SECURITY FIRST TRUST, 485APOS, 1997-10-02

SECURITY FIRST TRUST
485APOS, 1997-10-02

Previous: FIRST OF AMERICA INVESTMENT CORP /ADV, SC 13G, 1997-10-02

Next: CORE INDUSTRIES INC, 15-12B, 1997-10-02

<PAGE> 1

FILE NO. 2-51173
FILE NO. 811-2480
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

PRE-EFFECTIVE AMENDMENT NO.
[ ]

POST-EFFECTIVE AMENDMENT NO. 35 [X]

------------------------

REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 34 [X]
------------------------

SECURITY FIRST TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

11365 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(310) 312-6100
(REGISTRANT'S TELEPHONE NUMBER)

------------------------

<TABLE>
<S> <C>
RICHARD C. PEARSON, ESQUIRE COPIES TO:
SECURITY FIRST LIFE INSURANCE COMPANY ROBERT J. ROUTIER, ESQUIRE
11365 WEST OLYMPIC BOULEVARD ROUTIER & JOHNSON, P.C.
LOS ANGELES, CALIFORNIA 90064 1700 K STREET, N.W.
(NAME AND ADDRESS OF AGENT FOR SERVICE) WASHINGTON, D.C. 20006
</TABLE>

------------------------

It is proposed that this filing will become effective:

<TABLE>
<S> <C>
immediately upon filing pursuant to paragraph (b)
- -------------
on [date] pursuant to paragraph (b) of Rule 485
- -------------
60 days after filing pursuant to paragraph (a)(1)
- -------------
X on December 1, 1997 pursuant to paragraph (a)(1)
- -------------
75 days after filing pursuant to paragraph (a)(2)
- -------------
on [date] pursuant to paragraph (a)(2) of Rule 485
- -------------
This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
- -------------
</TABLE>

THE REGISTRANT DECLARES THAT IT HAS REGISTERED AN INDEFINITE NUMBER OF ITS
SHARES UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE MOST RECENT RULE 24f-2 NOTICE WAS FILED ON
SEPTEMBER 29, 1997.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

SECURITY FIRST TRUST

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
HEADINGS IN PROSPECTUS
OR STATEMENT OF
ITEM NUMBER IN FORM N-1A ADDITIONAL INFORMATION
- ------------------------------------------------ ------------------------------------------
<S> <C> <C>
PART A
1. Cover Page................................ Cover (Prospectus)
2. Synopsis.................................. *
3. Condensed Financial Information........... Condensed Financial Information
4. General Description of Registrant......... Cover; The Trust; The Series; Investment
Objectives and Policies; T. Rowe Price
Growth and Income Series**;
Bond Series**; Virtus Equity Series***;
Virtus U.S Government Income Series***
5. Management of the Fund.................... Management of the Trust
5a. Management's Discussion of Fund
Performance............................... Series Performance
6. Capital Stock and other Securities........ Dividends, Distributions and Federal
Taxes; Trust Shares; Reports
7. Purchase of Securities Being Offered...... How to Buy and Redeem Shares
8. Redemption or Repurchase.................. How to Buy and Redeem Shares
9. Pending Legal Proceedings................. *
PART B
10. Cover Page................................ Cover (Statement of Additional
Information)
11. Table of Contents......................... Table of Contents
12. General Information and History........... The Trust
13. Investment Objectives and Policies........ Investment Policies and Restrictions;
Portfolio Turnover
14. Management of the Fund.................... Management of the Trust
15. Control Persons and Principal Holders of
Securities................................ Principal Holders of Securities
16. Investment Advisory and Other............. Investment Adviser and Other Services;
Custodian; Independent Auditors; Legal
Counsel
17. Brokerage Allocation...................... Brokerage
18. Capital Stock and Other Securities........ *
19. Purchase, Redemption and Pricing of
Securities Being Offered.................. Pricing and Redemption of Securities Being
Offered; Federal Registration of Shares
20. Tax Status................................ Taxation
21. Underwriters.............................. *
22. Calculations of Yield Quotations of Money
Market Funds.............................. *
23. Financial Statements...................... *
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
- ---------------
* Omitted from Prospectus or Statement of Additional Information because Item
is not applicable.
** Prospectus or Statement of Additional Information Describing the T. Rowe
Price Growth and Income Series, Bond Series and Virtus U.S. Government
Income Series.
*** Prospectus or Statement of Additional Information Describing the Virtus
Equity Series and Virtus U.S. Government Income Series.
<PAGE> 3

SECURITY FIRST TRUST
PROSPECTUS
- --------------------------------------------------------------------------------
T. ROWE PRICE GROWTH AND INCOME SERIES

BOND SERIES

VIRTUS U.S. GOVERNMENT INCOME SERIES

11365 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-6100
- --------------------------------------------------------------------------------

Security First Trust ("Trust") is a diversified open-end management investment
company. The Trust's shares are offered continuously and sold to separate
accounts of life insurance companies to fund variable contracts. Shares of the
Trust are not sold directly to the general public. Shares of the Trust may be
purchased and redeemed at net asset value without the imposition of a sales
charge.

This prospectus describes three separate series of shares, the T. Rowe Price
Growth and Income Series (formerly the Growth and Income Series), the Bond
Series and the Virtus U.S. Government Income Series (formerly the U.S.
Government Income Series) (referred to separately and collectively as "the
Series"). Each Series has its own investment objective(s) and policies. The
Trust has an additional series which is not described herein. This additional
series is not available for contracts offered in connection with this
prospectus.

The T. Rowe Price Growth and Income Series seeks capital growth and
production of income through flexible and aggressive portfolio management.
Conservation of principal is a secondary objective.

The Bond Series seeks maximization of investment income over the long term
consistent with conservation of principal through investment primarily in
marketable debt securities. The Bond Series may invest up to 20% of the value of
the Series' total net assets in lower-rated/unrated bonds. Bonds of this type
are typically subject to greater market fluctuations and risks of loss of income
and principal due to default by the issuer than are investments in
lower-yielding, higher-rated bonds.

The Virtus U.S. Government Income Series seeks to provide current income.
The Series pursues this objective by investing in a professionally managed,
diversified portfolio limited primarily to U.S. government securities.

A Statement of Additional Information about the Trust which is incorporated
by reference into this Prospectus has been filed with the Securities and
Exchange Commission. It is available, at no charge, by writing to the Trust at
11365 West Olympic Boulevard, Los Angeles, California 90064, Attention: Customer
Service, or you can call (310) 312-6100 or (800) 283-4536. The date of the
Statement of Additional Information is the same as the date of this Prospectus.
- --------------------------------------------------------------------------------

THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. IT SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

Prospectus dated December 1, 1997 (12/97)

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Condensed Financial Information........................................................ 3

Series Performance..................................................................... 5

The Trust.............................................................................. 5

The Series............................................................................. 6

Investment Objectives and Policies..................................................... 6

T. Rowe Price Growth and Income Series................................................. 6

Bond Series............................................................................ 6

Virtus U.S. Government Income Series................................................... 7

Management of the Trust................................................................ 9

How to Buy and Redeem Shares........................................................... 11

Dividends, Distributions and Federal Taxes............................................. 12

Trust Shares........................................................................... 13

Effect of Banking Laws................................................................. 13

Portfolio Turnover..................................................................... 14

Reports................................................................................ 14

Legal Proceedings...................................................................... 14

Table of Contents of Statement of Additional Information............................... 15
</TABLE>

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer described herein and, if given or made, such information or
representations must not be relied upon as having been authorized. This
Prospectus does not constitute an offer in any jurisdiction to any person to
whom such offer would be unlawful therein.

2
<PAGE> 5

SECURITY FIRST TRUST
T. ROWE PRICE GROWTH AND INCOME SERIES

CONDENSED FINANCIAL INFORMATION

The following schedule of financial highlights has been audited by Ernst &
Young LLP, the Trust's independent auditors, whose report thereon appears in the
Statement of Additional Information.

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990(1)
----------- ------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ $10.58 $9.26 $8.81 $8.32 $7.54 $7.30 $ 9.19
Income From --------- ----- ----- ----- ----- ----- ----- -----
Investment
Operations:
Net Investment
Income............ $ $ .30 $ .29 $ .23 $ .22 $ .23 $ .39 $ .31
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)....... 1.56 1.35 .44 .49 .79 .29 (1.11)
---------- ----- ----- ----- ----- ----- ----- -----
Total From
Investment
Operations....... $ $1.86 $1.64 $ .67 $ .71 $1.02 $ .68 $(.80)
--------- ----- ----- ----- ----- ----- ----- -----
Less Distributions:
Dividends (from net
investment
income)........... $ $(.30) $(.26) $(.22) $(.22) $(.24) $(.44) $(.30)
Distributions (from
capital gains).... (.04) (.06) (.79)
---------- ----- ----- ----- ----- ----- ----- -----
Total
Distributions.... $ $(.34) $(.32) $(.22) $(.22) $(.24) $(.44) $(1.09)
========== ====== ====== ===== ===== ===== ===== =====
Net Asset Value, End
of Period........... $ $12.10 $10.58 $9.26 $8.81 $8.32 $7.54 $ 7.30
========== ====== ====== ===== ===== ===== ===== ======
Total Return......... % 17.58% 17.71% 7.60% 8.53% 13.53% 9.32% (8.71)%

Ratios/Supplemental
Data:
Net Assets, End of
Period.............. $ $112,552,893 $83,789,646 $65,660,970 $55,160,198 $42,814,515 $33,493,074 $42,108,056
Ratio of Expenses to
Average Net Assets.. % .64% .74% .78% .75% .86% .97% .77%
Ratio of Net
Investment Income to
Average Net
Assets.............. % 2.73% 3.10% 2.62% 2.77% 3.10% 4.01% 4.22%
Portfolio Turnover
Rate................ % 8% 8% 11% 5% 20% 36% 34%
Average Commission
Rate Paid...........

<CAPTION>
1989 1988
----------- -----------
<S> <<C> <C>
Net Asset Value,
Beginning of
Period.............. $7.13 $ 8.98
----- ------
Income From
Investment
Operations:
Net Investment
Income............ $ .25 $ .17
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)....... 2.22 (.58)
----- -----
Total From
Investment
Operations....... $2.47 $ (.41)
----- ------
Less Distributions:
Dividends (from net
investment
income)........... $(.17) $ (.40)
Distributions (from
capital gains).... (.24) (1.04)
----- -----
Total
Distributions.... $(.41) $(1.44)
===== ======
Net Asset Value, End
of Period........... $9.19 $ 7.13
===== ======
Total Return......... 34.64% (4.57)%
Ratios/Supplemental
Data:
Net Assets, End of
Period.............. $38,783,743 $25,303,236
Ratio of Expenses to
Average Net Assets.. .86% .80%
Ratio of Net
Investment Income to
Average Net
Assets.............. 3.40% 2.74%
Portfolio Turnover
Rate................ 98% 140%
Average Commission
Rate Paid...........
</TABLE>

- ------------

(1) On October 16, 1990 a significant contractholder in the Capitol Life
Separate Account A terminated its group annuity contract which resulted in
the redemption of 2,020,051.159 shares ($12,180,908.49 of net asset value)
in the T. Rowe Price Growth and Income Series.

3
<PAGE> 6

SECURITY FIRST TRUST

BOND SERIES

CONDENSED FINANCIAL INFORMATION

The following schedule of financial highlights has been audited by Ernst &
Young LLP, the Trust's independent auditors, whose report thereon appears in the
Statement of Additional Information.

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990(1)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ $3.92 $3.82 $4.08 $3.95 $3.68 $3.95 $4.10
--------- ----- ----- ----- ----- ----- ----- -----
Income from
Investment
Operations:
Net Investment
Income........... $ $ .24 $ .24 $ .21 $ .22 $ .24 $ .52 $ .29
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)...... (.04) .08 (.25) .14 .28 (.24) (.14)
---- ----- ----- ----- ----- ----- -----
Total from
Investment
Operations...... $ $ .20 $ .32 $(.04) $ .36 $ .52 $ .28 $ .15
--------- ----- ----- ----- ----- ----- ----- -----
Less Distributions:
Dividends (from net
investment
income).......... $ $(.24) $(.22) $(.22) $(.23) $(.25) $(.55) $(.30)
Distributions (from
capital gains)...
---------- ----- ------ ----- ----- ----- ----- -----
Total
Distributions... $ $ .24 $ .22 $(.22) $(.23) $(.25) $(.55) $(.30)
---------- ----- ----- ----- ----- ----- ----- -----
Net Asset Value, End
of Period.......... $ $3.88 $3.92 $3.82 $4.08 $3.95 $3.68 $3.95
========== ===== ===== ===== ===== ===== ===== =====

Total Return........ % 5.10% 8.38% (.98)% 9.11% 14.13% 7.09% 3.66%

Ratios/Supplemental
Data:
Net Assets, End of
Period............. $ $8,981,365 $7,977,781 $7,225,964 $7,229,959 $5,682,609 $4,793,766 $9,371,386

Ratio of Expenses to
Average Net
Assets............. % .90% 1.29% 1.30% 1.45% 1.50% 1.50% 1.50%
Ratio of Net
Investment Income
to Average Net
Assets........... % 6.32% 6.27% 5.45% 6.02% 6.42% 6.89% 7.45%
Portfolio Turnover
Rate............... % 34% 56% 58% 36% 50% 310% 186%

<CAPTION>
1989 1988
---------- ----------
<S> <<C> <C>
Net Asset Value,
Beginning of
Period............. $3.94 $3.99
----- -----
Income from
Investment
Operations:
Net Investment
Income........... $ .30 $ .29
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)...... .14 (.06)
----- -----
Total from
Investment
Operations...... $ .44 $ .23
----- -----
Less Distributions:
Dividends (from net
investment
income).......... $(.28) $(.28)
Distributions (from
capital gains)... (.14)
----- -----
Total
Distributions... $(.28) $(.28)
----- -----
Net Asset Value, End
of Period.......... $4.10 $3.94
===== =====

Total Return........ 11.17% 9.27%
Ratios/Supplemental
Data:
Net Assets, End of
Period............. $8,317,356 $7,249,964
Ratio of Expenses to
Average Net
Assets............. 1.50% 1.50%
Ratio of Net
Investment Income
to Average Net
Assets........... 7.65% 7.23%
Portfolio Turnover
Rate............... 148% 130%
</TABLE>

- ------------

(1) On October 16, 1990 a significant contractholder in the Capitol Life
Separate Account A terminated its group annuity contract which resulted in
the redemption of 1,334,514.417 shares ($5,217,951.37 of net asset value) in
the Bond Series.

4
<PAGE> 7

SECURITY FIRST TRUST
VIRTUS U.S. GOVERNMENT INCOME SERIES

CONDENSED FINANCIAL INFORMATION

The following schedule of financial highlights has been audited by Ernst &
Young LLP, the Trust's independent auditors, whose report thereon appears in the
Statement of Additional Information.

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993(1)
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $ $ 5.13 $ 4.91 $ 5.07 $ 5.00
---------- ----------- ---------- ---------- ----------
Income From Investment Operations:
Net Investment Income.............................. $ $ .18 $ .21 $ .11 $ .03
Net Gains or (Losses) on Securities (both realized
and unrealized).................................. .04 .15 (.19) .04
---------- ----------- ---------- ---------- ----------
Total From Investment Operations................. $ $ .22 $ .36 $ (.08) $ .07
---------- ----------- ---------- ---------- ----------
Less Distributions:
Dividends (from Net Investment Income)............. (.19) (.14) (.07)
Distributions (from Capital Gains)................. (.01) (.01)
---------- ----------- ---------- ----------
Total Distributions.............................. (0.2) (.14) (.08)
---------- ----------- ---------- ----------
Net Asset Value, End of Period....................... $ $ 5.15 $ 5.13 $ 4.91 $ 5.07
========== =========== ========== ========== ==========
Total Return(2)...................................... % 4.29% 7.33% (1.58)% 7.10%

Ratios/Supplemental Data:
Net Assets, End of Period............................ $ $14,888,824 $5,996,149 $3,424,487 $ 469,060
Ratio of Expenses to Average Net Assets(2)........... % .70% .70% .70% .70%
Ratio of Net Investment Income to Average Net
Assets(2).......................................... % 5.38% 5.19% 3.62% 3.91%
Portfolio Turnover Rate.............................. % 148% 16% 17% 0%
</TABLE>

- ---------------

(1) The Virtus U.S. Government Income Series commenced operations on May 19,
1993.

(2) Annualized.

SERIES PERFORMANCE

Information concerning the performance of the series of the Trust is
contained in the Annual and Semi-Annual Reports for the Trust, copies of which
may be obtained free of charge by writing to the Trust at 11365 West Olympic
Boulevard, Los Angeles, California 90064, Attention: Customer Service or by
calling (310) 312-6100 or (800) 283-4536.
THE TRUST

The Trust was established under Massachusetts law pursuant to a Declaration
of Trust dated February 13, 1987, as an unincorporated business trust, a form of
organization that is commonly called a Massachusetts business trust.

The Trust is registered with the Securities and Exchange Commission as a
diversified open-end management investment company ("mutual fund") under the
Investment Company Act of 1940 ("1940 Act"). Such registration does not involve
the supervision of investments or investment policy.

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. Shares of the Series, when issued, are without par
value, fully paid, fully transferable and redeemable at the option of the
shareholder. Pursuant to this authority, the Board of Trustees established the
Virtus U.S. Government Income Series on January 11, 1993.

The Trust's business activities are the responsibility of its Board of
Trustees. Investment advisory services are provided to the three Series
described herein by Security First Investment Management Corporation ("Security

5
<PAGE> 8

Management"). (See "Investment Adviser," page 9.) T. Rowe Price Associates, Inc.
("Price Associates") is a sub-adviser to Security Management and provides
investment management services to the T. Rowe Price Growth and Income Series.
Neuberger & Berman, Ltd.("Neuberger & Berman") is the subadviser to Security
Management with respect to the Bond Series. Virtus Capital Management, Inc.
("Virtus") is a sub-adviser to Security Management and provides investment
management services to the Virtus U.S. Government Income Series. (See
"Sub-Advisers", page 9).

THE SERIES

Each Series operates as a diversified, open-end management investment
company and each is treated as a regulated investment company under the Internal
Revenue Code of 1986 ("Code"). Each share of a Series represents an equal
proportionate interest in the Trust with each other share of that Series. Every
share of a Series has an equal proportionate interest in the net assets and net
liabilities of that Series, equal rights to all distributions and is entitled to
one vote for all permitted purposes. Each Series' assets are segregated and a
shareholder's interest in the Trust is limited to the Series in which the
shareholder invests. Each Series continually offers its shares for sale at net
asset value without sales or redemption charges.

INVESTMENT OBJECTIVES AND POLICIES

Each Series has its own investment objectives and policies designed to meet
specific investment goals. There can be no assurance that a Series will achieve
its objectives. The actual return to a contract owner will be affected by
contract fees and separate account charges, as well as the charges imposed by
the Trust. Prospective investors should consult their contract prospectus
regarding these additional fees and charges. Each Series also has certain
investment policies and restrictions which are described in the Statement of
Additional Information incorporated herein. The investment policies and
restrictions of each Series which are fundamental may not be changed without a
majority vote of its shareholders. Other investment policies and restrictions
may be changed without a vote of the shareholders.

T. ROWE PRICE GROWTH AND INCOME SERIES

INVESTMENT OBJECTIVES AND POLICIES

The primary investment objectives of the T. Rowe Price Growth and Income
Series are capital growth and production of income. Conservation of principal is
a secondary objective. It is impossible for shareholders of this Series to be
assured that these objectives can be realized because virtually all securities
fluctuate in market price, corporate earnings, and dividends and the return on
fixed income instruments may vary from year to year. Thus, there is no guarantee
that a shareholder's capital or income will increase or that purchases of the T.
Rowe Price Growth and Income Series' shares will involve a preservation of
original capital or protection against loss of value.

The T. Rowe Price Growth and Income Series will ordinarily invest
substantially all of its assets in common stocks, but may also invest in other
securities, including preferred stocks, securities of foreign issuers, and fixed
income instruments. This Series' investment objectives are sufficiently flexible
so as to permit substantial investments in other equity securities and fixed
income instruments when business and market conditions indicate that to be an
appropriate course of action.

Accordingly, the percentage of the Series' assets invested in common stocks,
other equity securities and fixed income instruments can be expected to vary
from time to time in light of management's interpretation of business and market
conditions, fiscal and monetary policies, and underlying asset values.

Investments are not concentrated in any one industry or group of industries
but are varied according to what is judged advantageous under varying economic
conditions. While the portfolio is diversified by investments in a cross-section
of business and industry, the T. Rowe Price Growth and Income Series is intended
to follow a policy of flexibility. The T. Rowe Price Growth and Income Series
will not invest in companies for the purpose of exercising control of
management.

BOND SERIES

INVESTMENT OBJECTIVES AND POLICIES

The principal investment objective of the Bond Series is to achieve the
highest investment income over the long term consistent with the preservation of
capital. This Series seeks to achieve this investment objective through
investment principally in marketable debt securities. A secondary objective is
growth of principal and income with respect to those Series assets that are
invested in common and preferred stocks.

6
<PAGE> 9

It is impossible for the shareholders of the Bond Series to be assured that
these objectives will be realized because virtually all securities fluctuate in
market price. In addition, corporate earnings, dividends and the return on fixed
income instruments may vary from year to year. Thus, there is no guarantee that
a shareholder's capital or income will increase or that purchases of this
Series' shares involve a preservation of original capital or protection against
loss of value.

It is the policy of the Bond Series to purchase and hold securities which
are believed to have potential for the generation of investment income. Growth
of capital and income will be secondary considerations in the selection of
portfolio securities. This Series is not intended to buy and sell for short-term
trading profits, and as a result, portfolio changes will usually be accomplished
gradually. Nevertheless, the Trustees are not restricted and may effect
short-term transactions when events subsequent to portfolio purchases make the
investments appear undesirable for long-term holding.

Under normal circumstances, the Bond Series will invest not less than 65% of
its total assets in fixed-income debt instruments, including debt securities
issued in private placements. The Series may also invest in residential and
commercial real estate mortgages secured by first liens and up to 10% of the
value of its total assets in common and preferred stocks. U.S. dollar
denominated foreign fixed income debt securities and Canadian government
securities may also be purchased. Generally speaking, the Bond Series will
invest in what is known as "Investment grade" securities. This Series may,
however, invest up to 20% of its assets in securities rated Ba or B by Moody's
Investors Service, Inc. or BB or B by Standard and Poor's. As of July 31, 1996,
no amounts were invested in lower graded debt securities. (For a more complete
description of the investment grades assigned to debt securities by the
nationally recognized rating agencies, see Appendix A hereto.)

INVESTMENT RISKS OF HIGH-YIELD, HIGH RISK BONDS

Investment in the lower graded debt securities (i.e., high yield, high risk
bonds) involves certain risk factors not normally associated with investment
grade bonds. To the extent that this Series invests in high-yield, high-risk
bonds, such investment will be subject to such risks including: (a) Sensitivity
to Interest Rate and Economic Changes--High-yield bonds are very sensitive to
adverse economic changes and corporate developments. During an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress that would adversely affect their ability to service
their principal and interest payment obligations, to meet projected business
goals, and to obtain additional financing; (b) Payment Expectations--High-yield
bonds may contain redemption or call provisions. If an issuer exercised these
provisions in a declining interest rate market, the Bond Series would have to
replace the security with a lower yielding security, resulting in a decreased
return for investors. Conversely, a high-yield bond's value will decrease in a
rising interest rate market, as will the value of the Bond Series' assets; and
(c) Liquidity and Valuation--There may be little trading in the secondary market
for particular bonds, which may affect adversely the Bond Series' ability to
value accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield bonds, especially in a thin market.

VIRTUS U.S. GOVERNMENT INCOME SERIES

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the Virtus U.S. Government Income Series is to
provide current income. The investment objective cannot be changed without
approval of shareholders. The Virtus U.S. Government Income Series pursues its
investment objective by investing primarily in securities which are primary or
direct obligations of the U.S. government, its agencies, or instrumentalities or
which are guaranteed by the U.S. government, its agencies, or instrumentalities
("U.S. Government Securities"). The Series may also invest in certain
collateralized mortgage obligations ("CMOs") and adjustable rate mortgage
securities ("ARMS"), both of which represent or are supported by direct or
indirect obligations of the U.S. Government or its instrumentalities. As a
matter of investment policy which can be changed without shareholder approval,
the Series will invest, under normal circumstances, at least 65% of the value of
its total assets in U.S. Government Securities (including such CMOs and ARMS).
Unless indicated otherwise, the investment policies of the Series may be changed
by the Trustees without the approval of shareholders. Shareholders will be
notified before any material change in these policies becomes effective.

7
<PAGE> 10

ACCEPTABLE INVESTMENTS

The U.S. government securities in which the Series invests include:

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and

- obligations of U.S. government agencies or instrumentalities, such as
Federal Home Loan Banks, Federal Home Administration, Federal Farm Credit
Banks, Federal National Mortgage Association, Government National Mortgage
Association and Federal Home Loan Mortgage Corporation.

The obligations of U.S. government agencies or instrumentalities which the
Series may buy are backed in a variety of ways by the U.S. government or its
agencies or instrumentalities. Some of these obligations, such as Government
National Mortgage Association mortgage-backed securities and obligations of the
Farmers Home Administration, are backed by the full faith and credit of the U.S.
Treasury. Obligations of the Farmers Home Administration are also backed by the
issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks and the Farmers Home Administration are backed by the discretionary
authority of the U.S. government to purchase certain obligations of agencies or
instrumentalities. Obligations of Federal Home Loan Banks, Farmers Home
Administration, Federal Farm Credit Banks, Federal National Mortgage Association
and Federal Home Loan Mortgage Corporation are backed by the credit of the
agency or instrumentality issuing the obligations.

CMOs. The Virtus U.S. Government Income Series may also invest in CMOs
which are rated AAA or better by a nationally recognized rating agency and which
are issued by private entities such as investment banking firms and companies
related to the construction industry. The CMOs in which the Series may invest
may be: (i) privately issued securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (ii) privately
issued securities which are collateralized by pools of mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; and (iii) other
privately issued securities in which the proceeds of the issuance are invested
in mortgage-backed securities and payment of the principal and interest are
supported by the credit of an agency or instrumentality of the U.S. government.
The mortgage-related securities provide for a periodic payment consisting of
both interest and principal.

ARMS. ARMS are pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Virtus U.S. Government Income Series
invests are issued by Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), and Federal Home Loan Mortgage
Corporation ("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMS issued by GNMA are fully guaranteed by the Federal Housing
Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.

Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Series, would
receive monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of "locking
in" long-term interest rates than other types of U.S. governmental securities.

Repurchase Agreements. The U.S. government securities in which the Virtus
U.S. Government Income Series invests may be purchased pursuant to repurchase
agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Series and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Series, the Series
could receive more or less than the repurchase price on any sale of such
securities.

When-Issued and Delayed Delivery Transactions. The Virtus U.S. Government
Income Series may purchase U.S. government securities on a when-issued or
delayed delivery basis. These transactions are arrangements in which the Series
purchases securities with payment and delivery scheduled for a future time. The
Series engages in when-issued and delayed delivery transactions only for the
purpose of acquiring portfolio securities consistent with the Series' Investment
objective and policies, not for investment leverage. In when-issued and delayed
delivery transactions, the Series relies on the seller to complete the
transaction. The seller's failure may cause the Series to miss a price or yield
considered to be advantageous.

8
<PAGE> 11

Lending of Portfolio Securities. In order to generate additional income,
the Virtus U.S. Government Income Series may lend portfolio securities up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Series will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
subadviser has determined are creditworthy under guidelines established by the
Board of Trustees and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned.

Mortgage backed securities evidence an undivided interest in mortgage pools.
These securities are subject to more rapid repayment than their stated maturity
would indicate because prepayments of principal on mortgages in the pool are
passed through to the holder of the securities. During periods of declining
interest rates, prepayments of mortgages in the pool can be expected to
increase. The pass-through of these prepayments would have the effect of
reducing the Series' position in these securities and requiring the Series to
reinvest the prepayments at interest rates prevailing at the time of
reinvestment. In addition, if such securities were purchased at a premium, the
Series could experience a capital loss if prepayment is effected before the
premium has been amortized.

MANAGEMENT OF THE TRUST

TRUSTEES

Management of the business and affairs of the Trust and the exercise of its
Trust powers are the responsibility of the Board of Trustees.

INVESTMENT ADVISER

Security Management serves as the investment adviser and manager to the T.
Rowe Price Growth and Income Series and Bond Series pursuant to a Master
Investment Management and Advisory Agreement dated , 1997 and to the
Virtus U.S. Government Income Series pursuant to a Master Investment Management
and Advisory Agreement dated , 1997 (the "Advisory Agreements"). The
Advisory Agreements have an initial term of two years and may be continued in
effect from year to year thereafter. Security Management, a Delaware
corporation, is a subsidiary of Security First Group, Inc. ("SFG"), also a
Delaware corporation, whose business primarily involves insurance marketing and
service. Security Management and SFG maintain their principal place of business
at 11365 West Olympic Boulevard, Los Angeles, California 90064. The voting
securities of SFG are wholly owned by a subsidiary of Metropolitan Life
Insurance Company, a New York life insurance company. Security Management is
affiliated with and investment adviser to Security First Life Insurance Company.
Security Management is registered as an investment adviser under the Investment
Advisers Act of 1940.

Under the Advisory Agreements, Security Management is responsible to the
Trust as its exclusive investment adviser and business manager to manage the
investments of each of the three Series of the Trust described herein in
accordance with the investment objectives and policies, programs and
restrictions of each Series. Pursuant to the Advisory Agreements, Security
Management shall obtain and evaluate information relating to the economy,
industries, business, securities markets, and particular issues of securities.
In addition, Security Management agrees to formulate and implement a continuing
program for the management of each Series' assets, give investment advice and
manage the investment and reinvestment of each Series' securities. Security
Management's obligations include the making and execution of all investment
decisions, the placement of orders for the purchase and sale of securities with
or through such brokers, dealers or issuers as Security Management may select,
the furnishing to the Trust any necessary office space, equipment and personnel,
clerical and bookkeeping services and other necessary office expenses, and the
providing of services of individuals who perform executive and administrative
functions for the Trust.

Under the Advisory Agreements, Security Management receives an advisory fee
from each Series described herein at the following annual rates: T. Rowe Price
Growth and Income Series .50%, Bond Series .50% and Virtus U.S. Government
Income Series .90%. The advisory fee, which is accrued daily and payable
monthly, is based on the average daily net assets of each Series.

SUB-ADVISERS

Under each Advisory Agreement, Security Management has authority to delegate to
one or more sub-advisers certain of its investment advisory functions, subject
to supervision by Security Management. Pursuant to this authority, and with the
approval of shareholders, Security Management has executed a Sub-Advisory
Agreement with Price Associates, dated , 1997 respecting the T. Rowe
Price Growth and Income Series, a Sub-Advisory Agreement with Neuberger &
Berman, Ltd., dated , 1997 respecting the Bond Series, and a
Sub-Advisory Agreement with

9
<PAGE> 12

Virtus dated , 1997 respecting the Virtus U.S. Government Income
Series. Each agreement has an initial term of two years and may be extended from
year to year thereafter.

Price Associates is a Maryland corporation which was incorporated in 1947 as
the successor to the investment counseling business founded by Mr. T. Rowe Price
in 1937. Its principal offices are located at 100 East Pratt Street, Baltimore,
Maryland 21202. Price Associates and certain of its subsidiaries serve as
investment advisers to individual and institutional investors (including mutual
funds) with total net assets under supervision of approximately $ billion.
Price Associates is registered as an investment adviser under the Investment
Advisers Act of 1940.

Neuberger & Berman was founded in 1939 to manage assets for high net worth
individuals. It is an investment adviser registered as such with the Securities
and Exchange Commission ("SEC") under the Investment Advisers Act of 1940. It is
also registered with the SEC as a broker-dealer under the Securities Exchange
Act of 1934, and is a member of the New York Stock Exchange. Its offices are
located at 605 Third Avenue, New York, New York 10158. 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.

Virtus is a Maryland corporation with its principal offices located at 707
East Main Street, Suite 1300, Richmond, Virginia 23219. Signet Banking Corp., is
the sole stockholder of Virtus. As of September 30, 1997, Virtus had investment
authority over $ billion in assets, of which Virtus is managing $ million in
equities. Virtus advises nine mutual funds having over $ billion in assets. In
addition, Virtus manages one equity common trust fund with $ million in assets
and three fixed income common trust funds with $ million in assets. Shares of
the Virtus U.S. Government Income Series are not deposits of, or endorsed or
guaranteed by, Signet Trust Company or its affiliates, and are not federally
insured.

The parent of Virtus, Signet Banking Corp., has entered into a merger
agreement with First Union Corporation . As a result upon the close of this
transaction, the Sub-Advisory Agreement between Virtus and Security Management
will be deemed to have been assigned and thereby terminated. It is expected that
approval by shareholders of the Virtus U.S. Government Income Series will be
sought for a new Sub-Advisory Agreement with Virtus.

Under the Sub-Advisory Agreements, Price Associates, Neuberger & Berman and
Virtus provide investment management services to the Series which are the
subject of the Agreements. Each has the discretion to purchase or sell
securities on behalf of the Trust 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, each subadvisor must obtain and
evaluate information relating to the economy, industries, business, securities
markets and securities as it may deem necessary and it must formulate and
implement a continuing plan for performance of its services.

The Sub-Advisory Agreements with Price Associates and Neuberger & Berman
provide that Security Management shall pay a sub-advisory fee at an annual rate
equal to 0.35% of the average daily net assets of the Series each subadvises,
which fees are accrued daily and paid monthly. Under the Sub-Advisory Agreement
with Virtus, Security Management is obligated to pay a sub-advisory fee at an
annual rate equal to 0.75% of the average daily net assets of the Series it
subadvises, which fees are accrued daily and paid monthly.

PORTFOLIO MANAGERS

Brian C. Rogers has primary responsibility for portfolio management of the
T. Rowe Price Growth and Income Series. He has held this position since 1989. He
is a Managing Director with Price Associates and has been in their employ for
more than ten years. His other responsibilities include management of two
publicly offered mutual funds of Price Associates and separate institutional
investment accounts.

The principals of Neuberger & Berman that will have significant management
responsibilities for the Bond Series are Messrs. Theodore Giuliano and Martin
McKerrow, who are co-directors of Neuberger & Berman Fixed Income Group. Messrs.
Giuliano and McKerrow have been employed by Neuberger & Berman for 13 years.

John S. Hall has been the portfolio manager for the Virtus U.S. Government
Income Series since August 1995. Prior to his employment with Virtus, John was a
portfolio manager with Hibernia National Bank of New Orleans located in New
Orleans, Louisiana.

10
<PAGE> 13

EXPENSES

Under the Advisory Agreements, each Series will pay its fair share of the
expenses related to the Trust's organization, its legal and independent
accounting and auditing expense, costs related to reports, notices and proxy
material, compensation and expense of disinterested trustees, share issuance
expenses, expenses of custodians, transfer agents, registrars and other agents,
brokers' commissions, all taxes and fees payable to governmental agencies,
expenses of shareholders' and Trustees' meetings and interest expenses. These
expenses are paid from the income received by each Series in the form of
dividends or interest on investments. In the event that a Series' income is
insufficient to pay its share of the Trust's expenses, they will be paid from
that Series' capital. Security Management is responsible for paying all expenses
and charges not assumed by the Trust.

For the fiscal year ended July 31, 1997 the ratios of total expenses to
average net assets were: % for the T. Rowe Price Growth and Income Series,
% for the Bond Series and .70% for the Virtus U.S. Government Income Series.
Under the Advisory Agreement, Security Management and Virtus are obligated, to
the extent required by law, to defer their advisory fees paid with respect to a
Series if the aggregate annual operating expenses of the Series, exclusive of
its share of taxes, interest, brokerage fees and certain extraordinary expenses,
exceed 2.5% of the first $30 million of average net assets, 2.0% of the net
$70.0 million of average net assets and 1.5% of any remaining average net
assets. While they are not obligated to do so, Security Management and Virtus
have agreed to continue, until notice to the contrary, to defer their fees (and
make contributions in respect of excess expenses) in order to maintain the
expense ratio of the Virtus U.S. Government Income Series at a level of .70% or
less.

For the fiscal year ended July 31, 1997, Security Management earned
management fees of $ from the T. Rowe Price Growth and Income Series and
$ from the Bond Series.

In regard to the Virtus U.S. Government Income Series, for the fiscal year
ended July 31, 1997, Security Management earned advisory fees of $ ($
after payment of subadvisory fees). Of this amount, Security Management waived
$ ($ after waiver of subadvisory fees). Virtus earned subadvisory fees of
$ and of this amount, it waived $ .

HOW TO BUY AND REDEEM SHARES

DETERMINING NET ASSET VALUE

The net asset value per share of each Series is determined as of the close
of regular trading on the New York Stock Exchange, or such other time as shall
be determined by the Trustees, on each day in which there is a sufficient degree
of trading in a Series' portfolio securities that the current net asset value
per share of the Series might be materially affected by changes in the value of
portfolio securities. The net asset value per share of the three Series
described herein will fluctuate. Net asset value per share is computed by
dividing the value of the securities held by a Series plus any cash or other
assets (including interest and dividends accrued but not received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses are accrued daily.

BUYING SHARES

Trust shares are sold solely to life insurance company separate accounts to
fund variable contracts, to life insurance company general accounts and to any
other investors permitted under Section 817(h) of the Code and the regulations
thereunder. Individuals wishing to invest in shares of any of the Series should
refer to the prospectus of the separate account through which shares of the
Trust are purchased.

The Trust markets its own shares; it does not utilize the services of an
underwriter. The shares of any of the Series may be purchased by the insurance
company directly from the Trust at the net asset value per share. There are no
minimum purchase amounts. The Trust reserves the right to accept or reject any
order. An order to purchase shares of a Series is not binding on the Trust until
payment has been received.

Applications to purchase shares of the Series are available from the Trust.
Requests for such applications should be addressed to Security First Trust,
11365 West Olympic Boulevard, Los Angeles, California 90064.

Purchases of the shares of a Series are made at the net asset value per
share determined following receipt of an order by the Trust, without the
assessment of a sales charge. The Trust may not sell shares of any Series at
less than net asset value.

An insurance company separate account may enter into a participation
agreement under which the separate account may periodically purchase shares of
any of the Series on the terms specified in the agreement. Checks drawn

11
<PAGE> 14

on foreign banks will not be accepted unless provision has been made for payment
through a U.S. bank in U.S. dollars. If full payment does not accompany the
order, full payment must be received by the Trust no later than seven days
following the date that the order is received. If payment is not received within
the stipulated time period, the order is subject to cancellation.

As a condition of this offering, if an order to purchase shares of any of
the Series is cancelled due to nonpayment, the purchaser will be responsible for
any loss incurred by the Series by reason of such cancellation, and if the
purchaser remains a shareholder, the Trust will have authority as agent of the
shareholder to reimburse the Series for the loss incurred. Investors whose
orders have been cancelled may be prohibited or restricted from placing future
orders.

REDEMPTION OF SHARES

Upon written request, the Trust will redeem Series shares from shareholders
of record at the per share net asset value next determined after receipt by the
Trust of the request, together with any additional documents which may be
required for redemption. The written request must be executed by each registered
owner exactly as the shares are registered, and the request or the share power
must specify the total number of shares to be redeemed. There is no charge for
either partial or complete redemption. Such a request should also identify the
shareholder's account by number.

It is requested that all redemption requests made by mail be sent by
certified mail with return receipt requested. Redemptions will not become
effective until all documents in the form required have been received by the
Trust. Payment for shares redeemed generally will be made by the Trust not later
than seven days after receipt of the written redemption request.

A shareholder may receive more or less than was paid for the shares
depending on the investment experience of the portfolio securities held by a
Series and the value of such securities at the time of redemption. Such a
transaction may result in a taxable event (gain or loss) to the shareholder.

DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES

DISTRIBUTIONS BY SERIES

The present policy of the T. Rowe Price Growth and Income, Bond and Virtus
U.S. Government Income Series is to pay dividends from their net investment
income from time to time, as determined by the Board of Trustees. It is also the
policy of these three Series to distribute net realized long-term capital gains,
if any, at least once each year.

Unless the shareholder elects otherwise, dividends and capital gain
distributions of the Series described herein are automatically reinvested in
additional shares. Such shares are credited to the shareholder's account at net
asset value on a date which is determined by the Board of Trustees and which is
between the record date and the payment date. In the initial application to
purchase shares of a Series, the shareholder may specify that dividends are to
be paid in cash and capital gain distributions reinvested in additional shares,
or that all dividends and distributions are to be paid in cash. The
shareholder's instructions with respect to the payment of distributions by a
Series may be changed without cost by a request made in writing to the Trust. To
be effective as to any dividend or capital gain distribution, the shareholder's
written request for a change must be received by the Trust prior to the
declaration thereof and in any event at least thirty days before the date set
for payment.

TAXATION OF SHAREHOLDERS

Under the Code each Series is treated as a separate regulated investment
company providing the qualification requirements of Sub-chapter M of the Code
are met. The Trust intends each Series to qualify as a regulated investment
company. As a general rule, distributions from a regulated investment company to
its shareholders are taxed in the following manner: (a) distributions derived
from interest, dividends and net short-term capital gains are taxable to the
shareholder as ordinary income, and (b) distributions derived from net long-term
capital gains are taxable to the shareholder as long-term capital gains
regardless of the actual length of time the shareholder has owned the investment
company's shares.

Because the Series' shares are sold only to life insurance companies as the
underlying investment media for their separate accounts and to other entities
permitted under Section 817(h) of the Code, the foregoing rules are modified by
special rules of the Code for taxing life insurance companies. Under these
special rules, a life insurance company generally will not incur any federal
income tax liability on Series distributions to a separate account on a variable
contract as defined in Section 817(d) of the Code. See the contract prospectus
for information regarding the federal income tax treatment of the contracts and
distributions to the separate account.

12
<PAGE> 15

DIVERSIFICATION REQUIREMENTS

Each Series intends to comply with the diversification requirements imposed
by Section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
on the Series by the 1940 Act and Subchapter M of the Code, place certain
limitations on the assets of each separate account and, because Section 817(h)
and those regulations treat the assets of each Series as assets of the related
separate account, of each Series. Specifically, the regulations provide that,
except as permitted by the "safe harbor" described below, as of the end of each
calendar quarter or within 30 days thereafter no more than 55% of the total
assets of a Series may be represented by any one investment, no more than 70% by
any two investments, no more than 80% by any three investments and no more than
90% by any four investments. For this purpose, all securities of the same issuer
are considered a single investment, and while each U.S. governmental agency and
instrumentality is considered a separate issuer for these purposes, a particular
foreign government and its agencies, instrumentalities and political
subdivisions all will be considered to be the same issuer. Similarly, all
repurchase agreements purchased from a broker-dealer will be considered the
securities issued by that broker-dealer. Section 817(h) provides, as a safe
harbor, that a separate account will be treated as being adequately diversified
if the diversification requirements under Subchapter M are satisfied and no more
than 55% of the value of the account's total assets are cash and cash items,
government securities and securities of other investment companies meeting the
requirements of Subchapter M. Failure of a Series to satisfy the section 817(h)
requirements may result in taxation of the insurance company issuing the
contracts, and in less favorable tax treatment of the contract holders than as
is described in the applicable contract prospectus.

TRUST SHARES

On any matter submitted to all shareholders of the Trust, shares of each
Series entitle their holders to one vote per share (with proportionate voting
for fractional shares), irrespective of the relative net asset value of the
Series' shares. However, on matters affecting an individual Series, a separate
vote of shareholders of that Series is required. Shareholders of a Series are
not entitled to vote on any matter which does not affect that Series but which
requires a separate vote of another Series.

The Trust is not required to hold annual meetings of its shareholders. Those
persons elected at the shareholders' meeting held on June 6, 1994 will continue
in office until they resign, die or are removed by a written instrument signed
by at least two-thirds of the Trustees, by vote of shareholders of the Trust
holding not less than two-thirds of the shares then outstanding, cast in person
or by proxy at a meeting called for the purpose; or by a written declaration
signed by shareholders holding not less than two-thirds of the shares then
outstanding and filed with the Trust's custodian, The Bank of New York, 1 Wall
Street, New York, New York 10286.

Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Board
of Trustees or a Trustee. The Declaration of Trust provides for indemnification
from the Trust property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.

EFFECT OF BANKING LAWS

Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of a customer. Virtus is subject to such banking laws and
regulations.

Virtus believes, based on the advice of its counsel, that Virtus may serve
as subadviser for the Virtus U.S. Government Income Series without violation of
the Glass-Steagall Act or other applicable banking laws or regulations. Changes
in either federal or state statutes and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as further
judicial or administrative decisions or interpretations of such or future
statutes or regulations, could prevent Virtus from continuing to perform in its
capacity as subadviser to the Trust. If it were prohibited from engaging in this
activity, the Trustees would consider alternative subadvisers and means of
continuing

13
<PAGE> 16

available investment services. It is not expected that existing shareholders
would suffer any adverse financial consequences (if other subadviser with
equivalent abilities to Virtus is found) as a result of any of these
occurrences.

State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to state
law.

PORTFOLIO TURNOVER

Although the Virtus U.S. Government Income Series does not intend to invest
for the purpose of seeking short-term profits, securities in its portfolio will
be sold whenever the Series' subadviser believes it is appropriate to do so in
light of the Series' investment objective, without regard to the length of time
a particular security may have been held. The subadviser to the Virtus U.S.
Government Income Series does not anticipate that portfolio turnover will result
in adverse tax consequences. The Virtus U.S. Government Income Series estimates
that the annual rate of portfolio turnover will not exceed 100%.

REPORTS

Trust shareholders will be kept informed through annual and semi-annual
reports showing the financial activities of the Series in which they have
invested. Financial statements of the Trust will be audited annually by
certified public accountants. Shareholder inquiries should be addressed to
Security First Trust: Customer Service, 11365 West Olympic Boulevard, Los
Angeles, California 90064.

LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine
litigation incidental to its business, to which the Trust or Security Management
is a party.

14
<PAGE> 17

TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust..................................................................... 3

Investment Policies and Restrictions.......................................... 4

Investment Adviser and Other Services......................................... 15

Principal Holders of Securities............................................... 21

Management of the Trust....................................................... 22

Brokerage..................................................................... 24

Portfolio Turnover............................................................ 27

Pricing and Redemption of Securities Being Offered............................ 27

Taxation...................................................................... 29

Bond Ratings.................................................................. 30

Commercial Paper Ratings...................................................... 32

Custodian..................................................................... 33

Independent Auditors.......................................................... 33

Federal Registration of Shares................................................ 33

Legal Counsel................................................................. 33
</TABLE>

15
<PAGE> 18

SECURITY FIRST TRUST

T. ROWE PRICE GROWTH AND INCOME SERIES
BOND SERIES
VIRTUS U.S. GOVERNMENT INCOME SERIES

11365 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-6100

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the Prospectus of Security First Trust (the "Trust"), dated
November 29, 1996, which may be obtained by writing to Security First Trust,
11365 West Olympic Boulevard, Los Angeles, California 90064, Attention:
Customer Services or by telephoning (310) 312-6100 or (800) 283-4536.

The date of this Statement of Additional Information is December 1, 1997.

<PAGE> 19
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust 3

Investment Policies and Restrictions 4

Investment Adviser and Other Services 15

Principal Holders of Securities 21

Management of the Trust 21

Brokerage 22

Portfolio Turnover 25

Pricing and Redemption of Securities Being Offered 25

Taxation 27

Bond Ratings 28

Commercial Paper Ratings 30

Custodian 31

Independent Auditors 31

Federal Registration of Shares 31

Legal Counsel 31
</TABLE>

2
<PAGE> 20
THE TRUST

GENERAL INFORMATION ABOUT THE TRUST

Security First Trust (the "Trust") is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
("1940 Act") as a diversified, open-end investment management company. The
Trust was established pursuant to a Declaration of Trust under the laws of the
Commonwealth of Massachusetts as a voluntary association known as a
"Massachusetts business trust." It operates as a "series company" as that term
is used in Rule 18f-2 under the 1940 Act with four series of shares, three of
which are the T. Rowe Price Growth and Income Series, the Bond
Series and the Virtus U.S. Government Income Series.

The assets received by the Trust from the issue or sale of the shares
of a Series and all income, earnings, profits and proceeds attributable to
them, subject only to the rights of creditors, are specifically allocated to
that Series and are required to be segregated on the books of account of the
Trust. The assets of a Series are also required to be charged with all of the
expenses attributable to that Series. Any general expenses of the Trust not
readily identifiable as belonging to a particular Series shall be allocated by
or under the direction of the Board of Trustees in such manner as the Board
determines to be fair and equitable.

Each share of a Series represents an equal proportionate interest in
that Series with each other share of that Series and is entitled to such
dividends and distributions out of the income belonging to that Series as are
declared by the Board of Trustees. Upon the liquidation of a Series, its
shareholders are entitled to share pro rata in the net assets belonging to that
Series available for distribution.

As described under "Trust Shares" in the prospectus, the Declaration
of Trust provides that no annual or regular meetings of shareholders are
required. In addition, after the Trustees were initially elected by
shareholders, the Trustees became a self-perpetuating body. Thus, there will
ordinarily be no shareholder meetings unless otherwise required by the 1940
Act.

The 1940 Act specifically requires that a shareholder meeting be held
for the purpose of electing Trustees if at any time less than a majority of the
Trustees has been elected by the shareholders of the Trust. The shareholders
also have the power to remove a Trustee by the affirmative vote of the holders
of not less than two-thirds of the shares of the Trust outstanding and entitled
to vote either by a declaration in writing filed with the custodian or by votes
cast in person or by proxy at a meeting called for the purpose of removal. The
Trustees will promptly call such a meeting when requested to do so by the
record holders of not less than 10 percent of the outstanding shares.

3
<PAGE> 21
Ten or more shareholders who have been shareholders for at least six
months preceding the date of application and who hold in the aggregate either
shares having a net asset value of at least $100,000 or at least 1 percent of
the outstanding shares, whichever is less, may apply in writing to the Trustees
stating that they wish to communicate with other shareholders to obtain
signatures in order to request a meeting to remove a Trustee. This application
must be accompanied by the proposed communication and form of the request that
they wish to transmit. The Trustees will, within five business days after
receipt of such application, either afford to the applicants access to a list
of the names and addresses of all shareholders or inform such applicants as to
the approximate number of shareholders of record and the approximate cost of
mailing to them the proposed communication and form of request.

Shares of each Series vote separately as a class on any matter
submitted to shareholders except as to voting for Trustees and as otherwise
required by the 1940 Act, in which cases the shareholders of all of the Series
vote together as one class. In the event that the Trustees determine that a
matter affects only the interest of one or more Series, then only the
shareholders of the affected Series will be entitled to vote on the matter.

INVESTMENT POLICIES AND RESTRICTIONS

Certain of the investment policies and restrictions of the Series
described below are fundamental policies that may not be changed without the
approval of at least a majority of the outstanding shares of a Series or of 67%
of the shares of a Series represented at a meeting of shareholders at which the
holders of 50% or more of the outstanding shares of the Series are represented.
Investment policies or restrictions which are not fundamental may be changed
without the approval of shareholders.

T. ROWE PRICE GROWTH AND INCOME SERIES

The following investment policies of the T. Rowe Price Growth and
Income Series are fundamental. While the purchase of equity securities will
generally be limited to seasoned and readily marketable securities of issuers
listed on national securities exchanges, the T. Rowe Price Growth and Income
Series may invest in securities not listed on a national exchange but generally
such securities will have well-established over-the-counter markets. The fixed
income debt instruments in which this Series may invest include: (1) marketable
straight debt securities rated at the time of purchase within the four highest
grades assigned by Moody's (Aaa, Aa, A or Baa) or by Standard & Poor's (AAA, AA,
A or BBB); (2) securities issued or guaranteed by the United States government
or its agencies or instrumentalities; (3) marketable securities issued or
guaranteed by the Dominion of Canada, any Province of Canada, or any
instrumentality or political subdivision thereof; (4) bank obligations such as
certificates of deposit and bankers' acceptances having investment quality and
which in the opinion of the Board of Trustees are comparable with debt
securities which may be

4
<PAGE> 22
purchased by the Series as described in (1) above; (5) commercial paper; (6)
repurchase agreements; and (7) other debt securities including securities
convertible into or carrying warrants to purchase common stock or other equity
interests. The T. Rowe Price Growth and Income Series reserves the right to
hold cash reserves, and it may do so temporarily as the Board of Trustees deems
necessary for defensive or emergency purposes.

INVESTMENT RESTRICTIONS FOR THE T. ROWE PRICE GROWTH AND INCOME SERIES

As matters of fundamental investment policy, the T. Rowe Price Growth
and Income Series may not: (1) purchase any security if, as a result of such
purchase, more than 5% of the value of a Series' total assets would be invested
in the securities of a single issuer, except securities issued or guaranteed by
the United States Government or its agencies or instrumentalities; (2) purchase
any security if, as a result of such purchase, more than 10% of the outstanding
securities of any class of any issuer would be held by a Series (for this
purpose, all indebtedness of any issuer shall be deemed a single class), except
securities issued or guaranteed by the United States Government or any of its
agencies or instrumentalities; (3) purchase any security if, as a result of such
purchase, 25% or more of the value of a Series' total assets would be invested
in the securities of issuers having their principal business activities in the
same industry, except this limitation does not apply to securities issued or
guaranteed by the United States Government or any of its agencies or
instrumentalities, or to certificates of deposit or bankers' acceptances; (4)
purchase any security if, as a result of such purchase, more than 5% of the
value of a Series' total assets would be invested in the securities of issuers
which at the time of purchase had been in operation for less than three years,
except obligations issued or guaranteed by the United States Government or any
of its agencies or instrumentalities (for this purpose, the period of operation
of any issuer shall include the period of operation of any predecessor issuer or
unconditional guarantor of such issuer); (5) purchase securities with legal or
contractual restrictions on resale ("restricted securities") (excluding
repurchase agreements), except debt securities in private placements within the
limits imposed in restriction (11) below pertaining to loans; (6) purchase or
sell real estate, except that the Series may invest in the securities of
companies whose business involves the purchase or sale of real estate; (7)
purchase securities of other investment companies, except in connection with a
merger, consolidation, acquisition or organization; (8) purchase or sell
commodities or commodity contracts; (9) purchase participations or other direct
interests in oil, gas, or other mineral exploration or development programs;
(10) make short sales of securities or purchase securities on margin, except for
such short-term credits as may be necessary for the clearance or purchases of
portfolio securities; (11) make loans, except that the Series may acquire
publicly distributed bonds, debentures, notes and other debt securities and may
enter into repurchase agreements; (12) borrow money, except as a temporary
measure for extraordinary or emergency purposes and then only from banks in
amounts not exceeding the lesser of 10% of a Series' total assets valued at cost
or 5% of its total assets valued at market and only if immediately thereafter
there is an asset coverage of at least 300%; (13) invest in puts, calls,
straddles, spreads, or any

5
<PAGE> 23
combinations thereof; (14) mortgage, pledge or hypothecate securities, except in
connection with the borrowings permitted under restriction (12) and then only
where the market value of the securities mortgaged, pledged or hypothecated does
not exceed 10% of its net assets taken at market; (15) underwrite securities
issued by other persons; (16) invest in companies for the purpose of exercising
management or control; (17) purchase or retain the securities of any issuer if,
to the knowledge of the Trustees, those Trustees or officers of the Trust and of
its investment adviser who each own beneficially more than 0.50% of the
outstanding securities of such issuer together own beneficially more than 5% of
such securities; (18) purchase any securities which would cause more than 2% of
the value of either of the Series' total assets at the time of such purchase to
be invested in warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange, or more than 5% of the value of either's total
assets to be invested in warrants whether or not so listed, such warrants in
each case to be valued at the lesser of cost or market, but assigning no value
to warrants acquired by the Series in units with or attached to debt securities;
(19) issue securities or other obligations senior to shares of the Series; and
(20) purchase any security if, as a result of such purchase, more than 10% of
the value of either Series' total assets would be invested in foreign securities
which are not publicly traded in the United States.

BOND SERIES

The following investment policies of the Bond Series are not
fundamental. Under normal circumstances, the Bond Series will invest not less
than 65% of its total assets in fixed-income debt instruments, including debt
securities issued in private placements. The Series may also invest in
residential and commercial real estate mortgages secured by first liens and up
to 10% of the value of its total assets in common and preferred stocks. U.S.
dollar denominated foreign fixed income debt securities and Canadian government
securities may also be purchased. The Series may enter into financial futures
contracts or options on financial futures contracts for hedging and non-hedging
purposes where such is deemed in the interest of shareholders. The percentage
of the Series' assets which may be invested in common and preferred stocks, as
opposed to investments in fixed-income instruments, can be expected to vary from
time to time in light of changes in business and market conditions, fiscal and
monetary policies and underlying security values and shall be limited to
securities listed on a national securities exchange or regularly traded on a
national or regional basis.

The fixed income debt instruments in which the Bond Series may invest
include: (1) marketable convertible and non-convertible debt securities rated
at the time of purchase within the four highest grades assigned by Moody's (Aaa,
Aa A or Baa) or by Standard & Poor's (AAA, AA, A or BBB) or comparable unrated
securities; (2) marketable convertible and non-convertible debt securities rated
at the time of purchase within the grades Ba or B assigned by Moody's or grades
BB or B assigned by Standard & Poor's or comparable unrated securities, limited
to a maximum

6
<PAGE> 24
of 20% of the value of the Series total net assets; (3) securities issued or
guaranteed by the United States government or its agencies or instrumentalities;
(4) U.S. dollar denominated marketable foreign securities; (5) securities issued
or guaranteed by the Dominion of Canada, and any Province of Canada, or any
instrumentality or political subdivision thereof; (6) bank obligations such as
certificates of deposit and bankers' acceptances having investment quality and
which in the opinion of the Board of Trustees are comparable with debt
securities which may be purchased by the Series as described in (1) above; (7)
commercial paper; (8) repurchase agreements; (9) other debt securities including
securities convertible into or carrying warrants to purchase common stock or
other equity interests; and (10) mortgage-backed securities as well as
residential and commercial real estate mortgages secured by first liens. The
Series reserves the right to hold cash reserves, and it may do so temporarily as
management deems necessary for defensive or emergency purposes.

INVESTMENT RESTRICTIONS FOR THE BOND SERIES

The Bond Series has certain fundamental policies which may not be
changed without shareholder approval. As matters of fundamental investment
policy, the Bond Series may not: (1) purchase any security if, as a result of
such purchase, more than 5% of the value of the Series' total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the United States Government or its agencies or instrumentalities;
(2) purchase any security if, as a result of such purchase, more than 10% of the
outstanding securities of any class of any issuer would be held by the Series
(for this purpose, all indebtedness of any issuer shall be deemed a single
class), except securities issued or guaranteed by the United States Government
or any of its agencies or instrumentalities; (3) purchase any security if, as a
result of such purchase, 25% or more of the value of a Series' total assets
would be invested in the securities of issuers having their principal business
activities in the same industry, except this limitation does not apply to
securities issued or guaranteed by the United States Government or any of its
agencies or instrumentalities, or to certificates of deposit or bankers'
acceptances; (4) purchase or sell commodities or commodity contracts; (5)
purchase participations or other direct interests in oil, gas, or other mineral
exploration or development programs; (6) make loans, except that the Series may
acquire publicly distributed bonds, debentures, notes and other debt securities
and may enter into repurchase agreements; (7) borrow money, except as a
temporary measure for extraordinary or emergency purposes and then only from
banks in amounts not exceeding the lesser of 10% of the Series' total assets
valued at cost or 5% of its total assets valued at market and only if
immediately thereafter there is an asset coverage of at least 300%; (8)
mortgage, pledge or hypothecate securities, except in connection with the
borrowings permitted under restriction (7) and then only where the market

7
<PAGE> 25
value of the securities mortgaged, pledged or hypothecated does not exceed 10%
of its net assets taken at market; (9) underwrite securities issued by other
persons; (10) invest in companies for the purpose of exercising management or
control; (11) purchase or retain the securities of any issuer if, to the
knowledge of the Trustees, those Trustees or officers of the Trust and of its
investment adviser who each own beneficially more than 0.50% of the outstanding
securities of such issuer together own beneficially more than 5% of such
securities; and (12) issue securities or other obligations senior to shares of
the Series.

The following investment restrictions are not fundamental to the Bond
Series. The Bond Series may not: (1) invest more than 5% of its total assets in
the securities of companies with less than 3 years of continuous operation
unless such securities are guaranteed by the United States, Canada or a foreign
government; (2) purchase securities of open-end investment companies and may not
purchase the shares of closed-end investment companies except in the open market
at normal rates; (3) purchase securities on margin or make short sales unless
fully covered; (4) invest more than 15% of its total assets in securities with
legal or contractual restrictions on resale ("restricted securities") or
otherwise illiquid securities (excluding repurchase agreements maturing in less
than 7 days); (5) invest more than 5% of its total assets in puts, calls,
straddles, spreads or any combination thereof (excluding options on financial
futures contracts); (6) enter into a futures contract or purchase an option on a
futures contract for non-hedging purposes if the initial margin deposit and
premium would exceed 5% of its total assets; (7) purchase or sell real estate or
real estate limited partnerships unless acquired as a result of ownership of
securities, except that it may invest in the securities of companies that own or
deal in real estate; (8) purchase any securities which would cause more than 2%
of the value of the Series' total assets at the time of such purchase to be
invested in warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange, or more than 5% of the value of total assets to be
invested in warrants whether or not so listed, such warrants in each case to be
valued at the lesser of cost or market but assigning no value to warrants
acquired by the Series in units with or attached to debt securities; (9) invest
more than 20% of its total assets in high-yield, high-risk bonds (see discussion
below on Certain Risk Factors Relating to High-Yield Bonds); or (10) invest more
than 10% of total assets in U.S. dollar denominated foreign securities which are
not publicly traded in the United States (see Risks and Considerations
Applicable to Investment Securities of Foreign Issuers below).

CERTAIN RISK FACTORS RELATING TO THE BOND SERIES INVESTMENTS

HIGH YIELD BONDS. As noted above, the Bond Series may invest up to 20% of its
assets in high-yield, high-risk bonds. These bonds present certain risks not
normally found in the lower yield investment grade bonds:

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. High-yield bonds are very
sensitive to adverse economic changes and corporate developments. During an

8
<PAGE> 26

economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the
issuer of a bond defaulted on its obligations to pay interest or principal or
entered into bankruptcy proceeding, the Bond Series may incur losses or expenses
in seeking recovery of amounts owed to it. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high-yield bonds and the Bond Series' net asset value.

PAYMENT EXPECTATIONS. High-yield bonds may contain redemption or call
provisions. If an issuer exercised these provisions in a declining interest
rate market, the Bond Series would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high-yield bond's value will decrease in a rising interest rate market, as will
the value of the Bond Series' assets. If the Bond Series experiences unexpected
net redemptions, this may force it to sell high-yield bonds without regard to
their investment merits, thereby decreasing the asset base upon which their
expenses can be spread and possibly reducing the Bond Series' rate of return.

LIQUIDITY AND VALUATION. There may be little trading in the secondary market
for particular bonds, which may affect adversely the Bond Series' ability to
value accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield bonds, especially in a thin market.

ILLIQUID SECURITIES. The Bond Series may invest up to 15% of its net assets in
restricted or illiquid securities. The term "illiquid securities" for this
purpose means securities that the Series may not be able to dispose of within
seven days in the ordinary course of business at approximately the amount at
which the Bond Series has valued the securities. Illiquid restricted securities
may be sold only in privately negotiated transactions or in public offerings
with respect to which a registration statement is in effect under the
Securities Act of 1933.

However, not all restricted securities are illiquid. In recent years
a large institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual
or legal restrictions on resale to the general public or certain institutions
is not dispositive of the liquidity of such investments.

9
<PAGE> 27
The Board of Trustees is responsible for establishing policies and
procedures for investments in restricted securities and other illiquid
securities, and the Board will monitor compliance with these policies and
procedures by investment advisers to the Series.

RISKS AND CONSIDERATIONS APPLICABLE TO INVESTMENT IN SECURITIES OF FOREIGN
ISSUERS. Elements of risk and opportunity which must be recognized and
evaluated by the Investment Adviser when investment in foreign issuers are made
for the Bond Series include trade imbalances and related economic policies;
expropriation or confiscatory taxation; limitation on the removal of funds or
other assets; political or social instability; the diverse structure and
liquidity of securities markets in various countries and regions; policies of
governments with respect to possible nationalization of their industries; and
other specific local political and economic considerations. Foreign companies
and foreign investment practices are generally not subject to uniform
accounting, auditing and financial reporting standards and practices or
regulatory requirements comparable to those of U.S. companies. There may be
less information publicly available about foreign companies.

Additional costs may also be incurred in connection with the Bond
Series' investment activities in the area of foreign securities. Foreign
brokerage commissions are generally higher than in the United States.
Administrative difficulties (such as the applicability of foreign laws to
foreign custodians in various circumstances including bankruptcy, ability to
recover lost assets, expropriation, nationalization, record access, etc.) may be
associated with the maintenance of assets in foreign jurisdictions.

VIRTUS U.S. GOVERNMENT INCOME SERIES

The Virtus U.S. Government Income Series invests primarily in
securities which are guaranteed as to payment of principal and interest by the
U.S. government or its instrumentalities.

U.S. Government Obligations -- The types of U.S. government obligations
in which the Series may invest generally include direct obligations of the U.S.
Treasury (such as U.S. Treasury bills, notes, and bonds) and obligations issued
or guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by: (1) the full faith and credit of the U.S. Treasury;
(2) the issuer's right to borrow from the U.S. Treasury; (3) the discretionary
authority of the U.S. government to purchase certain obligations of agencies or
instrumentalities; or (4) the credit of the agency or instrumentality issuing
the obligations.

Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are: Federal Land Banks;
Central Bank for Cooperatives; Federal Intermediate Credit Banks; Federal Home
Loan Banks; Farmers Home Association; and Federal National Mortgage
Association.

10
<PAGE> 28

Collateralized Mortgage Obligations (CMOs) -- Privately issued CMOs
generally represent an ownership interest in federal agency mortgage
pass-through securities such as those issued by the Government National
Mortgage Association. The terms and characteristics of the mortgage
instruments may vary among pass-through mortgage loan pools. The market for
such CMOs has expanded considerably since its inception. The size of the
primary issuance market and the active participation in the secondary market by
securities dealers and other investors make government-related pools highly
liquid.

Adjustable Rate Mortgage Securities (ARMS) -- Not unlike other U.S.
government securities, the market value of ARMS will generally vary inversely
with changes in market interest rates. Thus, the market value of ARMS generally
declines when interest rates rise and generally rises when interest rates
decline.

While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital appreciation
than other similar investments (e.g., investments with comparable maturities)
because as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns.

When-Issued and Delayed Delivery Transactions -- These transactions are
arrangements in which the Virtus U.S. Government Income Series purchases
securities with payment and delivery scheduled for a future time. The Series
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the Series' investment objective
and policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Series relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Series to miss a
price or yield considered to be advantageous.

These transactions are made to secure what is considered to be an
advantageous price or yield for the Series. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices.

No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Series sufficient to make payment for
the securities to be purchased are segregated on the Series' records at the
trade date. These securities are marked to market daily and maintained until
the transaction is settled.

Repurchase Agreements -- The Series or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to

11
<PAGE> 29

market daily. In the event that a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Series might be delayed
pending court action. The Series believes that under the regular procedures
normally in effect for custody of the Series' portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Series and allow retention or disposition of such securities. The Series
will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the
sub-adviser to be creditworthy pursuant to guidelines established by the
Trustees.

Reverse Repurchase Agreements -- The Series may also enter into
reverse repurchase agreements. These transactions are similar to borrowing
cash. In a reverse repurchase agreement, the Series transfers possession of a
portfolio instrument to another person, such as a financial institution, broker,
or dealer, in return for a percentage of the instrument's market value in cash,
and agrees that on a stipulated date in the future the Series will repurchase
the portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate. The use of reverse repurchase agreements may enable the
Series to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Series will be able to avoid selling
portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of the
Series in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Series' records at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled.

Lending of Portfolio Securities -- The collateral received when the
Bond Series lends portfolio securities must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the Series. During the time portfolio securities are
on loan, the borrower pays the Series any dividends or interest paid on such
securities. Loans are subject to termination at the option of the Series or the
borrower. The Series may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or equivalent collateral to the borrower or placing broker. The
Series does not have the right to vote securities on loan, but would terminate
the loan and regain the right to vote if that were considered important with
respect to the investment.

INVESTMENT RESTRICTIONS FOR THE VIRTUS U.S. GOVERNMENT INCOME SERIES

The investment restrictions of the Bond Series described below are
fundamental policies that may not be changed without the approval of a least a
majority of the outstanding shares of a Series or of 67% of the shares of a
Series

12
<PAGE> 30

represented at a meeting of shareholders at which the holders of 50% or
more of the outstanding shares of the Series are represented.

As a matter of fundamental policy, the Series may not: (1) issue
senior securities except that the Series may borrow money directly or through
reverse repurchase agreements in amounts up to one-third of the value of its net
assets, including the amount borrowed (the Series will not borrow money or
engage in reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Series to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Series will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, the Series will
restrict the purchase of portfolio securities to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements,
but only to the extent necessary to assure completion of the reverse repurchase
agreements); (2) purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of purchases and sales of
securities (the deposit or payment by the Series of initial or variation margin
in connection with financial futures contracts or related options transactions
is not considered the purchase of a security on margin); (3) mortgage, pledge,
or hypothecate any assets, except to secure permitted borrowings (in those
cases, it may pledge assets having a value of 15% of its assets taken at cost.
Margin deposits for the purchase and sale of financial futures contracts and
related options are not deemed to be a pledge); (4) lend any of its assets
except portfolio securities up to one-third of the value of its total assets
(this shall not prevent the Series from purchasing or holding bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by the
Series' investment objective, policy, and limitations or Declaration of Trust);
(5) purchase or sell commodities, commodity contracts, or commodity futures
contracts; (6) purchase or sell real estate, although it may invest in
securities secured by real estate or interests in real estate or issued by
companies, including real estate investment trusts, which invest in real estate
or interests therein; (7) with respect to 75% of the value of its total assets,
purchase securities issued by any one issuer (other than cash, cash items or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities), if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer; (8) acquire
more than 10% of the outstanding voting securities of any one issuer; (9) invest
25% or more of its total assets in securities of issuers having their principal
business activities in the same industry; (10) underwrite any issue of
securities, except as it may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in accordance with its
investment objective, policies, and limitations; or (11) purchase restricted
securities if immediately thereafter more than 10% of the net assets of the
Series, taken at market value, would be invested in such securities (except for
commercial paper

13
<PAGE> 31
issued under Section 4(2) of the Securities Act of 1933 and
certain other restricted securities which meet the criteria for liquidity as
established by the Board of Trustees).

The following limitations for the Virtus U.S. Government Income Series
may be changed by the Trustees without shareholder approval. Shareholders will
be notified before any material change in these limitation becomes effective.
Under these limitations, the Series will not: (1) invest more than 10% of the
value of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice and certain
restricted securities determined by the Trustees not to be liquid; (2) invest in
other investment companies to the extent of more than 3% of the total
outstanding voting stock of any investment company, invest more than 5% of its
total assets in any one investment company, or invest more than 10% of its total
assets in investment companies in general (the Series will purchase securities
of closed-end investment companies only in open market transactions involving
only customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization or acquisition of assets); (3) invest more than 5% of the value
of its total assets in securities of issuers which have records of less than
three years of continuous operations, including the operation of any
predecessor; (4) purchase or retain the securities of any issuer if the officers
and Trustees of the Trust or its investment adviser, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5% of the
issuer's securities; (5) purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in the
securities of issuers which invest in or sponsor such programs; (6) invest more
than 5% of its net assets in warrants, including those acquired in units or
attached to other securities (to comply with certain state restrictions, the
Series will limit its investment in such warrants not listed on the New York or
American Stock Exchanges to 2% of its net assets. If state restrictions change,
this latter restriction may be revised without notice to shareholders. For
purposes of this investment restriction, warrants will be valued at the lower of
cost or market, except that warrants acquired by the Series in units with or
attached to securities may be deemed to be without value); (7) enter into
transactions for the purpose of engaging in arbitrage; (8) purchase put options
on securities unless the securities are held in the Series' portfolio and not
more than 5% of the value of the Series' total assets would be invested in
premiums on open put option positions; (9) write call options on securities
unless the securities are held in its portfolio or unless the Series is entitled
to them in deliverable form without further payment or after segregating cash in
the amount of any further payment; or (10) sell securities short unless (a) it
owns, or has right to acquire, an equal amount of such securities, or (b) it has
segregated an amount of its other assets equal to the lesser of the market value
of the securities sold short or the amount required to acquire such securities.
(The segregated amount will not exceed 10% of the Series' net assets. While in
a short position, the Series will retain the securities, rights, or segregated
assets).

14
<PAGE> 32

Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result in
a violation of such restriction.

REPURCHASE AGREEMENTS

The T. Rowe Price Growth and Income Series and the Bond Series may
invest in repurchase agreements. A repurchase agreement is an instrument
through which an investor (such as a Series) purchases a security from a bank
with an agreement by the seller to repurchase the security at the same price,
plus interest at a specified rate. The underlying securities are limited to
those which would otherwise qualify for investment by the Series. Repurchase
agreements usually have a short duration, often less than one week. As a
fundamental investment policy of the T. Rowe Price Growth and Income Series, the
Series will not will enter into a repurchase agreement of a duration of more
than seven business days if, as a result, more than 10% of the value of the
Series' total assets would be so invested. As a non-fundamental policy of the
Bond Series, the Series will not invest more than 10% of its assets in
repurchase agreements maturing in more than seven days. Neither of the Series
will enter into repurchase agreements with securities dealers unless the Series
has been advised by legal counsel that such a transaction would not constitute a
purchase of an interest in such a dealer under section 12(d)(3) of the
Investment Company Act of 1940.

INVESTMENT ADVISER AND OTHER SERVICES

The following sets forth certain additional information concerning
Security First Investment Management Corporation ("Security Management"), the
investment adviser for the three Series described herein; T. Rowe Price
Associates, Inc. ("Price Associates"), the sub-adviser to Security Management
for the T. Rowe Price Growth and Income; Neuberger & Berman, the sub-advisor to
the Bond Series; and T. Rowe Price Bond Series; and Virtus Capital Management
("Virtus") the sub-adviser to Security Management for the Virtus U.S. Government
Income Series.

SECURITY MANAGEMENT AND THE ADVISORY AGREEMENTS

Security Management serves as the investment adviser to the T. Rowe
Price Growth and Income Series, the Bond Series and the Virtus U.S. Government
Income Series of the Trust pursuant to a Master Investment Management and
Advisory Agreement dated ________, 1997 (the "Advisory Agreement"). Security
Management was incorporated in Delaware on December 6, 1973 and is a
wholly-owned subsidiary of Security First Group, Inc., also a Delaware
corporation. Security Management and Security First Group, Inc. maintain their
principal places of business at 11365 West Olympic Boulevard, Los

15
<PAGE> 33

Angeles, California 90064. The common stock of Security First Group is
currently wholly owned by a subsidiary of Metropolitan Life Insurance Company, a
New York life insurance company. Security Management also acts as investment
adviser to an affiliated insurance company, Security First Life Insurance
Company.

The Advisory Agreement provides that Security Management is
responsible for supervising and directing the investments of each of the Series
in accordance with the investment objectives of each. Pursuant to the Advisory
Agreement, Security Management shall obtain and evaluate information relating
to the economy, industries, business, securities markets, and particular issues
of securities. In addition, Security Management agrees to formulate and
implement a continuing program for the management of each of the Series'
assets, give investment advice and manage the investment and reinvestment of
the Series' securities. Security Management's obligations include the making
and execution of investment decisions, and the placement of orders for the
purchase and sale of securities with or through such brokers, dealers or
issuers as Security Management may select. Security Management is also
authorized to enter into sub-advisory agreements with third parties for the
provision of investment advice to Security Management relating to each Series'
portfolio of securities, investments, cash and other properties.

The Advisory Agreement provides that Security Management and the
Trust agree to maintain and preserve such accounts, books and records for such
period or periods, as may be prescribed by the Securities and Exchange
Commission. They also provide that the accounts, books and records will be
made available for reasonable inspections by the Securities and Exchange
Commission, the Trust's auditors, or any governmental instrumentality having
regulatory authority over the Trust.

Under the Advisory Agreement, the Trust will assume and pay 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 Trust.

The Advisory Agreement provides that Security Management, 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 Agreements, 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 under
the Agreement.

16
<PAGE> 34

For its services to the T. Rowe Price Growth and Income Series and Bond
Series, Security Management receives from the Trust fees computed by using an
annual rate of .50% (1/2 of 1%) based on the average daily net assets of each of
the Series. Such compensation is accrued daily and payable monthly.

For its services to the Virtus U.S. Government Income Series, Security
Management receives from the Trust fees computed by using an annual rate of
0.90% of the average daily net assets of the Series. Such compensation is
accrued daily and payable monthly.

Security Management is obligated under the Advisory Agreement to
waive that portion of its advisory fees, to the extent required by law, where
aggregate annual operating expenses of each Series, exclusive of taxes,
interest, brokerage fees and certain extraordinary expenses, exceed 2.5% of the
first $30.0 million of average net assets of a Trust Series, 2.0% of the next
$70.0 million of average net assets of the Series, plus 1.5% of the remaining
net assets, calculated on the basis of the Trust's fiscal year. Such expense
limitations are currently required by California law. Such waiver (or
reimbursement) shall not exceed the full amount of the management fee for such
year, except as may be elected by Security Management in its discretion. Each
Series (except the Virtus U.S. Government Income Series) will subsequently repay
Security Management for any amounts so contributed to the Series by Security
Management (excluding advisory fees), provided such subsequent repayment does
not result in increasing the Series' aggregate annual operating expenses above
the expense limitation percentages.

The Trust determines the aggregate repayment due Security Management
from each Series, if any, on the day following the end of the fiscal year.
Thereafter, during the fiscal year the Trust will determine any repayment due
on a daily basis. Settlement of such repayment amounts from each Series shall
be no less frequently than monthly, except where the cumulative expenses of a
Series on an annual basis do not exceed the expense limitation percentages. If
during a fiscal year payments are made and the expenses of a Series
subsequently exceed such limitations, that Series shall recover any prior
repayments from Security Management to the extent of the excess determined on
August 1.

For the fiscal years ended July 31, 1997, 1996 and 1995 management
fees of $________, $150,392, and $109,066 were paid by the T. Rowe Price Growth
and Income Series to Security Management.

During the fiscal years ended July 31, 1997, 1996 and 1995, management
fees in the amount of $________ and $12,950 and $10,939 were earned by Security
Management from the Bond Series.

17
<PAGE> 35

During the fiscal year ended July 31, 1997 Security Management earned a
management fee of $________ from the Virtus U.S. Government Income Series.
During the fiscal year ended July 31, 1996, Security Management earned a
management fee of $15,090 from the Series, but waived $____ pursuant to the
Advisory Agreement. During the fiscal year ended July 31, 1995, Security
Management earned a management fee of $7,034 from the Series, but waived $3,216
pursuant to the Advisory Agreement.

Each Advisory Agreement provides that it will remain in effect for an
initial term of two years from its initial effective date and will continue in
effect from year to year thereafter as to each 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 each Series. In either case, renewal of the Advisory
Agreement must be approved by a majority of the Trust's independent Trustees.
Each Advisory Agreement provides that it will terminate automatically if
assigned and that it may be terminated as to a particular Series without
penalty by either party upon 60 days' prior written notice to the other party,
provided that termination by the Trust 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 affected Series.

PRICE ASSOCIATES AND THE PRICE SUB-ADVISORY AGREEMENT

Price Associates serves as sub-adviser to Security Management with
respect to the T. Rowe Price Growth and Income Series pursuant to a Sub-Advisory
Agreement (the "Price Sub-Advisory Agreement") dated _________, 1997. Price
Associates is a Maryland corporation which was incorporated in 1947, as the
successor to 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 approximately $__ billion.
Price Associates is registered as an investment adviser under the Investment
Advisers Act of 1940.

Under the Price Sub-Advisory 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, business, securities markets

<PAGE> 36

and securities as it may deem necessary, and it must formulate and implement a
continuing plan for performance of its services.

The Price Sub-Advisory Agreement provides that Price Associates, 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 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 under
the Price Sub-Advisory Agreement.

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 T. Rowe Price Growth and Income Series. Such compensation is
accrued daily and payable monthly.

For the fiscal years ended July 31, 1997, 1996 and 1995, Price
Associates received advisory fees from the T. Rowe Price Growth and Income
Series of $_______, $351,274 and $255,372, respectively. For the fiscal years
ended July 31, 1997, 1996 and 1995, the ratios of total expenses to average
net assets for this Series were __%, .64%, and .74%, respectively.

The Price Sub-Advisory Agreement provides that it will remain in
effect for an initial term of two years and will continue in effect from year
to year thereafter as to each 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
each Series. In either case, renewal of the Price Sub-Advisory Agreement must
be approved by a majority of the Trust's independent Trustees. The Price
Sub-Advisory Agreement provides that it will terminate automatically if
assigned and that it may be terminated without penalty by either party or by a
Series of the Trust upon 60 days prior written notice to the other party,
provided that termination by a Series of the Trust 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 of the Trust.

No single shareholder owns beneficially more than 10% of the stock of
Price Associates.

NEUBERGER & BERMAN AND NEUBERGER & BERMAN SUB-ADVISORY AGREEMENT

Neuberger & Berman was founded in 1939 to manage assets for high net
worth individuals. It is an investment adviser registered as such with the
Securities and Exchange Commission ("SEC") under the Investment Advisers Act
of 1940. It is also registered with the SEC as a broker-dealer under the
Securities Exchange Act of 1934, and is a member of the New York Stock Exchange.
Its offices are located at 605 Third Avenue, New York, New York 10158.
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.

Under the Neuberger & Berman Sub-Advisory Agreement Neuberger & Berman
provides investment management services to the Bond Series. Neuberger & Berman
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, Neuberger & Berman must obtain and evaluate information relating to
the economy, industries, business, securities markets and securities as it may
deem necessary, and it must formulate and implement a continuing plan for
performance of its services.

The Neuberger & Berman Sub-Advisory Agreement provides that Neuberger
& Berman, 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 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 under
the Neuberger & Berman Sub-Advisory Agreement.

For its services, Neuberger & Berman receives a fee from Security
Management computed by using an annual rate of .35% based on the average daily
net assets of the Bond Series. Such compensation is accrued daily and payable
monthly.

Neuberger & Berman began providing sub-advisory services to the Bond
Series on July 15, 1997. In the fiscal year ended July 31, 1997, Neuberger &
Berman received advisory fees of $_______.

The Neuberger & Berman Sub-Advisory Agreement provides that it will
remain in effect for an initial term of two years and will continue in effect
from year to year thereafter as to the Bond 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 each Series. In either case, renewal of the Neuberger &
Berman Sub-Advisory Agreement must be approved by a majority of the Trust's
independent Trustees. The Neuberger & Berman Sub-Advisory Agreement provides
that it will terminate automatically if assigned and that it may be terminated
without penalty by either party or by a Series of the Trust upon 60 days prior
written notice to the other party, provided that termination by a Series of
the Trust 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 of
the Trust.

VIRTUS AND THE VIRTUS SUB-ADVISORY AGREEMENT

19
<PAGE> 37

Virtus serves as sub-adviser to Security Management with respect to the
Virtus U.S. Government Income Series pursuant to a sub-advisory agreement (the
"Virtus Sub-Advisory Agreement") dated ____________. Signet Banking Corp., is
the sole stockholder of Virtus. Signet Banking Corporation is a multi-state,
multi-bank holding company which has provided investment management services
since 1956. As of September 30, 1997, Virtus had investment authority over $___
billion in assets. In addition to serving as sub-adviser to the Trust, Virtus
acts as investment adviser to the Medalist Funds (formerly, "Signet Select
Funds"), a publicly-held mutual fund comprised of a series of investment
portfolios. The principal business offices of Virtus are located at 707 East
Main Street, Suite 1300, Richmond, Virginia 23219.

As compensation for providing services under the Virtus Sub-Advisory
Agreement, Virtus receives from Security Management a fee computed by using an
annual rate of 0.75% based on the average daily net assets of the Virtus U.S.
Government Income Series. This fee is accrued daily, and paid monthly.

The Virtus Sub-Advisory Agreement provides that Virtus shall waive its
subadvisory fee (in coordination with waivers by Security Management of its
fee, as discussed above under "Security Management and the Advisory Agreement",
page 15) to the extent the expenses of either New Series must be reduced in
order to comply with any state law expense limitation. The Virtus Sub-Advisory
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 New Series, in order to maintain the
expenses of the Series at or below levels that may be required by state law.

Under the Virtus Sub-Advisory Agreement Virtus provides investment
management services to the Virtus U.S. Government Income Series. Virtus has the
discretion to purchase or sell securities on behalf of the 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,
Virtus must obtain and evaluate information relating to the economy,
industries, business, securities markets and securities as it may deem
necessary, and it must formulate and implement a continuing plan for
performance of its services.

The Virtus Sub-Advisory 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 Sub-Advisory Agreement, except for loss resulting
from willful misfeasance, bad faith, gross

20
<PAGE> 38
negligence in the performance of their duties on behalf of the Trust or reckless
disregard of their duties and obligations.

During the fiscal year ended July 31, 1997, Virtus earned a
sub-advisory fee of $______ from the Virtus U.S. Government Income Series, but
waived $______ in accordance with the sub-advisory agreement. During the fiscal
year ended July 31, 1996, Virtus earned a sub-advisor fee of $75,451 from the
Series, but waived $43,033 pursuant to the Sub-Advisory Agreement. During the
fiscal year ended July 31, 1995, Virtus earned a sub-advisor fee of $35,172 from
the Series, but waived $28,809 pursuant to the Sub-Advisory Agreement.

The Virtus Sub-Advisory Agreement provides that it will remain in
effect for an initial term of two years and will continue in effect from year
to year thereafter, 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 the Series. In either
case, renewal of the Virtus Sub-Advisory Agreement must be approved by a
majority of the Trust's independent Trustees. The Virtus Sub- Advisory
Agreement provides that it will terminate automatically if assigned and that it
may be terminated without penalty by either party or by the relevant Series
upon 60 days prior written notice to the other party, provided that termination
by the 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.

PRINCIPAL HOLDERS OF SECURITIES

Investment companies registered as unit investment trusts under the
1940 Act, Security First Life Separate Account A, the depositors of which is the
Security First Life Insurance Company, has entered into participation agreements
with the Trust for the purchase of Series shares at net asset value. As of July
31, 1997, Security First Life Separate Account A was the owner of ____% of the
outstanding shares of Bond Series, ____% of the outstanding shares of the T.
Rowe Price Growth & Income Series and 100% of the outstanding shares of the
Virtus U.S. Government Income Series. The address of Security First Life
Separate Account A the depositor, Security First Life Insurance Company, is
11365 West Olympic Boulevard, Los Angeles, California 90064.

MANAGEMENT OF THE TRUST

21
<PAGE> 39
The Trustees and officers of the Trust, their principal occupations
for the past five years, and the positions they hold with affiliated persons of
the Trust are:

Jack R. Borsting - Trustee. Executive Director, Center for
Telecommunications Management, University of Southern California, 3415 South
Figueroa, DCC 217, Los Angeles, CA 90089-0871. Prior to 1995, he was the Dean
of the Department of Information & Operations Management, School of Business
Administration, University of Southern California.

*Melvin M. Hawkrigg - Trustee and Chairman. Chairman of the Board of
Trilon Financial Corporation, BCE Place, 181 Bay Street, Suite 4420, P.O. Box
771, Toronto, Ontario, Canada M5J 2T3.

Katherine L. Hensley - Trustee. Retired. Formerly, Partner of
O'Melveny & Myers. 400 South Hope Street, Los Angeles, CA 90071-2899.

Lawrence E. Marcus - Trustee. Retired. Formerly, Executive Vice
President of Neiman-Marcus Company, a general merchandise retailer. 4616
Dorset, Dallas, Texas 75229.

Robert G. Mepham - President. 11365 West Olympic Boulevard, Los
Angeles, California 90064. President and Chief Executive Officer of Security
First Group, Inc. and an officer of its subsidiaries.

Jane F. Eagle - Senior Vice President, Finance. 11365 West Olympic
Boulevard, Los Angeles, CA 90064. Senior Vice President of Security First
Group, Inc. and an officer of its subsidiaries.

Cheryl M. MacGregor - Senior Vice President, Administration. 11365
West Olympic Boulevard, Los Angeles, CA 90064. Senior Vice President,
Administration of Security First Group, Inc. and an officer of its
subsidiaries.

Richard C. Pearson - Senior Vice President, General Counsel and
Secretary. 11365 West Olympic Boulevard, Los Angeles, California 90064.
Senior Vice President, Secretary and General Counsel of Security First Group,
Inc. and an officer of its subsidiaries.

James C. Turner - Vice President, Taxation. 11365 West Olympic
Boulevard, Los Angeles, California 90064. Vice President, Taxation of Security
First Group, Inc.

Each "disinterested" Trustee receives a Trustee's fee of $7,000 per
year, $1,000 for each Trustees' meeting attended and reimbursement of expenses.

Ms. Eagle is also Senior Vice President, Finance of Security
Management. Mr. Mepham is also Chairman and President of Security Management.
Mr. Pearson is

22
<PAGE> 40
also Senior Vice President, General Counsel and Secretary of
Security Management. Mr. Turner is also Vice President, Taxation and Assistant
Secretary of Security Management.

* Trustees who are "interested persons" as that term is defined in the
Investment Company Act of 1940.

23
<PAGE> 41
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
Sub-Advisory Agreements, Price Associates, Neuberger & Berman's and Virtus may
allocate brokerage and principal business or obtain research services from
organizations with which the Trust or Security Management may be dealing.
Security Management is ultimately responsible for implementing these decisions,
including the allocation of principal business and portfolio brokerage and the
negotiation of commissions.

In purchasing and selling the Series' portfolio securities, it is
Security Management's, Price Associates', Neuberger & Berman's and Virtus's
policies 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.
In selecting broker-dealers to execute a Series' portfolio transactions,
consideration will be given to 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 which they
provide to Security Management, Price Associates, Neuberger & Berman's Virtus or
the Series.

Security Management, Price Associates, Neuberger & Berman's or Virtus
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, Price Associates, Neuberger & Berman's
and Virtus with respect to the accounts over which they exercise investment
discretion. In some cases, research services are generated by third parties,
but are provided to Security Management, Price Associates, Neuberger & Berman's
or Virtus by or through broker-dealers.

Price Associates, Neuberger & Berman's and 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.
Additionally, purchases and sales of fixed income securities are transacted with
the issuer, the issuer's underwriter, or with a primary market maker acting as
principal or agent. The Trust does not usually pay brokerage commissions for
these purchases and sales, although the price of the securities generally
includes compensation which is not disclosed separately. The prices the Trust
pays to underwriters of newly-issued securities usually include a concession
paid by the issuer

24
<PAGE> 42
to the underwriter. Transactions placed through dealers who are serving as
primary market makers reflect the spread between the bid and asked prices.

Security Management, Price Associates, Neuberger & Berman's 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 analysis. Research
services are received primarily in the form of written reports, telephone
contacts, personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, government representatives, and access
to various computer-generated data. Research services received from
broker-dealers are supplemental to Security Management's, Price Associates',
Neuberger & Berman's and Virtus's own research efforts and, when utilized, are
subject to internal analysis before being incorporated into the investment
process.

Each year Security Management, Price Associates, Neuberger & Berman's
and Virtus assess the contribution of the brokerage and research services
provided by broker-dealers and allocate a portion of the brokerage business of
their 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, Price Associates, Neuberger & Berman's and Virtus
cannot readily determine the extent to which commissions or net prices charged
by broker-dealers reflect the value of their unsolicited research services. In
some instances, Security Management and/or Price Associates, and/or Neuberger &
Berman and/or 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 Security Management, Price Associates, Neuberger & Berman's and
Virtus in serving their other clients, but they can also be useful in serving
the Trust.

Security Management, Price Associates, Neuberger & Berman's and Virtus
do not allocate business to any broker-dealer on the basis of its efforts in
promoting sales of shares of the Series. However, this does not mean that such
broker-dealers will not receive business from the Trust.

Some of Price Associates' other clients have investment objectives
and programs similar to one or more of the Series. Price Associates may
occasionally make recommendations to other clients which result in their
purchasing or selling securities simultaneously with a Series. 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' policy not to

25
<PAGE> 43
favor one client over another in making recommendations or in placing orders.
If two or more Price Associates' clients are purchasing or selling a given
security on the same day from or to 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 (including the T. Rowe Price
Funds) 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. The T. Rowe Price Growth and Income Series
paid brokerage commissions to securities dealers in connection with
underwritings during the fiscal years ended July 31, 1997, 1996 and 1995 of
$_______, $51,969 and $17,878, respectively. The Bond Series and Virtus U.S.
Government Income Series did not pay any brokerage commissions or discounts to
securities dealers in those years.

26
<PAGE> 44
PORTFOLIO TURNOVER

The portfolio turnover rate can be expected to be higher during
periods of rapidly changing economic or market conditions than in a more stable
period. Portfolio turnover may be defined as the ratio of the total dollar
amount of the lesser of the purchase or sales of securities to the monthly
average value of portfolio securities owned by the Trust. The portfolio
turnover rates for the T. Rowe Price Growth and Income Series for the fiscal
years ended July 31, 1997, 1996 and 1995 were __%, 8% and 8%, respectively. The
portfolio turnover rates for the Bond Series for the fiscal years ended July 31,
1997, 1996 and 1995 were __%, 34% and 56%, respectively. The portfolio turnover
rates for the Virtus U.S. Government Income Series for the fiscal years ended
July 31, 1997, 1996, and 1995 were ___%, 148% and 16%, respectively.

High portfolio turnover involved correspondingly greater brokerage
commissions, to the extent such commissions are payable, and other transaction
costs that are borne directly by the Series involved. Higher turnover rates
reflect an increased rate of realization of gains and losses by the Series,
which would normally affect the taxable income of the Series' shareholders.
Where the shareholder is an insurance company separate account funding variable
annuity contracts, qualified as such under the Internal Revenue Code ("Code"),
however, the contract owners are not currently charged with such income or
losses except to the extent provided under the Code (normally when
distributions under the contracts are made).

PRICING AND REDEMPTION OF SECURITIES BEING OFFERED

DETERMINING NET ASSET VALUE

The net asset value per share of each Series is determined by
dividing the value of the Series' securities, plus any cash and other assets
(including dividends and interest accrued and not collected), less all
liabilities (including accrued expenses), by the number of shares outstanding.

T. ROWE PRICE GROWTH AND INCOME AND BOND SERIES

Debt securities other than convertible securities and short-term
obligations are valued at prices obtained for the day of valuation from a bond
pricing service of a major dealer in bonds, when such prices are available.
However, when such prices are not available and where Security Management deems
it appropriate to do so, an over-the-counter or exchange quotation may be used.
The market value of the Series' other portfolio securities is determined as
follows: securities traded on a national securities exchange are valued at the
bid price for such securities, as reported by securities dealers. When market
quotations are not readily available, or when restricted securities are being
valued, such securities are valued at fair value as determined in

27
<PAGE> 45
good faith by the Board of Trustees. Any other assets are also valued at their
fair value as determined in good faith by the Board.

VIRTUS U.S. GOVERNMENT INCOME SERIES

The market values of the Series' portfolio securities are determined
as follows:

- - for equity securities, according to the last sale price on a national
securities exchange, if available;

- - in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;

- - for unlisted equity securities, the latest bid prices;

- - for bonds and other fixed income securities, as determined by an
independent pricing service;

- - for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service or for short-term
obligations with maturities of less than 60 days, at amortized cost; or

- - for all other securities, at fair value as determined in good faith by
the Board of Trustees.

The Series will value future contracts, options, put options on
futures and financial futures at their market values established by the
exchanges at the close of option trading on such exchanges unless the Board
determines in good faith that another method of valuing option positions is
necessary to appraise their fair value.

REDEMPTION OF SHARES

The Trust will redeem shares at the net asset value per share next to
be determined after receipt of a duly executed request for redemption.
Redemption of shares or payment may be suspended at times (i) when the New York
Stock Exchange is closed other than customary weekends and holidays, (ii) when
trading on said exchange is restricted, (iii) when an emergency (as determined
by the Securities and Exchange Commission) exists, making disposal of portfolio
securities or the valuation of net assets of the Series not reasonably
practicable, or (iv) when the Securities and Exchange Commission has by order
permitted such suspension for the protection of shareholders of the Trust.

The Trust's redemption procedures will not be changed without prior
notice to shareholders.

28
<PAGE> 46
TAXATION

Under the Code, each of the Series is treated as a separate regulated
investment company providing the qualification requirements of Subchapter M are
otherwise met. As a regulated investment company, a Series will not be subject
to federal income tax on net investment income and capital gains (short- and
long-term), if any, that it distributes to its shareholders if at least 90% of
its net investment income and net short-term capital gains for the taxable year
is distributed.

In order to qualify as a regulated investment company under the Code,
a Series must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stocks or securities, or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stocks or securities;
(b) derive less than 30% of its gross income from the sale or other disposition
of stocks or securities held less than three months, and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Series' assets is represented by cash, Government
securities and other securities limited in respect of any one issuer to 5% of
the Series' assets and to not more than 10% of the voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than Government securities).

In addition to the diversification requirements contained in the
Trust's investment restrictions, the Trust is also subject to diversification
requirements applicable to variable annuities under Section 817(h) of the Code.
Under this section, a variable annuity will not receive the tax treatment
afforded annuities if its underlying investments are not adequately
diversified. Under applicable regulations, no more than 55% of total assets
can be invested in one investment, 70% in two investments, 80% in three
investments and 90% in four investments. Investments are generally defined as
securities issued by any one issuer. U.S. Government agencies or
instrumentalities are considered separate issuers.

Unlike public shareholders, under the Code a life insurance company
separate account will not incur any federal income tax liability on dividends
and capital gains distributions received from a regulated investment company by
a separate account funding variable annuity contracts as defined in section
817(d) of the Code.

To the extent that there is in excess of $250,000 invested in a
Series other than through variable contract premium payment, the Code imposes a
4% nondeductible excise tax on the undistributed income of such Series to the
extent the Series does not distribute at least 98% of its net investment income
and its net capital gains (both long- and short-term) for each taxable year by
the end of such year. For purposes of the 4% excise tax, dividends and
distributions will be treated as paid when actually distributed, except that
dividends declared in December payable to shareholders of record on a

29
<PAGE> 47
specified date in December, and paid before February 1 of the following year,
will be treated as having been (i) paid by the Series on the record date and
(ii) received by each shareholder on such date. Net capital gains realized for
the one year period ending on October 31 of each tax year are subject to
distribution in this manner.

Series which do not have in excess of $250,000 invested other than
through variable contract premium payments are not subject to the above
described 4% excise tax.

Each Series will send written notices to its shareholders (Separate
Accounts) regarding the tax status of all distributions made during each
taxable year.

BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

30
<PAGE> 48
STANDARD & POOR'S CORPORATION

Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.

Bonds rated AA has a very strong capacity to pay interest and repay
principal, and differs from the higher-rated issues only in small degree.

Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher-rated
categories.

Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher-rated categories.

FITCH INVESTORS SERVICE, INC.

Fitch's investment grade bond ratings are summarized as follows: AAA
- - Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events;
AA - Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds rated in the
'AAA' and 'AA' categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
'F-1+'; A - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings; BBB - Bonds considered to be
investment grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.

Plus (+) Minus (-) - Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the 'AAA' category.

31
<PAGE> 49
COMMERCIAL PAPER RATINGS

MOODY'S INVESTORS SERVICE, INC.

Moody's employs the following three designations, all judged to be of
investment grade, to indicate the relative repayment ability of rated issuers:

Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structure with moderate reliance
on debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

STANDARD & POOR'S CORPORATION

A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. Ratings are graded into several categories, ranging from
"A-1" for the highest quality obligations to "D" for the lowest. Categories
A-1, A-2 and A-3 are as follows: A-1--This highest category indicates that the
degree of safety regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are denoted with a plus (+)
sign designation; A-2--Capacity for timely payments on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1"; and A-3--Issues carrying this designation
have adequate capacity for timely payment. They are, however, more vulnerable
to the adverse effects of changes in circumstances than obligations carrying
the higher designations.

32
<PAGE> 50
CUSTODIAN

The Bank of New York (the "Custodian"), 1 Wall Street, New York, New
York 10286, serves as the Trust's custodian. Pursuant to the terms of the
Custodian Agreement executed with the Trust, the Trust will forward to the
Custodian the proceeds of each purchase of Series shares. The Custodian will
hold such proceeds and make disbursements therefrom in accordance with the
terms of the Custodian Agreement. It will retain possession of the securities
purchased with such proceeds and maintain appropriate records with respect to
receipt and disbursements of money, receipt and release of securities, and all
other transactions of the Custodian with respect to the securities and other
assets of the Series.

The Custodian Agreement provides that each of the Series shall pay to
the Custodian compensation for its services, in accordance with the Custodian's
regularly established rate schedule. Said compensation shall be computed on
the basis of the Series' average daily net assets payable as of the end of each
month. The Custodian Agreement may be terminated by either the Trust or the
Custodian upon 60 days' written notice to the other party. Such termination
shall not be in contravention of any applicable federal or state laws or
regulations, or any provision of the Trust Declaration or By-Laws.

INDEPENDENT AUDITORS

The financial statements of Security First Trust included in this
Statement of Additional Information and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, for the periods indicated
in their reports thereon which appear elsewhere herein and in the Registration
Statement. The financial statements audited by Ernst & Young LLP have been
included in reliance on their reports, given on their authority as experts in
accounting and auditing.

FEDERAL REGISTRATION OF SHARES

The Trust's shares are registered for sale under the Securities Act
of 1933.

LEGAL COUNSEL

Routier and Johnson, P.C., whose address is 1700 K Street, N.W.,
Washington, D.C. 20006 is legal counsel to the Trust.

33
<PAGE> 51

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements

(1) Prospectus/Statement of Additional Information Describing Virtus Equity
Series and Virtus U.S. Government Income Series:

- Condensed Financial Information (Per Share Income and Capital Changes
Table) is included in Part A of the Registration Statement

- Financial statements for the above-referenced Series of Security First
Trust are included in Part B of the Registration Statement

(2) Prospectus/Statement of Additional Information Describing T. Rowe Price
Growth and Income Series, Bond Series and Virtus U.S. Government
Income Series:

- Condensed Financial Information (Per Share Income and Capital Changes
Table) is included in Part A of the Registration Statement

- Financial statements for the above-referenced Series of Security First
Trust are included in Part B of the Registration Statement

(b) Exhibits

(1) Declaration of Trust* (PEA No. 20)

(2) By-Laws* (PEA No. 20)

(5) a. Master Investment Management and
Advisory Agreement, dated ________, 1997 (To be Filed)

b. Sub-Advisory Agreement, dated
July 15, 1997 herewith

c. Sub-Advisory Agreement, _________, 1997 (To Be Filed)

d. Sub-Advisory Agreement, _________, 1997 (To Be Filed)

(16) Powers of Attorney (PEA No. 26)

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Previously filed with the Securities and Exchange Commission as part of the
Registration Statement of Security First Trust and incorporated herein by
reference.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

As of July 31, 1997:

<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
------------------------------------------------------- --------------
<S> <C>
T. Rowe Price Growth and Income Series................. 3
Bond Series............................................ 2
Virtus Equity Series................................... 1
Virtus U.S. Government Income Series................... 2
</TABLE>

<PAGE> 52

ITEM 27. INDEMNIFICATION

Previously filed as part of the registration statement of Security First
Trust and incorporated herein by reference.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Security First Investment Management Corporation is also investment adviser
to two affiliated life insurance companies.

Each of the directors and officers of Security First Investment Management
Corporation is also an officer of its parent, Security First Group, Inc., and
certain of its subsidiaries, including Security First Life Insurance Company.
Each of these companies is located at 11365 West Olympic Boulevard, Los Angeles,
California 90064.

ITEM 29. PRINCIPAL UNDERWRITERS

Not applicable.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

Books and documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules (17 CFR 270.31a-1 to 31a-3)
promulgated thereunder and records relating to shareholder records are
maintained by The Bank of New York at 1 Wall Street, New York, New York 10286.
Registrant's Agreement and Declaration of Trust, By-Laws and other records are
maintained by the Registrant at its principal executive offices.

ITEM 31. MANAGEMENT SERVICES

Registrant asserts that all material management related services contract
provisions have been discussed in the Prospectus and Statement of Additional
Information.

ITEM 32. UNDERTAKINGS

The Trust undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Trust's latest annual or semi-annual report to
shareholders upon request and without charge.
<PAGE> 53
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amended Registration
Statement to be signed on its behalf in the City of Los Angeles and State of
California on this 2nd day of October 1997.

SECURITY FIRST TRUST
(Registrant)

By /s/ ROBERT G. MEPHAM
-----------------------------------
Robert G. Mepham
President

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>

ROBERT G. MEPHAM President October 2, 1997
- ------------------------- (Principal Executive
Robert G. Mepham Officer)

JANE F. EAGLE Senior Vice President, Finance October 2, 1997
- ------------------------- (Principal Financial and
Jane F. Eagle Accounting Officer)

JACK R. BORSTING* Trustee October 2, 1997
- -------------------------
Jack R. Borsting

MELVIN M. HAWKRIGG* Trustee October 2, 1997
- -------------------------
Melvin M. Hawkrigg

KATHERINE L. HENSLEY* Trustee October 2, 1997
- -------------------------
Katherine L. Hensley

LAWRENCE E. MARCUS* Trustee October 2, 1997
- -------------------------
Lawrence E. Marcus

By /s/ RICHARD C. PEARSON October 2, 1997
- --------------------------
*(Richard C. Pearson as
Attorney-in-Fact for
each of the persons
indicated)

</TABLE>

<PAGE> 1

EXHIBIT 5b

SUB-ADVISORY AGREEMENT

BETWEEN

SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION

AND

NEUBERGER & BERMAN, LLC

SUB-ADVISORY AGREEMENT, made this 15th day of July, 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

1
<PAGE> 2
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

2
<PAGE> 3
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.

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

3
<PAGE> 4
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.

(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.

4
<PAGE> 5
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
July 15, 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 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.

5
<PAGE> 6

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 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.

6
<PAGE> 7

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 to be hereunto affixed, as of the day and the year first above
written.

SECURITY FIRST INVESTMENT
Attest: MANAGEMENT CORPORATION

/s/ By: /s/
- -------------------------- --------------------------
Secretary

Attest: NEUBERGER & BERMAN, LLC

/s/ By: /s/
- -------------------------- --------------------------
Secretary