<PAGE>
SCHEDULE 14A Information
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Security First Trust
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Security First Trust
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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.
---------------------------------------------------------------------------
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:
----------------------------------------------------------
<PAGE>
SECURITY FIRST TRUST
11365 West Olympic Boulevard
Los Angeles, California 90064
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of each Portfolio ("Series") of Security
First Trust ("Trust"), a Massachusetts business trust, will be held at the
offices of Security First Group, Inc. at 11365 West Olympic Boulevard, Los
Angeles, California 90064, on October __, 1997, at 10:00 a.m., Pacific Time, to
consider the following actions:
(1) To consider and vote upon a Master Investment Management and
Advisory Agreement between each Series of the Trust and Security First
Investment Management Corporation ("Security Management");
(a) When MetLife is the ultimate parent of Security Management which
is the investment adviser to the Trust; and
(b) In the interim should Great-West Life Insurance company become the
ultimate parent of Security Management before the closing of the
MetLife transaction;
(2) To consider and vote upon SubAdvisory Agreements between Security
Management and;
(a) T. Rowe Price Associates, in regard to T. Rowe Price Growth and
------------------------
Income Series;
(b) Neuberger & Berman LLC, in regard to the Bond Series; and
----------------------
(c) Virtus Capital Management, Inc. in regard to the Virtus U.S.
-------------------------------
Government Income Series and Virtus Equity Series
(3) To transact such other business as may properly come before the
Meeting and any adjournment thereof.
The shareholders of each of the Series of Security First Trust are invited
to attend the meeting. The shares owned by Security First Life Separate Account
A and Fidelity Standard Life Separate Account ("Separate Accounts") in each of
the Series will be voted by the Separate Accounts in accordance, and in
proportion, with the instructions furnished by contractholders whose contracts
are invested in the relevant shares of Security First Trust. Contractholders
therefore are requested to complete, date, and sign the enclosed form of voting
instructions and to return it promptly in the envelope provided for that
purpose. Your vote is important, so please read the instructions carefully and
designate your vote with regard to the matters listed above.
The record date for the entitlement to vote is September __, 1997.
---------
By Order of the Trustees
Richard C. Pearson
Secretary
Los Angeles, California
Dated September __, 1997
<PAGE>
PROXY STATEMENT
SECURITY FIRST TRUST
11365 West Olympic Boulevard
Los Angeles, California 90064
SPECIAL MEETING OF SHAREHOLDERS
October __, 1997
This proxy statement is furnished on behalf of the Board of Trustees of
Security First Trust (the "Trust"), a Massachusetts business trust, for use at
the Meeting of Shareholders of each of the various Portfolios ("Series") of the
Trust to be held at the offices of The Security First Group, Inc. ("Security
First Group" or "SFG"), 11365 West Olympic Boulevard, Los Angeles, California
90064 on October __, 1997, at 10:00 a.m., Pacific Time, and at any adjournments
thereof. The approximate date on which this proxy statement and the
accompanying form of proxy are first being sent or given to securityholders is
September , 1997.
A proxy may be revoked at any time by (a) submitting a subsequently dated
proxy, (b) attending the meeting and voting in person, or (c) giving written
notice of revocation to the Secretary of the Trust. This solicitation of
proxies is made by the Board of Trustees of the Trust. The cost thereof will be
borne by Security First Investment Management Corporation. Voting instructions
may be revoked at any time by submitting a subsequently dated voting instruction
card or by giving written notice of revocation.
Security First Life Separate Account A, a separate account created pursuant
to Delaware insurance law, and the Fidelity Standard Life Separate Account, a
separate account created pursuant to Delaware insurance law ("Separate
Accounts"), each of which is registered as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"), and the Security First Group
Securities Savings Plan, a tax qualified retirement plan, own of record all of
the shares of the various Series of the Trust. The shares owned by the Separate
Accounts will be voted by their respective sponsoring insurance companies in
accordance with the instructions furnished by contractholders whose contract
values are invested in shares of each of the relevant investment portfolios
("Series") of the Trust. In the event that a contractholder fails to give
instructions on the enclosed proxy card as to a proposal described in the voting
instruction card, the shares that are the subject of such instructions will be
voted for the proposals. Shares as to which no proxies are received will be
voted proportionately based upon the voting instructions given by other
contractholders.
<PAGE>
The executed proxy will be voted by shareholders of the various relevant
Series of the Trust, for or against (1) the approval of a master Investment
Management and Advisory Agreement between the Trust and Security First
Investment Management Corporation ("Security Management") where (a) Security
Management is a controlled company of MetLife and (b) Security Management is a
controlled company of The Great-West Life Assurance Company and Great-West
Lifeco, Inc. and (2) the approval of an applicable Sub-Advisory Agreement
between Security Management and the applicable subadviser and (3) whatever other
business as may properly come before the meeting and any adjournment thereof.
The Board of Trustees does not know of any actions to be considered at the
Meeting other than those mentioned. If any other matter is presented, the
persons named in the proxy will vote in accordance with their best judgment.
Majority Vote: Approval of a Series' Advisory or Sub-Advisory Agreement
-------------
requires the vote of a majority of the outstanding securities of that Series.
For this purpose, a "majority" means (a) 67 percent or more of the voting
securities present at the meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (b) more
than 50% of the outstanding voting securities, whichever is less.
The number of shares of each Series for which each contractholder in a
Separate Account is entitled to give voting instructions to the sponsoring
insurance company is computed as follows:
(1) For a contract/certificate in the accumulation phase:
The total value of accumulation units in that Series held under the
contract/certificate as of the record date, divided by the net asset value
of one share of the Series on that same date; and
(2) For a contract/certificate in the payout phase:
The actuarial value of annuity units in that Series held in the
Separate Account attributable to the future annuity payments under the
contract/certificate in that Series as of the record date, divided by the
net asset value of one share of the Series on that same date.
As of September __, 1997, the record date for determination of shareholders
entitled to notice of and to vote at the Special Meeting, the following number
of shares of beneficial interest of the various Series of the Trust were
outstanding, of which the indicated percentages were owned by Security First
Life Separate Account A ("SFLSAA"), Fidelity Standard Life Separate Account
("FSLSA") and the Security First Group Securities Savings Plan ("SFG Plan"):
- 2 -
<PAGE>
<TABLE>
<CAPTION>
SFG
SHARES SFLSAA FSLSA PLAN
SERIES OUTSTANDING % % %
- ------------- ------------ ------- ------ -----
(000)
<S> <C> <C> <C> <C>
T. Rowe Price Growth 12,588 98.75 -- 1.25
and Income
Bond 2,648 98.87 -- 1.13
Virtus U.S. Government 5,387 100 -- -0-
Income
Virtus Equity 5,817 100 -- -0-
Total: 26,440
</TABLE>
For ease of reference, the following table lists the proposals to be acted
on by shareholders of the various Series of the Trust, and indicates which
Series are eligible to vote on each such proposal.
<TABLE>
<CAPTION>
Affected
Proposal Description Series
- -------- ----------- ---------
<S> <C> <C>
1(a) Consideration of Master All
--- Investment Management and
Advisory Agreement with
Security Management where
MetLife controls Security
Management
1(b) Consideration of Master All
--- Investment Management and
Advisory Agreement with
Security Management where
Great-West controls Security
Management
2(a) Consideration of Subadvisory T. Rowe Price
Agreement between Security Growth and
Management and Price Income Series
Associates
2(b) Consideration of Subadvisory Bond Series
Agreement between Security
Management and Neuberger &
Berman, LLC
2(c) Consideration of Subadvisory Virtus Equity
Agreement between Security Virtus U.S.
Management and Virtus Government
Capital Management, Inc. Income
</TABLE>
- 3 -
<PAGE>
A copy of the Trust's most recent annual report to shareholders and a copy
of the most recent semi-annual report succeeding the annual report, if any,
will be furnished, without charge, to shareholders of the Trust upon
request. Any such request should be directed to:
Attn: Bank Services
Security First Group
11365 West Olympic Boulevard
Los Angeles, California 90064
(800) 284-4536
PROPOSED TRANSACTIONS
---------------------
and their effect on the
Investment Management and Advisory and
Sub-Advisory Agreements
Currently, Trilon Financial Corporation ("Trilon") owns a majority interest
(i.e. 57%) in London Insurance Group Inc. ("LIG"). LIG, in turn, owns 100% of
the outstanding voting securities of Security First Group, Inc. ("Security First
Group"), the direct (100%) parent corporation of Security Management.
Currently, Security Management serves as investment adviser to the Bond
Series and the T. Rowe Price Growth and Income Series pursuant to a Master
Investment Management and Advisory Agreement dated June 6, 1994, and to the
Virtus U.S. Government Income Series and the Virtus Equity Series pursuant to a
similar Investment Management and Advisory Agreement dated May 18, 1994. Such
agreements are referred to hereinafter as the "current" or "existing" Advisory
Agreements. The current Advisory Agreements were most recently extended by the
Board of Trustees on August 21, 1997 through September 30, 1988.
The term "assignment" is defined in the Investment Company Act of 1940
("1940 Act") to include a transfer of a controlling block of the assignor's
voting securities by a security holder of the assignor.
The term "control" is defined in the 1940 Act to include any person who
owns either directly or through one or more controlled companies, more than 25%
of the voting securities of a company. Such a person shall be presumed to
control such company.
Under the 1940 Act (Section 15(a)(3)), an investment advisory contract must
provide for its automatic termination in the event of its assignment. The
existing Advisory Agreements between the individual Series of the Trust and
Security Management so provide. The staff of the Securities and Exchange
Commission uniformly holds that a change of control such as proposed here
amounts to an assignment and thereby terminates an investment company's
- 4 -
<PAGE>
investment advisory contract. Thus, under the terms of the contracts and based
upon the defined terms of "control" and "assignment", the current Advisory
Agreements between the Trust as to each Series thereof and Security Management
may be construed to terminate upon the change of control of SFG. At the same
time, since subadvisory contracts are agreements between the investment
company's investment adviser and the applicable subadvisers whereby the
subadviser performs certain duties on behalf of the investment adviser, the fact
that the investment advisory contracts are terminated also terminates each
subadvisory contract.
Proposed Transactions
- ---------------------
There are two separate and distinct transactions either or both of which
could have an effect on the ultimate control of Security Management and thus the
termination of the Trust's advisory and subadvisory contracts. The first
transaction involves the change of control of the immediate parent of Security
Management to the Metropolitan Life Insurance Company ("MetLife"). That
transaction is described under the heading "Proposed MetLife Transaction" which
appears immediately below.
There is a second Proposed Transaction which involves the purchase of the
outstanding voting shares of LIG by The Great-West Life Assurance Company, a
Canadian life insurer which is also licensed to operate in the United States,
and its holding company Great-West Lifeco, Inc. (collectively, "Great-West").
For ease of reference, we shall describe this transaction as the "Proposed
Great-West Transaction". The Proposed Great-West Transaction would have the same
impact on control and assignment of the advisory contract as is discussed under
the Proposed MetLife Transaction described immediately hereafter. Should Great-
West acquire control of LIG, Great-West, it is understood, intends to honor the
LIG Agreement to sell the shares of SFG that LIG owns (100%) to MetLife. Because
both proposed transactions require certain regulatory approvals, however, there
is no way that it can be ascertained with certainty which transaction will be
consummated first and which will be second.
Should the Proposed MetLife Transaction be consummated first in time,
Great-West's control of LIG will become moot in that MetLife will become the
direct controlling parent of SFG and LIG will no longer be in the chain of
control of Security Management. If, however, the closing on the Proposed Great-
West Transaction occurs first in time, Great-West would be (at least
temporarily) the ultimate parent of Security Management with MetLife becoming
the direct (second stage) parent of Security Management upon the closing of the
subsequent MetLife transaction.
Since it could be construed that the Proposed Great-West Transaction,
should it occur first, would result in a termination by assignment of the
advisory agreement and the subadvisory agreements, approval of shareholders is
being sought for (a) the
- 5 -
<PAGE>
period of time between the closing on the Proposed Great-West Transaction and
the closing of the Proposed MetLife Transaction should that be necessary, or (b)
in the event the MetLife transaction never occurs. Discussed more fully under
II below is a description of Great-West and the Proposed Great-West Transaction.
I. PROPOSED METLIFE TRANSACTION
----------------------------
MetLife has entered into a Stock Sale Agreement with LIG, the owner of 100%
of the outstanding voting shares of SFG whereby LIG is to sell all of the
outstanding shares of SFG to MetLife which is purchasing the SFG stock to be
held by a wholly-owned subsidiary. SFG owns 100% of the outstanding shares of
Security Management.
MetLife, with assets of $167 billion at June 30, 1997, is the second
largest life insurance company in the United States in terms of total assets.
MetLife provides a wide range of insurance and investment products and services
to individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force, which is approximately $1.5
trillion. MetLife's approximately $1.0 trillion in group life insurance in
force continues its position as the largest provider of group life insurance in
the United States. In addition to the United States, MetLife and its
subsidiaries market insurance and investment products and services in Canada,
the United Kingdom, Spain, Portugal, Taiwan, Mexico, Hong Kong, Argentina and
South Korea. MetLife and its subsidiaries own or have under management
approximately $309.8 billion in total assets. MetLife and its insurance
subsidiaries provide life, health, disability and automobile and homeowners
insurance, as well as pension and pension-related services, annuities and
investment-related services, to individuals, corporations and other
institutions. MetLife also provides investment management and advisory services
and commercial financial services through its principal non-insurance
subsidiaries. As a mutual life insurance company, MetLife has no shareholders.
At present, Trilon is considered ultimately to control Security Management
in the chain of ownership. Upon consummation of the Proposed MetLife
Transaction, MetLife will be considered to ultimately control Security
Management. As a mutual insurance company, MetLife has no shares outstanding
and, therefore is not a corporation which can be "controlled" by any other
entity.
The following Table of Organization describes the present ownership of
control of the parent of Security Management as well as the ownership of control
after the Proposed MetLife Transaction is consummated:
- 6 -
<PAGE>
<TABLE>
<CAPTION>
PRESENT AFTER PROPOSED METLIFE TRANSACTION
------- ----------------------------------
Trilon MetLife*
------ --------
<S> <C>
57% 100%
LIG SFG
100% 100%
SFG Security Management
100%
Security Management
</TABLE>
* Upon consummation, MetLife may transfer its ownership interest in
Security Management to one of its wholly-owned subsidiaries.
The shareholders of each of the Trust's Series have approved the current
Advisory Agreement with Security Management. In addition, each investment Series
has approved the current subadvisory agreement between Security Management and
the applicable subadviser. The four investment portfolios of the Trust are each
operated on a subadvisory basis through the applicable Master Investment
Management and Advisory Agreement with Security Management. The three relevant
subadvisers for the four Series are:
1. T. Rowe Price Growth and Income Series - Sub-Adviser: T. Rowe Price
Associates pursuant to a subadvisory agreement originally approved by
shareholders on June 6, 1994 and continued by the Board of Trustees
annually thereafter through September 30, 1998;
2. Bond Series - Sub-Adviser: Neuberger & Berman, LLC pursuant to a
subadvisory agreement approved by shareholders on July 15, 1997;
3. Virtus U.S. Government Income Series - Sub-Adviser: Virtus Capital
Management, Inc. pursuant to a subadvisory agreement approved by
shareholders on May 18, 1994 and continued by the Board of Trustees
annually thereafter through September 30, 1998; and
4. Virtus Equity Series - Sub-Adviser: Virtus Capital Management, Inc.
pursuant to a subadvisory agreement approved by shareholders on May
18, 1994 and continued by the Board of Trustees annually thereafter
through September 30, 1998.
Because of the Proposed MetLife Transaction described above and the
interpretations thereof, shareholders of each of the four Series of the Trust
are being asked to vote upon the approval of a new Master Investment Management
and Advisory Agreement ("Proposed
- 7 -
<PAGE>
Advisory Agreement") with Security Management, which will contain the same
material terms, fees and conditions with respect to each of the Series as are
now contained in the applicable current Advisory Agreement. The votes of each
Series of the Trust will be separately recorded in regard to the approval of the
Proposed Advisory Agreement. At the same time, the shareholders of each of the
four Series are also being asked to vote upon only the subadviser applicable to
his or her investment (directly or through the variable annuity contract in
which his or her moneys are invested).
For the convenience of the reader/voter, each Series is separately listed
and identified under Proposal 2 below in these materials and information is
given relating to the SubAdviser for that Series.
II. PROPOSED GREAT-WEST TRANSACTION
-------------------------------
Great-West has offered to purchase all of the outstanding common shares of
London Insurance Group ("LIG"). Lifeco and Great-West have also entered into an
irrevocable lock-up agreement with Trilon Financial Corporation ("Trilon") to
purchase all of the outstanding shares of LIG owned directly or indirectly by
Trilon. LIG owns all of the outstanding voting shares of SFG. SFG owns 100% of
the outstanding shares of Security Management.
Great-West Lifeco Inc. ("Lifeco") was incorporated under the laws of the
Canada Business Corporations Act in 1979 and reorganized in 1986 for the purpose
of acquiring and holding common shares of Great-West. At June 30, 1997, Lifeco
owned 1,989,169 common shares of Great-West or approximately 99.5% of the
outstanding shares of Great-West. Lifeco currently has no other holdings and
carries on no business or activities unrelated to its holdings in Great-West.
Lifeco is not restricted to investing only in the shares of Great-West and may
make other investments in the future. Power Financial Corporation, a financial
services company, owned approximately 86.4% of the outstanding common shares of
Lifeco as of June 30, 1997. Power Corporation of Canada, a holding management
company, has voting control of Power Financial Corporation. Mr. Paul Desmarais,
through a group of private holding companies, which he controls, has voting
control of Power Corporation of Canada. The head office and principal place of
business of Lifeco is 100 Osborne Street North, Winnipeg, Manitoba, Canada R3CC
3A5.
Great-West was incorporated in 1891 by an Act of Parliament of Canada as a
Canadian stock life insurance company. Its Canadian headquarters are located at
100 Osborne Street North, Winnipeg, Manitoba, Canada 43C 1V3. Its U.S.
headquarters is located at 8515 E. Orchard Rd., Englewood, Colorado 80111. It
is licensed to do business throughout Canada and in the United States, except in
the State of New York. Great-West's U.S. operations are conducted primarily
through Great-West Life & Annuity Insurance Company, a wholly owned subsidiary
of Great-
- 8 -
<PAGE>
West, domiciled in Colorado and licensed to do business in Guam, Puerto Rico,
and the District of Columbia and all states except New York, and conducted
through First Great-West Life & Annuity Insurance Company in New York. At June
30, 1997, GWL&A's assets accounted for approximately 68% of Great-West's total
assets. Through Great-West in Canada and through GWL&A in the U.S., a wide
range of life insurance, health insurance, and retirement and investment
products is offered to individuals, businesses and other private and public
organizations. The marketing and development of product investment management
and corporate functions are managed separately for Canada and the U.S. through
Great-West and GWL&A.
As discussed above, at present, Trilon is considered ultimately to control
Security Management in the chain of ownership. Upon consummation of the
Proposed Great-West Transaction, Great-West will be considered to ultimately
control Security Management if the Proposed Great-West Transaction is
consummated prior to the MetLife Proposed Transaction.
The following Table of Organization describes the present ownership of
control of the parent of Security Management as well as the ownership of control
after the Proposed Great-West Transaction is consummated, provided it is
consummated prior to the MetLife Proposed Transaction.
<TABLE>
<CAPTION>
PRESENT AFTER PROPOSED GREAT-WEST TRANSACTION
------- -------------------------------------
TRILON GREAT-WEST
<S> <C>
57% 98%*
LIG LIG
100% 100%
SFG SFG
100% 100%
Security Management Security Management
</TABLE>
*Estimated.
As is discussed more fully above under the general heading "PROPOSED
TRANSACTIONS", there are two separate and distinct proposed transactions which
involve the change of control of Security Management. The other transaction is
discussed above under the sub-heading "PROPOSED METLIFE TRANSACTION". Should
the Proposed MetLife Transaction be consummated before this Proposed Great-West
Transaction, MetLife will become the ultimate parent of Security Management and
ownership of the voting securities of LIG will be irrelevant to the control of
Security Management. If,
- 9 -
<PAGE>
however, this Proposed Great-West Transaction occurs first, Great West will
become the ultimate parent of Security Management. Should this happen, Great-
West has indicated that it intends to honor the stock sale agreement entered
into between LIG and MetLife as soon as is reasonably possible. For this
reason, Great-West may be considered to temporarily control Security Management
during the interim period.
The shareholders of each of the Trust's Series has approved the current
Advisory Agreement with Security Management. In addition, each investment
Series has approved the current subadvisory agreement between Security
Management and the applicable subadviser. The four investment portfolios of the
Trust are each operated on a subadvisory basis through the applicable Master
Investment Management and Advisory Agreement with Security Management. The
three relevant subadvisers for the four Series are:
1. T. Rowe Price Growth and Income Series - SubAdviser: T. Rowe Price
Associates pursuant to a subadvisory agreement originally approved by
shareholders on June 6, 1994 and continued by the Board of Trustees
annually thereafter through September 30, 1998;
2. Bond Series - SubAdviser: Neuberger & Berman, LLC pursuant to a
subadvisory agreement approved by shareholders on July 15, 1997;
3. Virtus U.S. Government Income Series - SubAdviser: Virtus Capital
Management, Inc. pursuant to a subadvisory agreement approved by
shareholders on May 18, 1994 and continued by the Board of Trustees
annually thereafter through September 30, 1998; and
4. Virtus Equity Series - SubAdviser: Virtus Capital Management, Inc.
pursuant to a subadvisory agreement approved by shareholders on May
18, 1994 and continued by the Board of Trustees annually thereafter
through September 30, 1998.
Because of the Proposed Great-West Transaction described herein and the
interpretations of control and assignment, shareholders of each of the four
Series of the Trust are being asked to vote upon the approval of a new (interim)
Master Investment Management and Advisory Agreement ("Proposed Advisory
Agreement") with Security Management, which will contain the same material
terms, fees and conditions with respect to each of the Series as are now
contained in the applicable current Advisory Agreement. The votes of each
Series of the Trust will be separately recorded in regard to the approval of the
Proposed Advisory Agreement. At the same time, the shareholders of each of the
four Series are also being asked to vote upon only the subadviser applicable to
his or her investment through the variable annuity contract in which his or her
moneys are invested.
- 10 -
<PAGE>
For the convenience of the reader/voter, each Series is separately listed
and identified in these materials and information is given relating to the
SubAdviser for that Series.
THE TRUST
---------
General
- -------
The Trust is a "series company" as that term is used in Rule 18f-2 under
the 1940 Act, established pursuant to a Declaration of Trust under the laws of
the Commonwealth of Massachusetts on February 13, 1987. The Trust is registered
with the Securities and Exchange Commission as an open-end diversified
management investment company with a fiscal year ending July 31.
The Declaration of Trust currently authorizes the issuance of shares in
four investment Series of the Trust. The Board of Trustees is authorized,
without further shareholder action, to establish and create additional Series
and to designate the rights and preferences thereof. The interests of investors
in each of the Series of the Trust are separate and distinct. All consideration
received for the sales of shares of a particular Series of the Trust, all assets
in which such consideration is invested, and all income, earnings and profits
derived from such investments, are allocated to and belong to that Series.
The shares of beneficial interests in the Series of the Trust are
transferable shares without par value. The Declaration of Trust permits the
Trustees to issue an unlimited number of shares and to divide such shares into
an unlimited number of Series, all without shareholder approval. Each share of
each Series represents an equal proportionate interest in the assets and
liabilities belonging to that Series.
Voting Rights
- -------------
The Declaration of Trust provides that shareholders shall have power to
vote only on the following matters:
(i) to the extent required by the 1940 Act, the election of the Trustees
of the Trust and the removal of Trustees;
(ii) with respect to any contract entered into by the Trust to the extent
shareholder approval is required by the 1940 Act;
(iii) with respect to any termination or reorganization of the Trust or any
Series thereof to the extent and as provided in the Declaration of Trust;
(iv) with respect to any amendment of the Declaration of Trust that
adversely affects the rights of shareholders;
- 11 -
<PAGE>
(v) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or any Series of the Trust or the Trust shareholders; and
(vi) with respect to such additional matters relating to the Trust as may
be required by the 1940 Act, the Declaration of Trust, the By-laws of the Trust,
any registration of the Trust with the Securities and Exchange Commission (or
any successor agency) or any state, or as the Trustees may consider necessary or
desirable.
Under the Declaration of Trust, shares of each Series of the Trust vote
separately as a class on matters submitted to shareholders except as to voting
for Trustees and independent auditors and except as may otherwise be required by
the 1940 Act. In regard to the election of Trustees and the approval of
independent auditors, shareholders of all Series of the Trust vote together as
one class. In the event that the Trustees determine that a matter affects only
the interest of one or more Series, such as is the case of approval of advisory
and subadvisory contracts, then only the shareholders of the affected Series
will be entitled to vote on that particular matter. At the Special Meeting of
the various shareholders of each Series of the Trust to be held on September___,
1997, the shareholders of each Series are being asked to vote upon the proposed
Advisory Agreement and a related proposed subadvisory contract. Approval or
rejection of such a matter by one or more Series will not affect the interests
of any other Series of the Trust.
Shareholder Meetings
- --------------------
The Trust is not required to hold annual meetings of its shareholders.
Reason For Special Meeting
- --------------------------
A regular meeting of all Series of the Trust then existing took place on
May 13, 1994. At that meeting, the approval of shareholders of the Series was
sought in regard to the election of Trustees and the ratification of the
selection of independent auditors. Shareholder approval was also obtained at
that meeting, together with subsequent Special Meetings of shareholders, of the
current Advisory Agreements and related subadvisory agreements, as is more fully
described hereinbelow.
The proposed transactions discussed above necessitate this Special Meeting
of Shareholders because of the impact of these events on the current Advisory
Agreements between the Trust and Security Management and related subadvisory
agreements between Security Management and certain subadvisory organizations in
that it can be construed that the current contracts will be terminated by
assignment.
- 12 -
<PAGE>
Current Advisory/Subadvisory Agreements
- ---------------------------------------
As noted above, Security Management has served as the investment adviser
and business manager to all Series of the Trust pursuant to the current Advisory
Agreements initially approved by shareholders of all Series of the Trust in 1994
and continued by the Board of Trustees thereafter. Similarly, the applicable
Subadvisers have served as the Subadvisers of each of these Series pursuant to
subadvisory agreements with Security Management which was last approved by
shareholders on the following dates: May 13, 1994 (Virtus Equity and Virtus
U.S. Government Income Series); June 6, 1994 (T. Rowe Price Growth and Income
Series); and July 15, 1997 (Bond Series). The proposed acquisition of the voting
stock of SFG by MetLife is presumed to be a change of control of SFG which,
under prior interpretations of the 1940 Act by the staff of the Securities and
Exchange Commission, would automatically terminate the Advisory Agreements
between Security Management and the Trust, and, therefore, the Subadvisory
Agreements between Security Management and the applicable Subadvisers as of the
date of the "assignment". Similarly, the acquisition of control of LIG by Great-
West, should it be consummated before the MetLife transaction, is presumed to be
a change of control of Security Management.
Upon consummation of either of the proposed transactions, the acquiring
company is expected to conduct a detailed review of Security First Group and its
subsidiaries, including their operations, policies, management and personnel to
determine what changes, if any, would be desirable in light of such review and
the circumstances which then exist. However, neither potential acquiring
company has indicated that it has formulated any plans at this time to change
the management or operations of Security Management.
Security Management and the applicable Subadvisers have agreed to continue
to provide investment advisory and management services to the Trust pending
approval of the relevant agreements by shareholders or until another investment
adviser is selected and approved by the Trust. The Investment Management and
Advisory Agreement and the Subadvisory Agreement shareholders are being asked to
approve are the same as the current advisory agreements which will be terminated
by the change of control of Security Management that were previously approved by
shareholders and subsequently continued each year by the Board of Trustees
including a majority of the non-interested Trustees. The only significant
difference in the relationship is the change in the ultimate parent company of
Security Management.
Trustees
- --------
At the meeting of shareholders of the Trust on May 13, 1994, Messrs.
Lawrence E. Marcus, Melvin M. Hawkrigg* and Jack R. Borsting and Ms. Katherine
L. Hensley were elected Trustees of the Trust. Section 15(f) of the 1940 Act
states, in essence, that if
- 13 -
<PAGE>
the sale of a controlling interest in the investment adviser of an investment
company (which the staff interprets to include the parent of the investment
adviser) results in an assignment of the advisory contract, for a period of
three years after such action, at least 75 per centum of the members of the
board of the registered investment company cannot be interested persons of the
investment adviser of such company. While the Board of Trustees of the Trust
does not feel that Section 15(f) of the 1940 Act was intended to encompass the
proposed transactions discussed above, the Board is so constituted so that it
does indeed satisfy the 75% test.
*"Interested Person" as that term is defined in the 1940 Act.
PROPOSAL 1
----------
APPROVAL OF A MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT BY
SHAREHOLDERS OF EACH OF THE VARIOUS SERIES OF THE TRUST
Proposals 1(a) and 1(b) relate to the Investment Management and Advisory
Agreement between the Trust and Security Management and are intended to provide
for the orderly management of the Trust depending upon whether the Met-Life
Transaction or the Great-West Transaction occurs first. That is, if MetLife
acquires SFG before the Great-West acquires LIG, Security Management would
become a controlled company of MetLife and the subsequent Great-West Transaction
would be irrelevant to the status of the Investment Management Agreement; in
this event, Proposal 1(a) provides for approval of the Investment Management
Agreement between the Trust and Security Management under circumstances in which
Security Management is controlled by MetLife. If, on the other hand the Great-
West Transaction occurs before the MetLife Transaction, Security Management
would become a controlled company of Great-West; in this event, Proposal 1(b)
provides for an approval of the Investment Management Agreement between the
Trust and Security Management during the period when Security Management is
controlled by Great-West. In either case, the Investment Management Agreement
between the Trust and Security Management will be identical.
In the event the Great-West Transaction occurs first, approval of Proposals
1(a) and (b) taken together, are intended to provide for a temporary period in
which Security Management would serve as investment adviser to the trust while
under control of Great-West (upon acquisition of LIG by Great-West). It is
contemplated that the period of time (if any) in which the Trust would be
managed by Security Management where Great-West is the controlling party will
only be for a temporary interim period; nevertheless, approval of Proposal 1(b)
would provide the continuous management of the Trust by Security Management
where Great-West controls Security Management in the event the MetLife
- 14 -
<PAGE>
Transaction occurs second or should never occur. The Trustees of the Trust,
including at least a majority of the disinterested members thereof considered
and approved the Investment Management Agreement which would be under Proposals
1(a) and 1(b) and recommend that shareholders vote FOR each of these Proposals.
---
Master Investment Management and Advisory Agreements were entered into
between Security Management and the Trust: (1) with respect to the Bond Series
and the T. Rowe Price Growth and Income Series, effective June 6, 1994; and (2)
with respect to the Virtus U.S. Government Income Series and the Virtus Equity
Series, effective May 18, 1994. Similarly, Subadvisory Agreements were entered
into effective on the date of shareholder approval of the respective Series
between Security Management and the applicable SubAdvisers relating to
respective Series of the Trust. These agreements were originally approved by
shareholders and continued annually by the Board of Trustees including a
majority of the non-interested Trustees.
Under the Proposed Advisory Agreement, a copy of which is attached as
Exhibit 1, Security Management is required to furnish to the Trust any necessary
office space, equipment and personnel, clerical and bookkeeping services, and
other necessary office expenses, and to provide the services of individuals who
perform executive and administrative functions for the Trust.
The proposed Advisory Agreement provides that it may be terminated as to
any Series at any time on sixty (60) days written notice, without the payment of
any penalty, by the Board of Trustees of the Trust, by the vote of a majority of
the outstanding voting securities of the affected Trust Series, or by Security
Management. In addition, the Proposed Advisory Agreement automatically
terminates in the event of its assignment.
Pursuant to the Proposed Advisory Agreement, the Trust assumes and pays
legal and independent accounting and auditing expenses of the Trust, costs
related to reports, notices and proxy material, compensation and expense of
disinterested trustees, share issuance expenses, expenses of custodians,
transfer agents and registrars, brokers' commissions, all taxes and fees payable
to governmental agencies, expenses of shareholders' and trustees' meetings and
interest expenses. Security Management will be responsible for paying all
expenses and charges not assumed by the Series of the Trust. The terms of the
current Advisory Agreements and the proposed Advisory Agreement are identical in
all material respects.
For its services, Security Management will receive a fee computed by using
an annual rate of .50% (1/2 of 1%, the same rate as under the "assigned"
contract) based upon the average daily net assets of the Bond Series and the T.
Rowe Price Growth and Income Series, and at the annual rate of .90% (nine-tenths
of 1%, the
- 15 -
<PAGE>
same rate as under the "assigned" contract) based on the average daily net asset
value of each of the Virtus Equity and Virtus U.S. Government Income Series of
the Trust during the year. Compensation to Security Management is accrued daily
and payable monthly.
Under the current Advisory Agreements which might be considered terminated
by "assignment" upon consummation of the proposed transactions, for the fiscal
year of the Trust ended July 31, 1997, Security Management earned management
fees of $225,438 from the T. Rowe Price Growth and Income Series, $14,681 from
the Bond Series, $45,947 from the Virtus U.S. Government Income Series and
$30,254 from the Virtus Equity Series.
Under terms of the proposed Advisory Agreement, as is the case with the
current Advisory Agreements, Security Management is obligated to waive its
respective fee to the extent of the aggregate annual operating expenses of each
Trust Series, exclusive of its share of taxes, interest, brokerage fees and
certain extraordinary expenses, in excess of specified expense limitation. The
expense limit guarantee is a requirement of California law. At present the
limitation equals 2.5% of the first thirty (30) million dollars of the Trust
Series' average net assets, 2.0% of the next $70 million of the Trust Series'
average net assets and 1.5% of the Trust Series' remaining average net assets,
calculated daily on the basis of the Trust's fiscal year. Such waiver of fees
shall not exceed the full amount of the fees for such year, except as may be
elected by Security Management in its discretion. The Advisory Agreement would
require the Trust to subsequently repay Security Management for any fees waived
or expenses incurred, provided such subsequent repayment does not result in
increasing the Trust's expenses above the aforementioned expense limitation
ratios.
The proposed Advisory Agreement states that Security Management is to
provide investment advisory and business management services to the respective
Series of the Trust. Thus, Security Management will be responsible for
supervising and directing the investments of each such Series of the Trust in
accordance with that Series' investment objectives, program and restrictions.
Security Management also will be responsible for effecting securities
transactions on behalf of the Trust, including the allocation of principal
business and portfolio brokerage. Advisory and trading functions may be
delegated to the applicable SubAdviser pursuant to the contract between
Security Management and such SubAdviser (discussed below under Proposal 2).
- 16 -
<PAGE>
The proposed Advisory Agreement provides that Security Management and its
officers, directors and employees shall not be liable for any error of judgment,
mistake of law, or loss suffered by the Trust, while rendering services under
the proposed Advisory Agreement, except for loss resulting from willful
misfeasance, bad faith, gross negligence in the performance of their duties on
behalf of the Trust or reckless disregard of their duties and obligations.
The proposed Advisory Agreement provides that it will remain in effect for
two years from the date of its approval by shareholders, and will continue in
effect from year to year thereafter as to each such Series provided that such
continuance is specifically approved at least annually by the affirmative vote
of a majority of the Board of Trustees of the Trust or by the affirmative vote
of a majority of the outstanding voting securities of each affected Series of
the Trust and, in either event, by a majority of the Trustees of the Trust who
are not parties to the Agreement or "interested persons" (as defined in the 1940
Act) of any such party. The proposed Advisory Agreement provides that it may be
terminated without penalty by either party on sixty (60) days prior written
notice to the other party. It also provides that it shall terminate
automatically if assigned.
Information About Security Management
Security Management proposes to continue to be the Trust's investment
adviser and business manager in regard to all Series of the Trust.
Security Management, incorporated in Delaware on December 6, 1973, is a
wholly-owned subsidiary of Security First Group, Inc., also a Delaware
corporation. Security Management and the Security First Group, Inc. have their
principal place of business at 11365 West Olympic Boulevard, Los Angeles,
California 90064. Security First Group, Inc. is currently a wholly-owned
subsidiary of the LIG (see, however, "Proposed Transactions" above). LIG is a
Canadian insurance services corporation which is currently a publicly-traded
subsidiary of Trilon Financial Corporation of Toronto, Canada. Upon
consummation of the proposed MetLife acquisition described above, the MetLife
will own and control Security First Group. (See Proposed MetLife Transaction.)
The name and principal occupation of the principal executive officer and
the directors of Security Management, and each officer and employee of Security
Management who is also an officer or director of the Trust (see also Trustees
and Officers of Trust), are as follows:
- 17 -
<PAGE>
<TABLE>
<CAPTION>
Name and Position
with Security Management Principal Occupation
- ------------------------ --------------------
<S> <C>
Robert G. Mepham Director and President, Security First
Chairman of the Board, Group, Inc.; Director and Chairman,
President Security First Financial, Inc., a
registered broker-dealer and an officer
of certain of the other subsidiaries of
Security First Group, Inc.; President,
Security First Trust.Group, Inc.
Richard C. Pearson Director, Senior Vice President, General
Senior Vice President, Counsel and Secretary, Security First
General Counsel and Secretary Group, Inc.; President, General Counsel
and Director, Security First Financial,
Inc., a registered broker-dealer and an
officer of certain of the subsidiaries
of Security First Group, Inc.; Senior
Vice President, General Counsel and
Secretary, Security First Trust.
Howard H. Kayton Senior Vice President, Chief Actuary.
Senior Vice President, Security First Group, Inc.; Senior
Chief Actuary Vice President, Chief Actuary, Security
First Financial, Inc., a registered
broker-dealer and an officer of certain
of the other subsidiaries of Security
First
Jane F. Eagle Senior Vice President, Finance, Security
Vice President, Finance First Group, Inc.; Senior Vice President
and Treasurer, Security First Financial,
Inc., a registered broker-dealer and an
officer of certain of the other
subsidiaries of Security First Group,
Inc. Senior Vice President, Security
First Trust.
James C. Turner Vice President - Taxation, Security
Vice President, Taxation, First Group, Inc.; Vice President -
Assistant Secretary Taxation and Assistant Secretary,
Security First Financial, Inc., a
registered broker-dealer and an officer
of certain of the other subsidiaries of
Security First Group, Inc. and Vice
President - Taxation, Security First
Trust.
</TABLE>
- 18 -
<PAGE>
<TABLE>
<CAPTION>
Name and Position
with Security Management Principal Occupation
- ------------------------ --------------------
<S> <C>
Cheryl J. Finney Assistant General Counsel and Assistant
Assistant General Counsel Secretary, Security First
and Assistant Secretary Group, Inc.; Assistant General Counsel
and Assistant Secretary, Security First
Financial, Inc., a registered broker-
dealer and an officer of certain of the
other subsidiaries of Security First
Group, Inc.; Assistant General Counsel
and Assistant Secretary, Security First
Trust.
</TABLE>
The address of each of the above individuals is 11365 West Olympic
Boulevard, Los Angeles, California 90064.
Consideration of Board of Trustees
The Board of Trustees of the Trust requested, received and considered such
information as it deemed reasonably necessary to enable the Board, and in
particular the independent Trustees, to evaluate the proposed Advisory
Agreement. On August 21, 1997, the Board of Trustees, including a majority of
the independent Trustees, voted to approve the proposed Advisory Agreement and
to submit it to the shareholders of each of the Series.
The material factors considered by the Board of Trustees were as follows:
the nature and quality of services; the performance of similar funds advised by
Security Management; the level of subadvisory fees to be paid; financial
strength and insurance coverage; investment advisory experience and reputation;
Security Management's code of ethics and compliance controls; and administrative
support services.
The factors that the Board considered most significant were that the
various Series would continue to receive the benefit of business management and
advisory services of no lesser quality than had been provided under the current
agreement, at no increase in the fee to be paid for such services. The Board
was also satisfied that Security Management (1) is knowledgeable and experienced
in the operations of the relevant financial markets and in the laws that are
applicable to such operations insofar as they might affect the Series, and (2)
has the personnel, financial resources and standing in the financial community
to enable it to discharge its duties under the Proposed Advisory Agreement
adequately.
- 19 -
<PAGE>
Required Vote
Approval of the proposed Advisory Agreement as to each of the Series of the
Trust requires the vote of a majority (as that term is previously defined) of
the outstanding voting securities of each such Series acting independently.
Rejection of the proposed Advisory Agreement by one Series of the Trust will not
prevent it from being approved by any other Trust Series.
The Board of Trustees recommends that shareholders of each Series of the
Trust vote FOR Proposals 1(a) and 1(b).
---
PROPOSAL 2
APPROVAL OF SUBADVISORY AGREEMENTS
Subadvisory Agreements - General
As discussed above in Proposal 1, Security Management will be directly
responsible for providing investment advisory and business management services
to each of the Series of the Trust under the Proposed Advisory Agreement. See
"PROPOSAL 1; APPROVAL OF MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT."
Also subject to the approval of shareholders of the Series is a Subadvisory
Agreement ("Subadvisory Agreement") which, if approved, Security Management will
enter into with the applicable subadviser. Attached hereto as Exhibits 2(a),
(b) and (c) are the Subadvisory Agreements between the applicable subadviser and
Security Management.
The Subadvisory Agreements require the subadviser to obtain and evaluate
information relating to the economy, industries, businesses, securities markets
and securities as it may deem necessary or useful in the discharge of its
obligations under the proposed Subadvisory Agreement. In addition, the
applicable SubAdviser must formulate and implement a relevant continuing
program for performance of its services pursuant to the Subadvisory Agreement.
(a) T. ROWE PRICE GROWTH AND INCOME SERIES ONLY
-------------------------------------------
APPROVAL OF SUBADVISORY AGREEMENT BETWEEN SECURITY MANAGEMENT AND PRICE
ASSOCIATES
Security Management as it will be controlled after the Proposed
Transactions, plans to enter into a new subadvisory agreement with T. Rowe Price
Associates ("Price Associates"). The subadvisory agreement with Price
Associates will be identical in all material respects to the agreement now
existing between the parties. Price Associates will formulate and implement a
continuing program for performance of its services on behalf of the T. Rowe
Price Growth and Income Series. Price Associates is
- 20 -
<PAGE>
further allowed to employ, retain or otherwise avail itself of the services or
facilities of other persons or organizations for the purposes of obtaining
statistical and other factual information, advice regarding economic factors and
trends, advice as to occasional transactions in specific securities or other
such information or advice as Price Associates may deem necessary, appropriate
or convenient for the discharge of its obligations under the proposed
Subadvisory Agreement or in the discharge of its overall responsibilities as an
investment adviser or subadviser.
The Subadvisory Agreement may be terminated by Price Associates, Security
Management or the Trust without penalty upon sixty (60) days written notice, and
will terminate automatically in the event of assignment. Termination of the
Subadvisory Agreement by the Trust must be authorized by the Board of Trustees
of the Trust or by a vote of a majority of the outstanding voting shares of the
Growth and Income Series of the Trust.
Approval or disapproval of the Subadvisory Agreement by the shareholders of
this Series will not affect the other Series.
In the event the Price Associates Subadvisory Agreement is not approved by
the Series, the Board of Trustees of the Trust will seek other satisfactory
arrangements for the management of such Series.
Information about Price Associates
Price Associates is a Maryland corporation which was incorporated in 1947,
as the successor in the investment counseling business founded by the late Mr.
T. Rowe Price in 1937. Its principal offices are located at 100 East Pratt
Street, Baltimore, Maryland 21202. Price Associates and its subsidiaries serve
as investment advisers to individual and institutional investors (including
mutual funds) with total net assets under supervision in excess of $115 billion.
Price Associates is registered as an investment adviser under the Investment
Advisers Act of 1940.
Under the Price Associates Subadvisory Agreement, Price Associates provides
investment management services to the T. Rowe Price Growth and Income Series.
Price Associates has the discretion to purchase or sell securities on behalf of
the Trust in accordance with the Trust's investment objectives or restrictions
and to communicate with brokers, dealers, custodians or other parties on behalf
of the Trust and to allocate brokerage or obtain research services. In
performing these services, Price Associates must obtain and evaluate information
relating to the economy, industries, businesses, securities markets and
securities as it may deem necessary, and it must formulate and implement a
continuing plan for performance of its services.
- 21 -
<PAGE>
For its services, Price Associates receives a fee from Security Management
computed by using an annual rate of .35% based on the average daily net assets
of the Growth and Income Series described herein. Such compensation is accrued
daily and payable monthly.
Under the current Subadvisory Agreement, for the fiscal year ended July 31,
1997, Price Associates received advisory fees with respect to its services for
the T. Rowe Price Growth and Income Series of $526,023.
The Price Associates SubAdvisory Agreement provides that it will remain in
effect for an initial term of two years from the effective date if approved by
the shareholders of the T. Rowe Price Growth and Income Series, and will
continue in effect from year to year thereafter as to such Series, provided that
such continuance is specifically approved at least annually by the Board of
Trustees (at a meeting called for that purpose), or by vote of a majority of the
outstanding shares of this Series. In either case, renewal of the Subadvisory
Agreement must be approved by a majority of the Trust's independent Trustees.
An extension of the current Subadvisory Agreement to September 30, 1998 was last
approved by the Board of Trustees on August 21, 1997. The Price Associates
Subadvisory Agreement provides that it will terminate automatically if assigned
and that it may be terminated without penalty by either party or by the T. Rowe
Price Growth and Income Series of the Trust upon 60 days prior written notice to
the other party, provided that termination by such Series must be authorized by
a resolution of a majority of the Board of Trustees or by a vote of a majority
of the outstanding shares of the Series.
No single shareholder owns beneficially more than 10% of the stock of Price
Associates.
Price Associates manages and advises two registered management investment
companies (Funds) both of which have similar investment objective and policies
as the T. Rowe Price Growth and Income Series of the Trust. The two Funds are
the T. Rowe Price Growth and Income Fund and the T. Rowe Price Equity Income
Fund. The investment objective of each such Fund is to provide long-term growth
and a reasonable level of current income, and increasing future income through
investments primarily in dividend-paying stocks. The table below indicates the
size of each such registered investment company and the advisory fees paid by
each to Price Associates:
<TABLE>
<CAPTION>
Fund Total Net assets Rate of investment
at advisory compensation
June 30, 1997 (% of average daily net assets)
---------------- -------------------------------
<S> <C> <C>
Growth and Income $3.065 billion .25%
Equity Income $10.605 billion .58%
</TABLE>
- 22 -
<PAGE>
In addition to acting as subadviser to the Trust, Price Associates manages
approximately 46 registered management investment companies whose primary focus
is equity investing and 39 registered management investment companies whose
primary focus is income investing. It also acts as a subadviser for
approximately 47 registered management investment companies.
The proposed Subadvisory Agreement provides that Price Associates shall
waive its subadvisory fee (in coordination with waivers by Security Management
of its fee), to the extent the expenses of the T. Rowe Price Growth and Income
Series must be reduced in order to comply with any state law expense limitation.
The Subadvisory Agreement also provides that Price Associates may voluntarily
waive a greater amount of its fees than would otherwise be required by reason of
the foregoing, and may also voluntarily make contributions to the Series, in
order to maintain the expenses of the Series at or below levels that may be
required by state law.
Under the proposed Subadvisory Agreement Price Associates provides
investment advisory services to the T. Rowe Price Growth and Income Series.
Price Associates has the discretion to purchase or sell securities on behalf of
the respective Series in accordance with the Series' investment objectives or
restrictions and to communicate with brokers, dealers, custodians or other
parties on behalf of the Series and to allocate brokerage or obtain research
services. In performing these services, Price Associates must obtain and
evaluate information relating to the economy, industries, businesses, securities
markets and securities as it may deem necessary, and it must formulate and
implement a continuing plan for performance of its services.
The proposed Subadvisory Agreement provides that Price Associates and its
officers, directors and employees shall not be liable for any error of judgment,
mistake of law, or loss suffered by the Trust, while rendering services under
the Subadvisory Agreement, except for loss resulting from willful misfeasance,
bad faith, gross negligence in the performance of their duties on behalf of the
Trust or reckless disregard of their duties and obligations.
Management of Subadviser Price Associates
-----------------------------------------
The following is a listing of the principal executive officer and the
directors of Price Associates. Except as indicated, such persons have been
officers of the organizations named below as their principal occupations or of
affiliated organizations for more than five years.
- 23 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name T. Rowe Price Principal Occupation
- ---- ------------- --------------------
<S> <C> <C>
James E. Halbkat, Jr. Director President of U.S.
P.O. Box 23109 Monitor Corp.
Hilton Head Island,
SC 29925
Richard L. Menschel Director Limited Partner of The
85 Board St. Goldman Sachs Group
2nd Floor L.P.
New York, NY 10004
John W. Rosenblum Director Dean of the Jepson
University of School of Leadership
Richmond Studies at the
Richmond, VA 23173 University of Richmond;
Director of Chesapeake
Corporation, Camdus
Communications Corp.,
Comdial Corp. and Cone
Mills Corp.
Robert L. Strickland Director Chairman of Loew's
604 Two Piedmont Companies, Inc.;
Plaza Bldg. Director of Hannaford
Winston-Salem, NC Bros., Co.
27104
Philip C. Walsh Director Consultant to Cyprus
Pleasant Valley Amex Minerals Company
Peapack, NJ 07977
Anne Marie Whittemore Director Partner of the law firm
One James Center of McGuire, Woods,
Richmond, VA 23219 Battle & Booth; Director of
Owens and Minor, Inc., USF&G
Corporation, the James River
Corporation and Albermarle
Corporation.
George J. Collins Director Director
James S. Riepe Vice-Chairman of the Director of Price-
Board, Director and Fleming
Managing Director
George A. Roche Chairman of the Director of Price-
Board, President and Fleming
Director
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
Position with
Name T. Rowe Price Principal Occupation
- ---- ------------- --------------------
<S> <C> <C>
M. David Testa Vice Chairman of the Chairman of the Board
Board, Director and of Price-Fleming
Managing Director
Henry H. Hopkins Director and Vice President of Price
Managing Director -Fleming
James A.C. Kennedy III Director and Director and Managing
Managing Director Director
John L. Laport, Jr. Director and Director and Managing
Managing Director Director
William T. Reynolds Director and Director and Managing
Managing Director Director
Brian C. Rogers Director and Director and Managing
Managing Director Director
Alvin M. Younger, Jr. Chief Financial Secretary and Treasurer
Officer, Managing of Price-Fleming
Director, Secretary
and Treasurer
</TABLE>
Consideration of Board of Trustees
The Board of Trustees of the Trust requested, received and considered such
information as it deemed reasonably necessary to enable the Board, and in
particular the independent Trustees to evaluate the proposed Subadvisory
Agreement between Security Management and Price Associates. On August 21, 1997,
the Board of Trustees, including a majority of the independent Trustees, voted
(a) to extend the current agreement with Price Associates through September 30,
1998 and (b) to submit the proposed SubAdvisory agreement to the shareholders of
the Growth and Income Series of the Trust. The material factors considered by
the Board of Trustees were as follows: the nature and quality of services; the
performance of similar funds advised by Price Associates; the level of
subadvisory fees to be paid; financial strength and insurance coverage;
investment advisory experience and reputation; Price Associates' code of ethics
and compliance controls; and administrative support services.
The factors that the Board considered most significant were that the Growth
and Income Series would continue to receive the benefit of advisory services of
no lesser quality than had been provided under the current subadvisory
agreement, at no increase in the subadvisory fee to be paid for such services.
The Board was also satisfied that Price Associates (1) is knowledgeable and
- 25 -
<PAGE>
experienced in the operations of the relevant financial markets and in the laws
that are applicable to such operations insofar as they might affect the Growth
and Income Series, and (2) has the personnel, financial resources and standing
in the financial community to enable it to discharge its duties under the
proposed Subadvisory Agreement adequately.
Required Vote
Approval of the Subadvisory Agreement as to the Growth and Income Series of
the Trust requires the vote of a majority (as that term is previously defined)
of the outstanding voting securities of that Series of the Trust acting
independently. Rejection of the proposed Agreement by one Series of the Trust
will not prevent it from being approved by the other Trust Series.
The Board of Trustees recommends that shareholders of the Growth and Income
Series of the Trust vote FOR Proposal 2(a).
---
Brokerage
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Trust are made by Security Management pursuant to the terms of the
Advisory Agreement. However, pursuant to the terms of the Subadvisory Agreement
between Security Management and Price Associates, Price Associates may allocate
brokerage and principal business or obtain research services from organizations
with which the Trust or Price Associates may be dealing. Security Management is
ultimately responsible for implementing these decisions, including the
negotiation of commissions and the allocation of principal business and
portfolio brokerage.
In purchasing and selling the Trust's portfolio securities, it is Security
Management's and Price Associates policy to seek quality execution at the most
favorable prices through responsible broker-dealers and, in the case of agency
transactions, at competitive commission rates. However, under certain conditions
and where applicable, a Series may pay higher brokerage commissions in return
for brokerage and research services, although it has no current arrangement to
do so. In selecting broker-dealers to execute a Series' portfolio transactions,
Security Management and Price Associates will consider such factors as the price
of the security, the rate of commission, the size and difficulty of the order,
the reliability, integrity, financial condition, general execution and
operational capabilities of competing broker-dealers, and brokerage and research
services they provide to Security Management, Price Associates or the Series.
Security Management may cause a Series to pay a broker-dealer who furnishes
brokerage and/or research services a commission that is in excess of the
commission another broker-dealer would have received for executing the
transaction if it is determined that
- 26 -
<PAGE>
such commission is reasonable in relation to the value of the brokerage and/or
research services which have been provided. This determination may be viewed in
terms of either that particular transaction or the overall responsibilities of
Price Associates with respect to the accounts over which it exercises investment
discretion. In some cases, research services are generated by third parties, but
are provided to Price Associates by or through broker-dealers.
Where applicable, Price Associates may effect principal transactions on
behalf of a Series with a broker-dealer who furnishes brokerage and/or research
services, designate any such broker-dealer to receive selling concessions,
discounts or other allowances, or otherwise deal with any such broker-dealer in
connection with the acquisition of securities in underwritings.
Security Management and Price Associates may receive a wide range of
research services from broker-dealers, including information on securities
markets, the economy, individual companies, statistical information, accounting
and tax law interpretations, technical market action, pricing and appraisal
services, and credit analyses. Research services are received primarily in the
form of written reports, telephone contacts and personal meetings with security
analysts, corporate and industry spokespersons. Research services received from
broker-dealers are supplemental to Security Management's and Price Associates'
own research efforts and, when utilized, are subject to internal analysis before
being incorporated into the investment process.
Each year, Security Management and Price Associates will assess the
contribution of the brokerage and research services provided by broker-dealers
and will allocate a portion of the brokerage business of its clients on the
basis of these assessments. In addition, broker-dealers sometimes suggest a
level of business they would like to receive in return for the various brokerage
and research services they provide. Actual brokerage received by any firm may be
less than the suggested allocations, but can (and often does) exceed the
suggestions because total brokerage is allocated on the basis of all the
considerations described above. In no instance is a broker-dealer excluded from
receiving business because it has not been identified as providing research
services.
Neither Security Management nor Price Associates can readily determine the
extent to which commission rates or net prices charged by broker-dealers reflect
the value of their research services. In some instances, Security Management
will receive research services they might otherwise have had to perform for
themselves. The research services provided by broker-dealers can be useful to
Price Associates in serving its other clients, but they can also be useful in
serving the Trust.
- 27 -
<PAGE>
Neither Security Management nor Price Associates intend to allocate
business to any broker-dealer on the basis of its sales of shares of the Series.
However, this does not mean that broker-dealers who as brokers purchase variable
annuity contracts for their clients will not receive other business from the
Trust.
During the fiscal year ended July 31, 1997, the Growth and Income Series
paid brokerage commissions or discounts to securities dealers for the fiscal
year ended July 31, 1997 in the amount of $138,879.83.
Some of Price Associates's other clients have investment objectives and
programs similar to those of Growth and Income Series. Price Associates may
occasionally make recommendations to other clients which result in their
purchasing or selling securities simultaneously with a Series it advises. As a
result, the demand for securities being purchased or the supply of securities
being sold may increase, and this could have an adverse effect on the price of
those securities. It is Price Associates's policy not to favor one client over
another in making recommendations or in placing orders. If two or more of Price
Associates's clients are purchasing a given security on the same day from the
same broker-dealer, Price Associates may average the price of the transactions
and allocate the average among the clients participating in the transaction.
Price Associates has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a company for its
clients if, as a result of such purchases, 10% or more of the outstanding common
stock of such company would be held by its clients in the aggregate.
All brokerage commissions will be allocated by Price Associates according
to the foregoing policies. Price Associates paid no brokerage commissions to
securities dealers in connection with underwritings during the fiscal year ended
July 31, 1997. No brokerage commissions were paid to any affiliated broker-
dealers.
PROPOSAL 2 (continued)
----------
(b) BOND SERIES ONLY
----------------
APPROVAL OF SUBADVISORY AGREEMENT BETWEEN SECURITY FIRST INVESTMENT MANAGEMENT
CORPORATION AND NEUBERGER & BERMAN, LLC
Neuberger & Berman, LLC ("Neuberger & Berman") serves as investment
subadviser to Security Management for the Bond Series of the Trust pursuant to a
subadvisory agreement between Neuberger & Berman and Security Management dated
July 15, 1997 and approved by the shareholders of the Bond Series at a Special
Meeting of its shareholders held on July 15, 1997. Shareholders of the Bond
- 28 -
<PAGE>
Series are asked to approve a new subadvisory advisory agreement between the
parties ("Bond Series Subadvisory Agreement") whose terms are identical in all
material respects to the one Neuberger & Berman currently operates under.
The Bond Series Subadvisory Agreement requires Neuberger & Berman to obtain
and evaluate information relating to the economy, industries, businesses,
securities markets and securities as it may deem necessary or useful in the
discharge of its obligations under the Bond Series Subadvisory Agreement. In
addition, Neuberger & Berman must formulate and implement a continuing program
for performance of its services pursuant to the Bond Series Subadvisory
Agreement. Neuberger & Berman is further allowed to employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purposes of obtaining statistical and other factual information, advice
regarding economic factors and trends, advice as to occasional transactions in
specific securities or other such information or advice as Neuberger & Berman
may deem necessary, appropriate or convenient for the discharge of its
obligations under the Bond Series Subadvisory Agreement or in the discharge of
its overall responsibilities as an investment adviser or subadviser.
Pursuant to the terms of the Bond Series Subadvisory Agreement, Neuberger &
Berman has discretion to purchase or sell securities on behalf of the Bond
Series in accordance with its investment objectives and restrictions. The Bond
Series Subadvisory Agreement permits Neuberger & Berman to communicate with
brokers, dealers, custodians or other parties on behalf of such Series, and to
allocate brokerage or obtain research services from organizations with which the
Trust or Security Management may be dealing. (See "Brokerage," below.)
Pursuant to the Bond Series Subadvisory Agreement, Neuberger & Berman will
be deemed an independent contractor. Neuberger & Berman will not have custody
of Trust assets and will not have authority to act for or represent the Trust's
Series, except as expressly provided for in the Bond Series Subadvisory
Agreement. Subject to shareholder approval if required by law, Security
Management reserves the right to limit the authority of Neuberger & Berman under
the Bond Series Subadvisory Agreement solely in its discretion.
Under the Bond Series Subadvisory Agreement, Neuberger & Berman is entitled
to receive from Security Management a fee for its services with respect to the
Bond Series at the annual rate 0.35 of 1% of the average daily net assets of the
Series. The Subadvisory fee is accrued for each calendar day and the sum of the
daily fee accruals is paid monthly to Neuberger & Berman by Security Management.
- 29 -
<PAGE>
The Bond Series Subadvisory Agreement provides that Neuberger & Berman
shall waive its subadvisory fee (in coordination with waivers by Security
Management of its fee), to the extent the expenses of the Bond Series must be
reduced in order to comply with any state law expense limitation. The Bond
Series Subadvisory Agreement also provides that Neuberger & Berman may
voluntarily waive a greater amount of its fees than would otherwise be required
by reason of the foregoing, and may also voluntarily make contributions to the
Series, in order to maintain the expenses of the Series at or below levels that
may be required by state law.
The Bond Series Subadvisory Agreement provides that it will remain in
effect for two years after its effective date if it is approved by shareholders
and will continue in effect from year to year thereafter provided that such
continuance is specifically approved at least annually by the affirmative vote
of a majority of the Board of Trustees of the Trust or by the affirmative vote
of a majority of the outstanding voting securities of the Bond Series, and, in
either event, by a majority of the Trustees of the Trust who are not parties to
the Bond Series Subadvisory Agreement or "interested persons" (as defined in the
1940 Act) of any such party, and neither Neuberger & Berman nor Security
Management shall have advised the other party of an intention to terminate the
Bond Series Subadvisory Agreement.
The Bond Series Subadvisory Agreement may be terminated by Neuberger &
Berman, Security Management or the Trust without penalty upon sixty (60) days
written notice, and will terminate automatically in the event of its assignment.
Termination of the Bond Series Subadvisory Agreement by the Trust must be
authorized by the Board of Trustees of the Trust or by a vote of a majority of
the outstanding voting shares of the Trust.
In the event the Bond Series Subadvisory Agreement is not approved by the
Series, the Board of Trustees of the Trust will seek other satisfactory
arrangements.
The Bond Series Subadvisory Agreement provides that, to the extent
permitted under applicable law, Neuberger & Berman and its officers, directors
and employees shall not be liable for any error of judgment, mistake of law, or
loss suffered by the Trust, while rendering services under the Bond Series
Subadvisory Agreement, except for loss resulting from willful misfeasance, bad
faith, gross negligence in the performance of their duties on behalf of the
Trust or reckless disregard of their duties and obligations.
Information about Neuberger & Berman
Neuberger & Berman was founded in 1939 to manage assets for high net worth
individuals. It is an investment adviser registered as such with the Commission
under the Investment Advisers Act of 1940. It is also registered with the
Commission
- 30 -
<PAGE>
as a broker-dealer under the Securities Exchange Act of 1934, and is a member of
the New York Stock Exchange. Currently, it provides investment management
services to a wide variety of clients, including individuals, investment
companies, pension and profit-sharing plans, trusts and charitable
organizations, and has approximately $46 billion in assets under its management
for clients, including approximately $11 billion under management by its Fixed
Income Group.
Effective November 1, 1996, Neuberger & Berman, formerly a limited
partnership, converted to a Delaware limited liability company. In connection
with the conversion, partners of Neuberger & Berman became its principals.
Neuberger & Berman is managed by an Executive Committee whose current
members, each of whom is a principal of the company, are as follows:
NAME PRINCIPAL OCCUPATION
---- --------------------
Howard R. Berlin Portfolio Manager, Neuberger & Berman; Vice President &
Director, Neuberger & Berman Partners Fund Inc.
Richard A. Cantor Executive Principal, Neuberger & Berman; Chairman and
Director, Neuberger & Berman Management Incorporated
Michael M. Kassen Portfolio Manager, Neuberger & Berman; Managing Director,
Vice President & Portfolio Manager, Neuberger & Berman
Management Incorporated
Marvin C. Schwartz Portfolio Manager, Neuberger & Berman; Director,
Neuberger & Berman Management Incorporated
Lawrence Zicklin Managing Principal, Neuberger & Berman; Director,
Neuberger & Berman Trust Company
Howard L. Ganek Principal and Portfolio Manager, Neuberger & Berman
Dietrich Weismann Principal and Portfolio Manager, Neuberger & Berman
Neuberger & Berman's address and the business address of its principals is
605 Third Avenue, New York, New York 10158.
The following persons hold 5% or more of the equity of Neuberger & Berman:
- 31
<PAGE>
Marvin C, Schwartz, Dietrich Weismann, Lawrence Zicklin, Robert J. Appel,
Lawrence Marx, III and Kent Simons.
Their address is 605 Third Avenue, New York, New York 10158.
It is anticipated that, if the Bond Series Subadvisory Agreement is
approved, the principals of Neuberger & Berman who will have significant
management responsibilities with respect to the Bond Series will be Messrs.
Theodore Giuliano and Martin McKerrow, who are co-directors of Neuberger &
Berman's Fixed Income Group.
Other Funds Advised by Neuberger & Berman
Neuberger & Berman acts as investment subadviser to 26 investment companies
(or series of investment companies). The investment manager for 21 of those
series is an affiliate of Neuberger & Berman and the remainder are investment
advisors not affiliated with Neuberger & Berman. Two of these series are
managed in a similar fashion and have investment objectives that are roughly
similar to the Bond Series except that they are intended to be more conservative
in that their portfolios, on average, consist of securities with shorter term
maturities. Like the Bond Series, these other two series use the following
management features: sector rotation-shifting the portfolios' weightings to
those sectors of the debt market which appear to be undervalued on a comparative
risk/return basis and which are expected to receive investor recognition; and,
trend following duration management - investing so as to lengthen or shorten
average maturities based on perceived interest rate trends. Like the Bond
Series, these two series also permit investment in a comparable broad range of
securities. Certain information relating to the two series' fee arrangements is
tabulated below.
Net Assets Rate of Investment Advisory
at December 31, Compensation (as a percent
Fund 1996 of avg. daily net assets)
- ---- --------------- ---------------------------
AMT Limited $256.8 million *
Maturity Bond
Investments (a
series of Advisers
Managers Trust)
Neuberger & $274.5 million **
Berman Limited
Maturity Bond
Portfolio (a series
of Income Managers
Trust)
*The investment manager for AMT Limited Maturity Bond is Neuberger & Berman
Management Incorporated ("N&B Management"), a New York corporation that is
wholly-owned by persons who are also principals of Neuberger & Berman. The
subadvisory agreement
- 32 -
<PAGE>
between N&B Management and Neuberger & Berman under which Neuberger & Berman
provides services with respect to the AMT Limited Maturity Bond Investments
provides that Neuberger & Berman shall be compensated for its subadvisory
services on the basis of its direct and indirect costs.
The management agreement with respect to AMT Limited Maturity Bond Investments
provides for compensation to be paid to N&B Management for management services
on the following basis, as an annual percentage of its average net assets: 0.25%
of the first $500 million; 0.225% of the next $500 million; 0.20% of the next
$500 million; 0.175% of the next $500 million; and 0.15% of net assets over $2
billion.
AMT Limited Maturity Bond Investments is a "master fund", which directly invests
in securities. It has one "feeder fund" that invests all its assets in the
"master fund" (and so invests indirectly in such securities). N&B Management has
an administrative agreement with the "feeder fund" that provides for
compensation to be paid to N&B Management at an annual rate of 0.40% of its
average daily net assets.
**N&B Management is also the investment manager for Neuberger & Berman Limited
Maturity Bond Portfolio and has entered into a similar sub-advisory agreement
with Neuberger & Berman with respect to the Neuberger & Berman Limited Maturity
Bond Portfolio. The management agreement with respect to Neuberger & Berman
Limited Maturity Bond Portfolio provides for compensation to be paid to N&B
Management for management services on the following basis, as an annual
percentage of its average daily net assets: 0.25% of the first $500 million;
0.225% of the next $500 million; 0.20% of the next $500 million; 0.175% of the
next $500 million; and 0.15% of net assets over $2 billion.
Neuberger & Berman Limited Maturity Bond Portfolio is a "master fund" that has
two "feeder funds". N&B Management has administrative agreements with the
"feeder funds" that provide for compensation to be paid to N&B Management at an
annual rate of 0.27% of its average daily net assets (for one "feeder fund") and
0.50% of the average daily net assets (for the other "feeder fund").
Brokerage
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Trust are made by Security Management pursuant to the terms of the
Advisory Agreement. However, pursuant to the terms of the Bond Series
Subadvisory Agreement, Neuberger & Berman may allocate brokerage and principal
business or obtain research services from organizations with which the Trust or
Neuberger & Berman may be dealing. Security Management is ultimately responsible
for implementing these decisions, including the negotiation of commissions and
the allocation of principal business and portfolio brokerage.
- 33 -
<PAGE>
In purchasing and selling the Trust's portfolio securities, it is Security
Management's and Neuberger & Berman's policy to seek quality execution at the
most favorable prices through responsible broker-dealers and, in the case of
agency transactions, at competitive commission rates. In selecting broker-
dealers to execute the Series' portfolio transactions, Security Management and
Neuberger & Berman will consider such factors as the price of the security, the
rate of commission, the size and difficulty of the order, the reliability,
integrity, financial condition, general execution and operational capabilities
of competing broker-dealers, and brokerage services they provide to Security
Management, Neuberger & Berman or the Series.
Neuberger & Berman may effect principal transactions on behalf of a Series
with a broker-dealer who furnishes brokerage and/or research services, designate
any such broker-dealer to receive selling concessions, discounts or other
allowances, or otherwise deal with any such broker-dealer in connection with the
acquisition of securities in underwritings.
Security Management and Neuberger & Berman receive a wide range of research
services from broker-dealers, including information on securities markets, the
economy, individual companies, statistical information, accounting and tax law
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services are received primarily in the form of
written reports, telephone contacts and personal meetings with security
analysts, corporate and industry spokespersons. Research services received from
broker-dealers are supplemental to Security Management's and Neuberger &
Berman's own research efforts and, when utilized, are subject to internal
analysis before being incorporated into the investment process. In some
instances, Security Management and Neuberger & Berman will receive research
services they might otherwise have had to perform for themselves. The research
services provided by broker-dealers can be useful to Neuberger & Berman in
serving its other clients, but they can also be useful in serving the Trust.
Neither Security Management nor Neuberger & Berman allocate business to any
broker-dealer on the basis of its sales of shares of the Series (indirectly
through the sales of annuity contracts or otherwise). However, this does not
mean that broker-dealers who purchase contracts for their clients will not
receive other business from the Trust.
Some of Neuberger & Berman's other clients have investment objectives and
programs similar to those of the Bond Series. Neuberger & Berman may
occasionally make recommendations to other clients which result in their
purchasing or selling securities simultaneously with the Bond Series. As a
result, the demand for securities being purchased or the supply of securities
being sold
-34-
<PAGE>
may increase, and this could have an adverse effect on the price of those
securities. It is Neuberger & Berman's policy not to favor one client over
another in making recommendations or in placing orders. If two or more of
Neuberger & Berman's clients are purchasing a given security on the same day
from the same broker-dealer, Neuberger & Berman may average the price of the
transactions and allocate the number of shares purchased or sold in such
transactions at the average price per share among such clients participating in
the transaction. Neuberger & Berman has established a general investment policy
that it will ordinarily not make additional purchases of a common stock of a
company for its clients if, as a result of such purchases, 10% or more of the
outstanding common stock of such company would be held by its clients in the
aggregate.
All brokerage commissions will be allocated by Neuberger & Berman according
to the foregoing policies. Neuberger & Berman does not intend to use research
received as a factor in determining allocation of brokerage, except when there
is an effect on price.
During the fiscal year ended July 31, 1997, the Bond Series paid no
brokerage commissions or discounts to securities brokers or dealers.
Consideration of Board of Trustees
The Board of Trustees of the Trust requested, received and considered such
information as it deemed reasonably necessary to enable the Board, and in
particular the independent Trustees, to evaluate the Bond Series Subadvisory
Agreement. On August 21, 1997, at a meeting held specifically for the purpose,
--
the Board of Trustees, including a majority of the independent Trustees met to
consider the matter. A representative of Neuberger & Berman attended the Board
meeting, provided a presentation to the Trustees, and made himself available to
answer questions posed by the Board. After consideration of all factors that it
deemed material, the Board voted to approve the Bond Series Subadvisory
Agreement and to submit it to the shareholders of the Bond Series of the Trust.
The material factors considered by the Board of Trustees were as follows:
the nature and quality of services; the performance of similar funds advised by
Neuberger & Berman; the level of subadvisory fees to be paid; financial strength
and insurance coverage; investment advisory experience and reputation; Neuberger
& Berman's code of ethics and compliance controls; and administrative support
services.
The factors that the Board considered most significant were that the Bond
Series would continue to receive the benefit of advisory services of no lesser
quality than had been provided
-35-
<PAGE>
under the current subadvisory agreement, at no increase in the subadvisory fee
to be paid for such services. The Board was also satisfied that Neuberger &
Berman (1) is knowledgeable and experienced in the operations of the relevant
financial markets and in the laws that are applicable to such operations insofar
as they might affect the Bond Series, and (2) has the personnel, financial
resources and standing in the financial community to enable it to discharge its
duties under the New Subadvisory Agreement adequately.
Required Vote
Approval of the Bond Series Subadvisory Agreement requires the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Bond Series of the Trust. For those purposes, a "majority" means (A) 67 per
centum or more of the voting securities present at the meeting, if the holders
of more than 50 per centum of the outstanding voting securities are present or
represented by proxy, or (B) more than 50 per centum of the outstanding voting
securities, whichever is the less.
The Board of Trustees recommends that shareholders of the Bond Series of
the Trust vote FOR Proposal 2(b).
---
PROPOSAL 2 (continued)
----------
(c) VIRTUS U.S. GOVERNMENT INCOME SERIES AND VIRTUS EQUITY SERIES ONLY
------------------------------------------------------------------
APPROVAL OF SUBADVISORY AGREEMENT BETWEEN SECURITY FIRST INVESTMENT MANAGEMENT
CORPORATION AND VIRTUS CAPITAL MANAGEMENT, INC.
As proposed for approval by shareholders, Security Management will be
directly responsible for providing investment advisory and business management
services to the Virtus Equity Series and the Virtus U.S. Government Income
Series of the Trust under the Advisory Agreement. Also subject to the approval
of shareholders of each such Series is a Subadvisory Agreement ("Virtus
Subadvisory Agreement"), which Security Management has entered into with Virtus
Capital Management, Inc. ("Virtus") to perform subadvisory services for those
two Series. Attached hereto as Exhibit 2(c) is the Virtus Subadvisory
Agreement.
The terms of the Virtus Subadvisory Agreement are identical in all material
respects to the current subadvisory agreement under which Virtus currently
provides subadvisory services to both Series requires Virtus to obtain and
evaluate information relating to the economy, industries, businesses, securities
markets and securities as it may deem necessary or useful in the discharge of
its obligations under the Virtus Subadvisory Agreement. In
-36-
<PAGE>
addition, Virtus must formulate and implement a continuing program for
performance of its services pursuant to the Virtus Subadvisory Agreement. Virtus
is further allowed to employ, retain or otherwise avail itself of the services
or facilities of other persons or organizations for the purposes of obtaining
statistical and other factual information, advice regarding economic factors and
trends, advice as to occasional transactions in specific securities or other
such information or advice as Virtus may deem necessary, appropriate or
convenient for the discharge of its obligations under the Virtus Subadvisory
Agreement or in the discharge of its overall responsibilities as an investment
adviser or subadviser.
Pursuant to the terms of the Virtus Subadvisory Agreement, Virtus has
discretion to purchase or sell securities on behalf of the Virtus Equity Series
and the Virtus U.S. Government Income Series in accordance with their respective
investment objectives or restrictions. The Virtus Subadvisory Agreement permits
Virtus to communicate with brokers, dealers, custodians or other parties on
behalf of such Series, and to allocate brokerage or obtain research services
from organizations with which the Trust or Security Management may be dealing.
See "Brokerage."
Pursuant to the Virtus Subadvisory Agreement, Virtus will be deemed an
independent contractor. Virtus will not have custody of Trust assets and will
not have authority to act for or represent the Trust's Series, except as
expressly provided for in the Virtus Subadvisory Agreement. Subject to
shareholder approval if required by law, Security Management reserves the right
to limit the authority of Virtus therein solely in its discretion.
The Virtus Subadvisory Agreement provides that it will remain in effect for
two years after its effective date if it is approved by shareholders and will
continue in effect from year to year thereafter as to the two affected Series
provided that such continuance is specifically approved at least annually by the
affirmative vote of a majority of the Board of Trustees of the Trust or by the
affirmative vote of a majority of the outstanding voting securities of each such
Series, and, in either event, by a majority of the Trustees of the Trust who are
not parties to the Virtus Subadvisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party, and neither Virtus nor Security
Management shall have advised the other party of an intention to terminate the
Agreement. The current subadvisory agreement between Virtus and Security
Management was most recently extended by the Board of Trustees on August 21 to
September 30, 1998.
The Virtus Subadvisory Agreement may be terminated by Virtus, Security
Management or the Trust without penalty upon sixty (60) days written notice, and
will terminate automatically in the event of assignment. Termination of the
Subadvisory Agreement by the
-37-
<PAGE>
Trust must be authorized by the Board of Trustees of the Trust or by a vote of a
majority of the outstanding voting shares of the Trust.
Under the Virtus Subadvisory Agreement, Virtus will receive from Security
Management a Sub-Advisory fee for the Virtus Equity and the Virtus U.S.
Government Income Series for which it provides investment advice at the annual
rate of .75% of the average daily net assets of each such Series. The
Subadvisory fee is accrued for each calendar day and the sum of the daily fee
accruals is paid monthly to Virtus by Security Management.
For the fiscal year ended July 31, 1997, Virtus was paid a subadvisory fee
of $_____ from Security Management with respect to the Virtus Equity Series.
For the fiscal year ended July 31, 1997, Virtus was paid a subadvisory fee
of $____ with respect to the Virtus U.S. Government Income Series.
During the fiscal year ended July 31, 1997, the Virtus Equity Series paid
brokerage commissions to securities dealers in the amount of $_____, and the
Virtus U.S. Government Income Series paid commissions to securities dealers in
the amount of $________.
Pursuant to the Virtus Subadvisory Agreement, Virtus will receive its fees
from Security Management and will report directly to Security Management.
Approval or disapproval of the Virtus Subadvisory Agreement by the
shareholders of one Series will not affect the other Series.
In the event the Virtus Subadvisory Agreement is not approved by either or
both of the Series, the Board of Trustees of the Trust will seek other
satisfactory arrangements.
The Virtus Subadvisory Agreement provides that Virtus shall waive its
subadvisory fee (in coordination with waivers by Security Management of its
fee), to the extent the expenses of either affected Series must be reduced in
order to comply with any state law expense limitation. The Virtus Subadvisory
Agreement also provides that Virtus may voluntarily waive a greater amount of
its fees than would otherwise be required by reason of the foregoing, and may
also voluntarily make contributions to a either or both Series, in order to
maintain the expenses of the Series at or below levels that may be required by
state law.
The Virtus Subadvisory Agreement provides that Virtus and its officers,
directors and employees shall not be liable for any error of judgment, mistake
of law, or loss suffered by the Trust, while rendering services under the Virtus
Subadvisory Agreement,
-38-
<PAGE>
except for loss resulting from willful misfeasance, bad faith, gross negligence
in the performance of their duties on behalf of the Trust or reckless disregard
of their duties and obligations.
Information about Virtus
Virtus serves as subadviser to Security Management with respect to the
Virtus Equity and Virtus U.S. Government Income Series pursuant to a subadvisory
agreement dated May 18, 1994 between Security Management and Signet Asset
Management (a division of Signet Trust Company). Effective March 1, 1995,
Virtus assumed the obligations of Signet Asset Management pursuant to a
corporate reorganization under which all of the operations and personnel of
Signet Asset Management were transferred to Virtus. Signet Banking Corp., the
sole shareholder of Signet Trust Company, is also the sole stockholder of
Virtus.
Virtus is a Maryland corporation having principal offices located at 707
East Main Street, Suite 1300, Richmond, Virginia 23219. As of July 30, 1997,
Virtus had investment authority over $2.0 billion in assets, in which Virtus is
managing $240 million in equities. Virtus advises eight mutual funds having
over $1.1 billion in assets. In addition, Virtus manages three fixed income
common trust funds with $129 million in assets.
Virtus also manages and advises the Virtus U.S. Government Income Fund and
the Style Manager Large Capital Fund. These Funds are registered management
investment companies with sizeable total net assets. These Funds have
substantially similar investment objectives and policies as the Virtus U.S.
Government Series and Virtus Equity Series, respectively. The table below
indicates the size of each such registered investment company and the advisory
fees paid by each to Virtus:
<TABLE>
<CAPTION>
Fund Total Net assets Rate of investment
at advisory compensation
June 30, 1997 (% of average daily net assets)
-------------- -------------------------------
<S> <C> <C>
U.S. Government
Securities Fund $161.8 Million 0.75%
Style Manager Large
Cap. Fund $105.0 Million 0.75%
</TABLE>
It has been recently reported in the media that First Union Corporation
intends to merge with Signet Banking Corp. The Board of Trustees of the Trust
will monitor this situation and will take such action as the Board may deem
appropriate including a subsequent proxy solicitation regarding the change of
control of Virtus Capital Management, the subsidiary of Signet Banking Corp,
should that be necessary.
-39-
<PAGE>
Virtus is registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940. The principal executive officer and the
directors of Virtus are:
<TABLE>
<CAPTION>
Position
Name with Virtus Principal Occupation
- ---- ----------- --------------------
<S> <C> <C>
John S. Hall Chief Investment Officer, Chief Investment Officer,
President and Managing President and Managing
Director of Fixed Director of Fixed Income
Income
Tanya O. Bird Vice President and Vice President and
Managing Director Managing Director
Josie C. Rosson Vice President and Chief Vice President and Chief
Compliance Officer Compliance Officer
Rhonda M. Watson Assistant Vice President Assistant Vice President
and Compliance Officer and Compliance Officer
</TABLE>
Consideration of Board of Trustees
The Board of Trustees of the Trust requested, received and considered such
information as it deemed reasonably necessary to enable the Board, and in
particular the independent Trustees to evaluate the Virtus Subadvisory
Agreement. On August 21, 1997 the Board of Trustees, including a majority of
the independent Trustees, voted to continue the current Virtus Subadvisory
Agreement through September 30, 1998 and to submit the proposed SubAdvisory
agreement to the shareholders of the Trust.
The material factors considered by the Board of Trustees were as follows:
the nature and quality of services; the performance of similar funds advised by
Virtus; the level of subadvisory fees to be paid; financial strength and
insurance coverage; investment advisory experience and reputation; Virtus' code
of ethics and compliance controls; and administrative support services.
The factors that the Board considered most significant were that the Virtus
Equity Series and the Virtus U.S. Government Series would continue to receive
the benefit of advisory services of no lesser quality than had been provided
under the current subadvisory agreement, at no increase in the subadvisory fee
to be paid for such services. The Board was also satisfied that Virtus (1) is
knowledgeable and experienced in the operations of the relevant financial
markets and in the laws that are applicable to such operations insofar as they
might affect the Virtus Equity Series and the Virtus U.S. Government Series, and
(2) has the personnel, financial resources and standing in the financial
community to enable it to discharge its duties under the Proposed Subadvisory
Agreement adequately.
-40-
<PAGE>
Required Vote
Approval of the Agreement as to the Virtus Equity Series and the Virtus
U.S. Government Income Series of the Trust requires the vote of a majority (as
that term is previously defined) of the outstanding voting securities of each
such Series of the Trust acting independently. Rejection of the proposed
Agreement by one Series of the Trust will not prevent it from being approved by
the other Trust Series.
The Board of Trustees recommends that shareholders of the Virtus U.S.
Government Income Series and the Virtus Equity Series of the Trust vote FOR
---
Proposal 2(c).
Brokerage
Decisions with respect to the purchase and sale of portfolio securities on
behalf of the Trust are made by Security Management pursuant to the terms of the
Advisory Agreement. However, pursuant to the terms of the Virtus Subadvisory
Agreement, Virtus may allocate brokerage and principal business or obtain
research services from organizations with which the Trust or Virtus may be
dealing. Security Management is ultimately responsible for implementing these
decisions, including the negotiation of commissions and the allocation of
principal business and portfolio brokerage.
In purchasing and selling the Trust's portfolio securities, it is Security
Management's and Virtus' policy to seek quality execution at the most favorable
prices through responsible broker-dealers and, in the case of agency
transactions, at competitive commission rates. However, under certain
conditions, a Series may pay higher brokerage commissions in return for
brokerage and research services, although it has no current arrangement to do
so. In selecting broker-dealers to execute a Series' portfolio transactions,
Security Management and Virtus will consider such factors as the price of the
security, the rate of commission, the size and difficulty of the order, the
reliability, integrity, financial condition, general execution and operational
capabilities of competing broker-dealers, and brokerage and research services
they provide to Security Management, Virtus or the Series.
Security Management may cause a Series to pay a broker-dealer who furnishes
brokerage and/or research services a commission that is in excess of the
commission another broker-dealer would have received for executing the
transaction if it is determined that such commission is reasonable in relation
to the value of the brokerage and/or research services which have been provided.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities of Security Management with respect to the
accounts over which it exercises investment
-41-
<PAGE>
discretion. In some cases, research services are generated by third parties, but
are provided to Virtus by or through broker-dealers.
Virtus may effect principal transactions on behalf of a Series with a
broker-dealer who furnishes brokerage and/or research services, designate any
such broker-dealer to receive selling concessions, discounts or other
allowances, or otherwise deal with any such broker-dealer in connection with the
acquisition of securities in underwritings.
Security Management and Virtus receive a wide range of research services
from broker-dealers, including information on securities markets, the economy,
individual companies, statistical information, accounting and tax law
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services are received primarily in the form of
written reports, telephone contacts and personal meetings with security
analysts, corporate and industry spokespersons. Research services received from
broker-dealers are supplemental to Security Management's and Virtus' own
research efforts and, when utilized, are subject to internal analysis before
being incorporated into the investment process.
Each year, Security Management and Virtus will assess the contribution of
the brokerage and research services provided by broker-dealers and will allocate
a portion of the brokerage business of its clients on the basis of these
assessments. In addition, broker-dealers sometimes suggest a level of business
they would like to receive in return for the various brokerage and research
services they provide. Actual brokerage received by any firm may be less than
the suggested allocations, but can (and often does) exceed the suggestions
because total brokerage is allocated on the basis of all the considerations
described above. In no instance is a broker-dealer excluded from receiving
business because it has not been identified as providing research services.
Security Management and Virtus cannot readily determine the extent to which
commission rates or net prices charged by broker-dealers reflect the value of
their research services. In some instances, Security Management and Virtus will
receive research services they might otherwise have had to perform for
themselves. The research services provided by broker-dealers can be useful to
Virtus in serving its other clients, but they can also be useful in serving the
Trust.
Neither Security Management nor Virtus allocate business to any broker-
dealer on the basis of its sales of shares of the Series. However, this does
not mean that broker-dealers who purchase Series shares for their clients will
not receive other business from the Trust.
-42-
<PAGE>
During the fiscal year ended July 31, 1997, the Virtus Equity Series paid
brokerage commissions to securities dealers in the amount of $______. The
Virtus U.S. Government Income Series paid no brokerage commissions or discounts
to securities dealers for the fiscal year ended July 31, 1997.
Some of Virtus' other clients have investment objectives and programs
similar to those of Virtus Equity or Virtus U.S. Government Income Series.
Virtus may occasionally make recommendations to other clients which result in
their purchasing or selling securities simultaneously with a Series it advises.
As a result, the demand for securities being purchased or the supply of
securities being sold may increase, and this could have an adverse effect on the
price of those securities. It is Virtus' policy not to favor one client over
another in making recommendations or in placing orders. If two or more of
Virtus' clients are purchasing a given security on the same day from the same
broker-dealer, Virtus may average the price of the transactions and allocate the
average among the clients participating in the transaction. Virtus has
established a general investment policy that it will ordinarily not make
additional purchases of a common stock of a company for its clients if, as a
result of such purchases, 10% or more of the outstanding common stock of such
company would be held by its clients in the aggregate.
All brokerage commissions will be allocated by Virtus according to the
foregoing policies. Virtus paid no brokerage commissions to securities dealers
in connection with underwritings during the fiscal years ended July 31, 1997.
OTHER INFORMATION CONCERNING THE TRUST
Trustees and Officers
The members of the Board of Trustees, as composed to satisfy the provisions
of the 1940 Act, have supplied the following information pertaining to their
ages and principal occupations for the last five years. None of the Trustees
own shares of the Trust.
<TABLE>
<CAPTION>
Year
Principal Occupations Became
Name Age During Past Five Years Trustee
---- --- ---------------------- -------
<S> <C> <C> <C>
MELVIN M. HAWKRIGG* 66 Chairman of the Board of the 1989
Trust; Chairman of the Board,
Trilon Financial Corporation,
since 1988; Chief Executive
Officer, Trilon Financial
Corporation, 1983-1989.
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Year
Principal Occupations Became
Name Age During Past Five Years Trustee
---- --- ---------------------- -------
<S> <C> <C> <C>
LAWRENCE E. MARCUS 79 Owner and Chief Executive 1987
Officer, Les Cafes de Marque,
Roasting & Marketing of Coffee
Beans; formerly Executive Vice
President of Neiman-Marcus
Company, a general merchandise
retailer.
KATHERINE L. HENSLEY 60 Of Counsel, O'Melveny & Myers, 1994
since 1992; Partner, O'Melveny
& Myers, 1986-1992
JACK R. BORSTING 68 E. Morgan Stanley, Professor of 1994
Business Administration,
University of Southern
California, since 1993; Dean,
School of Business
Administration, University
of Southern California, 1988 to
1993.
</TABLE>
*"Interested Person" as that term is defined in the 1940 Act.
The above-named Trustees can be contacted at 11365 West Olympic Boulevard,
Los Angeles, California 90064.
The following officers of the Trust are also officers and/or directors of
Security Management, the investment adviser:
Position With
-------------
<TABLE>
<CAPTION>
Security First Trust Security Management
- -------------------- -------------------
<S> <C>
Robert G. Mepham
President President and Chairman of Board
Richard C. Pearson
Senior Vice President; Senior Vice President;
Secretary and General Secretary and General Counsel
Counsel
Jane F. Eagle
Senior Vice President, Finance Senior Vice President, Finance
James C. Turner
Vice President, Taxation; Vice President, Taxation;
Assistant Secretary Assistant Secretary
</TABLE>
-44-
<PAGE>
Position With
-------------
Security First Trust Security Management
- -------------------- -------------------
Cheryl J. Finney
Assistant General Counsel; Assistant General Counsel;
Assistant Secretary Assistant Secretary
None of the Trustees or Officers of the Trust owns shares of either the
Trust or Security Management. Security Management is a wholly-owned subsidiary
of Security First Group, Inc.
No Trustee of the Trust is either a director or officer of Security
Management. Mr. Hawkrigg, the Chairman of the Board of the Trust, however, is
also the Chairman of the Board of Directors of Trilon Financial Corporation,
currently the ultimate parent of Security Management. That relationship will
terminate upon consummation of either of the proposed Transactions.
Share Ownership
All of the outstanding shares of the Trust are owned by Security First Life
Separate Account A, Fidelity Standard Life Separate Account and Security First
Group, Inc. Security Savings Plan, a tax qualified retirement plan.
By Order of the Board of Trustees
----------------------------------------
Los Angeles, California Richard C. Pearson
September __, 1997 Secretary
-45-
<PAGE>
EXHIBIT 1
MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT
between
SECURITY FIRST TRUST
and
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT, made as of the ______
day of __________, 1997, between the SECURITY FIRST TRUST (the "Trust"), a
business trust organized and existing under the laws of the Commonwealth of
Massachusetts, and SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION ("Adviser"),
a corporation organized and existing under the laws of the State of Delaware.
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end, diversified
management investment company and is registered as such under the Investment
Company Act of 1940 (the "Act"); and
WHEREAS, the Adviser is engaged principally in the business of providing
investment advice, business management and administrative services and is
registered as an investment adviser under the Investment Advisers Act of 1940;
and
WHEREAS, the Trust operates as a "series company" as contemplated by
Rule 18f-2 under the Act and is authorized to issue shares of beneficial
interest in separate series with each such series representing interest in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers shares of beneficial interest in four
separate series: Bond Series, T. Rowe Price Growth and Income Series, Virtus
Equity Series and Virtus U.S. Government Income Series, (collectively "Trust
Series"); and
WHEREAS, the Trust desires to retain the Adviser to render investment
supervisory, business management and administrative services to each of the
Trust Series in the manner and on the terms and conditions hereinafter set
forth;
<PAGE>
NOW, THEREFORE, in consideration of the premises, and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Employment of Adviser - The Trust hereby employs Adviser as its
---------------------
exclusive investment adviser and business manager to manage the investment and
reinvestment of the assets of the Trust, to administer its affairs, and to
perform the other services herein set forth.
2. Effective Date - It is understood and agreed that as to the Trust
--------------
Series this Agreement shall take effect on ________________, 1997 ("Effective
Date") provided that on or prior to that date the terms of this Agreement have
been approved by a vote of (a) a majority of the members of the Board of
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Agreement or "interested persons" (as defined in the Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) a majority of the outstanding "voting securities" (as defined
in the Act) of the Trust Series of the Trust.
3. Term of Agreement and Continuance - The term of this Agreement shall
---------------------------------
begin on the Effective Date and, unless sooner terminated as hereinafter
provided, shall remain in effect for a period of two years from that date.
Thereafter, this Agreement shall continue in effect from year to year only so
long as such continuance is specifically approved at least annually by
affirmative vote of the Board of Trustees of the Trust, which affirmative vote
shall include a majority of those members of the Board who are not parties to
the agreement or "interested persons" of any such party (as defined in the Act),
or by affirmative vote of a majority of the outstanding shares of the Trust
Series entitled to be cast and of a majority of those members of the Board who
are not parties to the Agreement or "interested persons" (as defined in the Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such continuance.
4. Termination Without Penalty - This Agreement may be terminated as to a
---------------------------
particular Trust Series at any time on sixty (60) days' written notice, without
the payment of any penalty, by the Board of Trustees of the Trust, by the vote
of a majority of the outstanding voting securities of such Trust Series, or by
the Adviser.
5. Assignment Terminates Agreement - This Agreement shall terminate
-------------------------------
automatically in the event of its assignment by either party. For the purpose
of this paragraph, the term "assignment" shall have the meaning defined in
Section 2(a)(4) of the Act.
- -
- 2 -
<PAGE>
6. Amendment of Agreement - This Agreement may be amended by mutual
----------------------
consent; however, such consent on the part of a Trust Series requires either a
vote of a majority of the outstanding voting securities of such Trust Series or
a vote of a majority of the Board of Trustees, and in either event, a vote of a
majority of the Trustees of the Trust who are not interested persons of the
Trust or the Adviser and who have no direct or indirect interest in the
operations of the Trust, this Agreement, or the Adviser, cast in person at a
meeting called for this purpose.
7. Actions by Each Trust Series - It is understood and agreed that this
----------------------------
Agreement may be approved, continued, terminated without penalty or amended as
to one or more Trust Series without affecting other Trust Series based upon the
vote of (a) the Board of Trustees, including a majority of the non-interested
Trustees, or (b) the shareholders of a particular Trust Series. The approval,
continuation, termination without penalty or amendment of this Agreement shall
be conditioned upon the actions of each of the Trust Series acting as a separate
entity. Failure to approve or continue this Agreement or the vote to terminate
this Agreement as to one Trust Series shall not act to negate this Agreement as
to other Trust Series.
8. Duties of Adviser
-----------------
(a) Adviser agrees to act as the Trust's exclusive investment adviser
and business manager to supervise and direct the investments of each Trust
Series in accordance with the investment objectives and policies, programs and
restrictions of each series as stated in the Trust's registration statement and
its current prospectus and statement of additional information, and such other
limitations as are imposed upon the Trust by virtue of regulations adopted under
section 817(h) of the Internal Revenue Code of 1986, as such may be amended from
time to time, and such other limitations as the Trust may impose by notice in
writing to the Adviser.
(b) The Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, securities markets and securities as it may
deem necessary to use in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of each Trust Series in a manner consistent with the particular
series' investment objectives, policies and restrictions. The Adviser, as agent
and attorney-in-fact with respect to the Trust, when it deems appropriate, may
(i) buy, sell, exchange, convert and otherwise trade in any stocks, bonds and
other securities (including money market instruments), and (ii) place orders for
the execution of such securities transactions with or through such brokers,
dealers or issuers as the Adviser may select. The Adviser agrees to use its
best efforts in acting as an investment adviser for the Trust as provided in
this Agreement, and shall maintain such staff and facilities as it shall
consider requisite for such purposes;
- 3 -
<PAGE>
(c) All transactions will be consummated by payment to, or delivery
by, the Trust's Custodian of all cash and/or securities due to or from the Trust
in accordance with the Trust's Custodial Agreement. The Adviser shall not act as
Custodian for the Trust, but may issue such instructions to the Custodian as may
be appropriate in connection with the settlement of transactions initiated by
the Adviser pursuant to sub-paragraph (b) hereof. Instructions of the Adviser to
the Trust and/or the Custodian shall be made in writing sent by first class
mail, or by tested telegram cable or telex, as provided in the Custodial
Agreement, or at the option of the Adviser, orally and confirmed in writing as
soon as practical thereafter, and the Adviser shall instruct brokers and dealers
executing orders on behalf of the Trust to forward to the Trust and/or the
Custodian copies of all confirmations. The Adviser shall not be responsible for
any loss incurred by reason of any act or omission of any broker or dealer or
the Custodian; provided, however, that the Adviser will make reasonable efforts
to require that brokers and dealers selected by the Adviser perform their
obligations with respect to the Trust;
(d) The Adviser may delegate any of the foregoing authority to one or
more third parties at its discretion and to the extent in the opinion of counsel
for Adviser that such delegation is consistent with applicable laws and
regulations and is in the best interests of the Trust; provided, however, such
delegation will in no way derogate the responsibility of Adviser under this
Agreement;
(e) The Adviser shall report to the Board of Trustees of the Trust, or
to any committee or officers of the Trust acting pursuant to the authority of
the Board, at such times and in such detail as the Board may deem appropriate in
order to enable the Trust to determine that its investment objectives and
policies are being observed and implemented and that the obligations of Adviser
under this Agreement are being fulfilled. Any investment program undertaken by
Adviser pursuant to this Agreement and any other activities undertaken by
Adviser on behalf of the Trust shall at all times be subject to any directives
of the Board of Trustees or any duly constituted committee or officer of the
Trust acting pursuant to authority of the Board of Trustees;
(f) In the management of the business affairs of the Trust, the
Adviser shall:
(i) Furnish to the Trust at its own expense office space and
equipment, bookkeeping services (to the extent not otherwise provided by
custodian or transfer agent), wire and telephone communication services and such
other services and facilities of this nature as may reasonably be necessary to
the proper management of the Trust's business affairs;
(ii) Provide the necessary executive and other personnel for
managing the affairs of the Trust, including personnel to perform clerical and
other office functions;
- 4 -
<PAGE>
(iii) Permit members of the Adviser's organization to serve
without compensation from the Trust as officers, directors or agents of the
Trust, if desired by the Board of Trustees of the Trust;
(iv) Furnish general purpose accounting forms, supplies,
stationery and postage relating to the obligations of the Adviser under the
terms of this Agreement; and
(v) Pay all expenses and charges not assumed by the Trust as
hereinafter specifically provided, as may be incurred by the Adviser in the
performance of its obligation hereunder.
9. Fees - Each Series shall pay the Adviser as full compensation for all
----
services rendered hereunder a monthly fee at an annual rate of .50% (1/2 of 1%)
based on the average daily net assets of the Bond Series and the T. Rowe Price
Growth and Income Series and at the annual rate of .90% (nine-tenths of 1%)
based on the average daily net asset value of each of the Virtus Equity and
Virtus U.S. Government Income Series of the Trust during the year, computed in
the manner used for determination of the offering price of shares of the Trust
Series. Adviser's compensation shall be accrued daily and payable monthly.
10. Expense Limitation Where Required by State Law - To the extent that
----------------------------------------------
such is required by law, if the aggregate expenses of a Trust Series in any
fiscal year exceed 2.5% of the first $30,000,000 of the average net assets of a
Trust Series for that year, 2.0% of the next $70,000,000 of the average net
assets for that year plus 1.5% of the remaining average net assets for that year
(all calculated on a daily basis), the Adviser agrees to waive such portion of
its advisory fee, as may be necessary to provide for any such expenses. Such
waiver shall not exceed the full amount of the advisory fee for such year except
as may be elected by the Adviser in its discretion. For this purpose, aggregate
expenses of the Trust Series shall include the compensation of the Adviser, but
shall exclude interest and taxes and certain extraordinary expenses. For the
purposes of this paragraph the term "fiscal year" shall be prorated in the event
of a period of less than a full fiscal year. The expense limitation shall be
that part of 2.5%, 2.0% or 1.5% as the case may be, proportional to the portion
of a full fiscal year elapsed. It is understood and agreed that any amounts
contributed by the Adviser to the Trust Series either prior to or after the date
of this Agreement, shall be repaid by the Trust Series to the Adviser,
commencing with the fiscal year following the disbursement, provided that such
repayment does not result in increasing the Trust's aggregate expenses above the
aforementioned expense limitation ratios. Calculation of such repayment amounts
shall be determined on a daily basis and paid no less frequently than monthly.
If during any year that the Trust is making repayments
- 5 -
<PAGE>
to the Adviser, the Trust's expenses exceed such limitation ratios, the Trust
shall recover such prior repayments from the Adviser to the extent of the excess
determined on a cumulative annual basis.
11. Agreements with Sub-Advisory Organizations - It is understood and
------------------------------------------
agreed that Adviser may enter into sub-advisory agreements with third parties
for the provision of investment advice to Adviser relating to each Trust Series'
portfolio of securities, investments, cash and other properties.
12. Trust Expenses - The Trust shall assume and pay the expenses and
--------------
charges for:
(a) All costs of preparation, printing and mailing of reports,
notices, and proxy solicitation material furnished to Trust shareholders or to
regulatory authorities, or of sales literature, prospectuses and offering
circulars;
(b) Compensation and expenses of Trustees of the Trust who are not
directors, officers or employees of the Adviser or of a company affiliated with
the Adviser;
(c) Charges and expenses of any custodian or depository appointed by
the Trust for the safekeeping of its assets, or for other custodial, disbursing
agent and transfer agent services;
(d) Charges and expenses of independent accountants and auditors;
(e) Charges and expenses of any transfer agents and registrars;
(f) Costs of issuing shares of the Trust, if any;
(g) Fees and expenses, including legal, involved in registering and
maintaining registration of the Trust and of its shares with the Securities and
Exchange Commission and with any applicable state laws;
(h) Legal fees and expenses in connection with the affairs of the
Trust;
(i) Brokers' commissions and issue and transfer taxes chargeable to
the Trust in connection with securities transactions to which the Trust is a
party;
(j) All taxes and registration, filing and other fees payable by the
Trust to federal, state or other governmental agencies;
- 6 -
<PAGE>
(k) All expenses of shareholders' and Trustees' meetings and of
preparing and printing reports to shareholders; fees and expenses of legal
counsel in connection with the Trust's legal existence, financial structure and
relations with shareholders;
(l) Premiums for the fidelity bond maintained by the Trust pursuant to
the requirements of Section 17 of the Investment Company Act of 1940, or other
insurance policy protecting the assets of the Trust; and
(m) All interest expenses.
13. Public Reference to Adviser - The Trust agrees to furnish the Adviser
---------------------------
at its principal office copies of all post-effective amendments to its
registration statement, prospectuses, statements of additional information,
proxy materials, reports to stockholders, sales literature, or other material
prepared for distribution to stockholders of the Trust or the public, which
refer in any way to the Adviser, ten (10) days prior to use thereof and not to
use such material if the Adviser shall object thereto in writing within seven
(7) days after receipt of such material. In the event of termination of this
Agreement, the Trust will, on written request of the Adviser, forthwith delete
any reference to the Adviser from any materials described in the preceding
sentence. The Trust shall furnish or otherwise make available to the Adviser
such other information relating to the business affairs of the Trust as the
Adviser at any time, or from time to time, reasonably requires in order to
discharge its obligations hereunder.
14. Information Regarding Adviser - The Adviser, its officers, directors
-----------------------------
and employees, shall make available and provide such information relating to
itself, its organization, its personnel, and its activities as may, from time to
time, reasonably be required by the Trust in the preparation of registration
statements, prospectuses, reports and other documents required by federal and
state securities laws. In addition, the Adviser, its officers, directors and
employees, shall provide such information to the Board of Trustees of the Trust
as said Board shall request and which may be reasonably necessary for the Board
to evaluate the terms of this Agreement in accordance with the requirements of
the Act.
15. Dual Interests Permitted - It is understood that Trustees, officers,
------------------------
agents and shareholders of the Trust are or may be interested in the Adviser as
directors, officers, shareholders, or otherwise and that directors, officers,
agents and shareholders of the Adviser are or may be interested in the Trust as
Trustees, officers, stockholders or otherwise, that Adviser may be interested in
the Trust and that the existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder except as otherwise provided in
the
- 7 -
<PAGE>
Declaration of Trust of the Trust and the Certificate of Incorporation of the
Adviser, respectively, or by specific provision of applicable law.
16. Advisory Service Not Exclusive - It is understood that the Adviser may
------------------------------
perform investment advisory services for various clients including investment
companies. The Trust understands and agrees that the Adviser may give advice
and take action with respect to any other clients which may differ from advice
given or the timing or nature of actions taken with respect to the Trust, so
long as it is the Adviser's policy, to the extent practical, to allocate
investment opportunities to the Trust over a period of time on a fair and
equitable basis relative to other clients. It is understood that the Adviser
shall not have any obligation to initiate the purchase or sale, or to recommend
for purchase or sale, for the Trust any security which the Adviser, its
principals, affiliates or employees, may purchase or sell for its or their own
accounts or for the account of any other client, if in the opinion of the
Adviser such transaction or investment appears unsuitable, impractical or
undesirable for the Trust.
17. Brokerage Fees - The Adviser, in carrying out its duties under this
--------------
Agreement, may cause the Trust to pay a broker-dealer which furnishes brokerage
or research services [as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "34 Act")] a higher commission
than that which might be charged by another broker-dealer which does not furnish
brokerage or research services or which furnishes brokerage or research services
deemed to be of lesser value, if such commission is deemed reasonable in
relation to the brokerage and research services provided by the broker-dealer,
viewed in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to the accounts as to which it
exercises investment discretion (as such term is defined in Section 3(a)(35) of
the 34 Act).
18. Compliance With Trust Documents - Nothing herein contained shall be
-------------------------------
deemed to require the Trust to take any action contrary to its Declaration of
Trust or By-Laws, or any applicable statutory or regulatory requirement to which
it is subject or by which it is bound, or to relieve or deprive the Board of
Trustees of the Trust of its responsibility for and control of the conduct of
the affairs of the Trust.
19. Limitation of Liabilities - Neither the Adviser nor any of its
-------------------------
officers, directors, or employees, nor any person performing trading, or other
functions of the Trust (at the direction or request of the Adviser) or the
Adviser in connection with the Adviser's discharge of its obligations undertaken
or reasonably assumed with respect to this Agreement, shall be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which this
- 8 -
<PAGE>
Agreement relates, except for loss resulting from willful misfeasance, bad
faith, or gross negligence in the performance of its or his duties on behalf of
the Trust or from reckless disregard by the Adviser or any such person of the
duties of the Adviser under this Agreement.
Without limiting the generality of the foregoing, neither the Adviser nor
any such person shall be deemed to have acted unlawfully or to have breached any
duty to the Trust under state or federal law solely by reason of having caused
the Trust to pay a member of any securities exchange, or any other securities
broker or dealer, an amount of commission for effecting a securities transaction
in excess of the commission another member of a securities exchange, or another
securities broker or dealer, would have charged for effecting that transaction
if the Adviser, or such person, determined in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such member, broker or dealer, viewed in terms of either
that particular transaction or the overall responsibilities of the Adviser with
respect to the accounts as to which the Adviser exercises investment discretion.
20. Books and Records - The Adviser and the Trust agree to maintain and
-----------------
preserve for such period or periods as the Securities and Exchange Commission
may prescribe by rules and regulations, such accounts, books and other documents
as constitute the records forming the basis for all reports, including financial
statements required to be filed pursuant to the Act and for the Trust auditor's
certification relating thereto. The Adviser and the Trust agree that all
accounts, books and other records maintained and preserved by each as required
hereby shall be subject at any time, and from time to time, to such reasonable
periodic, special and other examinations by the Securities and Exchange
Commission, the Trust's auditors, the Trust or any representative of the Trust,
or any governmental agency or other instrumentality having regulatory authority
over the Trust. It is expressly understood and agreed that the books and
records maintained by the Adviser on behalf of the Trust shall, at all times
remain the property of the Trust. Moreover, the Trust agrees to supply the
Adviser with copies of all documents filed with the Securities and Exchange
Commission, and with such other information relating to the Trust's affairs as
the Adviser may reasonably request.
21. Definition of Terms - Any question of interpretation of any term or
-------------------
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Securities and Exchange Commission
validly issued pursuant to said Act. Specifically, the
- 9 -
<PAGE>
terms "vote of a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used herein shall have the
meanings assigned to them by the Act and rules thereunder. In addition, where
the effect of a requirement of the Act, reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities and
Exchange Commission, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
22. Notices - Unless otherwise specified herein, all notices, instructions
-------
and advices with respect to securities transactions or other matters
contemplated by this Agreement shall be deemed duly given to the Adviser when
received in writing by the Adviser at 11365 West Olympic Boulevard, Los Angeles,
California, 90064, and to the Trust when deposited for first class mail,
addressed to (or delivered by hand to) the Trust at 11365 West Olympic
Boulevard, Los Angeles, California 90064 and to the Custodian at State Street
Bank and Trust Company, P.O. Box 2357, Boston, Massachusetts 02107, or such
other address or addresses as shall be specified, in each case, in a notice
similarly given. The Adviser may rely upon any notice (written or oral) from
any person which the Adviser reasonably believes to be genuine and authorized.
23. Additional Series - Nothing herein shall be deemed to prevent the Trust
-----------------
from establishing new Trust Series and, in connection therewith, from retaining
an investment adviser other than the Adviser to provide investment advisory
services to such new Trust Series.
24. Entire Agreement - This writing constitutes the entire Agreement
----------------
between the parties and no conditions or warranties shall be implied herefrom
unless expressly set forth herein.
25. This Agreement shall be governed by the laws of the state of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the day and the year first above written.
Attest: SECURITY FIRST TRUST
on behalf of each of the Trust Series
By:
- ---------------------------------- -----------------------------------------
Secretary
Attest: SECURITY FIRST INVESTMENT MANAGEMENT
CORPORATION
By:
- ---------------------------------- -----------------------------------------
Secretary
- 10 -
<PAGE>
Exhibit 2(a)
SUB-ADVISORY AGREEMENT
between
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
and
T. ROWE PRICE ASSOCIATES, INC.
SUB-ADVISORY AGREEMENT, made this ____ day of ___________, 1997, by and
between SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION, a corporation
organized and existing under the laws of the State of Delaware (the "Adviser"),
and T. ROWE PRICE ASSOCIATES, INC., a corporation organized and existing under
the laws of the State of Maryland, (the "Sub-Adviser").
WITNESSETH:
WHEREAS, Security First Trust (the "Trust") is an open-end, diversified,
management investment company, registered as such under the Investment Company
Act of 1940 consisting of multiple investment series; and
WHEREAS, shares of the Trust are made available only to fund variable
contracts offered by life insurance companies; and
WHEREAS, at present the Trust is comprised of four investment series one of
which is the T. Rowe Price Growth and Income Series (the "Growth and Income
Series"), which is to be operated as the underlying investment media for certain
variable contracts funded through separate accounts of life insurance companies;
and
WHEREAS, the Trust has contracted with the Adviser for the Adviser to provide
investment advisory, business management and administrative services to the
investment series of the Trust pursuant to a Master Investment Management and
Advisory Agreement; and
<PAGE>
WHEREAS, the Adviser is authorized by the terms of the Master Investment
Management and Advisory Agreement with the Trust to enter into sub-advisory
agreements with third parties; and
WHEREAS, the Sub-Adviser is engaged principally in the business of rendering
investment advisory services to registered investment companies and other
clients and is registered as an investment adviser under the Investment Advisers
Act of 1940;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. The Adviser acts as investment adviser and manager for the Growth and
Income Series pursuant to a Master Investment Advisory Agreement, and as such
has authority and responsibility for supervising and directing the investments
of the Growth and Income Series in accordance with its investment objectives and
policies, programs and restrictions as stated in the Trust's registration
statement and its current prospectus and statement of additional information,
and such other limitations as are imposed upon the Trust pursuant to section
817(h) of the Internal Revenue Code of 1986. Pursuant to its agreement with the
Trust, the Adviser, as agent and attorney-in-fact for the Growth and Income
Series may, when it deems appropriate, (a) buy, sell, exchange, convert and
otherwise trade in any stocks, bonds or other securities, and (b) place orders
for the execution of such security transactions with or through such brokers,
dealers or issuers as the Adviser may select subject, however, at all times to
the supervision of the Board of Trustees of the Trust. The Adviser may delegate
any of the foregoing authority to Sub-Adviser to the extent, in the opinion of
counsel for the Adviser, such delegation is consistent with life insurance
company separate account ownership of the Trust shares for federal income tax
purposes; provided, however, that nothing in this Agreement shall be interpreted
to derogate the responsibilities of the Adviser to the Trust or the Growth and
Income Series under the aforementioned Master Investment Management and Advisory
Agreement.
2. The Adviser hereby employs Sub-Adviser to render the advisory services
set forth herein for the fee specified herein.
3. During the term of this Agreement, or any continuance or extension
thereof, and unless otherwise limited by the Adviser as hereinafter provided,
the Sub-Adviser will, to the best of its ability, exercise investment discretion
on behalf of the Growth and Income Series with respect to the purchase, holding
or sale of securities in accordance with the stated investment objectives and
policies of the Growth and Income Series as communicated to the Sub-Adviser by
Adviser and as is required to comply with the terms of the Master Investment
Management and Advisory Agreement, the diversification requirements of the
Investment Company Act of 1940 and section 817(h) of the Internal Revenue Code.
The Sub-Adviser shall not be required to respond to inquiries from the Adviser
with regard to specific securities other than securities which
2
<PAGE>
are or have been held by the Growth and Income Series during the time this
Agreement is in effect. The Adviser reserves the right, subject to shareholder
approval as required by law, to limit the authority of the Sub-Adviser herein
solely in its discretion. The Sub-Adviser shall, for all purposes stated herein,
be deemed an independent contractor and shall not have custody of any of the
assets of the Trust nor authority to act for or represent the Growth and Income
Series except as expressly provided herein.
4. The Sub-Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purposes of
obtaining such statistical and other factual information, such advice regarding
economic factors and trends, such advice as to occasional transactions in
specific securities or such other information, advice or assistance as the Sub-
Adviser may deem necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to the Growth and Income Series, or
in the discharge of Sub-Adviser's overall responsibilities with respect to the
other accounts which it serves as investment adviser or sub-adviser. The Sub-
Adviser is authorized to allocate brokerage and principal business to firms that
provide such services or facilities and to cause the Growth and Income Series to
pay a member of a securities exchange or any other securities broker or dealer,
an amount of commission for effecting a securities transaction in excess of the
amount of commission another member of an exchange, broker or dealer would have
charged for effecting that transaction, if the Sub-Adviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research service (as such services are defined in Section
28(e) of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Sub-Adviser with respect to the accounts as to which the
Sub-Adviser exercises investment discretion (as that term is defined in Section
3(a)(35) of the Securities Exchange Act of 1934).
5. The Sub-Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for performance of its services
pursuant to this Agreement.
6. The Sub-Adviser, its officers, directors and employees, shall make
available and provide such information relating to itself, its organization, its
personnel, and its activities as may be required by the Trust in the preparation
of registration statements, prospectuses, proxy materials, reports and other
documents required by federal and state securities laws. In addition, the Sub-
Adviser, its officers, directors and employees shall provide such information to
the Board of Trustees of the Trust as said Board shall request and which may be
reasonably necessary for the Board to evaluate the terms of this Agreement in
accordance with the requirements of the Investment Company Act of 1940.
3
<PAGE>
7. The Sub-Adviser agrees to maintain and preserve for such period or
periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books, and other documents as constitute the records
forming the basis for all reports, including financial statements required to be
filed pursuant to the Act and for the Trust's auditor's certification. The Sub-
Adviser agrees that all accounts, books and other records maintained and
preserved as required hereby shall be subject at any time, and from time to
time, to such reasonable periodic' special and other examinations by the
Securities and Exchange Commission, the Trust's auditors, the Trust or any
representative of the Trust, or any governmental agency or other instrumentality
having regulatory authority over the Trust. It is expressly understood and
agreed that any books and records maintained by the Sub-Adviser on behalf of the
Trust shall, at all times remain the property of the Trust. Moreover, the
Adviser agrees to supply the Sub-Adviser with copies of all documents filed by
the Trust with the Securities and Exchange Commission and with such other
information relating to the Trust's affairs as the Sub-Adviser may reasonably
request.
8. The Adviser shall pay the Sub-Adviser a fee, based on the value of the
net assets of each of the Growth and Income Series for which it serves as Sub-
Adviser subject to this Agreement as determined in accordance with the Trust's
current prospectus and statement of additional information, and computed as
follows:
(a) The fee shall be at the annual rate of 0.35 of 1% of the average daily net
assets of each of the Growth and Income Series.
(b) The fee shall be accrued for each calendar day and the sum of the daily
fee accruals shall be paid monthly to the Sub-Adviser as soon as is practicable
after the end of each succeeding calendar month. The daily fee accruals will be
computed by multiplying the fraction of one over the number of calendar days in
the year by the annual rate described in subparagraph (a) of this Paragraph 8,
and multiplying this product by the net assets of the Growth and Income Series
as determined in accordance with the procedures set forth in the Trust's current
prospectus and statement of additional information as of the close of business
on the previous business day.
9. The Adviser agrees to furnish the Sub-Adviser at its principal office all
post-effective amendments to the Trust's registration statement and all
prospectuses, statements of additional information, proxy materials, reports to
shareholders, sales literature, and other material prepared for distribution to
persons having a beneficial interest in shares of the Growth and Income Series,
or to the public, which refer in any way to the Sub-Adviser ten (10) days prior
to use thereof and not to use such material if the Sub-Adviser shall object
thereto in writing within seven (7) days after receipt of such material. In the
event of termination of this Agreement, the Adviser shall ensure that the Growth
and Income Series will, on written request of the Sub-Adviser, forthwith delete
any reference to the Sub-Adviser from any materials described in the preceding
sentence. The Adviser shall furnish or otherwise make available to the Sub-
Adviser such other
4
<PAGE>
information relating to the business affairs of the Trust and the Growth and
Income Series as the Sub-Adviser at any time, or from time to time, reasonably
requires in order to discharge its obligations hereunder.
10. Nothing herein contained shall limit the freedom of the Sub-Adviser or
any affiliated person of the Sub-Adviser to render investment supervisory and
management administrative services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms, or
corporations, or to engage in other business activities. The Adviser understands
and agrees that the Sub-Adviser may give advice and take action with respect to
any of its other clients which may differ from advice given to the Adviser so
long as it is the Sub-Adviser's policy, to the extent practical, to allocate
investment opportunities to the Growth and Income Series over a period of time
on a fair and equitable basis relative to other clients. It is understood that
the Sub-Adviser shall not have any obligation to recommend for purchase or sale,
for the Growth and Income Series any security which the Sub-Adviser, its
principals, affiliates or employees may purchase or sell for its or their own
accounts or for the account of any other client, if in the opinion of the Sub-
Adviser such transaction or investment appears unsuitable, impractical or
undesirable for the Growth and Income Series. In discharging its duties
hereunder, Sub-Adviser shall be governed by the requirements of the Investment
Company Act of 1940, including, but not limited to, Section 17 thereof.
11. The Sub-Adviser shall not purchase or sell, or recommend the purchase or
sale of the securities of any issuer for the Growth and Income Series on the
basis of any material non-public ("inside") information.
12. (a) This Agreement shall take effect as to each of the Growth and Income
Series on __________________, 1997 ("Effective Date") and shall continue in
effect for a period of two years provided that prior to the Effective Date the
terms of this Agreement have been approved by a vote of (i) a majority of the
members of the Board of Trustees of the Trust, including a majority of the
Trustees who are not parties to this Agreement or "interested persons" (as
defined in the Investment Company Act of 1940) of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (ii) a
majority of the outstanding "voting securities" (as defined in the Act) of the
Growth and Income Series.
(b) This Agreement shall continue in effect from year to year after the
initial period so long as such continuance is specifically approved at least
annually by the Board of Trustees of the Trust, or by vote of a majority of the
outstanding voting securities of the Growth and Income Series, and, concurrently
with such approval by the Board of Trustees or prior to such approval by the
holders of the outstanding voting securities of the Growth and Income Series, as
the case may be, by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of Trustees of the Trust who are not
parties to this Agreement or "interested persons" (as defined in the Investment
Company Act of 1940) of any such party; and the Sub-Adviser shall not have
notified the Adviser nor shall the Adviser have notified the Sub-Adviser in
5
<PAGE>
writing that it does not desire such continuation at least sixty (60) days prior
to the termination date of this Agreement.
(c) This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon sixty (60) days' notice in writing to the other
party, or by the Growth and Income Series upon sixty (60) days' prior written
notice to both parties hereto, provided, that in the case of termination by the
Growth and Income Series, such actions shall have been authorized by resolution
of the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Growth and Income Series.
(d) This Agreement may not be amended without the written consent of the
Adviser and Sub-Adviser, and affirmative vote of a majority of the outstanding
voting securities of the Growth and Income Series and by a vote of a majority of
the Board of Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
13. This Agreement shall terminate automatically in the event of its
assignment by either party. For the purpose of this paragraph, the term
"assignment" shall have the meaning set forth in Section 2(a)(4) of the
Investment Company Act of 1940.
14. To the extent that such is required by state law, if the aggregate
expenses of the Growth and Income Series in any fiscal year exceed 2.5% of the
first $30,000,000 of the average net asset value of the Series for that year,
2.0% of the next $70,000,000 of the average net asset value of such Series for
that year, plus 1.5% of the remaining average net assets for that year (all
calculated on a daily basis), the Sub-Adviser agrees to waive such portion of
its fee, as may be necessary to provide for any such excess expenses, but such
waiver shall not exceed the full amount of the fee for such year except as may
be elected by the Sub-Adviser in its discretion. For this purpose, aggregate
expenses of the Growth and Income Series shall include the compensation of the
Adviser, but shall exclude interest, taxes, brokerage fees on portfolio
transactions, commissions paid on the distribution of Trust shares, and certain
extraordinary expenses including litigation expenses. For the purposes of this
paragraph the term "fiscal year" shall be prorated in the event of a period of
less than a full fiscal year. The expense limitation shall be that part of 2.5%,
2.0% or 1.5% as the case may be, proportional to the portion of a full fiscal
year elapsed.
15. Neither the Sub-Adviser nor any of its officers, directors, or employees,
performing services under this Agreement shall be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust or the Adviser
in connection with the matters to which this Agreement relates, except for loss
resulting from willful misfeasance, bad faith, or gross negligence in the
performance of its duties or from reckless disregard by the Sub-Adviser or such
person of the duties of the Sub-Adviser under this Agreement.
6
<PAGE>
16. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
Investment Company Act of 1940 shall be resolved by reference to such term or
provision of that Act and to interpretations thereof, if any, by the United
States Courts, and by rules, regulations or orders of the Securities and
Exchange Commission validly issued pursuant to said Act. Specifically, the terms
"affiliated person," as used in paragraph 8, and "vote of a majority of the
outstanding voting securities," and "interested person," as used in paragraph 10
hereof, shall have the meanings assigned to them by Section 2(a) of the
Investment Company Act of 1940. In addition, where the effect of a requirement
of the Investment Company Act of 1940 reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities and
Exchange Commission or state regulatory authorities, whether of special or of
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
17. Unless otherwise specified herein, all notices, instructions and advice
with respect to securities transactions or other matters contemplated by this
Agreement shall be deemed duly given to Sub-Adviser when received in writing by
Sub-Adviser at 100 East Pratt Street, Baltimore, Maryland 21202, to the Trust at
11365 West Olympic Boulevard, Los Angeles, California 90064 and to the Adviser
at 11365 West Olympic Boulevard, Los Angeles, California 90064. Sub-Adviser may
rely upon any notice (written or oral) from any person which Sub-Adviser
reasonably believes to be genuine and authorized.
18. Nothing herein contained shall be deemed to prevent the Adviser from
contracting with other investment advisory organizations other than Sub-Adviser
to provide investment advisory services on a sub-advisory basis to one or more
investment series of the Trust other than the Growth and Income Series.
19. This writing constitutes the entire agreement between the parties and no
conditions or warranties shall be implied herefrom unless expressly set forth
herein.
20. This Agreement shall be governed by the laws of the State of Delaware.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers "hereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and the year first above
written.
SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION
Attest:
By:
- ----------------------------- --------------------------
Secretary
T. ROWE PRICE ASSOCIATES, INC.
Attest:
By:
- ----------------------------- --------------------------
Secretary
8
<PAGE>
Exhibit 2(b)
SUB-ADVISORY AGREEMENT
between
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
and
NEUBERGER & BERMAN, LLC
SUB-ADVISORY AGREEMENT, made this _____ day of ________, 1997, by and
between SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION, a corporation
organized and existing under the laws of the State of Delaware (the "Adviser"),
and NEUBERGER & BERMAN, LLC, a limited liability company organized and existing
under the laws of Delaware, (the "Sub-Adviser").
WITNESSETH:
WHEREAS, Security First Trust (the "Trust") is an open-end, diversified,
management investment company, registered as such under the Investment Company
Act of 1940 consisting of multiple investment series; and
WHEREAS, shares of the Trust are made available only to fund variable
contracts offered by life insurance companies; and
WHEREAS, at present the Trust is comprised of four investment series, one
of which is the Bond Series, (the "Bond. Series"), which are to be operated as
the underlying investment media for certain variable contracts funded through
separate accounts of life insurance companies; and
WHEREAS, the Trust has contracted with the Adviser for the Adviser to
provide investment advisory, business management and administrative services to
the investment series of the Trust pursuant to a Master Investment Management
and Advisory Agreement; and
<PAGE>
WHEREAS, the Adviser is authorized by the terms of the Master Investment
Management and Advisory Agreement with the Trust to enter into sub-advisory
agreements with third parties; and
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment advisory services to registered investment companies and
other clients and is registered as an investment adviser under the Investment
Advisers Act of 1940;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. The Adviser acts as investment adviser and manager for the Bond Series
pursuant to a Master Investment Advisory Agreement, and as such has authority
and responsibility for supervising and directing the investments of the Bond
Series in accordance with its investment objectives and policies, programs and
restrictions as stated in the Trust's registration statement and its current
prospectus and statement of additional information, and such other limitations
as are imposed upon the Trust pursuant to section 817 (h) of the Internal
Revenue Code of 1986. Pursuant to its agreement with the Trust, the Adviser, as
agent and attorney-in-fact for the Bond Series may, when it deems appropriate,
(a) buy, sell, exchange, convert and otherwise trade in any stocks, bonds or
other securities, and (b) place orders for the execution of such security
transactions with or through such brokers, dealers or issuers as the Adviser may
select subject, however, at all times to the supervision of the Board of
Trustees of the Trust. The Adviser may delegate any of the foregoing authority
to Sub-Adviser; provided, however, that nothing in this Agreement shall be
interpreted to derogate the responsibilities of the Adviser to the Trust or the
Bond Series under the aforementioned Master Investment Management and Advisory
Agreement.
2. The Adviser hereby employs Sub-Adviser to render the advisory services
set forth herein for the fee specified herein.
3. During the term of this Agreement, or any continuance or extension
thereof, and unless otherwise limited by the Adviser as hereinafter provided,
the Sub-Adviser will, to the best of its ability, exercise investment discretion
on behalf of the Bond Series with respect to the purchase, holding or sale of
securities in accordance with the stated investment objectives and policies of
the Bond Series as communicated to the Sub-Adviser by Adviser in writing and as
is required to comply with the terms of the Master Investment Management and
Advisory Agreement, the diversification requirements of the Investment Company
Act of 1940 and section 817 (h) of the Internal Revenue Code. The Sub-Adviser
shall not be required to respond to inquiries from the Adviser with regard to
specific securities other than securities which are or have been held by the
Bond Series during the time this Agreement is in effect. The Adviser reserves
the right, subject to shareholder approval as required by law, to limit the
authority of the Sub-Adviser herein solely in its discretion. The Sub-Adviser
shall, for all purposes stated herein, be deemed an independent contractor and
shall not have custody of any of the assets of the Trust nor authority to act
for or represent the Bond Series except as expressly provided herein.
<PAGE>
4. The Sub-Adviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purposes of
obtaining such statistical and other factual information, such advice regarding
economic factors and trends, such advice as to occasional transactions in
specific securities or such other information, advice or assistance as the Sub-
Adviser may deem necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to the Bond Series, or in the
discharge of Sub-Adviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser or sub-adviser.
5. The Sub-Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for performance of its services
pursuant to this Agreement.
6. The Sub-Adviser, its officers, directors and employees, shall make
available and provide such information relating to itself, its organization, its
personnel, and its activities as may be required by the Trust in the preparation
of registration statements, prospectuses, proxy materials, reports and other
documents required by federal and state securities laws. In addition, the Sub-
Adviser, its officers, directors and employees shall provide such information to
the Board of Trustees of the Trust as said Board shall request and which may be
reasonably necessary for the Board to evaluate the terms of this Agreement in
accordance with the requirements of the Investment Company Act of 1940.
7. The Sub-Adviser agrees to maintain and preserve for such period or
periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books, and other documents as constitute the records
forming the basis for all reports, including financial statements required to be
filed pursuant to the Act and for the Trust's auditor's certification. The Sub-
Adviser agrees that all accounts, books and other records maintained and
preserved as required hereby shall be subject at any time, and from time to
time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Trust's auditors, the Trust or any
representative of the Trust, or any governmental agency or other instrumentality
having regulatory authority over the Trust. It is expressly understood and
agreed that any books and records maintained by the Sub-Adviser on behalf of the
Trust shall, at all times remain the property of the Trust. Moreover, the
Adviser agrees to supply the Sub-Adviser with copies of all documents filed by
the Trust with the Securities and Exchange Commission and with such other
information relating to the Trust's affairs as the Sub-Adviser may reasonably
request.
8. The Adviser shall pay the Sub-Adviser a fee, based on the value of the
net assets of each of the Bond Series for which it serves as Sub-Adviser subject
to this Agreement as determined in accordance with the Trust's current
prospectus and statement of additional information, and computed as follows:
(a) The fee shall be at the annual rate of 0.35 of 1% of the average daily
net assets of the Bond Series.
<PAGE>
(b) The fee shall be accrued for each calendar day and the sum of the
daily fee accruals shall be paid monthly to the Sub-Adviser as soon as is
practicable after the end of each succeeding calendar month. The daily fee
accruals will be computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rate described in subparagraph (a) of
this Paragraph 8, and multiplying this product by the net assets of the Bond
Series as determined in accordance with the procedures set forth in the Trust's
current prospectus and statement of additional information as of the close of
business on the previous business day.
9. The Adviser agrees to furnish the Sub-Adviser at its principal office
all post-effective amendments to the Trust's registration statement and all
prospectuses, statements of additional information, proxy materials, reports to
shareholders, sales literature, and other material prepared for distribution to
persons having a beneficial interest in shares of the Bond Series, or to the
public, which refer in any way to the Sub-Adviser ten (10) days prior to use
thereof and not to use such material if the Sub-Adviser shall object thereto in
writing within seven (7) days after receipt of such material. In the event of
termination of this Agreement, the Adviser shall ensure that the Bond Series
will, on written request of the Sub-Adviser, forthwith delete any reference to
the Sub-Adviser from any materials described in the preceding sentence. The
Adviser shall furnish or otherwise make available to the Sub-Adviser such other
information relating to the business affairs of the Trust and the Bond Series as
the Sub-Adviser at any time, or from time to time, reasonably requires in order
to discharge its obligations hereunder.
10. Nothing herein contained shall limit the freedom of the Sub-Adviser or
any affiliated person of the Sub-Adviser to render investment supervisory and
management administrative services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms, or
corporations, or to engage in other business activities. The Adviser understands
and agrees that the Sub-Adviser may give advice and take action with respect to
any of its other clients which may differ from advice given to the Adviser so
long as it is the Sub-Adviser's policy, to the extent practical, to allocate
investment opportunities to the Bond Series over a period of time on a fair and
equitable basis relative to other clients. It is understood that the Sub-Adviser
shall not have any obligation to recommend for purchase or sale, for the Bond
Series any security which the Sub-Adviser, its principals, affiliates or
employees may purchase or sell for its or their own accounts or for the account
of any other client, if in the opinion of the Sub-Adviser such transaction or
investment appears unsuitable, impractical or undesirable for the Bond Series.
In discharging its duties hereunder, Sub-Adviser shall be governed by the
requirements of the Investment Company Act of 1940, including, but not limited
to, Section 17 thereof.
11. The Sub-Adviser shall not purchase or sell, or recommend the purchase
or sale of the securities of any issuer for the Bond Series on the basis of any
material non-public ("inside") information.
12. (a) This Agreement shall take effect as to the Bond Series on _________
___, 1997 ("Effective Date") and shall continue in effect for a period of one
year provided that prior to the Effective Date the terms of this Agreement have
been approved
<PAGE>
by a vote of (i) a majority of the members of the Board of Trustees of the
Trust, including a majority of the Trustees who are not parties to this
Agreement or "interested persons" (as defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) a majority of the outstanding "voting
securities" (as defined in the Act) of the Bond Series.
(b) This Agreement shall continue in effect from year to year after the
initial period so long as such continuance is specifically approved at least
annually by the Board of Trustees of the Trust, or by vote of a majority of the
outstanding voting securities of the Bond Series, and, concurrently with such
approval by the Board of Trustees or prior to such approval by the holders of
the outstanding voting securities of the Bond Series, as the case may be, by the
vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of Trustees of the Trust who are not parties to this
Agreement or "interested persons" (as defined in the Investment Company Act of
1940) of any such party; and the Sub-Adviser shall not have notified the
Adviser nor shall the Adviser have notified the Sub-Adviser in writing that it
does not desire such continuation at least sixty (60) days prior to the
termination date of this Agreement.
(c) This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon sixty (60) days' notice in writing to the other
party, or by the Bond Series upon sixty (60) days' prior written notice to both
parties hereto, provided, that in the case of termination by the Bond Series,
such actions shall have been authorized by resolution of the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities of
the Bond Series.
(d) This Agreement may not be amended without the written consent of the
Adviser and Sub-Adviser, and, to the extent required by the Investment Company
Act of 1940, an affirmative vote of a majority of the outstanding voting
securities of the Bond Series and by a vote of a majority of the Board of
Trustees of the Trust who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval.
13. This Agreement shall terminate automatically in the event of its
assignment by either party. For the purpose of this paragraph, the term
"assignment" shall have the meaning set forth in Section 2 (a) (4) of the
Investment Company Act of 1940.
14. To the extent that such is required by state law, if the aggregate
expenses of the Bond Series in any fiscal year exceed 2.5% of the first
$30,000,000 of the average net asset value of the Series for that year, 2.0% of
the next $70,000,000 of the average net asset value of such Series for that
year, plus 1.5% of the remaining average net assets for that year (all
calculated on a daily basis), the Sub-Adviser agrees to waive such portion of
its fee, as may be necessary to provide for any such excess expenses, but such
waiver shall not exceed the full amount of the fee for such year except as may
be elected by the Sub-Adviser in its discretion. For this purpose, aggregate
expenses of the Bond Series shall include the compensation of the Adviser, but
shall exclude interest, taxes, brokerage fees on portfolio transactions,
commissions paid on the distribution of Trust shares, and certain extraordinary
expenses including litigation expenses. For the purposes of this
<PAGE>
paragraph the term "fiscal year" shall be prorated in the event of a period of
less than a full fiscal year. The expense limitation shall be that part of
2.5%, 2.0% or 1.5% as the case may be, proportional to the portion of a full
fiscal year elapsed.
15. Neither the Sub-Adviser nor any of its principals, officers, directors,
or employees, performing services under this Agreement shall be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust or the
Adviser in connection with the matters to which this Agreement relates, except
for loss resulting from willful misfeasance, bad faith, or gross negligence in
the performance of its duties or from reckless disregard by the Sub-Adviser or
such person of the duties of the Sub-Adviser under this Agreement.
16. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Investment Company Act of 1940 shall be resolved by reference to such
term or provision of that Act and to interpretations thereof, if any, by the
United States Courts, and by rules, regulations or orders of the Securities and
Exchange Commission validly issued pursuant to said Act. Specifically, the terms
"affiliated person," as used in paragraph 8, and "vote of a majority of the
outstanding voting securities," and "interested person," as used in paragraph 10
hereof, shall have the meanings assigned to them by Section 2 (a) of the
Investment Company Act of 1940. In addition, where the effect of a requirement
of the Investment Company Act of 1940 reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities and
Exchange Commission or state regulatory authorities, whether of special or of
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
17. Unless otherwise specified herein, all notices, instructions and advice
with respect to securities transactions or other matters contemplated by this
Agreement shall be deemed duly given to Sub-Adviser when received in writing by
Sub-Adviser at Neuberger & Berman, LLC, 605 Third Avenue, New York, New York
10158-3698, Attention: C. Carl Randolph, to the Trust at 11365 West Olympic
Boulevard, Los Angeles, California 90064 and to the Adviser at 11365 West
Olympic Boulevard, Los Angeles, California 90064. Sub-Adviser may rely upon any
notice (written or oral) from any person which Sub-Adviser reasonably believes
to be genuine and authorized.
18. Nothing herein contained shall be deemed to prevent the Adviser from
contracting with other investment advisory organizations other than Sub-Adviser
to provide investment advisory services on a sub-advisory basis to one or more
investment series of the Trust other than the Bond Series.
19. This writing constitutes the entire agreement between the parties and
no conditions or warranties shall be implied herefrom unless expressly set forth
herein.
20. This Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals
<PAGE>
to be hereunto affixed, as of the day and the year first above written.
SECURITY FIRST INVESTMENT
Attest: MANAGEMENT CORPORATION
_______________________ By:__________________________
Secretary
Attest: NEUBERGER & BERMAN, LLC
_______________________ By:_____________________________
Secretary
<PAGE>
EXHIBIT 2(c)
SUBADVISORY AGREEMENT
between
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
and
VIRTUS CAPITAL MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT ("Agreement"), made this ______ day of ____________,
1997, by and between SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION, a
corporation organized and existing under the laws of the State of Delaware (the
"Adviser"), and VIRTUS CAPITAL MANAGEMENT, INC., (the "Subadviser"), a
subsidiary of Signet Trust Company, a banking association organized and existing
under the laws of the State of Virginia.
WITNESSETH:
WHEREAS, Security First Trust (the "Trust"), is an open-end, diversified,
management investment company registered as such under the Investment Company
Act of 1940 ("Act") consisting of multiple investment series; and
WHEREAS, shares of the Trust are made available to fund variable contracts
offered by life insurance companies; and
WHEREAS, at present the Trust is comprised of four investment series, two
of which, the Value Equity Series and the U.S. Government Income Series
(collectively, the "Virtus Series"), are the subject of this Agreement; and
WHEREAS, the Trust has contracted with the Adviser for the Adviser to
provide investment advisory, business management and administrative services to
the Trust on behalf of the Virtus Series pursuant to a Master Investment
Management and Advisory Agreement (the "Advisory Agreement"); and
WHEREAS, the Adviser is authorized by the terms of the Advisory Agreement
to enter into subadvisory agreements with third parties; and
WHEREAS, the Subadviser is engaged in the business of rendering investment
management services and desires to serve as subadviser for the Virtus Series;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
<PAGE>
1. The Adviser shall act as investment adviser and manager for each of
the Virtus Series pursuant to the Advisory Agreement, and as such has authority
and responsibility for supervising and directing the investments of the Virtus
Series in accordance with their investment objectives and policies, programs and
restrictions as stated in the Trust's registration statement and its current
prospectus and statement of additional information, and such other limitations
as are imposed upon the Trust pursuant to section 817(h) of the Internal Revenue
Code. Pursuant to its agreement with the Trust, the Adviser, as agent and
attorney-in-fact for the Trust on behalf of the Virtus Series may, when it deems
appropriate, (a) buy, sell, exchange, convert and otherwise trade in any stocks,
bonds or other securities, and (b) place orders for the execution of such
security transactions with or through such brokers, dealers or issuers as the
Adviser may select subject, however, at all times to the supervision of the
Board of Trustees of the Trust. The Adviser may delegate any of the foregoing
authority to Subadviser; provided, however, that nothing in this Agreement shall
be interpreted to derogate the responsibilities of the Adviser to the Trust or
the Virtus Series under the aforementioned Advisory Agreement.
2. The Adviser hereby employs Subadviser to render the advisory services
set forth herein for the fee specified herein.
3. During the term of this Agreement, or any extension thereof, and
unless otherwise limited by the Adviser as hereinafter provided, the Subadviser
will, to the best of its ability, exercise investment discretion on behalf of
the Virtus Series with respect to the purchase, holding or sale of securities in
accordance with the stated investment objectives and policies of the respective
Virtus Series as communicated to the Subadviser by the Adviser and as is
required to comply with the terms of the Advisory Agreement, the diversification
requirements of the Act and section 817(h) of the Internal Revenue Code. The
Subadviser shall not be required to respond to inquiries from the Adviser with
regard to specific securities other than securities which are or have been held
by the Virtus Series during the time this Agreement is in effect. The Adviser
reserves the right, subject to shareholder approval as required by law, to limit
the authority of the Subadviser herein solely in its discretion. The Subadviser
shall, for all purposes stated herein, be deemed an independent contractor and
shall not have custody of any of the assets of the Trust nor authority to act
for or represent the Virtus Series except as expressly provided herein.
4. The Subadviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purposes of
obtaining such statistical and other factual information, such advice regarding
economic factors
- 2 -
<PAGE>
and trends, such advice as to occasional transactions in specific securities or
such other information, advice or assistance as the Subadviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to the Virtus Series, or in the discharge of
Subadviser's overall responsibilities with respect to the other accounts which
it serves as investment adviser or subadviser. The Subadviser is authorized to
allocate brokerage and principal business to firms that provide such services or
facilities and to cause the Virtus Series to pay a member of a securities
exchange or any other securities broker or dealer, an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of an exchange, broker or dealer would have charged for effecting that
transaction, if the Subadviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services (as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934) provided by such member, broker or dealer, viewed in terms
of either that particular transaction or the overall responsibilities of the
Subadviser with respect to the accounts as to which the Subadviser exercises
investment discretion (as that term is defined in Section 3(a)(35) of the
Securities Exchange Act of 1934).
5. The Subadviser shall obtain and evaluate such information relating to
the economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for performance of its services
pursuant to this Agreement.
6. The Subadviser, its directors, officers and employees, shall make
available and provide such information relating to itself, its organization, its
personnel, and its activities as may be required by the Trust in the preparation
of registration statements, prospectuses, proxy materials, reports and other
documents required by federal and state securities laws. In addition, the
Subadviser, its directors, officers and employees shall provide such information
to the Board of Trustees of the Trust as said Board shall request and which may
be reasonably necessary for the Board to evaluate the terms of this Agreement in
accordance with the requirements of the Act.
7. The Subadviser agrees to maintain and preserve for such period or
periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books, and other documents relating to the Virtus
Series as constitute the records forming the basis for all reports, including
financial statements required to be filed pursuant to the Act and for the
Trust's auditor's certification. The Subadviser agrees that all
- 3 -
<PAGE>
accounts, books and other records maintained and preserved as required hereby
shall be subject at any time, and from time to time, to such reasonable
periodic, special and other examinations by the Securities and Exchange
Commission, the Trust's auditors, the Trust or any representative of the Trust,
or any governmental agency or other instrumentality having regulatory authority
over the Trust. It is expressly understood and agreed that any books and
records maintained by the Subadviser on behalf of the Trust shall at all times
remain the property of the Trust. Moreover, the Adviser agrees to supply the
Subadviser with copies of all documents filed by the Trust with the Securities
and Exchange Commission and with such other information relating to the Trust's
affairs as the Subadviser may reasonably request.
8. The Adviser shall pay the Subadviser a fee, based on the value of the
net assets of each of the Virtus Series as determined in accordance with the
Trust's current prospectus and statement of additional information, and computed
as follows:
(a) The fee shall be at the annual rate of 0.75 of 1% of the average daily
net assets of each of the Virtus Series.
(b) The fee shall be accrued for each calendar day and the sum of the
daily fee accruals shall be paid monthly to the Subadviser as soon as is
practicable after the end of each month and, in any event, by the tenth day of
each succeeding calendar month. The daily fee accruals will be computed by
multiplying the fraction of one over the number of calendar days in the year by
the annual rate described in subparagraph (a) of this Paragraph 8, and
multiplying this product by the net assets of each of the Virtus Series as
determined in accordance with the procedures set forth in the Trust's current
prospectus and statement of additional information as of the close of business
on the previous business day.
9. The Adviser agrees to furnish the Subadviser at its principal office
all post-effective amendments to the Trust's registration statement and all
prospectuses, statements of additional information, proxy materials, reports to
shareholders, sales literature, and other material prepared for distribution to
persons having a beneficial interest in shares of the Virtus Series, or to the
public, which refer in any way to the Subadviser ten (10) days prior to use
thereof and not to use such material if the Subadviser shall object thereto in
writing within seven (7) days after receipt of such material. In the event of
termination of this Agreement, the Adviser shall ensure that the Trust will, on
written request of the Subadviser, forthwith delete any reference to the
Subadviser from any materials described in the preceding sentence. The Adviser
shall furnish or otherwise make available to the Subadviser such other
information relating to the business affairs of the Trust and the Virtus Series
as the Subadviser at any time, or from time to time, reasonably requires in
order to discharge its obligations hereunder.
- 4 -
<PAGE>
10. Nothing herein contained shall limit the freedom of the Subadviser or
any affiliated person of the Subadviser to render investment supervisory and
management administrative services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms, or
corporations, or to engage in other business activities. The Adviser
understands and agrees that the Subadviser may give advice and take action with
respect to any of its other clients which may differ from action taken under
this Agreement so long as it is the Subadviser's policy, to the extent
practical, to allocate investment opportunities to the Virtus Series over a
period of time on a fair and equitable basis relative to other clients. It is
understood that the Subadviser shall not have any obligation to purchase or sell
for the Virtus Series any security which the Subadviser, its principals,
affiliated persons or employees may purchase or sell for its or their own
accounts or for the account of any other client, if in the opinion of the
Subadviser such transaction or investment appears unsuitable, impractical or
undesirable for the Virtus Series. In discharging its duties hereunder,
Subadviser shall be governed by the requirements of the Act, including, but not
limited to, Section 17 thereof.
11. The Subadviser shall not purchase or sell, or recommend the purchase
or sale of the securities of any issuer for the Virtus Series on the basis of
any material non-public ("inside") information.
12. (a) This Agreement shall take effect as to each Virtus Series on
____________, 1997 ("Effective Date") and shall continue in effect for a period
of two years provided that prior to the Effective Date the terms of this
Agreement have been approved by a vote of (a) a majority of the members of the
Board of Trustees of the Trust, including a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in the Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) a majority of the outstanding "voting securities" (as defined
in the Act) of each such Virtus Series.
(b) This Agreement shall continue in effect as to a Virtus Series
from year to year after the initial two year period described above so long as
such continuance is specifically approved at least annually by the Board of
Trustees of the Trust, or by vote of a majority of the outstanding voting
securities of the Virtus Series, and, concurrently with such approval by the
Board of Trustees or prior to such approval by the holders of the outstanding
voting securities of the Virtus Series, as the case may be, by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of Trustees of the Trust who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party; and the
- 5 -
<PAGE>
Subadviser shall not have notified the Adviser nor shall the Adviser have
notified the Subadviser in writing that it does not desire such continuation at
least sixty (60) days prior to the termination date of this Agreement.
(c) This Agreement may be terminated by either party hereto, without
the payment of any penalty, upon sixty (60) days' notice in writing to the other
party, or by either or both of the Virtus Series upon sixty (60) days' prior
written notice to both parties hereto, provided, that in the case of termination
by one or both of the Virtus Series, such actions shall have been authorized by
resolution of the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the affected Virtus Series.
(d) This Agreement may not be amended without the written consent of
the Adviser and Subadviser, and affirmative vote of a majority of the
outstanding voting securities of the affected Virtus Series and by a vote of a
majority of the Board of Trustees of the Trust including a majority of the
Trustees who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
amendment.
(e) It is understood and agreed that this Agreement may be approved,
continued, terminated without penalty or amended as to either of the Virtus
Series without affecting the other Virtus Series. The approval, continuation,
termination without penalty or amendment of this Agreement shall be conditioned
upon the actions of each of the Virtus Series acting as a separate entity.
Failure to approve or continue this Agreement or the vote to terminate this
Agreement as to one Virtus Series shall not act to negate this Agreement as to
the other Virtus Series.
13. This Agreement shall terminate automatically in the event of its
assignment by either party. For the purpose of this paragraph, the term
"assignment" shall have the meaning set forth in Section 2(a)(4) of the Act.
14. If the aggregate expenses of a Virtus Series exceed any applicable
state expense limitations and the Adviser waives all or a portion of its fees
attributable to such Virtus Series pursuant to Paragraph 10 of the Advisory
Agreement dated _______________, 1997, the Subadviser agrees to waive such
portion of its fee under this Agreement attributable to that Series as may be
necessary to provide for any such excess expenses, but such waiver shall not
exceed the full amount of the fee for such year except as may be elected by the
Subadviser in its discretion or as provided hereinbelow. For this purpose,
aggregate expenses of a Virtus Series shall include the compensation of the
Adviser, but shall exclude interest, taxes, brokerage fees on portfolio
transactions,
- 6 -
<PAGE>
commissions paid on the distribution of shares, and certain extraordinary
expenses including litigation expenses. For the purposes of this paragraph the
term "fiscal year" shall be prorated in the event of a period of less than a
full fiscal year. The expense limitation shall be that part of the applicable
annual expense limitation proportional to the portion of a full fiscal year
elapsed. Notwithstanding the foregoing, the Adviser and Subadviser may
voluntarily agree to waive their respective fees, or to make contributions to a
Virtus Series, so as to reduce the expenses of the Virtus Series below that
required by law.
15. Neither the Subadviser nor any of its officers, directors, or
employees performing services under this Agreement shall be liable for any error
of judgment or mistake of law or for any loss suffered by the Trust or the
Adviser in connection with the matters to which this Agreement relates, except
for loss resulting from willful misfeasance, bad faith, or gross negligence in
the performance by the Subadviser or such person of the duties of the Subadviser
or from reckless disregard by the Subadviser or such person of the duties of the
Subadviser under this Agreement.
16. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act shall be resolved by reference to such term or provision of that Act
and to interpretations thereof, if any, by the United States Courts, and by
rules, regulations or orders of the Securities and Exchange Commission validly
issued pursuant to the Act. Specifically, the terms "affiliated person," as
used in paragraph 10, and "vote of a majority of the outstanding voting
securities," and "interested person," as used in paragraph 12 hereof, shall have
the meanings assigned to them by Section 2(a) of the Act. In addition, where
the effect of a requirement of the Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities and
Exchange Commission, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
17. Unless otherwise specified herein, all notices, instructions and
advice with respect to securities transactions or other matters contemplated by
this Agreement shall be deemed duly given to Subadviser when received in writing
by Subadviser at 7 North Eighth Street, Richmond, Virginia 23219, to the Trust
at 11365 West Olympic Boulevard, Los Angeles, California 90064 and to the
Adviser at 11365 West Olympic Boulevard, Los Angeles, California 90064. The
Subadviser may rely upon any notice (written or oral) from any person which the
Subadviser reasonably believes to be genuine and authorized.
- 7 -
<PAGE>
18. Nothing herein contained shall be deemed to prevent the Adviser from
contracting with investment advisory organizations other than Subadviser to
provide investment advisory services on a subadvisory basis to one or more
investment series of the Trust other than the Virtus Series.
19. This writing constitutes the entire agreement between the parties and
no conditions or warranties shall be implied herefrom unless expressly set forth
herein.
20. This Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and the year first above
written.
SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION
Attest:
By:
- ----------------------------- ---------------------------------
Secretary
VIRTUS CAPITAL MANAGEMENT, INC.
Attest:
By:
- ----------------------------- ---------------------------------
Secretary
- 8 -
<PAGE>
PROXY
Bond Series
SECURITY FIRST TRUST
SPECIAL MEETING TO BE HELD ON OCTOBER __, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Richard C. Pearson, Robert G. Mepham and Melvin
M. Hawkrigg, and each or any of them, proxies, with power of substitution, to
vote all Trust shares of the Bond Series of Security First Trust held by
undersigned at the Meeting of Shareholders of the Bond Series, to be held at the
offices of Security First Group, Inc., 11365 West Olympic Boulevard, Los
Angeles, California, 90064, on October __, 1997, at 10:00 a.m., Pacific Time, or
at any adjournment thereof, upon the matters set forth in the Proxy Statement
for such meeting, and in their discretion, on such other business as may
properly come before the meeting.
1. APPROVAL OF THE MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT BETWEEN
SECURITY FIRST TRUST AND SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
FOR AGAINST ABSTAIN
---- ---- ----
(a) When Metropolitan Life Insurance Company ("MetLife") becomes the
ultimate parent of Security Management, the investment adviser to the
Trust; and
(b) In the interim should The Great-West Life Assurance Company and
Great-West Lifeco Inc. become the ultimate parent of Security
Management before the closing of the MetLife transaction;
2. APPROVAL OF A SUBADVISORY AGREEMENT BETWEEN SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION AND NEUBERGER & BERMAN LLC
FOR AGAINST ABSTAIN
---- ---- ----
Bond Series Share Balance as of September __, 1997:
Dated _____________, 1997
-------------------------
Signature
-------------------------
Signature if held jointly
<PAGE>
NOTE: When shares are held by joint tenants, both must sign. Persons signing
as Executor, Administrator, Trustee, etc. should so indicate. Please sign
exactly as the name appears on the proxy.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
IF NO CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS
IN ITEM 1 AND ITEM 2.
<PAGE>
PROXY
T. Rowe Price Growth and Income Series
SECURITY FIRST TRUST
SPECIAL MEETING TO BE HELD ON OCTOBER __, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Richard C. Pearson, Robert G. Mepham and Melvin
M. Hawkrigg, and each or any of them, proxies, with power of substitution, to
vote all Trust shares of the T. Rowe Price Growth and Income Series of Security
First Trust held by undersigned at the Meeting of Shareholders of the T. Rowe
Price Growth and Income Series, to be held at the offices of Security First
Group, Inc., 11365 West Olympic Boulevard, Los Angeles, California, 90064, on
October __, 1997, at 10:00 a.m., Pacific Time, or at any adjournment thereof,
upon the matters set forth in the Proxy Statement for such meeting, and in their
discretion, on such other business as may properly come before the meeting.
1. APPROVAL OF THE MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT BETWEEN
SECURITY FIRST TRUST AND SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
FOR AGAINST ABSTAIN
---- ---- ----
(a) When Metropolitan Life Insurance Company ("MetLife") becomes the
ultimate parent of Security Management, the investment adviser to the
Trust; and
(b) In the interim should The Great-West Life Assurance Company and
Great-West Lifeco Inc. become the ultimate parent of Security
Management before the closing of the MetLife transaction;
2. APPROVAL OF A SUBADVISORY AGREEMENT BETWEEN SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION AND T. ROWE PRICE ASSOCIATES
FOR AGAINST ABSTAIN
---- ---- ----
T. Rowe Price Growth and Income Series Share Balance as of September __, 1997:
Dated , 1997
-------------
-------------------------
Signature
-------------------------
Signature if held jointly
<PAGE>
NOTE: When shares are held by joint tenants, both must sign. Persons signing
as Executor, Administrator, Trustee, etc. should so indicate. Please sign
exactly as the name appears on the proxy.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
IF NO CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS
IN ITEM 1 AND ITEM 2.
<PAGE>
PROXY
Virtus Equity Series
SECURITY FIRST TRUST
SPECIAL MEETING TO BE HELD ON OCTOBER __, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Richard C. Pearson, Robert G. Mepham and Melvin
M. Hawkrigg, and each or any of them, proxies, with power of substitution, to
vote all Trust shares of the Virtus Equity Series of Security First Trust held
by undersigned at the Meeting of Shareholders of the Virtus Equity Series, to be
held at the offices of Security First Group, Inc., 11365 West Olympic Boulevard,
Los Angeles, California, 90064, on October __, 1997, at 10:00 a.m., Pacific
Time, or at any adjournment thereof, upon the matters set forth in the Proxy
Statement for such meeting, and in their discretion, on such other business as
may properly come before the meeting.
1. APPROVAL OF THE MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT BETWEEN
SECURITY FIRST TRUST AND SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
FOR AGAINST ABSTAIN
---- ---- ----
(a) When Metropolitan Life Insurance Company ("MetLife") becomes the
ultimate parent of Security Management, the investment adviser to the
Trust; and
(b) In the interim should The Great-West Life Assurance Company and
Great-West Lifeco Inc. become the ultimate parent of Security
Management before the closing of the MetLife transaction;
2. APPROVAL OF A SUBADVISORY AGREEMENT BETWEEN SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION AND VIRTUS CAPITAL MANAGEMENT, INC.
FOR AGAINST ABSTAIN
---- ---- ----
Virtus Equity Series Share Balance as of September __, 1997:
Dated _____________, 1997
-------------------------
Signature
-------------------------
Signature if held jointly
<PAGE>
NOTE: When shares are held by joint tenants, both must sign. Persons signing
as Executor, Administrator, Trustee, etc. should so indicate. Please sign
exactly as the name appears on the proxy.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
IF NO CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS
IN ITEM 1 AND ITEM 2.
<PAGE>
PROXY
Virtus U.S. Government Income Series
SECURITY FIRST TRUST
SPECIAL MEETING TO BE HELD ON OCTOBER __, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Richard C. Pearson, Robert G. Mepham and Melvin
M. Hawkrigg, and each or any of them, proxies, with power of substitution, to
vote all Trust shares of the Virtus U.S. Government Income Series of Security
First Trust held by undersigned at the Meeting of Shareholders of the Virtus
U.S. Government Income Series, to be held at the offices of Security First
Group, Inc., 11365 West Olympic Boulevard, Los Angeles, California, 90064, on
October __, 1997, at 10:00 a.m., Pacific Time, or at any adjournment thereof,
upon the matters set forth in the Proxy Statement for such meeting, and in their
discretion, on such other business as may properly come before the meeting.
1. APPROVAL OF THE MASTER INVESTMENT MANAGEMENT AND ADVISORY AGREEMENT BETWEEN
SECURITY FIRST TRUST AND SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
FOR AGAINST ABSTAIN
---- ---- ----
(a) When Metropolitan Life Insurance Company ("MetLife") becomes the
ultimate parent of Security Management, the investment adviser to the
Trust; and
(b) In the interim should The Great-West Life Assurance Company and
Great-West Lifeco Inc become the ultimate parent of Security
Management before the closing of the MetLife transaction;
2. APPROVAL OF A SUBADVISORY AGREEMENT BETWEEN SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION AND VIRTUS CAPITAL MANAGEMENT, INC.
FOR AGAINST ABSTAIN
---- ---- ----
Virtus U.S. Government Income Series Share Balance as of September __, 1997:
Dated , 1997
-------------
-------------------------
Signature
-------------------------
Signature if held jointly
<PAGE>
NOTE: When shares are held by joint tenants, both must sign. Persons signing
as Executor, Administrator, Trustee, etc. should so indicate. Please sign
exactly as the name appears on the proxy.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
IF NO CONTRARY SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSALS IN ITEM 1 AND ITEM 2.
