing retirement accounts,
Boston, MA 02266 including IRA's, IRA-SEP's, SIMPLE
IRA's, Roth IRA's, Education IRA's and
Legal Counsel Section 403(b)(7) accounts.
- -----------------------------------
Paul, Hastings, Janofsky & Walker LLP Inquiries concerning any of SIFE's
345 California Street, 29th Floor services may be directed to your
San Francisco, CA 94104 representative or the home office. For
the convenience of Investors, you may
call toll free (800) 231-0356 or (925)
Independent Auditors 988-2430 if you have a need for
- ----------------------------------- information or service. For current unit
Deloitte & Touche LLP price, SIFE has a 24 hour toll-free
50 Fremont Street number: (800) 553-7433.
San Francisco, CA 94105
This report and the financial statements
contained herein are provided for the
general information of the shareholders
of SIFE. This report is not authorized
for distribution to prospective
investors in SIFE unless preceded or
accompanied by an effective prospectus.
1998 ANNUAL REPORT
- ------------------
<PAGE>
----
SIFE
----
100 North Wiget Lane, P.O. Box 9007
Walnut Creek, CA 94598-0907
Phone (800) 231-0356/fax (925) 943-1783
Website: www.sife.com
Ticker Symbol: SIFEX
(c) 1998 SIFE Trust Fund
