U.S. GOVERNMENT INCOME SERIES
EQUITY SERIES
OF
SECURITY FIRST TRUST
11365 West Olympic Boulevard
Los Angeles, California 90064
April 5, 1998
Dear Shareholder:
I am writing to shareholders of the U.S. Government Income Series
(formerly the "Virtus U.S. Government Income Series") and of the Equity Series
(formerly the "Virtus Equity Series") (collectively, the "Series"), to inform
you of a Special Meeting of Shareholders to be held on May 5, 1998. The meeting
originally scheduled for May 5, 1998, has been adjourned to June 8, 1998 at
10:00 a.m. P.S.T.
Before that meeting, I would like your vote on the issues affecting
your Series as described in the attached Proxy Statement. The Proxy Statement
contains two proposals. The first proposal requests that shareholders consider
and act upon an Interim Investment Sub-Advisory Agreement between Security First
Investment Management Corporation, the Series' Adviser, and Virtus Capital
Management, Inc. with respect to the Series (the "Interim Sub-Advisory
Agreement").
The second proposal requests shareholder consideration of two new
Investment Sub- Advisory Agreements effective upon the termination of the
Interim Sub-Advisory Agreement. The first agreement is between Security First
Investment Management, Inc. and BlackRock Financial Management, Inc. with
respect to the U.S. Government Income Series (the "BlackRock Sub- Advisory
Agreement"). The second agreement is between Security First Investment
Management, Inc. and Provident Capital Management, Inc. with respect to the
Equity Series (the "Provident Sub- Advisory Agreement").
Information relating to the Interim Sub-Advisory Agreement, the
BlackRock Sub-Advisory Agreement and the Provident Sub-Advisory Agreement is
contained in the attached Proxy Statement.
The Board of Trustees has approved the proposals and recommends that
you vote FOR these proposals.
I realize that this Proxy Statement will take time to review, but your
vote is very important. Please take the time to familiarize yourself with the
proposals presented and sign and return your proxy card in the enclosed postage
paid envelope today.
If you have any questions about this proxy, please call Customer
Service at Security First Group, Inc. at 1-800-284-4536.
<PAGE>
Thank you for taking this matter seriously and for participating in
this important process.
Sincerely,
Richard C. Pearson
President
Security First Trust
<PAGE>
U.S. GOVERNMENT INCOME SERIES
EQUITY SERIES
OF
SECURITY FIRST TRUST
11365 West Olympic Boulevard
Los Angeles, California 90064
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on May 5, 1998
To the Shareholders of:
U.S. Government Income Series of Security First Trust
Equity Series of Security First Trust
NOTICE IS HEREBY GIVEN That a Special Meeting of Shareholders of the
U.S. Government Income Series (formerly the "Virtus U.S. Government Income
Series") and of the Equity Series (formerly the "Virtus Equity Series")
(individually and collectively, the "Series") of Security First Trust (the
"Trust"), a Massachusetts business trust, will be held at the offices of
Security First Group, Inc. at 11365 West Olympic Boulevard, Los Angeles,
California 90064, on May 5, 1998 at 10:00 a.m. P.S.T. and any adjournments
thereof (collectively the "Special Meeting") for the following purposes:
1. To approve or disapprove the Interim Investment Sub-Advisory Agreement
between Security First Investment Management Corporation and Virtus
Capital Management, Inc. with respect to the Series (the "Interim
Sub-Advisory Agreement") (Proposal 1).
2. To approve or disapprove new Investment Sub-Advisory Agreements,
effective upon the termination of the Interim Sub-Advisory Agreement,
between Security First Investment Management Corporation and:
(a) BlackRock Financial Management, Inc. with respect to the U.S.
Government Income Series; and
(b) Provident Capital Management, Inc. with respect to the Equity
Series (Proposal 2).
3. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Board of Trustees has fixed the close of business on March 25, 1998
as the record date for the determination of shareholders entitled to notice of
and to vote at the Special Meeting or any adjournment thereof.
By order of the Board of Trustees
Cheryl Finney
Assistant Secretary
April 5, 1998
<PAGE>
THE SHAREHOLDERS OF THE SERIES ARE INVITED TO ATTEND THE MEETING. THE SHARES
OWNED BY SECURITY FIRST LIFE SEPARATE ACCOUNT A ("SFLSAA") IN EACH OF THE SERIES
WILL BE VOTED BY SFLSAA IN ACCORDANCE WITH, AND IN PROPORTION TO, THE
INSTRUCTIONS FURNISHED BY VARIABLE ANNUITY CONTRACTHOLDERS WHOSE CONTRACTS ARE
INVESTED IN THE RELEVANT SHARES OF THE TRUST. CONTRACTHOLDERS, THEREFORE, ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND TO RETURN
IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED
STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF THE PROXY CARD ARE SET FORTH ON
THE INSIDE COVER OF THIS NOTICE. IT IS IMPORTANT THAT PROXIES BE RETURNED
PROMPTLY.
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense to the Series
involved in validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in
the Registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the Registration on the
proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of Registration. For
example:
Registration Valid Signature
Corporate Accounts
(1) ABC Corp......................................ABC Corp.
(2) ABC Corp......................................John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer..............John Doe
(4) ABC Corp. Profit Sharing Plan.................John Doe, Trustee
Trust Accounts
(1) ABC Trust......................................Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78........................Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA.........John B. Smith
(2) Estate of John B. Smith........................John B. Smith, Jr.,
Executor
<PAGE>
U.S. GOVERNMENT INCOME SERIES
EQUITY SERIES
OF
SECURITY FIRST TRUST
11365 West Olympic Boulevard
Los Angeles, California 90064
SPECIAL MEETING OF SHAREHOLDERS
May 5, 1998
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Trustees (the "Trustees") of Security First Trust
(the "Trust") for the U.S. Government Income Series (formerly, the "Virtus U.S.
Government Income Series") and the Equity Series (formerly the "Virtus Equity
Series") (individually and collectively, the "Series"), for use at a Special
Meeting of Shareholders of the Series to be held at 10:00 a.m. on May 5, 1998 at
the offices of Security First Group, Inc. ("Security First Group"), 11365 West
Olympic Boulevard, Los Angeles, California 90064, and any adjournments thereof
(collectively, the "Special Meeting"). A notice of Special Meeting of
Shareholders and a proxy card accompany this Proxy Statement. This Proxy
Statement and the accompanying proxy card are first being sent or given to
shareholders on or about April 9, 1998. The costs of solicitation and the
expenses incurred in connection with preparing Proposal 1 of this Proxy
Statement and its enclosures will be paid by First Union Corporation ("First
Union"), the parent of Virtus Capital Management, Inc. ("VCM"), the Series's
Sub-Adviser. The costs of solicitation and the expenses incurred in connection
with preparing Proposal 2 of this Proxy Statement and its enclosures will be
paid by the Trust. The Trust's most recent annual and semi-annual report are
available to shareholders upon request without charge by writing or by calling
toll-free:
Security First Group, Inc.
11365 West Olympic Boulevard
Los Angeles, California 90064
Attn: Bank Services
1-800-284-4536.
If the enclosed proxy is properly executed and returned in time to be
voted at the Special Meeting, the shares of beneficial interest ("Shares")
represented by the proxy will be voted in accordance with the instructions
marked therein. Unless instructions to the contrary are marked on the proxy, it
will be voted FOR the matters listed in the accompanying Notice of Special
Meeting of Shareholders. Any shareholder who has given a proxy has the right to
revoke it at any time prior to its exercise either by attending the Special
Meeting and voting his or her Shares in person, or by submitting a letter of
revocation or a later-dated proxy to the Secretary of the Trust at the above
address before the date of the Special Meeting.
For ease of reference, the following table lists the proposals to be
acted on by the shareholders of the Series, and indicates which Series are
eligible to vote on each such proposal:
-1-
<PAGE>
<TABLE>
<CAPTION>
Proposal Description Series Affected
<S> <C> <C>
(1) The consideration of the Interim Sub- U.S. Government Income Series
Advisory Agreement between Security Equity Series
First Investment Management
Corporation (the "Adviser") and Virtus
Capital Management, Inc.
(2)(a) The consideration of a New Investment Sub- U.S. Government Income Series
Advisory Agreement between the Adviser
and BlackRock Financial Management, Inc.,
effective upon the termination of the Interim
Sub-Advisory Agreement.
(2)(b) The consideration of a New Investment Sub- Equity Series
Advisory Agreement between the Adviser
and Provident Capital Management,
Inc., effective upon the termination of the
Interim Sub-Advisory Agreement.
</TABLE>
The Trustees do not know of any actions to be considered at the Meeting
other than the above-mentioned proposals. If any other matter is presented, the
persons named in the proxy will vote in accordance with their best judgment.
Security First Life Separate Account A ("SFLSAA"), a separate account
created pursuant to Delaware insurance law and registered as a unit investment
trust under the Investment Company Act of 1940, as amended (the "1940 Act"),
owns all of the shares of the Series. As a result, it has the right to vote upon
certain matters that the 1940 Act requires to be approved or ratified by the
shareholders and to vote upon any other matter that may be voted upon at a
shareholders' meeting. SFLSAA will vote the shares of each of the Series in
accordance with the instructions furnished by variable annuity contractholders
whose contract values are invested in shares of each of the relevant Series. In
the event that a contractholder fails to give instructions as to a proposal
described in the proxy card, the Shares that are the subject of such
instructions will be voted for the proposals. Shares as to which no proxies are
received will be voted proportionately based upon the voting instructions given
by other contractholders, with those proxies that were received but did not
contain voting instructions as to a proposal treated as votes for the proposals
in determining the voting proportion. Each full Share is entitled to one vote
and any fractional Share is entitled to a fractional vote. Contractholder voting
instructions may be revoked at any time by submitting a subsequently dated proxy
card or by giving written notice of revocation to the Secretary.
The number of Shares of each Series for which each contractholder is
entitled to give voting instructions to SFLSAA is computed as follows:
-2-
<PAGE>
(1) For a contract/certificate in the accumulation phase:
The total value of accumulation units in that Series held
under the contract/certificate as of the record date, divided by the
net asset value of one share of the Series on that same date; and
(2) For a contract/certificate in the payout phase:
The actuarial value of annuity units in that Series held by
SFLSAA attributable to the future annuity payments under the
contract/certificate in that Series as of the record date, divided by
the net asset value of one share of the Series on that same date.
The Board has fixed the close of business on March 25, 1998 as the
record date (the "Record Date") for the determination of shareholders of the
Series entitled to notice of and to vote at the Special Meeting. At the close of
business on the Record Date, the following number of Shares of the Series were
outstanding:
Shares
Series Outstanding
U.S. Government Income Series 6,430,366
Equity Series 6,715,060
Total 13,145,426
Under the Trust's Declaration of Trust dated February 13, 1987, a
quorum of shareholders is constituted by the presence in person or by proxy of
the holders of a majority of the outstanding Shares of the Trust entitled to
vote at the Special Meeting. In the event that a quorum is not present at the
Special Meeting, or in the event that a quorum is present but sufficient votes
to approve the proposals are not received, the persons named as proxies on the
enclosed proxy card may propose one or more adjournments of the Special Meeting
to permit further solicitation of proxies. In determining whether to adjourn the
Special Meeting, the following factors may be considered: the nature of the
proposals that are the subject of the Special Meeting; the percentage of votes
actually cast; the percentage of negative votes actually cast; the nature of any
further solicitation and the information to be provided to shareholders with
respect to the reasons for the solicitation. Any adjournment will require the
affirmative vote of a majority of those Shares represented at the Special
Meeting in person or by proxy. A shareholder vote may be taken on one or more of
the proposals in this Proxy Statement prior to any such adjournment if
sufficient votes have been received for approval.
-3-
<PAGE>
In order that your Shares may be represented at the Special Meeting,
you are requested to:
- indicate your instructions on the enclosed proxy card;
- date and sign the proxy card;
- mail the proxy card promptly in the enclosed envelope, which
requires no postage if mailed in the United States; and
- allow sufficient time for the proxy card to be received on or
before 10:00 a.m. P.S.T. on April 30, 1998.
REASON FOR THE SPECIAL MEETING
Security First Investment Management Corporation ("Security Management"
or the "Adviser") is the investment adviser and business manager of the Series
pursuant to a Master Investment Management and Advisory Agreement (the "Master
Advisory Agreement") dated October 30, 1997. Security Management is a
wholly-owned subsidiary of Security First Group, whose business primarily
involves insurance marketing and service and acting as an insurance holding
company. Security First Group is a wholly-owned subsidiary of Metropolitan Life
Insurance Company ("MetLife"). Security Management and Security First Group
maintain their principal place of business at 11365 West Olympic Boulevard, Los
Angeles, California 90064. Pursuant to its authority under the terms of the
Master Advisory Agreement, Security Management executed a Sub-Advisory Agreement
with VCM dated October 30, 1997 (the "Previous Sub- Advisory Agreement"). This
Previous Sub-Advisory Agreement was approved by the shareholders on October 29,
1997.
As discussed below, VCM was a wholly-owned subsidiary of Signet Banking
Corporation ("Signet"). Effective November 28, 1997, Signet was merged with and
into First Union in exchange for shares of common stock of First Union (the
"Merger"), and VCM became a wholly-owned subsidiary of First Union. VCM's
operations were not substantially changed as a result of the Merger. The only
significant change resulting from the Merger which affects the Series is that
First Union is now the ultimate parent of VCM.
Under the 1940 Act, an assignment is defined as any direct or indirect
transfer of a contract by the assignor, or of a controlling block of the
assignor's outstanding voting securities by a security holder of the assignor.
An investment advisory agreement, including a sub-advisory agreement, is
automatically terminated in the event of an assignment.
The Merger of Signet into First Union is presumed to be an indirect
change of control of VCM, and is, therefore, an assignment of the Previous
Sub-Advisory Agreement under the 1940 Act. As a result, the Previous
Sub-Advisory Agreement was terminated as of the effective date of the
-4-
<PAGE>
Merger, and a new sub-advisory agreement must be executed. In accordance with
the 1940 Act, the new sub-advisory agreement must be approved by a majority of
the outstanding Shares of the Series.
Reason for Proposal 1
The Securities and Exchange Commission (the "SEC") granted the Trust an
exemption to allow VCM to continue to serve as the Sub-Adviser of the Series
without shareholder approval for a period of up to 120 days following the
termination date of the Previous Sub-Advisory Agreement (the "Interim Period"),
provided that the Trust submits the Interim Sub-Advisory Agreement executed
between Security Management and VCM (the "Interim Sub-Advisory Agreement") for
shareholder approval.
Reason for Proposal 2
Because VCM is withdrawing from the business of providing advisory
services to registered investment companies, new sub-advisory agreements needed
to be entered into with respect to the Series before the Interim Period expired
on March 28, 1998. After considering the various factors detailed below, the
Trustees approved new sub-advisory agreements with BlackRock Financial
Management, Inc. with respect to the U.S. Government Income Series and with
Provident Capital Management, Inc. with respect to the Equity Series. These new
sub-advisory agreements became effective at the close of business on March 27,
1998 and must be approved by shareholders within 120 days of their
effectiveness.
The shareholders are asked to vote upon both the Interim Sub-Advisory
Agreement and the new sub-advisory agreements, which went into effect upon
expiration of the Interim Period.
PROPOSAL 1
TO APPROVE OR DISAPPROVE AN INTERIM INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION AND VIRTUS CAPITAL MANAGEMENT,
INC. WITH RESPECT TO THE SERIES. (BOTH U.S. GOVERNMENT INCOME SERIES AND EQUITY
SERIES)
SUMMARY OF PROPOSAL 1
For the reasons discussed above and based upon an analysis of the
factors described below, a majority of the Trustees of the Trust have approved
Security Management's execution of the Interim Sub-Advisory Agreement with VCM.
The Trustees met on October 7, 1997, to evaluate whether an interim agreement
was in the best interests of the Series. A majority of the Trustees, including a
majority of the Trustees who are not "interested persons" of the Adviser or
Sub-Adviser as such term is defined in the 1940 Act (the "Independent
Trustees"), approved the Interim Sub- Advisory Agreement for the Series
effective upon the Merger, which occurred on November 28,
-5-
<PAGE>
1997. Pursuant to an order issued by the SEC, all fees payable under the Interim
Sub-Advisory Agreement have been placed in an interest-bearing escrow account
and will be paid to VCM if the shareholders approve the contract. Any money in
such account will be paid to the Series in the absence of shareholder approval.
The Interim Sub-Advisory Agreement contains substantially the same terms and
conditions as the Previous Sub-Advisory Agreement (as described below). The only
difference between the Previous Sub-Advisory Agreement and the Interim
Sub-Advisory Agreement is the length of time for which each Agreement was in
effect. A description of the Interim Sub- Advisory Agreement pursuant to which
VCM continued as investment sub-adviser to the Series, as well as the services
provided by VCM pursuant thereto, is set forth below under "The Interim Sub-
Advisory Agreement."
INFORMATION ABOUT VCM
As discussed above, Security Management is directly responsible for
providing investment advisory and business management services to the Series
under the Master Advisory Agreement. VCM became the Series' Sub-Adviser pursuant
to the Previous Sub-Advisory Agreement.
VCM, a Maryland corporation formed in 1995 to succeed to the business
of Signet Asset Management (a division of Signet Trust Company), was a
wholly-owned subsidiary of Signet prior to the Merger. As discussed above,
Signet was merged with and into First Union, and VCM is now wholly-owned by
First Union. The principal offices of First Union are located at 201 South
College Street, Charlotte, North Carolina 28288-1195. VCM's principal offices
are located at 707 East Main Street, Suite 1300, Richmond, Virginia 23219. VCM
had served as the Sub-Adviser to the Series since 1994.
As of December 31, 1997, VCM had investment authority over $2.2 billion
in assets. VCM advised 15 mutual funds having over $1.5 billion in assets. In
addition, VCM managed three fixed income common trust funds with $104 million in
assets.
Until March 2, 1998, VCM also managed and advised The Virtus U.S.
Government Securities Fund and The Style Manager: Large Cap Fund. These Funds
were registered management investment companies with sizable total net assets
and had substantially similar investment objectives and policies as the U.S.
Government Income Series and the Equity Series, respectively. As of March 2,
1998, these two funds consummated reorganizations pursuant to which they were
merged into funds managed by affiliates of First Union. The table below
indicates the size of each of the Funds and the advisory fees that were paid by
each to VCM:
-6-
<PAGE>
<TABLE>
<CAPTION>
Rate of investment
Total Net assets advisory compensation
Fund on June 30, 1997 (% of average daily net assets)
- ---- ---------------- -------------------------------
<S> <C> <C>
The Virtus U.S. Government
Securities Fund $161.8 Million 0.75%*
The Style Manager: Large Cap Fund $105.0 Million 0.75%**
</TABLE>
* VCM waived a portion of its fees for the fund.
** VCM did not waive a portion of its fees for the fund.
VCM is registered as an investment adviser with the SEC under the
Investment Advisers Act of 1940 (the "Advisers Act"). The name and address of
each of the executive officers and the directors of VCM are set forth in
Appendix A to this Proxy Statement.
EVALUATION BY THE TRUSTEES
The Trustees requested, received and considered such information as
they deemed reasonably necessary to enable them to evaluate the Interim
Sub-Advisory Agreement. On October 7, 1997, the Trustees, including a majority
of the independent Trustees, voted to approve the Interim Sub-Advisory Agreement
and to submit the proposed Interim Sub-Advisory Agreement to the shareholders of
the Series.
The material factors considered by the Trustees were: the nature and
quality of services rendered by VCM; VCM's performance under the Previous
Sub-Advisory Agreement; the performance of similar funds advised by VCM; the
amount of sub-advisory fees to be paid; VCM's financial strength and insurance
coverage; VCM's investment advisory experience and reputation; VCM's code of
ethics and compliance controls; and administrative support services. The
Trustees also considered the fact that there were no material differences
between the terms of the Interim Sub-Advisory Agreement and the terms of the
Previous Sub-Advisory Agreement.
The factor that the Trustees considered most significant was that the
Series would continue to receive the benefit of sub-advisory services of no
lesser quality or scope than had been provided under the Previous Sub-Advisory
Agreement, at no increase in the sub-advisory fee to be paid for such services.
The Trustees were also satisfied that VCM (1) was knowledgeable and experienced
in the operations of the relevant financial markets and in the laws that are
applicable to such operations insofar as they might affect the Series, and (2)
had the personnel, financial resources and standing in the financial community
to enable it to discharge its duties under the Interim Sub- Advisory Agreement
adequately. The Trustees determined that the Series would receive the benefit of
maintaining uninterrupted sub-advisory services of the same quality, scope and
cost as the Series received before the Merger.
-7-
<PAGE>
After careful consideration, the Trustees believe that the best
interests of the shareholders of the Series would be served if the Interim
Sub-Advisory Agreement is approved, and the Sub- Adviser thereby receives its
fees for services provided during the Interim Period. Such fees are no greater
than those previously approved by the shareholders under the Previous
Sub-Advisory Agreement for the same time period.
THE PREVIOUS SUB-ADVISORY AGREEMENT
Under the terms of the Previous Sub-Advisory Agreement dated October
30, 1997, VCM managed each Series and continually conducted investment research
and supervision of the Series. VCM also was responsible for the purchase and
sale of portfolio securities. Except for provisions regarding duration, the
terms of the Previous Sub-Advisory Agreement were identical to the terms of the
Interim Sub-Advisory Agreement (see "The Interim Sub-Advisory Agreement" below).
Fees and Expenses
Under the Previous Sub-Advisory Agreement, VCM received a sub-advisory
fee from the Adviser at the annual rate of 0.75% of the average daily net assets
of each of the Series. The sub- advisory fee was accrued for each calendar day
and the sum of the daily fee accruals was paid monthly. The Previous
Sub-Advisory Agreement provided that the sub-advisory fee would be waived to the
extent that the expenses of either Series must be reduced in order to comply
with any state law expense limitation, if the aggregate expenses of the Series
exceed such expense limitation and the Adviser has waived all or a portion of
its fees pursuant to the Master Advisory Agreement. The Sub-Adviser also could
voluntarily waive a greater amount of its fee than required by this provision or
could make contributions to the Series in order to maintain the expenses of the
Series below the levels required by state law.
During the fiscal year ended July 31, 1997, VCM earned a sub-advisory
fee of $153,616 from the U.S. Government Income Series, but waived $69,578
pursuant to the Previous Sub- Advisory Agreement. In the same fiscal year, VCM
earned a sub-advisory fee of $233,813 from the Equity Series, but waived $14,845
pursuant to the Previous Sub-Advisory Agreement.
Duration
Under its provisions, the Previous Sub-Advisory Agreement was to remain
in effect for an initial term of two years and would continue in effect from
year to year thereafter, provided that such continuance was approved at least
annually by either a majority of Trustees or a majority of the outstanding
voting securities of the Series, and a majority of the Independent Trustees who
are not parties to the Agreement.
-8-
<PAGE>
THE INTERIM SUB-ADVISORY AGREEMENT
The description of the Interim Sub-Advisory Agreement in this Proxy
Statement is qualified entirely by reference to the actual Interim Sub-Advisory
Agreement, attached hereto as Exhibit A. The terms of the Interim Sub-Advisory
Agreement were identical in all material respects to the Previous Sub-Advisory
Agreement with the exception of the length of time for which the agreement was
in effect. The management and advisory services to be provided by VCM under the
Interim Sub-Advisory Agreement were identical to those provided by VCM under the
Previous Sub- Advisory Agreement. VCM was required to obtain and evaluate
information relating to the economy, industries, businesses, securities markets
and securities as it deemed necessary or useful in the discharge of its
obligations under the Interim Sub-Advisory Agreement. In addition, VCM was
required to formulate and implement a continuous program for performance of its
services.
Pursuant to the terms of the Interim Sub-Advisory Agreement, VCM had
discretion to purchase or sell securities on behalf of the Series in accordance
with their respective investment objectives or restrictions. The Interim
Sub-Advisory Agreement permitted VCM to communicate with brokers, dealers,
custodians or other parties on behalf of such Series, and to allocate brokerage
or obtain research services from organizations with which the Trust or Security
Management may be dealing. See "Portfolio Transactions."
Fees and Expenses
The Interim Sub-Advisory Agreement contained the same provisions with
respect to fees and expenses as described under the Previous Sub-Advisory
Agreement.
Duration
The Interim Sub-Advisory Agreement automatically terminated upon the
expiration of the Interim Period.
Limitation of Liability
As in the Previous Sub-Advisory Agreement, VCM was not liable to the
Trust or to the Adviser for any act or omission in the course of or connected in
any way with rendering services or for any losses that may be sustained in the
purchase, holding or sale of any security in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or duties.
Termination; Assignment
The Interim Sub-Advisory Agreement provided that it could be
terminated, without penalty, by the Adviser on sixty (60) days' written notice
to VCM or by VCM on sixty (60) days' written notice to the Adviser. The Series
could also terminate the Interim Sub-Advisory Agreement, by either a majority
vote of the outstanding voting shares of the Series or a resolution of the
Trustees, on sixty (60) days' written notice to both the Adviser and to VCM. The
Interim Sub-Advisory
-9-
<PAGE>
Agreement provided for its automatic termination in the event of its Assignment
or in the event of the termination of the Master Advisory Agreement. The
Previous Sub-Advisory Agreement contained identical provisions as to termination
and assignment.
PORTFOLIO TRANSACTIONS
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 Master Advisory Agreement. Under the terms of each sub-advisory agreement
between Security Management and a sub-adviser with respect to a Series,
including the Interim Sub-Advisory Agreement, a sub-adviser such as VCM may
allocate brokerage and principal business or obtain research services from
organizations with which the Trust or the sub-adviser may be dealing. However,
Security Management is ultimately responsible for implementing these decisions,
including the negotiation of commissions and the allocation of principal
business and portfolio brokerage.
In purchasing and selling the Trust's portfolio securities, it is
Security Management's and the sub-advisers' policy to seek quality execution at
the most favorable prices through responsible broker-dealers and, in the case of
agency transactions, at competitive commission rates. However, under certain
conditions, a Series may pay higher brokerage commissions in return for
brokerage and research services, although it has no current arrangement to do
so. In selecting broker-dealers to execute a Series' portfolio transactions,
Security Management and the sub-adviser consider such factors as the price of
the security, the rate of commission, the size and difficulty of the order, the
reliability, integrity, financial condition, general execution and operational
capabilities of competing broker-dealers, and brokerage and research services
they provide to Security Management, the sub- adviser or the Series.
Security Management may cause a Series to pay a broker-dealer who
furnishes brokerage and/or research services a commission that is in excess of
the commission another broker-dealer would have received for executing the
transaction if it is determined that such commission is reasonable in relation
to the value of the brokerage and/or research services which have been provided.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities of Security Management with respect to the
accounts over which it exercises investment discretion. In some cases, research
services are generated by third parties, but are provided to the sub-adviser by
or through broker-dealers.
A sub-adviser may effect principal transactions on behalf of a Series
with a broker-dealer who furnishes brokerage and/or research services, designate
any such broker-dealer to receive selling concessions, discounts or other
allowances, or otherwise deal with any such broker-dealer in connection with the
acquisition of securities in underwritings.
Security Management and the sub-advisers 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
-10-
<PAGE>
appraisal services, and credit analyses. Research services are received
primarily in the form of written reports, telephone contacts and personal
meetings with security analysts, corporate and industry spokespersons. Research
services received from broker-dealers are supplemental to Security Management's
and the sub-advisers' own research efforts and, when utilized, are subject to
internal analysis before being incorporated into the investment process.
Each year, Security Management and the sub-advisers will assess the
contribution of the brokerage and research services provided by broker-dealers
and will allocate a portion of the brokerage business of clients on the basis of
these assessments. In addition, broker-dealers sometimes suggest a level of
business they would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any firm may be
less than the suggested allocations, but can (and often does) exceed the
suggestions because total brokerage is allocated on the basis of all the
considerations described above. In no instance is a broker-dealer excluded from
receiving business because it has not been identified as providing research
services.
Security Management and the sub-advisers cannot readily determine the
extent to which commission rates or net prices charged by broker-dealers reflect
the value of their research services. In some instances, Security Management and
the sub-advisers will receive research services they might otherwise have had to
perform for themselves. The research services provided by broker-dealers can be
useful to the sub-advisers in serving other clients, but they can also be useful
in serving the Trust.
Neither Security Management nor the sub-advisers allocate business to
any broker-dealer on the basis of its sales of shares of the Series. However,
this does not mean that broker-dealers who purchase Series shares for their
clients will not receive other business from the Trust.
Some of the sub-advisers' other clients have investment objectives and
programs similar to those of the Series. A sub-adviser may occasionally make
recommendations to other clients which result in their purchasing or selling
securities simultaneously with a Series it advises. As a result, the demand for
securities being purchased or the supply of securities being sold may increase,
and this could have an adverse effect on the price of those securities. It is
the sub-advisers' policy not to favor one client over another in making
recommendations or in placing orders. If two or more of a sub-adviser's clients
are purchasing a given security on the same day from the same broker-dealer, the
sub-adviser may average the price of the transactions and allocate the average
among the clients participating in the transaction. Each sub-adviser has
established a general investment policy that it will ordinarily not make
additional purchases of a common stock of a company for its clients if, as a
result of such purchases, 10% or more of the outstanding common stock of such
company would be held by its clients in the aggregate.
All brokerage commissions will be allocated by the sub-advisers
according to the foregoing policies. The U.S. Government Income Series paid no
brokerage commissions or discounts to securities dealers for the fiscal year
ended July 31, 1997. The Equity Series paid brokerage commissions to securities
dealers in the amount of $13,361 for the fiscal year ended July 31, 1997.
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<PAGE>
REQUIRED VOTE
Approval of the Interim Sub-Advisory Agreement requires the affirmative
vote of a "majority" of the outstanding voting shares of each of the Series
acting independently. Majority, as defined in the 1940 Act, means the lesser of:
(a) 67% of the voting securities of the Series present at the Special Meeting if
more than 50% of the outstanding Shares are present in person or by proxy at the
Special Meeting; or (b) more than 50% of the outstanding voting securities of
the Series ("Majority Vote"). Rejection of the proposed Agreement by one Series
will not prevent it from being approved by the other Series.
THE BOARD OF TRUSTEES, INCLUDING A MAJORITY OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE INTERIM SUB-ADVISORY
AGREEMENT.
PROPOSAL 2(a)
TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION AND BLACKROCK FINANCIAL
MANAGEMENT, INC. WITH RESPECT TO THE U.S. GOVERNMENT INCOME SERIES, EFFECTIVE
UPON THE TERMINATION OF THE INTERIM SUB-ADVISORY AGREEMENT. (U.S. GOVERNMENT
INCOME SERIES ONLY)
SUMMARY OF PROPOSAL 2(a)
Based on an analysis of factors described below, a majority of the
Trustees of the Trust have approved the Adviser's execution of a new Investment
Sub-Advisory Agreement (the "BlackRock Sub-Advisory Agreement") with BlackRock
Financial Management, Inc. ("BlackRock"). At a meeting of the Trustees held on
February 24, 1998, the Trustees, including the Independent Trustees, approved
the BlackRock Sub-Advisory Agreement, which contains substantially the same
terms and conditions as the Previous Sub-Advisory Agreement, except that the
sub-advisory fee is lower and an additional provision relating to the
indemnification of the Sub-Adviser has been included. The BlackRock Sub-Advisory
Agreement became effective at the close of business on March 27, 1998, and if
approved by shareholders, will have an initial duration of two years and will
continue for successive annual periods thereafter, provided such continuance is
approved at least annually by both a majority of all of the Trustees and a
majority of the Independent Trustees or by a Majority Vote of the outstanding
voting shares of the Series. In addition, Security Management has agreed to
lower its advisory fee from the annual rate of 0.90% of the value of the daily
net assets of the Series to 0.55% of the daily net assets if the BlackRock
Sub-Advisory Agreement is approved by shareholders.
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<PAGE>
INFORMATION ABOUT BLACKROCK
BlackRock is a wholly-owned subsidiary of BlackRock, Inc., which is a
wholly-owned subsidiary of PNC Bank, N.A. The principal offices of BlackRock and
BlackRock, Inc. are located at 345 Park Avenue, New York, New York 10154, with
additional offices in Philadelphia, Wilmington, Chicago and Edinburgh.
BlackRock, Inc. is a fully integrated money management firm with global fixed
income, equity and cash management capabilities.
As of December 31, 1997, BlackRock, Inc. and its subsidiaries managed
or administered approximately $108 billion in assets, including $54.9 billion in
fixed income, $11.5 billion in equity and $41.6 billion in liquidity
investments.
Investment companies with similar investment objectives to the Series
for which BlackRock provides investment advisory services, the amount of their
net assets as of December 31, 1997, and the annual rates of BlackRock's fees for
its services to such companies are indicated in the table below:
<TABLE>
<CAPTION>
Rate of investment
Total Net assets on advisory compensation
Fund December 31, 1997 (% of average daily net assets)
- ---- ----------------- -------------------------------
<S> <C> <C>
BlackRock Government Income Portfolio $23.2 Million 0.50%*
BlackRock Intermediate Government
Bond Portfolio $139.7 Million 0.50%*
</TABLE>
* During fiscal year 1997, BlackRock has agreed to waive a portion of its fees
for each portfolio.
BlackRock is registered as an investment adviser with the SEC under the Advisers
Act. The principal executive officers and the directors of BlackRock are:
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<PAGE>
Name and
Position with BlackRock Address
Laurence D. Fink BlackRock Financial Management, Inc.Chairman,
Chief Executive Officer
345 Park Avenue
and Director New York, New York 10154
Ralph L. Schlosstein BlackRock Financial Management, Inc.
President 345 Park Avenue
New York, New York 10154
Robert S. Kapito BlackRock Financial Management, Inc.
Vice Chairman 345 Park Avenue
New York, New York 10154
Susan L. Wagner BlackRock Financial Management, Inc.
Managing Director 345 Park Avenue
and Secretary New York, New York 10154
No Trustee or officer of the Series is an officer, employee, director or
security holder of BlackRock or has any other material direct or indirect
interest in BlackRock or in BlackRock's parent or affiliates.
EVALUATION BY THE TRUSTEES AND REASONS FOR THE PROPOSAL
At a meeting on February 24, 1998, the Trustees reviewed and considered
various materials furnished by BlackRock. The materials described, among other
matters, BlackRock and its affiliates, senior personnel, portfolio managers,
analysts, economists, and others, methods of operation, investment philosophies
and financial condition. Representatives of BlackRock discussed with the
Trustees the written materials and responded to questions from the Trustees. At
the end of this meeting, the Trustees, including the Independent Trustees,
determined that entering into a sub- advisory relationship with BlackRock was in
the best interests of the Series, and therefore, voted to approve the BlackRock
Sub-Advisory Agreement.
The factors that the Trustees considered most significant were
BlackRock's experience and past performance in managing securities portfolios
with similar investment objectives as the Series and BlackRock's willingness to
serve as sub-adviser for a lower fee than that charged by the former
Sub-Adviser. In addition, the Adviser informed the Trustees that it would agree
to lower its management fee, from an annual rate of 0.90 % to 0.55% of the daily
net assets of the Series, if shareholders approve the BlackRock Sub-Advisory
Agreement. The Trustees were also satisfied
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<PAGE>
that BlackRock (1) is knowledgeable and experienced in the operations of the
relevant financial markets and in the laws that are applicable to such
operations insofar as they might affect the Series, and (2) has the personnel,
financial resources and standing in the financial community to enable it to
discharge its duties under the BlackRock Sub-Advisory Agreement adequately.
TERMS OF THE BLACKROCK SUB-ADVISORY AGREEMENT
The description of the BlackRock Sub-Advisory Agreement is qualified
entirely by reference to the actual BlackRock Sub-Advisory Agreement, attached
hereto as Exhibit B. The terms of the BlackRock Sub-Advisory Agreement are
substantially the same as those contained in the Previous Sub-Advisory Agreement
with the exception of the amount of the sub-advisory fee and the inclusion of an
additional provision relating to indemnification.
Under the BlackRock Sub-Advisory Agreement, BlackRock is responsible
for making investment decisions, supplying investment research and portfolio
management services and placing purchase and sales orders for portfolio
transactions.
Expenses and Fees
Pursuant to the BlackRock Sub-Advisory Agreement, the Adviser will pay
BlackRock a monthly fee at an annual rate of 0.40% of the Series' average daily
net assets.
Duration
Pursuant to its terms, the BlackRock Sub-Advisory Agreement will remain
in effect for two years following its date of execution, provided that the
Agreement has been approved by shareholders of the Series. It will continue in
effect thereafter so long as its continuance is specifically approved annually
by either the Trust's Trustees or a majority of the outstanding voting
securities of the Series, provided that, in either event, the continuance also
is approved by at least a majority of the Independent Trustees, who are not
parties to the Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval.
Expense Reimbursement
As in the Previous Sub-Advisory Agreement, the Sub-Adviser will waive
its fee to the extent that the Series' expenses must be reduced in order to
comply with state law expense limitations and also may voluntarily reduce its
fee or make contributions to the Series so as to reduce the Series' expenses to
a level below that required by law.
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<PAGE>
Limitation of Liability
As in the Previous Sub-Advisory Agreement, BlackRock is not liable to
the Trust or to the Adviser for any act or omission in the course of or
connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding or sale of any security in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties under the Agreement on the part of BlackRock.
Unlike the Previous Sub-Advisory Agreement, the BlackRock Sub-Advisory
Agreement provides that the Adviser will indemnify and hold BlackRock harmless
from and against all claims, losses, liabilities or damages arising in
connection with the Sub-Advisory Agreement or from the performance of BlackRock
in relation to the Sub-Advisory Agreement, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of duties under
the Agreement on the part of BlackRock.
Termination; Assignment
The Previous Sub-Advisory Agreement could be terminated, without
penalty, by the Adviser on sixty (60) days' written notice to the Sub-Adviser or
by the Sub-Adviser on sixty (60) days' written notice to the Adviser. The Series
also could terminate the Previous Sub-Advisory Agreement, by either a majority
vote of the outstanding voting shares of the Series or a resolution of the
Trustees, on sixty (60) days' written notice to both the Adviser and the
Sub-Adviser. The Previous Sub-Advisory Agreement automatically terminated in the
event of its Assignment or in the event of the termination of the Master
Advisory Agreement. The BlackRock Sub-Advisory Agreement contains identical
provisions as to termination and assignment.
PORTFOLIO TRANSACTIONS
BlackRock will have the same duties and responsibilities as the
previous Sub-Adviser with respect to the allocation of principal business and
portfolio brokerage (see "Proposal 1-- Portfolio Transactions" above).
REQUIRED VOTE
Approval of the BlackRock Sub-Advisory Agreement requires the Majority
Vote (as previously defined herein) of shareholders.
If the BlackRock Sub-Advisory Agreement is approved by shareholders,
the Master Advisory Agreement between the Trust and Security Management will be
amended to reduce the annual management fee payable to Security Management to
0.55% of the average daily net assets of the Series from the current rate of
0.90%. If the BlackRock Sub-Advisory Agreement is not
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<PAGE>
approved by the shareholders of the Series, the Trustees will consider other
possible courses of action which are in the best interests of shareholders.
THE BOARD OF TRUSTEES, INCLUDING A MAJORITY OF THE INDEPENDENT TRUSTEES,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE BLACKROCK
SUB-ADVISORY AGREEMENT.
PROPOSAL 2(b)
TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY AGREEMENT BETWEEN
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION AND PROVIDENT CAPITAL
MANAGEMENT, INC. WITH RESPECT TO THE EQUITY SERIES, EFFECTIVE UPON THE
TERMINATION OF THE INTERIM SUB-ADVISORY AGREEMENT. (EQUITY SERIES ONLY)
SUMMARY OF PROPOSAL 2(b)
Based on an analysis of factors described below, a majority of the
Trustees of the Trust have approved the Adviser's execution of a new Investment
Sub-Advisory Agreement (the "Provident Sub-Advisory Agreement") with Provident
Capital Management, Inc. ("Provident"). At a meeting of the Trustees held on
February 24, 1998, the Trustees, including the Independent Trustees, approved
the Provident Sub-Advisory Agreement, which contains substantially the same
terms and conditions as the Previous Sub-Advisory Agreement, with the exception
that the sub-advisory fee is lower and an additional provision relating to
indemnification of the Sub-Adviser has been included. The Provident Sub-Advisory
Agreement became effective, at the close of business on March 27, 1998, and if
approved by shareholders, will have an initial duration of two years and will
continue for successive annual periods thereafter, provided such continuance is
approved at least annually by both a majority of all of the Trustees and a
majority of the Independent Trustees or by a Majority Vote of the outstanding
voting shares of the Series. In addition, Security Management has agreed to
lower its advisory fee from the annual rate of 0.90% of the value of the daily
net assets of the Series to 0.70% of the daily net assets if the Provident
Sub-Advisory Agreement is approved by shareholders.
INFORMATION ABOUT PROVIDENT
At the date of the execution of the Provident Sub-Advisory Agreement
and prior to the merger with BlackRock described below, Provident was a
wholly-owned subsidiary of BlackRock, Inc., which is a wholly-owned subsidiary
of PNC Bank, N.A. The principal offices of Provident were and of BlackRock, Inc.
are located at 345 Park Avenue, New York, New York 10154, with other offices in
Philadelphia, Wilmington, Chicago and Edinburgh. BlackRock, Inc. is a fully
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<PAGE>
integrated money management firm with global fixed income, equity and cash
management capabilities.
As of December 31, 1997, BlackRock, Inc. and its subsidiaries managed
or administered approximately $108 billion in assets, including $54.9 billion in
fixed income, $11.5 billion in equity and $41.6 billion in liquidity
investments.
Investment companies with similar investment objectives to the Series
for which Provident provided investment advisory services, the amount of their
net assets as of December 31, 1997, and the annual rates of Provident's fees for
its services to such companies are indicated in the table below:
<TABLE>
<CAPTION>
Rate of investment
Total Net assets on advisory compensation
Fund December 31, 1997 (% of average daily net assets)
- ---- ----------------- -------------------------------
<S> <C> <C>
BlackRock Select Equity Portfolio $736.7 Million 0.52%*
BlackRock Large Cap Value Portfolio $1,409.2 Million 0.54%*
</TABLE>
* During fiscal year 1997, Provident has agreed to waive a portion of its fees
for each portfolio.
At the date of the execution of the Sub-Advisory Agreement, Provident was
registered as an investment adviser with the SEC under the Advisers Act. The
principal executive officers and directors of Provident were:
Name and
Position with Provident Address
Laurence D. Fink Provident Capital Management, Inc.
Chairman, Chief Executive Officer 1600 Market Street
and Director Philadelphia, Pennsylvania 19103
Ralph L. Schlosstein Provident Capital Management, Inc.
President 1600 Market Street
Philadelphia, Pennsylvania 19103
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<PAGE>
Name and
Position with Provident Address
Robert S. Kapito Provident Capital Management, Inc.
Vice Chairman 1600 Market Street
Philadelphia, Pennsylvania 19103
Susan L. Wagner Provident Capital Management, Inc.
Managing Director 1600 Market Street
and Secretary Philadelphia, Pennsylvania 19103
No Trustee or officer of the Series was an officer, employee, director or
security holder of Provident or had any other material direct or indirect
interest in Provident or in Provident's parent or affiliates.
On March 31, 1998, Provident was merged into BlackRock. BlackRock
assumed Provident's responsibilities under the Provident Sub-Advisory Agreement,
and substantially all of the Provident employees responsible for providing
sub-advisory services to the Series became employees of BlackRock. Because
Provident and BlackRock are both wholly-owned subsidiaries of BlackRock, Inc.
and all of the directors and officers of Provident are also the directors and
officers of BlackRock, the merger did not result in an assignment under the 1940
Act (as previously described herein) of the Provident Sub-Advisory Agreement.
The Provident Sub-Advisory Agreement, therefore, continues in effect after the
merger.
EVALUATION BY THE TRUSTEES AND REASONS FOR THE PROPOSAL
At a meeting on February 24, 1998, the Trustees reviewed and considered
various materials furnished by Provident. The materials described, among other
matters, Provident and its affiliates, senior personnel, portfolio managers,
analysts, economists, and others, methods of operation, investment philosophies
and financial condition. Representatives of Provident discussed with the
Trustees the written materials and responded to questions from the Trustees. At
the end of this meeting, the Trustees, including the Independent Trustees,
determined that entering into a sub- advisory relationship with Provident was in
the best interests of the Series, and therefore, voted to approve the Provident
Sub-Advisory Agreement.
The factors that the Trustees considered most significant were
Provident's experience and past performance in managing securities portfolios
with similar investment objectives as the Series and Provident's willingness to
serve as sub-adviser for a lower fee than that charged by the former
Sub-Adviser. In addition, the Adviser informed the Trustees that it would agree
to lower its management fee, from an annual rate of 0.90 % to 0.70% of the daily
net assets of the Series, if shareholders approve the Provident Sub-Advisory
Agreement. The Trustees were also satisfied that Provident (1) was knowledgeable
and experienced in the operations of the relevant financial markets and in the
laws that are applicable to such operations insofar as they might affect the
Series, and (2)
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<PAGE>
had the personnel, financial resources and standing in the financial community
to enable it to discharge its duties under the Provident Sub-Advisory Agreement
adequately.
TERMS OF THE PROVIDENT SUB-ADVISORY AGREEMENT
The description of the Provident Sub-Advisory Agreement is qualified
entirely by reference to the actual Provident Sub-Advisory Agreement, attached
hereto as Exhibit C. The terms of the Provident Sub-Advisory Agreement are
substantially the same as those contained in the Previous Sub-Advisory Agreement
with the exception and the amount of the sub-advisory fee and the inclusion of
the additional provision relating to indemnification.
Under the Provident Sub-Advisory Agreement, Provident is responsible
for making investment decisions, supplying investment research and portfolio
management services and placing purchase and sales orders for portfolio
transactions.
Expenses and Fees
Pursuant to the Provident Sub-Advisory Agreement, the Adviser will pay
Provident a monthly fee at an annual rate of 0.55% of the Series' average daily
net assets.
Duration
Pursuant to its terms, the Provident Sub-Advisory Agreement will remain
in effect for two years following its date of execution, provided that the
Agreement has been approved by shareholders of the Series. It will continue in
effect thereafter so long as its continuance is specifically approved annually
by either the Trust's Trustees or a majority of the outstanding voting
securities of the Series, provided that, in either event, the continuance also
is approved by at least a majority of the Independent Trustees, who are not
parties to the Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval.
Expense Reimbursement
As in the Previous Sub-Advisory Agreement, the Sub-Adviser will waive
its fee to the extent that the Series' expenses must be reduced in order to
comply with state law expense limitations and also may voluntarily reduce its
fee or make contributions to the Series so as to reduce the Series' expenses to
a level below that required by law.
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<PAGE>
Limitation of Liability
As in the Previous Sub-Advisory Agreement, Provident is not liable to
the Trust or to the Adviser for any act or omission in the course of or
connected in any way with rendering services or for any losses that may be
sustained in the purchase, holding or sale of any security in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
obligations or duties under the Agreement on the part of Provident.
Unlike the Previous Sub-Advisory Agreement, the Provident Sub-Advisory
Agreement provides that the Adviser will indemnify and hold Provident harmless
from and against all claims, losses, liabilities or damages arising in
connection with the Sub-Advisory Agreement or from the performance of Provident
in relation to the Sub-Advisory Agreement, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of duties under
the Agreement on the part of Provident.
Termination; Assignment
The Previous Sub-Advisory Agreement could be terminated, without
penalty, by the Adviser on sixty (60) days' written notice to the Sub-Adviser or
by the Sub-Adviser on sixty (60) days' written notice to the Adviser. The Series
also could terminate the Previous Sub-Advisory Agreement, by either a majority
vote of the outstanding voting shares of the Series or a resolution of the
Trustees, on sixty (60) days' written notice to both the Adviser and the
Sub-Adviser. The Previous Sub-Advisory Agreement automatically terminated in the
event of its Assignment or in the event of the termination of the Master
Advisory Agreement. The Provident Sub-Advisory Agreement contains identical
provisions as to termination and assignment.
PORTFOLIO TRANSACTIONS
Provident will have the same duties and responsibilities as the
previous Sub-Adviser with respect to the allocation of principal business and
portfolio brokerage (see "Proposal 1--Portfolio Transactions above").
REQUIRED VOTE
Approval of the Provident Sub-Advisory Agreement requires the Majority
Vote (as previously defined herein) of shareholders.
If the Provident Sub-Advisory Agreement is approved by shareholders,
the Master Advisory Agreement between the Trust and Security Management will be
amended to reduce the annual management fee to 0.70% of the average daily net
assets of the Series from the current rate of
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<PAGE>
0.90%. If the Provident Sub-Advisory Agreement is not approved by the
shareholders of the Series, the Trustees will consider other possible courses of
action which are in the best interests of shareholders.
THE BOARD OF TRUSTEES, INCLUDING A MAJORITY OF THE INDEPENDENT
TRUSTEES, RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE PROVIDENT SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION CONCERNING THE TRUST
Voting Rights
Under the Declaration of Trust, shares of each Series of the Trust vote
separately as a class on matters submitted to the shareholders except as to
voting for Trustees and independent auditors and except as otherwise may be
required by the 1940 Act. In regard to the election of Trustees and the approval
of independent auditors, shareholders of all Series of the Trust vote together
as one class. In the event that the Trustees determine that a matter affects
only the interest of one or more Series, such as is the case of approval of
advisory and sub-advisory contracts, then only the shareholders of the affected
Series will be entitled to vote on that particular matter. Approval of such a
matter by one or more Series will not affect the interests of any other Series
of the Trust.
Shareholder Meetings
The Trust is not required to, and does not intend to, hold annual
meetings of its shareholders. Anyone wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of the Trust at
11365 West Olympic Boulevard, Los Angeles, California 90064, such that they will
be received in a reasonable period of time before any such meeting.
April 9, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE, AND
RETURN THE PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PAID ENVELOPE.
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<PAGE>
APPENDIX A
The names and addresses of the executive officers and directors of Virtus
Capital Management, Inc. are as follows:
OFFICERS:
Name and
Position with VCM Address
David C. Francis,
Chief Investment Officer First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
Tanya Orr Bird, Vice President Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
Josie Clemons Rosson,
Vice President, Assistant Virtus Capital Management, Inc.
Secretary 707 East Main Street
Suite 1300
Richmond, Virginia 23219
L. Robert Cheshire,
Vice President First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
John E. Gray, Vice President First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
Dillon S. Harris, Jr., Vice President First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
J. Kellie Allen, Vice President First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
Ethel B. Sutton, Vice President Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
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<PAGE>
DIRECTORS:
Name and
Position with VCM Address
David C. Francis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
Donald A. McMullen First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
William M. Ennis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
Barbara J. Colvin First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
William D. Munn First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-1195
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<PAGE>
EXHIBIT A
INTERIM SUB-ADVISORY AGREEMENT
between
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
and
VIRTUS CAPITAL MANAGEMENT, INC.
INTERIM SUB-ADVISORY AGREEMENT (the "Agreement"), made this 28th day of
November, 1997, by and between SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION,
a corporation organized and existing under the laws of the State of Delaware
(the "Adviser"), and VIRTUS CAPITAL MANAGEMENT, INC., (the "Subadviser"), a
subsidiary of First Union Corporation, a corporation organized and existing
under the laws of the State of North Carolina.
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 (the "Act") consisting of multiple investment
series; and
WHEREAS, shares of the Trust are made available to fund variable
contracts offered by life insurance companies; and
WHEREAS, at present the Trust is comprised of four investment series,
two of which, the Virtus Equity Series and the Virtus U.S. Government Income
Series (collectively, the "Virtus Series"), are the subject of this Agreement;
and
WHEREAS, the Trust has contracted with the Adviser for the Adviser to
provide investment advisory, business management and administrative services to
the Trust on behalf of the Virtus Series pursuant to a Master Investment
Management and Advisory Agreement (the "Advisory Agreement"); and
WHEREAS, the Adviser is authorized by the terms of the Advisory
Agreement to enter into subadvisory agreements with third parties; and
WHEREAS, the Subadviser is engaged in the business of rendering
investment management services and desires to serve as subadviser for the Virtus
Series;
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<PAGE>
A-1
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. The Adviser shall act as investment adviser and manager for each of
the Virtus Series pursuant to the Advisory Agreement, and as such has authority
and responsibility for supervising and directing the investments of the Virtus
Series in accordance with their investment objectives and policies, programs and
restrictions as stated in the Trust's registration statement and its current
prospectus and statement of additional information, and such other limitations
as are imposed upon the Trust pursuant to section 817(h) of the Internal Revenue
Code. Pursuant to its agreement with the Trust, the Adviser, as agent and
attorney-in-fact for the Trust on behalf of the Virtus Series may, when it deems
appropriate, (a) buy, sell, exchange, convert and otherwise trade in any stocks,
bonds or other securities, and (b) place orders for the execution of such
security transactions with or through such brokers, dealers or issuers as the
Adviser may select subject, however, at all times to the supervision of the
Board of Trustees of the Trust. The Adviser may delegate any of the foregoing
authority to Subadviser; provided, however, that nothing in this Agreement shall
be interpreted to derogate the responsibilities of the Adviser to the Trust or
the Virtus Series under the aforementioned Advisory Agreement.
2. The Adviser hereby employs Subadviser to render the advisory
services set forth herein for the fee specified herein.
3. During the term of this Agreement, or any extension thereof, and
unless otherwise limited by the Adviser as hereinafter provided, the Subadviser
will, to the best of its ability, exercise investment discretion on behalf of
the Virtus Series with respect to the purchase, holding or sale of securities in
accordance with the stated investment objectives and policies of the respective
Virtus Series as communicated to the Subadviser by the Adviser and as is
required to comply with the terms of the Advisory Agreement, the diversification
requirements of the Act and section 817(h) of the Internal Revenue Code. The
Subadviser shall not be required to respond to inquiries from the Adviser with
regard to specific securities other than securities which are or have been held
by the Virtus Series during the time this Agreement is in effect. The Adviser
reserves the right, subject to shareholder approval as required by law, to limit
the authority of the Subadviser herein solely in its discretion. The Subadviser
shall, for all purposes stated herein, be deemed an independent contractor and
shall not have custody of any of the assets of the Trust nor authority to act
for or represent the Virtus Series except as expressly provided herein.
4. The Subadviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purposes of
obtaining such statistical and other factual information, such advice regarding
economic factors and trends, such advice as to occasional transactions in
specific securities or such other information, advice or assistance as the
Subadviser may deem necessary, appropriate or convenient for the discharge of
its obligations hereunder or otherwise helpful to the Virtus Series, or in the
discharge of Subadviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser or subadviser. The
-26-
<PAGE>
Subadviser is authorized to allocate brokerage and principal business to firms
that provide such services or facilities and to cause the Virtus Series to pay a
member of a securities exchange or any other securities broker or dealer, an
amount of commission for effecting a securities transaction in
A-2
excess of the amount of commission another member of an exchange, broker or
dealer would have charged for effecting that transaction, if the Subadviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services (as such services
are defined in Section 28(e) of the Securities Exchange Act of 1934) provided by
such member, broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Subadviser with respect to
the accounts as to which the Subadviser exercises investment discretion (as that
term is defined in Section 3(a)(35) of the Securities Exchange Act of 1934).
5. The Subadviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for performance of its
services pursuant to this Agreement.
6. The Subadviser, its directors, officers and employees, shall make
available and provide such information relating to itself, its organization, its
personnel, and its activities as may be required by the Trust in the preparation
of registration statements, prospectuses, proxy materials, reports and other
documents required by federal and state securities laws. In addition, the
Subadviser, its directors, officers and employees shall provide such information
to the Board of Trustees of the Trust as said Board shall request and which may
be reasonably necessary for the Board to evaluate the terms of this Agreement in
accordance with the requirements of the Act.
7. The Subadviser agrees to maintain and preserve for such period or
periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books, and other documents relating to the Virtus
Series as constitute the records forming the basis for all reports, including
financial statements required to be filed pursuant to the Act and for the
Trust's auditor's certification. The Subadviser agrees that all accounts, books
and other records maintained and preserved as required hereby shall be subject
at any time, and from time to time, to such reasonable periodic, special and
other examinations by the Securities and Exchange Commission, the Trust's
auditors, the Trust or any representative of the Trust, or any governmental
agency or other instrumentality having regulatory authority over the Trust. It
is expressly understood and agreed that any books and records maintained by the
Subadviser on behalf of the Trust shall at all times remain the property of the
Trust. Moreover, the Adviser agrees to supply the Subadviser with copies of all
documents filed by the Trust with the Securities and Exchange Commission and
with such other information relating to the Trust's affairs as the Subadviser
may reasonably request.
-27-
<PAGE>
8. The Adviser shall pay the Subadviser a fee, based on the value of
the net assets of each of the Virtus Series as determined in accordance with the
Trust's current prospectus and statement of additional information, and computed
as follows:
(a) The fee shall be at the annual rate of 0.75 of 1% of the
average daily net assets of each of the Virtus Series.
A-3
(b) The fee shall be accrued for each calendar day and the sum of
the daily fee accruals shall be paid monthly to the Subadviser as soon
as is practicable after the end of each month and, in any event, by the
tenth day of each succeeding calendar month. The daily fee accruals
will be computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rate described in subparagraph
(a) of this Paragraph 8, and multiplying this product by the net assets
of each of the Virtus Series as determined in accordance with the
procedures set forth in the Trust's current prospectus and statement of
additional information as of the close of business on the previous
business day.
9. The Adviser agrees to furnish the Subadviser at its principal office all
post-effective amendments to the Trust's registration statement and all
prospectuses, statements of additional information, proxy materials, reports to
shareholders, sales literature, and other material prepared for distribution to
persons having a beneficial interest in shares of the Virtus Series, or to the
public, which refer in any way to the Subadviser ten (10) days prior to use
thereof and not to use such material if the Subadviser shall object thereto in
writing within seven (7) days after receipt of such material. In the event of
termination of this Agreement, the Adviser shall ensure that the Trust will, on
written request of the Subadviser, forthwith delete any reference to the
Subadviser from any materials described in the preceding sentence. The Adviser
shall furnish or otherwise make available to the Subadviser such other
information relating to the business affairs of the Trust and the Virtus Series
as the Subadviser at any time, or from time to time, reasonably requires in
order to discharge its obligations hereunder.
10. Nothing herein contained shall limit the freedom of the Subadviser or
any affiliated person of the Subadviser to render investment supervisory and
management administrative services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms, or
corporations, or to engage in other business activities. The Adviser understands
and agrees that the Subadviser may give advice and take action with respect to
any of its other clients which may differ from action taken under this Agreement
so long as it is the Subadviser's policy, to the extent practical, to allocate
investment opportunities to the Virtus Series over a period of time on a fair
and equitable basis relative to other clients. It is understood that the
Subadviser shall not have any obligation to purchase or sell for the Virtus
Series any security which the Subadviser, its principals, affiliated persons or
employees may
-28-
<PAGE>
purchase or sell for its or their own accounts or for the account of any other
client, if in the opinion of the Subadviser such transaction or investment
appears unsuitable, impractical or undesirable for the Virtus Series. In
discharging its duties hereunder, Subadviser shall be governed by the
requirements of the Act, including, but not limited to, Section 17 thereof.
11. The Subadviser shall not purchase or sell, or recommend the purchase or
sale of the securities of any issuer for the Virtus Series on the basis of any
material non-public ("inside") information.
12. (a) This Agreement shall take effect as to each Virtus Series on
November 28, 1997 (the "Effective Date") and shall continue in effect pursuant
to the terms and provisions of an order, dated November 5, 1997, which was
issued by the Securities and Exchange Commission under 1940 Act Release No.
22876.
A-4
(b) This Agreement shall continue in effect as to a Virtus Series from year
to year after the initial two year period described above so long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust, or by vote of a majority of the outstanding voting securities of
the Virtus Series, and, concurrently with such approval by the Board of Trustees
or prior to such approval by the holders of the outstanding voting securities of
the Virtus Series, as the case may be, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of Trustees of
the Trust who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party; and the Subadviser shall not have
notified the Adviser nor shall the Adviser have notified the Subadviser in
writing that it does not desire such continuation at least sixty (60) days prior
to the termination date of this Agreement.
(c) This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon sixty (60) days' notice in writing to the other
party, or by either or both of the Virtus Series upon sixty (60) days' prior
written notice to both parties hereto, provided, that in the case of termination
by one or both of the Virtus Series, such actions shall have been authorized by
resolution of the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the affected Virtus Series.
(d) This Agreement may not be amended without the written consent of the
Adviser and Subadviser, and affirmative vote of a majority of the outstanding
voting securities of the affected Virtus Series and by a vote of a majority of
the Board of Trustees of the Trust including a majority of the Trustees who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such amendment.
(e) It is understood and agreed that this Agreement may be approved,
continued, terminated without penalty or amended as to either of the Virtus
Series without affecting the other Virtus Series. The approval, continuation,
termination without penalty or amendment of this Agreement shall be conditioned
upon the actions of each of the Virtus Series acting as a separate
-29-
<PAGE>
entity. Failure to approve or continue this Agreement or the vote to terminate
this Agreement as to one Virtus Series shall not act to negate this Agreement as
to the other Virtus Series.
13. This Agreement shall terminate automatically in the event of its
assignment by either party. For the purpose of this paragraph, the term
"assignment" shall have the meaning set forth in Section 2(a)(4) of the Act.
14. If the aggregate expenses of a Virtus Series exceed any applicable
state expense limitations and the Adviser waives all or a portion of its fees
attributable to such Virtus Series pursuant to Paragraph 10 of the Advisory
Agreement dated October 30, 1997, the Subadviser agrees to waive such portion of
its fee under this Agreement attributable to that Series as may be necessary to
provide for any such excess expenses, but such waiver shall not exceed the full
amount of the fee for such year except as may be elected by the Subadviser in
its discretion or as provided hereinbelow. For this purpose, aggregate expenses
of a Virtus Series shall include the compensation of the Adviser, but shall
exclude interest, taxes, brokerage fees on portfolio transactions, commissions
paid on the distribution of shares, and certain extraordinary expenses
A-5
including litigation expenses. For the purposes of this paragraph the term
"fiscal year" shall be prorated in the event of a period of less than a full
fiscal year. The expense limitation shall be that part of the applicable annual
expense limitation proportional to the portion of a full fiscal year elapsed.
Notwithstanding the foregoing, the Adviser and Subadviser may voluntarily agree
to waive their respective fees, or to make contributions to a Virtus Series, so
as to reduce the expenses of the Virtus Series below that required by law.
15. Neither the Subadviser nor any of its officers, directors, or employees
performing services under this Agreement shall be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust or the Adviser
in connection with the matters to which this Agreement relates, except for loss
resulting from willful misfeasance, bad faith, or gross negligence in the
performance by the Subadviser or such person of the duties of the Subadviser or
from reckless disregard by the Subadviser or such person of the duties of the
Subadviser under this Agreement.
16. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act shall be resolved by reference to such term or provision of that Act
and to interpretations thereof, if any, by the United States Courts, and by
rules, regulations or orders of the Securities and Exchange Commission validly
issued pursuant to the Act. Specifically, the terms "affiliated person," as used
in paragraph 10, and "vote of a majority of the outstanding voting securities,"
and "interested person," as used in paragraph 12 hereof, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the effect of a
requirement of the Act reflected in any provision of this Agreement is relaxed
by a rule, regulation or order of the Securities and
-30-
<PAGE>
Exchange Commission, whether of special or of general application, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order.
17. Unless otherwise specified herein, all notices, instructions and advice
with respect to securities transactions or other matters contemplated by this
Agreement shall be deemed duly given to Subadviser when received in writing by
Subadviser at 7 North Eighth Street, Richmond, Virginia 23219, to the Trust at
11365 West Olympic Boulevard, Los Angeles, California 90064 and to the Adviser
at 11365 West Olympic Boulevard, Los Angeles, California 90064. The Subadviser
may rely upon any notice (written or oral) from any person which the Subadviser
reasonably believes to be genuine and authorized.
18. Nothing herein contained shall be deemed to prevent the Adviser from
contracting with investment advisory organizations other than Subadviser to
provide investment advisory services on a subadvisory basis to one or more
investment series of the Trust other than the Virtus Series.
19. This writing constitutes the entire agreement between the parties and
no conditions or warranties shall be implied herefrom unless expressly set forth
herein.
20. This Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and the year first above
written.
A-6
SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION
Attest:
______________________________ By: _____________________________
Secretary
VIRTUS CAPITAL MANAGEMENT, INC.
Attest:
______________________________ By: _____________________________
Secretary
-31-
<PAGE>
A-7
-32-
<PAGE>
EXHIBIT B
SUB-ADVISORY AGREEMENT
between
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
and
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT ("Agreement"), made this 27th day of March,
1998, by and between SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION, a
corporation organized and existing under the laws of the State of Delaware (the
"Adviser"), and BLACKROCK FINANCIAL MANAGEMENT, INC. (the "Subadviser), a
Delaware Corporation.
WITNESSETH:
WHEREAS, Security First Trust (the "Trust"), is an open-end,
diversified, management investment company registered as such under the
Investment Company Act of 1940 ("Act") consisting of multiple investment series;
and
WHEREAS, shares of the Trust are made available to fund variable
contracts offered by life insurance companies; and
WHEREAS, at present the Trust is comprised of four investment series,
one of which, the U.S. Government Income Series (the "Series"), is the subject
of this Agreement; and
WHEREAS, the Trust has contracted with the Adviser for the Adviser to
provide investment advisory, business management and administrative services to
the Trust on behalf of the Series pursuant to a Master Investment Management and
Advisory Agreement (the "Advisory Agreement"); and
WHEREAS, the Adviser is authorized by the terms of the Advisory
Agreement to enter into subadvisory agreements with third parties; and
WHEREAS, the Subadviser is engaged in the business of rendering
investment management services and desires to serve as subadviser for the
Series;
-33-
<PAGE>
B-1
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. The Adviser shall act as investment adviser and manager for the
Series pursuant to the Advisory Agreement, and as such has authority and
responsibility for supervising and directing the investments of the Series in
accordance with their investment objectives and policies, programs and
restrictions as stated in the Trust's registration statement and its current
prospectus and statement of additional information, and such other limitations
as are imposed upon the Trust pursuant to section 817(h) of the Internal Revenue
Code. Pursuant to its agreement with the Trust, the Adviser, as agent and
attorney-in-fact for the Trust on behalf of the Series may, when it deems
appropriate, (a) buy, sell, exchange, convert and otherwise trade in any stocks,
bonds or other securities, and (b) place orders for the execution of such
security transactions with or through such brokers, dealers or issuers as the
Adviser may select subject, however, at all times to the supervision of the
Board of Trustees of the Trust. The Adviser may delegate any of the foregoing
authority to Subadviser; provided, however, that nothing in this Agreement shall
be interpreted to derogate the responsibilities of the Adviser to the Trust or
the Series under the aforementioned Advisory Agreement.
2. The Adviser hereby employs Subadviser to render the advisory
services set forth herein for the fee specified herein.
3. During the term of this Agreement, or any extension thereof, and
unless otherwise limited by the Adviser as hereinafter provided, the Subadviser
will, to the best of its ability, exercise investment discretion on behalf of
the Series with respect to the purchase, holding or sale of securities in
accordance with the stated investment objectives and policies of the Series as
communicated to the Subadviser by the Adviser and as is required to comply with
the terms of the Advisory Agreement, the diversification requirements of the Act
and section 817(h) of the Internal Revenue Code. The Subadviser shall not be
required to respond to inquiries from the Adviser with regard to specific
securities other than securities which are or have been held by the Series
during the time this Agreement is in effect. The Adviser reserves the right,
subject to shareholder approval as required by law, to limit the authority of
the Subadviser herein solely in its discretion. The Subadviser shall, for all
purposes stated herein, be deemed an independent contractor and shall not have
custody of any of the assets of the Trust nor authority to act for or represent
the Series except as expressly provided herein.
4. The Subadviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purposes of
obtaining such statistical and other factual information, such advice regarding
economic factors and trends, such advice as to occasional transactions in
specific securities or such other information, advice or assistance as the
Subadviser may deem necessary, appropriate or convenient for the discharge of
its obligations hereunder or otherwise helpful to the Series, or in the
discharge of Subadviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser or subadviser. The Subadviser
-34-
<PAGE>
is authorized to allocate brokerage and principal business to firms that provide
such services or facilities and to cause the Series to pay a member of a
securities exchange or any other securities broker or dealer, an amount of
commission for effecting a securities transaction in excess of the
B-2
amount of commission another member of an exchange, broker or dealer would have
charged for effecting that transaction, if the Subadviser determines in good
faith that such amount of commission is reasonable in relation to the value of
the brokerage and research services (as such services are defined in Section
28(e) of the Securities Exchange Act of 1934) provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the overall
responsibilities of the Subadviser with respect to the accounts as to which the
Subadviser exercises investment discretion (as that term is defined in Section
3(a)(35) of the Securities Exchange Act of 1934).
5. The Subadviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for performance of its
services pursuant to this Agreement.
6. The Subadviser, its directors, officers and employees, shall make
available and provide such information relating to itself, its organization, its
personnel, and its activities as may be required by the Trust in the preparation
of registration statements, prospectuses, proxy materials, reports and other
documents required by federal and state securities laws. In addition, the
Subadviser, its directors, officers and employees shall provide such information
to the Board of Trustees of the Trust as said Board shall request and which may
be reasonably necessary for the Board to evaluate the terms of this Agreement in
accordance with the requirements of the Act.
7. The Subadviser agrees to maintain and preserve for such period or
periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books, and other documents relating to the Series as
constitute the records forming the basis for all reports, including financial
statements required to be filed pursuant to the Act and for the Trust's
auditor's certification. The Subadviser agrees that all accounts, books and
other records maintained and preserved as required hereby shall be subject at
any time, and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, the Trust's auditors,
the Trust or any representative of the Trust, or any governmental agency or
other instrumentality having regulatory authority over the Trust. It is
expressly understood and agreed that any books and records maintained by the
Subadviser on behalf of the Trust shall at all times remain the property of the
Trust. Moreover, the Adviser agrees to supply the Subadviser with copies of all
documents filed by the Trust with the Securities and Exchange Commission and
with such other information relating to the Trust's affairs as the Subadviser
may reasonably request.
8. The Adviser shall pay the Subadviser a fee, based on the value of
the net assets of each of the Series as determined in accordance with the
Trust's current prospectus and statement of additional information, and computed
as follows:
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<PAGE>
(a) The fees shall be at the annual rate of 0.40 of 1% of the average daily
net assets of the U.S. Government Income Series;
B-3
(b) The fees shall be accrued for each calendar day and the sum of
the daily fee accruals shall be paid monthly to the Subadviser as soon
as is practicable after the end of each month and, in any event, by the
tenth day of each succeeding calendar month. The daily fee accruals
will be computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rates described in subparagraph
(a) of this Paragraph 8, and multiplying these products by the net
assets of the Series as determined in accordance with the procedures
set forth in the Trust's current prospectus and statement of additional
information as of the close of business on the previous business day.
9. The Adviser agrees to furnish the Subadviser at its principal office all
post-effective amendments to the Trust's registration statement and all
prospectuses, statements of additional information, proxy materials, reports to
shareholders, sales literature, and other material prepared for distribution to
persons having a beneficial interest in shares of the Series, or to the public,
which refer in any way to the Subadviser ten (10) days prior to use thereof and
not to use such material if the Subadviser shall object thereto in writing
within seven (7) days after receipt of such material. In the event of
termination of this Agreement, the Adviser shall ensure that the Trust will, on
written request of the Subadviser, forthwith delete any reference to the
Subadviser from any materials described in the preceding sentence. The Adviser
shall furnish or otherwise make available to the Subadviser such other
information relating to the business affairs of the Trust and the Series as the
Subadviser 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 Subadviser or
any affiliated person of the Subadviser to render investment supervisory and
management administrative services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms, or
corporations, or to engage in other business activities. The Adviser understands
and agrees that the Subadviser may give advice and take action with respect to
any of its other clients which may differ from action taken under this Agreement
so long as it is the Subadviser's policy, to the extent practical, to allocate
investment opportunities to the Series over a period of time on a fair and
equitable basis relative to other clients. It is understood that the Subadviser
shall not have any obligation to purchase or sell for the Series any security
which the Subadviser, its principals, affiliated persons or employees may
purchase or sell for its or their own accounts or for the account of any other
client, if in the opinion of the Subadviser such transaction or investment
appears unsuitable, impractical or undesirable for the Series. In discharging
its duties hereunder, Subadviser shall be governed by the requirements of the
Act, including, but not limited to, Section 17 thereof.
-36-
<PAGE>
11. The Subadviser shall not purchase or sell, or recommend the purchase or
sale of the securities of any issuer for the Series on the basis of any material
non-public ("inside") information.
12. (a) This Agreement shall take effect as to the Series at the close of
business on March 27, 1998 (the "Effective Date") and shall continue in effect
for a period of two years provided that prior to the Effective Date the terms of
this Agreement have been approved by a vote of (a) a majority of the members of
the Board of Trustees of the Trust, including a majority of the Trustees who are
not parties to this Agreement or "interested persons" (as defined in the Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval, and (b) a majority of the outstanding "voting securities" (as
defined in the Act) of the Series.
B-4
(b) This Agreement shall continue in effect as to the Series from year to
year after the initial two year period described above so long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust, or by vote of a majority of the outstanding voting securities of
the 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 Series, as the case may be, by the vote, cast in person at a meeting called
for the purpose of voting on such approval, of a majority of Trustees of the
Trust who are not parties to this Agreement or "interested persons" (as defined
in the Act) of any such party; and the Subadviser shall not have notified the
Adviser nor shall the Adviser have notified the Subadviser in writing that it
does not desire such continuation at least sixty (60) days prior to the
termination date of this Agreement.
(c) This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon sixty (60) days' notice in writing to the other
party, or by the Series upon sixty (60) days' prior written notice to both
parties hereto, provided, that in the case of termination by the 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
Series.
(d) This Agreement may not be amended without the written consent of the
Adviser and Subadviser, and affirmative vote of a majority of the outstanding
voting securities of the Series and by a vote of a majority of the Board of
Trustees of the Trust including a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment.
13. This Agreement shall terminate automatically in the event of its
assignment by either party. For the purpose of this paragraph, the term
"assignment" shall have the meaning set forth in Section 2(a)(4) of the Act.
14. If the aggregate expenses of the Series exceed any applicable state
expense limitations and the Adviser waives all or a portion of its fees
attributable to the Series pursuant to Paragraph 10 of the Advisory Agreement
dated October 30, 1997, the Subadviser agrees to waive such portion of its
-37-
<PAGE>
fee under this Agreement attributable to the Series as may be necessary to
provide for any such excess expenses, but such waiver shall not exceed the full
amount of the fee for such year except as may be elected by the Subadviser in
its discretion or as provided hereinbelow. For this purpose, aggregate expenses
of the Series shall include the compensation of the Adviser, but shall exclude
interest, taxes, brokerage fees on portfolio transactions, commissions paid on
the distribution of shares, and certain extraordinary expenses including
litigation expenses. For the purposes of this paragraph the term "fiscal year"
shall be prorated in the event of a period of less than a full fiscal year. The
expense limitation shall be that part of the applicable annual expense
limitation proportional to the portion of a full fiscal year elapsed.
Notwithstanding the foregoing, the Adviser and Subadviser may voluntarily agree
to waive their respective fees, or to make contributions to the Series, so as to
reduce the expenses of the Series below that required by law.
15. The Adviser shall indemnify and hold harmless the Subadviser from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys' fees and other related
B-5
expenses) arising from or in connection with this Agreement or the performance
by the Subadviser of its duties hereunder; provided, however that nothing
contained herein shall require that the Subadviser be indemnified for any claim,
loss, liability or damage (including reasonable attorneys' fees and other
related expenses) resulting from the willful misfeasance, bad faith or gross
negligence in the performance by the Subadviser or by its officers, directors
and employees of the duties of the Subadviser or from the reckless disregard by
the Subadviser or such person of the duties of the Subadviser under this
Agreement.
16. Neither the Subadviser nor any of its officers, directors, or employees
performing services under this Agreement shall be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust or the Adviser
in connection with the matters to which this Agreement relates, except for loss
resulting from willful misfeasance, bad faith, or gross negligence in the
performance by the Subadviser or such person of the duties of the Subadviser or
from reckless disregard by the Subadviser or such person of the duties of the
Subadviser under this Agreement.
17. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act shall be resolved by reference to such term or provision of that Act
and to interpretations thereof, if any, by the United States Courts, and by
rules, regulations or orders of the Securities and Exchange Commission validly
issued pursuant to the Act. Specifically, the terms "affiliated person," as used
in paragraph 10, and "vote of a majority of the outstanding voting securities,"
and "interested person," as used in paragraph 12 hereof, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the effect of a
requirement of the Act reflected in any provision of this Agreement is relaxed
by a rule, regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
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<PAGE>
18. Unless otherwise specified herein, all notices, instructions and advice
with respect to securities transactions or other matters contemplated by this
Agreement shall be deemed duly given to Subadviser when received in writing by
Subadviser at 345 Park Avenue, New York, NY 10154, to the Trust at 11365 West
Olympic Boulevard, Los Angeles, California 90064 and to the Adviser at 11365
West Olympic Boulevard, Los Angeles, California 90064. The Subadviser may rely
upon any notice (written or oral) from any person which the Subadviser
reasonably believes to be genuine and authorized.
19. Nothing herein contained shall be deemed to prevent the Adviser from
contracting with investment advisory organizations other than Subadviser to
provide investment advisory services on a subadvisory basis to one or more
investment series of the Trust other than the Series.
20. This writing constitutes the entire agreement between the parties and
no conditions or warranties shall be implied herefrom unless expressly set forth
herein.
21. 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.
B-6
SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION
Attest:
______________________________ By: _____________________________
Secretary
BLACKROCK FINANCIAL MANAGEMENT, INC.
Attest:
______________________________ By: _____________________________
Secretary
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<PAGE>
B-7
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<PAGE>
EXHIBIT C
SUB-ADVISORY AGREEMENT
between
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION
and
PROVIDENT CAPITAL MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT ("Agreement"), made this 27th day of March,
1998, by and between SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION, a
corporation organized and existing under the laws of the State of Delaware (the
"Adviser"), and PROVIDENT CAPITAL MANAGEMENT, INC. (the "Subadviser), a
Pennsylvania Corporation.
WITNESSETH:
WHEREAS, Security First Trust (the "Trust"), is an open-end,
diversified, management investment company registered as such under the
Investment Company Act of 1940 ("Act") consisting of multiple investment series;
and
WHEREAS, shares of the Trust are made available to fund variable
contracts offered by life insurance companies; and
WHEREAS, at present the Trust is comprised of four investment series,
one of which, the Equity Series (the "Series"), is the subject of this
Agreement; and
WHEREAS, the Trust has contracted with the Adviser for the Adviser to
provide investment advisory, business management and administrative services to
the Trust on behalf of the Series pursuant to a Master Investment Management and
Advisory Agreement (the "Advisory Agreement"); and
WHEREAS, the Adviser is authorized by the terms of the Advisory
Agreement to enter into subadvisory agreements with third parties; and
WHEREAS, the Subadviser is engaged in the business of rendering
investment management services and desires to serve as subadviser for the
Series;
-41-
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
C-1
1. The Adviser shall act as investment adviser and manager for the
Series pursuant to the Advisory Agreement, and as such has authority and
responsibility for supervising and directing the investments of the Series in
accordance with their investment objectives and policies, programs and
restrictions as stated in the Trust's registration statement and its current
prospectus and statement of additional information, and such other limitations
as are imposed upon the Trust pursuant to section 817(h) of the Internal Revenue
Code. Pursuant to its agreement with the Trust, the Adviser, as agent and
attorney-in-fact for the Trust on behalf of the Series may, when it deems
appropriate, (a) buy, sell, exchange, convert and otherwise trade in any stocks,
bonds or other securities, and (b) place orders for the execution of such
security transactions with or through such brokers, dealers or issuers as the
Adviser may select subject, however, at all times to the supervision of the
Board of Trustees of the Trust. The Adviser may delegate any of the foregoing
authority to Subadviser; provided, however, that nothing in this Agreement shall
be interpreted to derogate the responsibilities of the Adviser to the Trust or
the Series under the aforementioned Advisory Agreement.
2. The Adviser hereby employs Subadviser to render the advisory
services set forth herein for the fee specified herein.
3. During the term of this Agreement, or any extension thereof, and
unless otherwise limited by the Adviser as hereinafter provided, the Subadviser
will, to the best of its ability, exercise investment discretion on behalf of
the Series with respect to the purchase, holding or sale of securities in
accordance with the stated investment objectives and policies of the Series as
communicated to the Subadviser by the Adviser and as is required to comply with
the terms of the Advisory Agreement, the diversification requirements of the Act
and section 817(h) of the Internal Revenue Code. The Subadviser shall not be
required to respond to inquiries from the Adviser with regard to specific
securities other than securities which are or have been held by the Series
during the time this Agreement is in effect. The Adviser reserves the right,
subject to shareholder approval as required by law, to limit the authority of
the Subadviser herein solely in its discretion. The Subadviser shall, for all
purposes stated herein, be deemed an independent contractor and shall not have
custody of any of the assets of the Trust nor authority to act for or represent
the Series except as expressly provided herein.
4. The Subadviser may employ, retain or otherwise avail itself of the
services or facilities of other persons or organizations for the purposes of
obtaining such statistical and other factual information, such advice regarding
economic factors and trends, such advice as to occasional transactions in
specific securities or such other information, advice or assistance as the
Subadviser may deem necessary, appropriate or convenient for the discharge of
its obligations hereunder or otherwise helpful to the Series, or in the
discharge of Subadviser's overall responsibilities with respect to the other
accounts which it serves as investment adviser or subadviser. The Subadviser
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<PAGE>
is authorized to allocate brokerage and principal business to firms that provide
such services or facilities and to cause the Series to pay a member of a
securities exchange or any other securities broker or dealer, an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, if the Subadviser determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services (as such services are
C-2
defined in Section 28(e) of the Securities Exchange Act of 1934) provided by
such member, broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Subadviser with respect to
the accounts as to which the Subadviser exercises investment discretion (as that
term is defined in Section 3(a)(35) of the Securities Exchange Act of 1934).
5. The Subadviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for performance of its
services pursuant to this Agreement.
6. The Subadviser, its directors, officers and employees, shall make
available and provide such information relating to itself, its organization, its
personnel, and its activities as may be required by the Trust in the preparation
of registration statements, prospectuses, proxy materials, reports and other
documents required by federal and state securities laws. In addition, the
Subadviser, its directors, officers and employees shall provide such information
to the Board of Trustees of the Trust as said Board shall request and which may
be reasonably necessary for the Board to evaluate the terms of this Agreement in
accordance with the requirements of the Act.
7. The Subadviser agrees to maintain and preserve for such period or
periods as the Securities and Exchange Commission may prescribe by rules and
regulations, such accounts, books, and other documents relating to the Series as
constitute the records forming the basis for all reports, including financial
statements required to be filed pursuant to the Act and for the Trust's
auditor's certification. The Subadviser agrees that all accounts, books and
other records maintained and preserved as required hereby shall be subject at
any time, and from time to time, to such reasonable periodic, special and other
examinations by the Securities and Exchange Commission, the Trust's auditors,
the Trust or any representative of the Trust, or any governmental agency or
other instrumentality having regulatory authority over the Trust. It is
expressly understood and agreed that any books and records maintained by the
Subadviser on behalf of the Trust shall at all times remain the property of the
Trust. Moreover, the Adviser agrees to supply the Subadviser with copies of all
documents filed by the Trust with the Securities and Exchange Commission and
with such other information relating to the Trust's affairs as the Subadviser
may reasonably request.
8. The Adviser shall pay the Subadviser a fee, based on the value of
the net assets of each of the Series as determined in accordance with the
Trust's current prospectus and statement of additional information, and computed
as follows:
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<PAGE>
(a) The fees shall be at the annual rate of 0.55 of 1% of the
average daily net assets of the Equity Series;
(b) The fees shall be accrued for each calendar day and the sum of
the daily fee accruals shall be paid monthly to the Subadviser as soon
as is practicable after the end of each month and, in any event, by the
tenth day of each succeeding calendar month. The daily fee accruals
will be computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rates described in subparagraph
(a) of this Paragraph 8, and multiplying these products by the net
assets of the 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.
C-3
9. The Adviser agrees to furnish the Subadviser at its principal office all
post-effective amendments to the Trust's registration statement and all
prospectuses, statements of additional information, proxy materials, reports to
shareholders, sales literature, and other material prepared for distribution to
persons having a beneficial interest in shares of the Series, or to the public,
which refer in any way to the Subadviser ten (10) days prior to use thereof and
not to use such material if the Subadviser shall object thereto in writing
within seven (7) days after receipt of such material. In the event of
termination of this Agreement, the Adviser shall ensure that the Trust will, on
written request of the Subadviser, forthwith delete any reference to the
Subadviser from any materials described in the preceding sentence. The Adviser
shall furnish or otherwise make available to the Subadviser such other
information relating to the business affairs of the Trust and the Series as the
Subadviser 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 Subadviser or
any affiliated person of the Subadviser to render investment supervisory and
management administrative services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms, or
corporations, or to engage in other business activities. The Adviser understands
and agrees that the Subadviser may give advice and take action with respect to
any of its other clients which may differ from action taken under this Agreement
so long as it is the Subadviser's policy, to the extent practical, to allocate
investment opportunities to the Series over a period of time on a fair and
equitable basis relative to other clients. It is understood that the Subadviser
shall not have any obligation to purchase or sell for the Series any security
which the Subadviser, its principals, affiliated persons or employees may
purchase or sell for its or their own accounts or for the account of any other
client, if in the opinion of the Subadviser such transaction or investment
appears unsuitable, impractical or undesirable for the Series. In discharging
its duties hereunder, Subadviser shall be governed by the requirements of the
Act, including, but not limited to, Section 17 thereof.
11. The Subadviser shall not purchase or sell, or recommend the purchase or
sale of the securities of any issuer for the Series on the basis of any material
non-public ("inside") information.
12. (a) This Agreement shall take effect as to the Series at the close of
business on March 27, 1998 (the "Effective Date") and shall continue in effect
for a period of two years provided that prior
-44-
<PAGE>
to the Effective Date the terms of this Agreement have been approved by a vote
of (a) a majority of the members of the Board of Trustees of the Trust,
including a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, cast in person
at a meeting called for the purpose of voting on such approval, and (b) a
majority of the outstanding "voting securities" (as defined in the Act) of the
Series.
(b) This Agreement shall continue in effect as to the Series from year to
year after the initial two year period described above so long as such
continuance is specifically approved at least annually by the Board of Trustees
of the Trust, or by vote of a majority of the outstanding voting securities of
the 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 Series, as the case may be, by the vote, cast in person at a meeting called
for the purpose of voting on such approval, of a majority of Trustees of the
Trust who are not parties to this Agreement or "interested persons" (as defined
in the Act) of any such party; and the Subadviser shall not have notified the
Adviser nor shall the Adviser
C-4
have notified the Subadviser in writing that it does not desire such
continuation at least sixty (60) days prior to the termination date of this
Agreement.
(c) This Agreement may be terminated by either party hereto, without the
payment of any penalty, upon sixty (60) days' notice in writing to the other
party, or by the Series upon sixty (60) days' prior written notice to both
parties hereto, provided, that in the case of termination by the 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
Series.
(d) This Agreement may not be amended without the written consent of the
Adviser and Subadviser, and affirmative vote of a majority of the outstanding
voting securities of the Series and by a vote of a majority of the Board of
Trustees of the Trust including a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such amendment.
13. This Agreement shall terminate automatically in the event of its
assignment by either party. For the purpose of this paragraph, the term
"assignment" shall have the meaning set forth in Section 2(a)(4) of the Act.
14. If the aggregate expenses of the Series exceed any applicable state
expense limitations and the Adviser waives all or a portion of its fees
attributable to the Series pursuant to Paragraph 10 of the Advisory Agreement
dated October 30, 1997, the Subadviser agrees to waive such portion of its fee
under this Agreement attributable to the Series as may be necessary to provide
for any such excess expenses, but such waiver shall not exceed the full amount
of the fee for such year except as may be elected by the Subadviser in its
discretion or as provided hereinbelow. For this purpose, aggregate expenses of
the Series shall include the compensation of the Adviser, but shall exclude
interest, taxes, brokerage fees on portfolio transactions, commissions paid on
the distribution of shares, and certain extraordinary expenses including
litigation expenses. For the purposes of this
-45-
<PAGE>
paragraph the term "fiscal year" shall be prorated in the event of a period of
less than a full fiscal year. The expense limitation shall be that part of the
applicable annual expense limitation proportional to the portion of a full
fiscal year elapsed. Notwithstanding the foregoing, the Adviser and Subadviser
may voluntarily agree to waive their respective fees, or to make contributions
to the Series, so as to reduce the expenses of the Series below that required by
law.
15. The Adviser shall indemnify and hold harmless the Subadviser from and
against any and all claims, losses, liabilities or damages (including reasonable
attorneys' fees and other related expenses) arising from or in connection with
this Agreement or the performance by the Subadviser of its duties hereunder;
provided, however that nothing contained herein shall require that the
Subadviser be indemnified for any claim, loss, liability or damage (including
reasonable attorneys' fees and other related expenses) resulting from the
willful misfeasance, bad faith or gross negligence in the performance by the
Subadviser or by its officers, directors and employees of the duties of the
Subadviser or from the reckless disregard by the Subadviser or such person of
the duties of the Subadviser under this Agreement.
16. Neither the Subadviser nor any of its officers, directors, or employees
performing services
C-5
under this Agreement shall be liable for any error of judgment or mistake of law
or for any loss suffered by the Trust or the Adviser in connection with the
matters to which this Agreement relates, except for loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance by the Subadviser
or such person of the duties of the Subadviser or from reckless disregard by the
Subadviser or such person of the duties of the Subadviser under this Agreement.
17. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act shall be resolved by reference to such term or provision of that Act
and to interpretations thereof, if any, by the United States Courts, and by
rules, regulations or orders of the Securities and Exchange Commission validly
issued pursuant to the Act. Specifically, the terms "affiliated person," as used
in paragraph 10, and "vote of a majority of the outstanding voting securities,"
and "interested person," as used in paragraph 12 hereof, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the effect of a
requirement of the Act reflected in any provision of this Agreement is relaxed
by a rule, regulation or order of the Securities and Exchange Commission,
whether of special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
18. Unless otherwise specified herein, all notices, instructions and advice
with respect to securities transactions or other matters contemplated by this
Agreement shall be deemed duly given to Subadviser when received in writing by
Subadviser at 345 Park Avenue, New York, NY 10154, to the Trust at 11365 West
Olympic Boulevard, Los Angeles, California 90064 and to the Adviser at 11365
West Olympic Boulevard, Los Angeles, California 90064. The Subadviser may rely
upon
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<PAGE>
any notice (written or oral) from any person which the Subadviser reasonably
believes to be genuine and authorized.
19. Nothing herein contained shall be deemed to prevent the Adviser from
contracting with investment advisory organizations other than Subadviser to
provide investment advisory services on a subadvisory basis to one or more
investment series of the Trust other than the Series.
20. This writing constitutes the entire agreement between the parties and
no conditions or warranties shall be implied herefrom unless expressly set forth
herein.
21. This Agreement shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and the year first above
written.
SECURITY FIRST INVESTMENT
MANAGEMENT CORPORATION
Attest:
______________________________ By: _____________________________
Secretary
C-6
PROVIDENT CAPITAL MANAGEMENT, INC.
Attest:
______________________________ By: _____________________________
Secretary
-47-
<PAGE>
C-7
-48-
<PAGE>
SECURITY FIRST TRUST
U.S. Government Income Series
THIS SOLICITATION IS BEING MADE ON BEHALF
OF THE BOARD OF TRUSTEES.
The undersigned contract owner, annuitant or participant, by completing this
form does hereby appoint Security First Life Separate Account A, attorneys and
proxies for the undersigned, with full powers of substitution and revocation, to
represent the undersigned and to vote on behalf of the undersigned all shares of
Beneficial Interest which the undersigned is entitled to vote at a Special
Meeting of Shareholders to be held at 10:00 a.m. Pacific time on May 5, 1998 at
the offices of Security First Group, Inc., 11365 West Olympic Boulevard, Los
Angeles, CA 90064 and at any adjournments thereof.
The undersigned, by completing this form, does hereby request that the proxy be
authorized to exercise its discretion in voting upon such other business as may
properly come before the meeting.
UNITS
PLEASE VOTE, DATE, SIGN
EXACTLY AS YOUR NAME
APPEARS BELOW AND RETURN
THIS FORM IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE.
NOTE: The undersigned
hereby acknowledges receipt
of the Notice of Special
Meeting and Proxy
Statement, and revokes any
proxy heretofore given with
respect to the votes
covered by this proxy.
Dated______________,1998 _______________________________
(Signature)
The interest represented by this proxy will be voted as directed below,
or if no direction is indicated, will be voted FOR each of the proposals below.
If a proxy is not received from
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<PAGE>
a particular contract owner, participant or annuitant, then votes attributable
to his interest will be allocated in the same ratio as votes for which
instructions have been received.
Please vote by checking your response to each proposal.
To approve the Interim Sub-Advisory Agreement between Security First Investment
Management Corporation and Virtus Capital Management, Inc. with respect to the
U.S. Government Income Series (the "Series").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To approve the new Sub-Advisory Agreement, effective upon the expiration of the
Interim Sub- Advisory Agreement, between Security First Investment Management
Corporation and BlackRock Financial Management, Inc. with respect to the Series.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
-50-
<PAGE>
SECURITY FIRST TRUST
Equity Series
THIS SOLICITATION IS BEING MADE ON BEHALF
OF THE BOARD OF TRUSTEES.
The undersigned contract owner, annuitant or participant, by completing this
form does hereby appoint Security First Life Separate Account A, attorneys and
proxies for the undersigned, with full powers of substitution and revocation, to
represent the undersigned and to vote on behalf of the undersigned all shares of
Beneficial Interest which the undersigned is entitled to vote at a Special
Meeting of Shareholders to be held at 10:00 a.m. Pacific time on May 5, 1998 at
the offices of Security First Group, Inc., 11365 West Olympic Boulevard, Los
Angeles, CA 90064 and at any adjournments thereof.
The undersigned, by completing this form, does hereby request that the proxy be
authorized to exercise its discretion in voting upon such other business as may
properly come before the meeting.
UNITS
PLEASE VOTE, DATE, SIGN
EXACTLY AS YOUR NAME
APPEARS BELOW AND RETURN
THIS FORM IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE.
NOTE: The undersigned
hereby acknowledges receipt
of the Notice of Special
Meeting and Proxy
Statement, and revokes any
proxy heretofore given with
respect to the votes
covered by this proxy.
Dated______________,1998 _______________________________
(Signature)
The interest represented by this proxy will be voted as directed below,
or if no direction is indicated, will be voted FOR each of the proposals below.
If a proxy is not received from
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<PAGE>
a particular contract owner, participant or annuitant, then votes attributable
to his interest will be allocated in the same ratio as votes for which
instructions have been received.
Please vote by checking your response to each proposal.
To approve the Interim Sub-Advisory Agreement between Security First Investment
Management Corporation and Virtus Capital Management, Inc. with respect to the
Equity Series (the "Series").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
To approve the new Sub-Advisory Agreement, effective upon the expiration of the
Interim Sub- Advisory Agreement, between Security First Investment Management
Corporation and Provident Capital Management, Inc. with respect to the Series.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
-52-
<PAGE>
-53-
<PAGE>
