<PAGE>
File No. 2-51173
File No. 811-2480
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 38 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 37 [x]
SECURITY FIRST TRUST
(Exact Name of Registrant as Specified in Charter)
11365 West Olympic Boulevard
Los Angeles, California 90064
(Address of Principal Executive Offices)
---------------------------------
(310) 312-6100
(Registrant's Telephone Number)
Richard C. Pearson, Esquire Copies To:
Security First Life Insurance Company John Dudley, Esquire
11365 West Olympic Boulevard Sullivan & Worchester
Los Angeles, California 90064 1025 Connecticut Ave., N.W.
(Name and Address of Agent for Service) Washington, D.C. 20036
--------------------------------
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
____ on [date] pursuant to paragraph (b) of Rule 485
__X_ 60 days after filing pursuant to paragraph (a)(1) on [date] pursuant
____ to paragraph (a)(1) 75 days after filing pursuant to paragraph (a)(2)
____ on [date] pursuant to paragraph (a)(2) of Rule 485
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant declares that it has registered an indefinite number of its
shares under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The most recent Rule 24f-2 Notice was filed on
September 17, 1999.
<PAGE>
<TABLE>
SECURITY FIRST TRUST
CROSS REFERENCE SHEET
<CAPTION>
ITEM NUMBER IN FORM N-1A HEADINGS IN PROSPECTUS
- ------------------------ OR STATEMENT OF
ADDITIONAL INFORMATION
----------------------
PART A
<S> <C> <C>
1. Cover Page Cover (Prospectus)
2. Risk/Return Summary: Investments, Risk/Return Summary
Risk, and Performance
3. Risk/Return Summary: Fee Table Expense Summary
4. Investment Objectives, Principal Risk/Return Summary; Growth and Income Series;
Investment Strategies, Related Risks Bond Series; Equity Series; U.S. Government
Income Series
Certain Investment Strategies and Risks
5. Management's Discussion of Fund Bar Chart and Performance Table
Performance
6. Management, Organization, and Management of the Series
Capital Structure
7. Shareholder Information Description of the Shares
8. Distribution Arrangements Other Information
9. Financial Highlights Information Financial Highlights
PART B
10. Cover Page and Table of Contents Cover (Statement of Additional Information);
Table of Contents
11. Fund History The Trust
12. Description of the Fund and Its The Trust
Investments
13. Management of the Fund Management of the Trust
14. Control Persons and Principal Principal Holders of Securities
Holders of Securities
<PAGE>
15. Investment Advisory and Other Investment Adviser and Other Services; Custodian;
Independent Auditors; Legal Counsel
16. Brokerage Allocation and Other Brokerage
Practices
17. Capital Stock and Other Securities *
18. Purchase, Redemption and Pricing of Pricing and Redemption of Securities Being
Shares Offered; Federal Registration of Shares
19. Taxation of the Fund Taxation
20. Underwriters *
21. Calculations of Performance Data *
22. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
* Omitted from Prospectus or Statement of Additional Information because Item is
not applicable.
<PAGE>
SECURITY FIRST TRUST
PROSPECTUS
NOVEMBER ___, 1999
T. ROWE PRICE GROWTH AND INCOME SERIES
BOND SERIES
EQUITY SERIES
U.S. GOVERNMENT INCOME SERIES
This prospectus describes the four series of the Security First Trust ("the
Trust"):
1. T. ROWE PRICE GROWTH AND INCOME SERIES ("Growth and Income Series") seeks
to provide reasonable current income and long-term growth of capital and
income;
2. BOND SERIES ("Bond Series") seeks to maximize investment income over the
long term and conservation of principal;
3. EQUITY SERIES ("Equity Series") seeks to provide growth of capital and
income; and
4. U.S. GOVERNMENT INCOME SERIES ("Government Income Series") seeks to provide
current income.
THIS PROSPECTUS CONTAINS INFORMATION YOU SHOULD KNOW BEFORE INVESTING. YOU
SHOULD READ IT AND KEEP IT FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE SERIES' SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. TO SUGGEST OTHERWISE
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
IMPORTANT NOTICE: THE FDIC OR ANY OTHER GOVERNMENT AGENCY DOES NOT INSURE THESE
SERIES. THEY ARE NOT DEPOSITS, OBLIGATIONS, OR GUARANTEED BY ANY BANK. THEY
INVOLVE INVESTMENT RISKS, WHICH INCLUDE THE POSSIBLE LOSS OF ANY PRINCIPAL
AMOUNT INVESTED.
- --------------------------------------------------------------------------------
<PAGE>
+------------------+
|TABLE OF CONTENTS |
+------------------+
I. Expense Summary ................................................... 1
II. Risk/Return Summary ............................................... 2
1. Growth and Income Series...................................... 2
2. Bond Series .................................................. 6
3. Equity Series................................................. 11
4. Government Income Series..................................... 18
III. Certain Investment Strategies and Risks............................ 23
IV. Management of the Series........................................... 24
V. Description of the Shares.......................................... 25
VI. Other Information.................................................. 25
VII. Financial Highlights............................................... 30
<PAGE>
The Trust offers shares of its four series to separate accounts established by
life insurance companies to fund variable contracts. The series are described
below:
- ------------------
I. EXPENSE SUMMARY
- ------------------
* EXPENSE TABLE
This table describes the expense that you may pay when you hold shares of
the series. These fees and expenses DO NOT take into account the fees and
expenses imposed by insurance companies through which your investment in a
series may be made.
ANNUAL SERIES OPERATING EXPENSES (expenses that are deducted from a series'
assets):
<TABLE>
<CAPTION>
- --------------------------------------- -------------------- ----------------- ------------------- ----------------------
GROWTH AND INCOME GOVERNMENT INCOME
SERIES BOND SERIES EQUITY SERIES SERIES
- --------------------------------------- -------------------- ----------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEE .50% .50% .70% .55%
- --------------------------------------- -------------------- ----------------- ------------------- ----------------------
OTHER EXPENSES .09% .16% .11% .16%
- --------------------------------------- -------------------- ----------------- ------------------- ----------------------
TOTAL ANNUAL EXPENSES .59% .66% .81% .71%
- --------------------------------------- -------------------- ----------------- ------------------- ----------------------
EXPENSE REIMBURSEMENT --- --- --- ---
- --------------------------------------- -------------------- ----------------- ------------------- ----------------------
NET EXPENSES .59% .66% .81% .71%
- --------------------------------------- -------------------- ----------------- ------------------- ----------------------
</TABLE>
* EXAMPLE OF EXPENSES
These examples are intended to help you compare the cost of investing in
the series with the cost of investing in other mutual funds. These examples
do not take into account the fees and expenses imposed by insurance
companies through which your investment in a series may be made.
The examples assume that:
o You invest $10,000.00 in the series for the time periods indicated and you
redeem your shares at the end of the time periods;
o Your investment has a 5% return each year and dividends and other
distributions are reinvested; and
o The series' operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
<TABLE>
<CAPTION>
------------------------------------ ------------- ------------ ------------ --------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
GROWTH AND INCOME SERIES 60 189 329 738
------------------------------------ ------------- ------------ ------------ --------------
BOND SERIES 67 211 368 822
------------------------------------ ------------- ------------ ------------ --------------
EQUITY SERIES 83 259 450 1002
------------------------------------ ------------- ------------ ------------ --------------
GOVERNMENT INCOME SERIES 73 227 395 883
------------------------------------ ------------- ------------ ------------ --------------
</TABLE>
1
<PAGE>
------------------------
II. RISK RETURN SUMMARY
------------------------
Investment strategies that are common to all series are described under the
caption "Certain Investment Strategies"
1. GROWTH AND INCOME SERIES
- --------------------------------------------------------------------------------
* INVESTMENT OBJECTIVE
The series' main investment objective is capital growth and income
production.
The series' secondary objective is principal conservation.
* PRINCIPAL INVESTMENT POLICIES
To meet these goals, the series usually invests most of its assets in
common stocks. The series may also invest in other securities. These may
include preferred stock, stock in foreign companies and fixed-income
investments.
The series' investment goals are meant to be flexible enough to allow the
series to invest in different equity securities and fixed-income
investments. As a result, you can expect the series to vary its investments
from time to time based upon the management's view of:
o business and market conditions,
o fiscal and monetary policies, and
o underlying asset values.
Growth and Income Series will not invest in a company merely to exercise
control over how that company is run.
* PRINCIPAL RISKS
The principal risks of investing in the series and the circumstances
reasonably likely to cause the value of your investment in the series to
fall are described below. As with any non-money market mutual fund, the
share price of the series will change daily based on market conditions and
other factors.
Please note that there are many circumstances that could cause the value of
your investment in the series to decline that are not described here. These
circumstances could prevent the series from reaching its objectives.
2
<PAGE>
The principal risks of investing in the series are:
o MARKET RISK - The risk that the price of a security held by the series
will fall due to changing economic, political, or market conditions.
o COMPANY RISK - Since securities' prices react to the economic
condition of the company that issued those securities, the series'
investments may rise or fall in a particular company based on:
- the issuer's real or anticipated earnings,
- changes in the issuer's management, and
- the potential for takeover and acquisition.
o OVER-THE-COUNTER RISK ("OTC") - These transactions involve risks in
addition to those incurred when securities are traded on an exchange.
OTC listed companies may be limited in their product lines, markets or
financial resources. Compared with exchange-listed stock, many OTC
stocks trade less frequently and in smaller volume. This can make
their value more unstable than exchange-listed stock and may make
buying or selling them more difficult.
o FOREIGN MARKETS RISK - Investing in foreign securities involves risks
that relate to political, social and economic development. You may
also experience risks that come from the differences between how U.S.
and foreign markets are regulated.
- These risks may include:
- government seizure of company assets,
- excessive taxation,
- withholding taxes on dividends and interest,
- limitations on the use of your portfolio, and
- social instability.
- Enforcing your legal rights may be difficult, costly and slow.
- Foreign companies may not be subject to U.S. accounting standards
or government regulation.
- Foreign markets may be less liquid and unstable.
- Foreign securities often trade in money other than U.S. dollars.
Changes in currency exchange rates will affect:
- the series' net asset value,
- the value of your dividends and earned interest, and
- gains and losses from the sale of securities.
3
<PAGE>
- Changes in the value of the U.S. dollar may cause changes in the
value of the series.
It is important to remember that as with any mutual fund, you could lose
money on your investment in the Growth and Income Series.
* BAR CHART AND PERFORMANCE TABLE
The chart and performance table below are intended to indicate some of
the risks of investing in the series by showing changes in its
performance over time.
The performance table also shows how the series' performance compares
over time with that of one or more broad measures of market
performance. The chart and table provide past performance information.
The series past performance does not necessarily show how the series
will perform in the future.
The returns shown do not reflect fees and charges imposed under the
variable annuity and life insurance contracts through which an
investment may be made. If these fees and charges were included, they
would reduce these returns.
4
<PAGE>
o BAR CHART
The chart shows changes in the annual total returns of the series'
shares for the last ten years, assuming distributions were reinvested.
[GROWTH & INCOME SERIES BAR CHART HERE]
During the period shown in the bar chart, the highest quarterly return
was 16.33% (for the calendar quarter ended March 1991), and the lowest
quarterly return was -16.17% (for the calendar quarter ended September
1990).
o PERFORMANCE TABLE
The table shows how the average annual total returns as of Dec. 31,
1998, of the series' shares compare to a broad measure of market
performance, assuming distributions were reinvested.
--------------------------- ---------- ---------- ----------
1 Year 5 Years 10 Years
--------------------------- ---------- ---------- ----------
Growth and Income Series 10.16% 18.08% 14.85%
--------------------------- ---------- ---------- ----------
S&P 500 Index 28.58% 24.06% 19.21%
--------------------------- ---------- ---------- ----------
* PORTFOLIO MANAGER
Security First Investment Management Corporation currently manages the
series under a Master Investment Management and Advisory Agreement
dated October 30, 1997.
5
<PAGE>
The Advisory Agreement gives Security Management the power to hire one
or more sub-advisers, subject to its own supervision. Security
Management entered into a Sub-Advisory Agreement with Price Associates,
dated October 30, 1997. Price Associates is a Maryland corporation that
was incorporated in 1947. It is the successor to the investment
counseling business founded by Mr. T. Rowe Price in 1937. Its principal
offices are at:
100 East Pratt Street
Baltimore, Maryland 21202.
Price Associates and some of its subsidiaries serve as investment
advisers to individuals and institutional investors (such as mutual
funds), with total net assets under supervision of approximately $159.2
billion. Price Associates is registered as an investment adviser under
the Investment Advisers Act of 1940.
Price Associates provides investment management services to the series.
This means Price Associates may:
- purchase or sell securities on behalf of the Trust,
- communicate with brokers, dealers, custodians or other parties
on behalf of the Trust,
- allocate brokerage, and
- obtain research services.
In performing these services, Price Associates must analyze information
that relates to the economy, industries, business and securities when
necessary. Price Associates must also form its own plan for performing
these services.
Mr. Brian C. Rogers is the primary portfolio manager for the Growth and
Income Series. He has held this position since 1989. Mr. Rogers has
been employed with Price Associates more than 10 years. He is a
Managing Director with the company. His other duties include management
of two publicly offered mutual funds and separate institutional
investment accounts.
6
<PAGE>
2. BOND SERIES
- --------------------------------------------------------------------------------
* INVESTMENT OBJECTIVE
The series' primary investment objective is to achieve the highest
long-term investment income with the preservation of capital.
The series' secondary objective is growth of principal and income by
investing in common and preferred stocks.
* PRINCIPAL INVESTMENT POLICIES
The series' investment goals are to purchase securities that will generate
investment income. To meet this goal, the series mainly invests in
marketable debt securities. The Bond Series does not usually buy securities
for short-term profits. As a result, its portfolio changes occur gradually.
The Trustees, however, are not restricted to this policy. If a long-term
investment turns out to not be a good one, the Trustees may decide to use
short-term transactions.
Under normal circumstances, the series invests at least 65% of its total
assets in fixed-income debt instruments. The series also invests in
residential and commercial mortgages (secured by a first lien). Up to 10%
of its total assets are usually invested in common and preferred stocks.
U.S. dollar denominated foreign fixed income debt securities and Canadian
government securities may also be purchased.
Generally, the series will invest in what is known as "Investment grade"
securities. Up to 20% of its assets may, however, be invested in the
following:
Ba or B graded securities by Moody's Investors Services, Inc.
("Moody's") or
BB or B graded securities by Standard and Poor's ("S&P").
As of July 31, 1999, about 12.0% of the series' investment portfolio was
invested in high yield debt securities.
* PRINCIPAL RISKS
The principal risks of investing in the series and the circumstances
reasonably likely to cause the value of your investment in the series to
fall are described below. As with any non-money market mutual fund, the
share price of the series will change daily based on market conditions and
other factors.
7
<PAGE>
Please note that there are many circumstances that could cause the value of
your investment in the series to decline that are not mentioned here. These
circumstances could prevent the series from reaching its objectives.
The principal risks of investing in the series are:
o MARKET RISK - The risk that the price of a security held by the series
will fall due to changing economic, political, or market conditions.
o COMPANY RISK - Since securities' prices react to the economic
condition of the company that issued those securities, the series'
investments may rise or fall in a particular company based on:
- the issuer's real or anticipated earnings,
- changes in the issuer's management, and
- the potential for takeover and acquisition.
o BOND RISK - High-yield, high-risk bonds involve risks that
investment-grade bonds do not have. These risks include:
- rising interest rates,
- economic downturns, and
- corporate developments.
- High-yield bonds may contain redemption or call provisions. If an
issuing company exercised these provisions during a time of
declining interest rates, the series would have to replace them
with a lower-yielding security. This would decrease your return.
- At times, there is little activity in the secondary market for
some bonds. This makes it difficult for the series to correctly
value these bonds. It can also be difficult to dispose of these
same bonds.
- The perceptions of investors may lower the value and liquidity of
high-yield bonds, whether or not these ideas are based on sound
analysis.
- Bad publicity may also lower the value and liquidity of
high-yield bonds, especially in a thin market.
o FOREIGN MARKETS RISK - Investing in foreign securities involves risks
that relate to political, social, and economic development. You may
also experience risks that come from the differences between how U.S.
and foreign markets are regulated.
8
<PAGE>
- These risks may include:
- government seizure of company assets,
- excessive taxation,
- withholding taxes on dividends and interest,
- limitations on the use of your portfolio, and
- social instability.
- Enforcing your legal rights may be difficult, costly, and slow.
- Foreign companies may not be subject to U.S. accounting standards
or government regulation.
- Foreign markets may be less liquid and unstable.
- Foreign securities often trade in money other than U.S. dollars.
Changes in currency exchange rates will affect:
- the series' net asset value,
- the value of your dividends and earned interest, and
- gains and losses from the sale of securities.
- Changes in the value of the U.S. dollar may cause changes in the
value of the series.
It is important to remember that as with any mutual fund, you could lose
money on your investment in the Bond Series.
* BAR CHART AND PERFORMANCE TABLE
The chart and performance table below are intended to indicate some of
the risks of investing in the series by showing changes in its
performance over time.
The performance table also shows how the series' performance compares
over time with that of one or more broad measures of market
performance. The chart and table provide past performance information.
The series' past performance does not necessarily show how the series
will perform in the future.
The returns shown do not reflect fees and charges imposed under the
variable annuity and life insurance contracts through which an
investment may be made. If these fees and charges were included, they
would reduce these returns.
9
<PAGE>
o BAR CHART
The chart shows changes in the annual total returns of the series'
shares for the last ten years, assuming distributions were reinvested.
[BOND SERIES BAR CHART HERE]
During the period shown in the bar chart, the highest quarterly return
was 5.75% (for the calendar quarter ended June 1989), and the lowest
quarterly return was -2.90% (for the calendar quarter ended March
1994).
o PERFORMANCE TABLE
The table shows how the average annual total returns as of Dec. 31,
1998, of the series' shares compare to a broad measure of market
performance, assuming distributions were reinvested.
--------------------------------- ---------- --------- ----------
1 Year 5 Years 10 Years
--------------------------------- ---------- --------- ----------
Bond Series 7.49% 6.32% 7.75%
--------------------------------- ---------- --------- ----------
Lehman Bros. Gov't/Corp. Index 9.47% 7.30% 9.33%
--------------------------------- ---------- --------- ----------
* PORTFOLIO MANAGER
Security First Investment Management Corporation currently manages
the series under a Master Investment Management and Advisory
Agreement dated October 30, 1997.
10
<PAGE>
The Advisory Agreement gives Security Management the power to hire
one or more sub-advisers, subject to its own supervision. Security
Management entered into a Sub-Advisory Agreement with Neuberger
Berman, dated October 30, 1997. Neuberger Berman was founded in
1939 to manage assets for high net worth persons. Its principal
offices are at:
605 Third Avenue
New York, New York 10158.
Neuberger Berman is an investment management service for a wide
variety of clients. Its clients include individuals, investment
companies, pension plans, profit-sharing plans, trusts, and
charitable organizations. Neuberger Berman has about $___ billion
in assets under its management for its clients. Approximately $___
billion of that amount is under management by its fixed income
group. Neuberger Berman is registered as an investment adviser
under the Investment Advisers Act of 1940. It is also a registered
broker-dealer with the SEC under the Securities Act of 1934 and is
a member of the New York Stock Exchange.
Neuberger Berman provides investment management services to the
series. This means that Neuberger Berman may:
- purchase or sell securities on behalf of the Trust,
- communicate with brokers, dealers, custodians or other
parties on behalf of the Trust,
- allocate brokerage, and
- obtain research services.
In performing these services, Neuberger Berman must analyze
information that relates to the economy, industries, business, and
securities when necessary. Neuberger Berman must also form its own
plan for performing these services.
Theodore Guiliano and Martin McKerrow are two principals at
Neuberger Berman who have significant management responsibilities
for this series. They are co-directors of Neuberger Berman Fixed
Income Group. They have been employed with Neuberger Berman as
managers of fixed-income securities since 1984.
11
<PAGE>
3. THE EQUITY SERIES
- --------------------------------------------------------------------------------
* INVESTMENT OBJECTIVE
The series' investment objective is to provide growth of capital and
income. This objective cannot be changed without the approval of the
shareholders.
* PRINCIPAL INVESTMENT POLICIES
The series is managed in a way that takes advantage of trends in the stock
market that favor different styles of stock selection value or growth
stocks issued by all different sizes of companies (small, medium and
large).
VALUE STOCKS are, in the advisor's opinion, considered undervalued or
worth more than their current price.
GROWTH STOCKS have higher earnings that will, in the advisor's opinion,
lead to growth in stock prices.
The Trustees may change the investment policies (but not the investment
objectives) without the approval of you or other contractholders. You will,
however, be notified before there is any material change.
The securities that are considered acceptable investments for the series
include but are not limited to the following:
- Common Stocks
- Commercial Paper
- Bank Instruments
- Repurchase Agreements
- U.S. Government Securities
- Put and Call Options
- Over-the-Counter Options ("OTC")
- When-Issued and Delayed Delivery Transactions
- Financial Futures and Options on Futures
To generate additional income, the series may lend up to 1/3 of its total
assets to broker/dealers, banks, or other institutional borrowers. It will
only lend to borrowers who are creditworthy according to guidelines
established by the Trustees. All collateral must be in the form of cash or
U.S. securities equal to at least 100% of the value loaned.
12
<PAGE>
* PRINCIPAL RISKS
The principal risks of investing in the series and the circumstances
reasonably likely to cause the value of your investment in the series to
fall are described below. As with any non-money market mutual fund, the
share price of the series will change daily based on market conditions and
other factors.
Please note that there are many circumstances that could cause the value of
your investment in the series to decline that are not mentioned here. These
circumstances could prevent the series from reaching its objectives.
The principal risks of investing in the series are:
o MARKET RISK - The risk that the price of a security held by the series
will fall due to changing economic, political, or market conditions.
o COMPANY RISK - Since securities' prices react to the economic
condition of the company that issued those securities, the series'
investments may rise or fall in a particular company based on:
- the issuer's real or anticipated earnings,
- changes in the issuer's management, and
- the potential for takeover and acquisition.
o OVER-THE-COUNTER RISK ("OTC") - these transactions involve risks in
addition to those incurred when securities are traded on an exchange.
OTC listed companies may be limited in their product lines, markets,
or financial resources. Compared with exchange-listed stock, many OTC
stocks trade less frequently and in smaller volume. This can make
their value more unstable than exchange-listed stock and may make
buying or selling them more difficult.
The series may buy and write OTC options on securities in negotiated
transactions with the buyers or writers of the options when options on
the securities it holds are not traded on an exchange. The series buys
and writes options only with investment dealers and other financial
institution that are creditworthy.
o FOREIGN MARKETS RISK - Investing in foreign securities involves risks
that relate to political, social, and economic development. You may
also experience risks that come from the differences between how U.S.
and foreign markets are regulated.
13
<PAGE>
- These risks may include:
- Government seizure of company assets,
- Excessive taxation,
- Withholding taxes on dividends and interest,
- Limitations on the use of your portfolio, and
- Social instability.
- Enforcing your legal rights may be difficult, costly, and slow.
- Foreign companies may not be subject to U.S. accounting standards
or government regulation.
- Foreign markets may be less liquid and unstable.
- Foreign securities often trade in money other than U.S. dollars.
Changes in currency exchange rates will affect:
- the series' net asset value,
- the value of your dividends and earned interest, and
- gains and losses from the sale of securities.
- Changes in the value of the U.S. dollar may cause changes in the
value of the series.
It is important to remember that as with any mutual fund, you could lose
money on your investment in the Equity Series.
* PORTFOLIO TURNOVER
The Equity Series conducts portfolio transactions to:
o achieve its investment objective as market conditions change,
o invest new money obtained from selling its shares, and
o meet redemption requests.
The Equity Series may dispose of portfolio securities at any time if it
appears that selling the securities will help achieve the investment
objective. Relatively high portfolio turnover, however, may result in
higher transaction costs to the series. It is not anticipated that the
portfolio trading portfolio manager engages in will result in an annual
rate of turnover that is more than 100%.
14
<PAGE>
* BAR CHART AND PERFORMANCE TABLE
The chart and performance table below are intended to indicate some of
the risks of investing in the series by showing changes in its
performance over time.
The performance table also shows how the series' performance compares
over time with that of one or more broad measures of market
performance. The chart and table provide past performance information.
The series past performance does not necessarily show how the series
will perform in the future.
The returns shown do not reflect fees and charges imposed under the
variable annuity and life insurance contracts through which an
investment may be made. If these fees and charges were included, they
would reduce these returns.
o BAR CHART
The chart shows changes in the annual total returns of the series'
shares for the last ten years, assuming distributions were reinvested.
[EQUITY SERIES BAR CHART HERE]
During the period shown in the bar chart, the highest quarterly return
was 20.80% (for the calendar quarter ended December 1998), and the
lowest quarterly return was -11.16% (for the calendar quarter ended
September 1998).
15
<PAGE>
o PERFORMANCE TABLE
The table shows how the average annual total returns as of Dec. 31,
1998, of the series' shares compare to a broad measure of market
performance, assuming distributions were reinvested.
<TABLE>
<CAPTION>
---------------------- ----------- ------------ -----------------------------------
1 Year 5 Years Inception (5/19/93) to Date
---------------------- ----------- ------------ -----------------------------------
<S> <C> <C> <C>
Equity Series 23.21% 17.76% 16.50%
---------------------- ----------- ------------ -----------------------------------
S&P 500 Index 28.58% 24.06% N/A
---------------------- ----------- ------------ -----------------------------------
</TABLE>
* PORTFOLIO MANAGER
Security First Investment Management Corporation currently
manages the series under a Master Investment Management and
Advisory Agreement dated October 30, 1997.
The Advisory Agreement gives Security Management the power to
hire one or more sub-advisers, subject to its own supervision.
Security Management entered into a Sub-Advisory Agreement with
BlackRock Financial Management, Inc.("BlackRock"), dated March
27, 1998.
BlackRock is a wholly owned subsidiary of BlackRock, Inc.
BlackRock, Inc., is, in turn, a wholly owned subsidiary of PNC
Bank, N.A. The principal offices of both BlackRock and BlackRock,
Inc., are located at:
345 Park Avenue
New York, New York 10154
Additional offices are located 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, 1998, BlackRock, Inc.,
and its subsidiaries managed or administered approximately $___
billion in assets.
Mr. Daniel Eagan is the BlackRock employee who acts as portfolio
manager for the Equity Series. He has held this position since
March 27, 1998. He specializes in large cap value and select
equity products. He is also responsible for risk modeling and
quantitative analysis.
Prior to joining BlackRock, Mr. Eagan was Director of Investment
Strategy at PNC Asset Management Group. He was responsible for
asset allocation strategy and the quantitative application of
financial techniques to the investment management process. Mr.
Eagan served as a senior investment research consultant for
William M. Mercer Asset Planning Inc., a national investment
consulting practice, from June 1992 to September 1994.
16
<PAGE>
4. U.S. GOVERNMENT INCOME SERIES
- --------------------------------------------------------------------------------
* INVESTMENT OBJECTIVE
The series' main investment objective is to provide current income.
The investment objective cannot be changed without shareholder approval.
* PRINCIPAL INVESTMENT POLICIES
To meet these goals, the series usually invests in securities that are
primary obligations of or guaranteed by the United States government (or
its agencies). The series may also invest in collateralized mortgage
obligations ("CMOs") and adjustable rate mortgages ("ARMS").
The U.S. Government Income Series invests primarily in securities which are
guaranteed as to the payment of principal and interest by the U.S.
Government or its instrumentalities.
Unlike the series' investment objectives, the series' investment policies
can be changed without shareholder approval. Shareholders will, however, be
notified before any material change is made.
The series invests in the following securities:
o U.S. GOVERNMENT SECURITIES - under normal circumstances, the series
invests at least 65% of its total assets in U.S. government
securities. These securities include:
o direct obligations of the U.S. Treasury, such as:
- Treasury bills,
- notes,
- and bonds.
* PRINCIPAL RISKS
The principal risks of investing in the series and the circumstances
reasonably likely to cause the value of your investment in the series to
fall are described below. As with any non-money market mutual fund, the
share price of the series will change daily based on market conditions and
other factors.
17
<PAGE>
Please note that there are many circumstances that could cause the value of
your investment in the series to decline that are not mentioned here. These
circumstances could prevent the series from reaching its objectives.
The principal risks of investing in the series are:
o MARKET RISK - The risk that the price of a security held by the series
will fall due to changing economic, political, or market conditions.
o COMPANY RISK - Since securities' prices react to the economic
condition of the company that issued those securities, the series'
investments may rise or fall in a particular company based on:
- the issuer's real or anticipated earnings,
- changes in the issuer's management, and
- the potential for takeover and acquisition.
o OVER-THE-COUNTER RISK ("OTC") - These transactions involve risks in
addition to those incurred when securities are traded on an exchange.
OTC listed companies may be limited in their product lines, markets,
or financial resources. Compared with exchange-listed stock, many OTC
stocks trade less frequently and in smaller volume. This can make
their value more unstable than exchange-listed stock and may make
buying or selling them more difficult.
o FOREIGN MARKETS RISK - Investing in foreign securities involves risks
that relate to political, social, and economic development. You may
also experience risks that come from the differences between how U.S.
and foreign markets are regulated.
- These risks may include:
- government seizure of company assets,
- excessive taxation,
- withholding taxes on dividends and interest,
- limitations on the use of your portfolio, and
- social instability.
- Enforcing your legal rights may be difficult, costly, and slow.
- Foreign companies may not be subject to U.S. accounting standards
or government regulation.
- Foreign markets may be less liquid and unstable.
- Foreign securities often trade in money other than U.S. dollars.
Changes in currency exchange rates will affect:
18
<PAGE>
- the series' net asset value,
- the value of your dividends and earned interest, and
- gains and losses from the sale of securities.
- Changes in the value of the U.S. dollar may cause changes in the
value of the series.
Additionally, if these securities were bought at a premium, the series
may experience capital loss if prepayment occurs before the premium
has been amortized.
It is important to remember that as with any mutual fund, you could lose
money on your investment in the U.S. Government Income Series.
* PORTFOLIO TURNOVER
Although the U.S. Government Income Series does not intend to invest for
the purpose of short-term profits, the securities in its portfolio will be
sold whenever the subadviser believes it should do so in light of the
investment objective. This will be done without regard to the length of
time a particular security may have been held. The subadviser does not
anticipate that the portfolio turnover will result in adverse tax
consequences. The series estimates that the annual rate of turnover will
not be more than 100%.
* BAR CHART AND PERFORMANCE TABLE
The chart and performance table below are intended to indicate some of
the risks of investing in the series by showing changes in its
performance over time.
The performance table also shows how the series' performance compares
over time with that of one or more broad measures of market
performance. The chart and table provide past performance information.
The series past performance does not necessarily show how the series
will perform in the future.
The returns shown do not reflect fees and charges imposed under the
variable annuity and life insurance contracts through which an
investment may be made. If these fees and charges were included, they
would reduce these returns.
19
<PAGE>
o BAR CHART
The chart shows changes in the annual total returns of the series'
shares for the last ten years, assuming distributions were reinvested.
[U.S. GOVERNMENT INCOME SERIES BAR CHART HERE]
During the period shown in the bar chart, the highest quarterly return
was 4.48% (for the calendar quarter ended June 1995), and the lowest
quarterly return was - 2.54% (for the calendar quarter ended March
1994).
o PERFORMANCE TABLE
The table shows how the average annual total returns as of Dec. 31,
1998, of the series' shares compare to a broad measure of market
performance, assuming distributions were reinvested.
<TABLE>
<CAPTION>
-------------------------------- ----------- ----------- ----------------------------------
1 Year 5 Years Inception (5/19/93) to Date
-------------------------------- ----------- ----------- ----------------------------------
<S> <C> <C> <C>
Government Income Series 7.37% 5.97% 5.38%
-------------------------------- ----------- ----------- ----------------------------------
Lehman Bros. Gov't Bond Index 9.85% 7.18% N/A
-------------------------------- ----------- ----------- ----------------------------------
</TABLE>
* PORTFOLIO MANAGER
Security First Investment Management Corporation currently manages
the series under a Master Investment Management and Advisory
Agreement dated October 30, 1997.
20
<PAGE>
The Advisory Agreement gives Security Management the power to hire
one or more sub-advisers, subject to its own supervision. Security
Management entered into a Sub-Advisory Agreement with BlackRock
Financial Management, Inc. ("BlackRock"), dated March 27, 1998.
BlackRock is a wholly owned subsidiary of BlackRock, Inc.
BlackRock, Inc., is, in turn, a wholly owned subsidiary of PNC
Bank, N.A. The principal offices of both BlackRock and BlackRock,
Inc., are located at:
345 Park Avenue
New York, New York 10154
Additional offices are located 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, 1998, BlackRock, Inc.,
and its subsidiaries managed or administered approximately $55
billion in assets.
Mr. Scott Amero is the portfolio manager for the U.S. Government
Income Series. He has held this job since March 27, 1998. He is a
Managing Director and Portfolio Manager at BlackRock Financial
Management. He is also a member of its Investment Strategy
Committee. Mr. Amero is a Vice President for BlackRock's family
of closed-end mutual funds and Smith Barney Adjustable Rate
Government Income Fund.
- -----------------------------------
III. CERTAIN INVESTMENT STRATEGIES
- -----------------------------------
Each series may depart from its principal investment strategies by
temporarily investing for defensive purposes when adverse market,
economic, or political conditions exist. While a series invest
defensively, it may not be able to pursue its investment objective(s).
A series' defensive investment policy may not be effective in
protecting its value. There can be no assurance that a series will
achieve its goals. Your actual return may be effected by:
- contract fees,
- separate account charges, and
- charges imposed by the Trust.
You should consult your prospectus regarding these additional fees and
charges.
21
<PAGE>
Each series may actively and frequently trade to achieve its investment
strategies. This may result in higher capital gains for you. Frequent
trading also increases transaction costs, which could effect the
series' performance.
Each series also has certain investment policies and restrictions that
are described in the Trust's Statement of Additional Information
("SAI").
- -----------------------------
IV. MANAGEMENT OF THE SERIES
- -----------------------------
* INVESTMENT ADVISER
Security First Investment Management Corporation ("Security Management)
currently manages the series under a Master Investment Management
Advisory Agreement dated October 30, 1997.
Security Management is a Delaware corporation. It is a subsidiary of
Security First Group, Inc. ("SFG"), also a Delaware corporation, whose
business mainly involves insurance marketing and service. Security
Management and SFG maintain their principal places of business at:
11365 West Olympic Boulevard
Los Angeles, California 90064.
SFG is a wholly owned subsidiary of Metropolitan Life Insurance
Company, a New York life insurance company. Security Management is
affiliated with Security First Life Insurance Company. Security
Management is also the investment adviser to Security First Life
Insurance Company. Security Management is registered as an investment
adviser under the Investment Advisers Act of 1940.
* ADMINISTRATOR
Under the Advisory Agreement, Security Management is required to manage
the investments of the series according to its investment objectives
and policies. Security Management agrees to:
- develop and use a program for the management of the series'
assets,
- manage the investment of the series' securities, and
- give investment advice.
22
<PAGE>
Security Management's obligations include:
- making all investment decisions,
- placing order to purchase and sell securities,
- providing the Trust with office space, equipment, and
personnel, and
- providing people to perform executive and administrative
duties for the Trust.
Under the Advisory Agreement, Security Management receives an advisory
fee from each of the series. This fee accrues daily and is paid each
month.
--------------------------------------- ---------------
NAME OF SERIES ADVISORY FEE
--------------------------------------- ---------------
Growth and Income Series 0.50%
--------------------------------------- ---------------
Bond Series 0.50%
--------------------------------------- ---------------
Equity Series 0.70%
--------------------------------------- ---------------
Government Income Series 0.55%
--------------------------------------- ---------------
- -------------------------
V. DESCRIPTION OF SHARES
- -------------------------
The Trust offers shares of each of its series to separate accounts established
by insurance companies for variable annuity and life insurance contracts. The
Trust also offers shares of each of its series to qualified pension and
retirement plans. All purchases, redemptions and exchanges are made through
these insurance company separate accounts and plans, which are the record owner
of the shares.
Contractholders and plan beneficiaries seeking to buy, redeem, or exchange
interests in the Trust's shares should consult with the insurance company that
issued their contracts or their plan sponsor.
- ----------------------
VI. OTHER INFORMATION
- ----------------------
* PRICING OF SERIES' SHARES
The price of each series' shares is based on its net asset value. The net
asset value is determined as of the close of regular trading on the New
York Stock Exchange, or such other time as the Trustees determine, on each
day in which there is enough trading in a series' portfolio that the net
asset value per share might be materially affected by changes in the value
of portfolio securities.
23
<PAGE>
The net asset value per share will rise or fall. Net asset value per share
comes from the following equation:
(Value of the securities + any cash or other assets) - all liabilities
----------------------------------------------------------------------
Total number of shares outstanding
Expenses are accrued daily.
* BUYING SHARES
Trust shares are sold to life insurance company separate and general
accounts and to those investors permitted under the SEC Code. If you are an
individual investor, you should refer to the prospectus of the separate
account through which Trust shares are purchased.
Since the Trust markets its own shares, any insurance company may buy
directly from the Trust. The price per share will be the net asset value at
the time the purchase order is received. There is no minimum purchase
amount.
The Trust reserves the right to accept or reject any order. No purchase
order is binding until payment has been received.
To obtain an application to purchase shares, please contact the Trust at:
11365 West Olympic Boulevard
Los Angeles, California 90064
If a purchase order is cancelled due to nonpayment, the buyer will be
responsible for any loss the series' incurs as a result. If the buyer
remains a shareholder, the Trust will have authority as an agent of the
shareholder to reimburse the series. If you as an investor have an order
cancelled, you may be prohibited or restricted from placing orders in the
future.
Checks drawn on foreign banks will not be accepted unless payment is made
through a U.S. bank in U.S. dollars. If full payment is not made when the
order is made, it must be received by the Trust no later than 3 days after
the date the order is received. The order is subject to cancellation if
payment is not made according to these terms.
o PARTICIPATION AGREEMENTS
An insurance company's separate account may enter into a participation
agreement to buy shares of any of the series on the terms specified in
the agreement.
24
<PAGE>
* REDEEMING SHARES
The Trust will redeem shares upon written request. It is best to make the
request by certified mail, return receipt requested.
Value of the shares is determined after the Trust receives the request and
all necessary documents. The request must be signed by each registered
owner, specify the number of shares being redeemed, and state the account
number.
There is no charge for either partial or complete redemption.
If you are a shareholder redeeming shares, you may get more or less money
than you paid originally. Redeeming shares may also have tax implications
for you, either as a gain or a loss.
* DISTRIBUTIONS
As of now, all the series pay dividends from their net investment income at
times set by the Trust's Board of Trustees.
If there are any net realized long-term capital gains, they are distributed
at least once a year.
Dividends and capital gains are automatically reinvested in additional
shares unless the shareholder elects otherwise. Shares purchased this way
are credited to the account at net asset value on a date that is determined
by the Trustees that is between the record date and payment date.
In the initial purchase application, you may specify that:
- dividends are to be paid in cash and capital gains in additional
shares or
- all distributions be paid in cash.
Your instructions regarding payment of distributions may be changed without
cost. Any request to do so must be made to the Trust in writing. Requests
must be received at least 30 days before the payment date.
* TAX CONSIDERATIONS
Each series is treated as a separate regulated investment company. The
Trust intends each series to qualify as such. As a general rule,
distributions from a regulated investment company to its shareholders are
taxed in the following ways:
25
<PAGE>
- distributions from interest, dividends, and net short-term
capital gains are taxable as ordinary income and
- distributions from net long-term capital gains are taxable a
long-term capital gains (regardless of how long the shareholder
has actually owned the shares).
Because the series are sold only to life insurance companies, the foregoing
rules are modified by special tax rules for life insurance companies. Under
these special rules, a life insurance company will not incur any federal
income tax liability on series distributions to a separate account on a
variable contract as described in ss.817(d) of the Internal Revenue Code
("the Code"). See your contract prospectus for information regarding the
federal tax treatment of the contracts and distributions to the separate
account.
* DIVERSIFICATION REQUIREMENTS
Each series intends to comply with the diversification requirements of the
following:
- ss.817(h),
- 1940 Act, and
- Subchapter M.
These regulations place certain limitations on the assets of each separate
account. These regulations treat the assets of each series as assets of the
related separate account of that particular series. Except as permitted by
the "safe harbor" described below, as of the end of each calendar quarter
or within 30 days thereafter, there is a limit with regard to how much of
the total assets of any series may be put in a single investment. For
example:
- No more than 55% may be represented by any 1 investment.
- No more than 70% may be represented by any 2 investments.
- No more than 80% may be represented by any 3 investments.
- No more than 90% may be represented by any 4 investments.
For this purpose, all securities of the same issuer are considered a single
investment. While each U.S. governmental agency and instrumentality is
considered a separate issuer for these purposes, a particular foreign
government and its agencies will be considered the same issuer. All
repurchase agreements bought from a broker-dealer will be considered the
securities issued by that broker-dealer.
SAFE HARBOR
-----------
ss.817(h) provides that a separate account will be treated as being
adequately diversified if the diversifications requirements under
Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are:
26
<PAGE>
o cash and cash items,
o government securities, and
o securities of other investment companies meeting the requirements
of Subchapter M.
Failure of a series to satisfy the ss.817(h) requirements may result in
taxation of the insurance company issuing the contracts. It may also result
in a less favorable tax treatment for you and other contract holders than
as is described in your particular contract prospectus.
* TRUST SHARES
On any matter submitted to all shareholders of the Trust, shares of each
Series entitle their holders to one vote per share, with proportionate
voting for fractional shares. This is regardless of the net asset value of
the shares.
On matters affecting an individual series, however, a separate vote of
shareholders is required. Shareholders of a series are not entitled to vote
on any matter which does not affect their series if it requires a separate
vote of a different series.
The Trust is not required to hold annual shareholder meetings. Those
persons elected at the shareholders' meeting held June 6, 1994, will
continue in office until they:
o resign,
o die, or
o are removed by a written instrument signed by at least 2/3 of the
Trustees at a vote of shareholders of the Trust holding not less
than 2/3 of the outstanding shares (cast in person or by proxy)
at a meeting called specifically for the purpose.
They may also by removed by a written declaration signed by shareholders
holding not less than 2/3 of the shares then outstanding and filed with the
Trust's custodian at:
The Bank of New York
1 Wall Street
New York, New York 10286
Under Massachusetts law, the shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust.
The Declaration of Trust, however, disclaims shareholder liability for:
o acts or obligations of the Trust that require notice of such
disclaimer be given in each agreement, and
27
<PAGE>
o obligations or instruments entered into or executed by the Board
of Trustees or a Trustee.
The Declaration of Trust provides for indemnification from the Trust
property for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
facing financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its
obligations.
* YEAR 2000 ISSUE
The Trust and its service providers depend on the smooth operation of their
computer systems. Many computer and software systems in use today cannot
recognize the Year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the Trust, including the calculation of your interest in the
series, on the handling of securities trades, pricing and account services, as
well as on the companies in which the series will invest. The Trust is
monitoring the efforts of the service providers to prepare their systems for the
Year 2000. There can be no guarantee, however, that the Trust or its service
providers will be successful or that the steps taken by the Trust will be
sufficient to avoid any adverse impact on each of the series.
* LEGAL PROCEEDINGS
There are no present or pending material legal proceedings affecting the
Trust. The Trust, in the ordinary course of its business, is engaged in
litigation of various kinds which in its judgment is not of material
importance in relation to its total assets.
- -----------------------------
VII. FINANCIAL HIGHLIGHTS
- -----------------------------
The financial highlights table is intended to help you understand the series'
financial performance for the past 5 years. Some information shows financial
results for a single series' share.
The total returns in the table show the rate at which you would have earned or
lost on an investment in a series, assuming you reinvested all your
distributions. The Trust's independent auditors, Deloitte & Touche LLP have
audited this information for July 1999. For the years 1995 through 1998, the
firm of Ernst & Young LLP audited this information. Deloitte & Touche's report,
together with the Trust's financial statements, is included in the Annual Report
to shareholders. These financial statements are incorporated by reference into
the SAI.
28
<PAGE>
SECURITY FIRST TRUST
T. ROWE PRICE GROWTH AND INCOME SERIES
CONDENSED FINANCIAL INFORMATION
The following schedule of financial highlights has been audited by Ernst &
Young LLP for July 1995, 1996, 1997, and 1998. The schedule has been audited by
Deloitte & Touche LLP, the Trust's independent Auditors, for July 1999. Deloitte
& Touche's report, along with the series financial statements, are included in
the Statement of Additional Information, which is available upon request.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period.............. $ 16.56 $ 16.26 $ 12.10 $ 10.58 $ 9.26
-------- -------- -------- -------- --------
Income From
Investment
Operations:
Net Investment
Income............ $ .29 $ .28 $ .30 $ .30 $ .29
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)....... $ 2.45 $ 1.27 $ 4.69 $ 1.56 $ 1.35
-------- -------- -------- -------- --------
Total From
Investment
Operations....... $ 2.74 $ 1.55 $ 4.99 $ 1.86 $ 1.64
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net
investment
income)........... $ (.29) $ (.30) $ (.29) $ (.30) $ (.26)
Distributions (from
capital gains).... (1.00) (.95) (.54) (.04) (.06)
-------- -------- -------- -------- --------
Total
Distributions.... $ (1.29) $ (1.25) $ (.83) $ (.34) $ (.32)
======== ======== ======== ======== ========
Net Asset Value, End
of Period........... $ 18.01 $ 16.56 $ 16.26 $ 12.10 $ 10.58
======== ======== ======== ======== ========
Total Return......... 16.55% 9.53% 41.24% 17.58% 17.71%
Ratios/Supplemental
Data:
Net Assets, End of
Period.............. $369,111,185 $290,441,528 $204,703,098 $112,552,893 $83,789,646
Ratio of Expenses to
Average Net
Assets.............. .59% .57% .57% .64% .74%
Ratio of Net
Investment Income to
Average Net
Assets.............. 1.83% 1.92% 2.44% 2.73% 3.10%
Portfolio Turnover
Rate................ 15% 11% 14% 8% 8%
</TABLE>
- ---------------
<PAGE>
SECURITY FIRST TRUST
BOND SERIES
CONDENSED FINANCIAL INFORMATION
The following schedule of financial highlights has been audited by Ernst &
Young LLP for July 1995, 1996, 1997, and 1998. The schedule has been audited by
Deloitte & Touche LLP, the Trust's independent Auditors, for July 1999. Deloitte
& Touche's report, along with the series financial statements, are included in
the Statement of Additional Information, which is available upon request.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ 4.11 $ 4.02 $ 3.88 $ 3.92 $ 3.82
------- ------- ------- ------- -------
Income from
Investment
Operations:
Net Investment
Income........... $ .18 $ .19 $ .24 $ .24 $ .24
------- ------- ------- ------- -------
Net Gains or
(Losses) on
Securities (both
realized and
unrealized)...... $ (.14) $ .11 $ .14 $ (.04) $ .08
------- ------- ------- ------- -------
Total from
Investment
Operations...... $ .04 $ .30 $ .38 $ .20 $ .32
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net
investment
income).......... $ (.18) $ (.21) $ (.24) $ (.24) $ (.22)
Distribution (from
Capital Gains) (.04)
------- ------- ------- ------- -------
Total
Distributions... $ (.22) $ (.21) $ (.24) $ (.24) $ (.22)
------- ------- ------- ------- -------
Net Asset Value, End
of Period.......... $ 3.93 $ 4.11 $ 4.02 $ 3.88 $ 3.92
======= ======= ======= ======= =======
Total Return........ 0.97% 7.46% 9.79% 5.10% 8.38%
Ratios/Supplemental
Data:
Net Assets, End of
Period............. $24,717,704 $17,934,392 $10,634,720 $8,981,365 $7,977,781
Ratio of Expenses to
Average Net
Assets............. .66% .73% .75% .90% 1.29%
Ratio of Net
Investment Income
to Average Net
Assets............. 5.46% 5.78% 6.41% 6.32% 6.27%
Portfolio Turnover
Rate............... 147% 125% 54% 34% 56%
</TABLE>
- ---------------
<PAGE>
SECURITY FIRST TRUST
EQUITY SERIES
CONDENSED FINANCIAL INFORMATION
The following schedule of financial highlights has been audited by Ernst &
Young LLP for July 1995, 1996, 1997, and 1998. The schedule has been audited by
Deloitte & Touche LLP, the Trust's independent Auditors, for July 1999. Deloitte
& Touche's report, along with the series financial statements, are included in
the Statement of Additional Information, which is available upon request.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 8.57 $ 8.18 $ 6.05 $ 5.70 $ 4.99
------------- ------------- ------------- ------------- -------------
Income From Investment Operations:
Net Investment Income............... $ 0.06 $ .07 $ .09 $ .10 $ .05
Net Gains or (Losses) on Securities
(both realized and unrealized).... $ 1.42 $ 1.04 $ 2.60 $ .46 $ .71
------------- ------------- ------------- ------------- -------------
Total From Investment
Operations...................... $ 1.48 $ 1.11 $ 2.69 $ .56 $ .76
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends (from Net Investment
Income)........................... (0.07) (.08) (.11) (.05) (.05)
Distributions (from Capital
Gains)............................ (1.44) (.64) (.45) (.16)
------------- ------------- ------------- ------------- -------------
Total Distributions............... (1.51) (.72) (.56) (.21) (.05)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Period........ $ 8.54 $ 8.57 $ 8.18 $ 6.05 $ 5.70
============= ============= ============= ============= =============
Total Return.......................... 17.27% 13.57% 44.46% 9.82% 15.23%
Ratios/Supplemental Data:
Net Assets, End of Period............. $ 58,313,162 $ 54,803,152 $ 47,571,469 $ 20,701,776 $ 7,765,719
Ratio of Expenses to Average Net
Assets.............................. .81% .91% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to
Average Net Assets.................. .72% .86% 1.56% 2.24% 1.29%
Portfolio Turnover Rate............... 23% 87% 55% 88% 84%
</TABLE>
- ---------------
<PAGE>
SECURITY FIRST TRUST
U.S. GOVERNMENT INCOME SERIES
CONDENSED FINANCIAL INFORMATION
The following schedule of financial highlights has been audited by Ernst &
Young LLP for July 1995, 1996, 1997, and 1998. The schedule has been audited by
Deloitte & Touche LLP, the Trust's independent Auditors, for July 1999. Deloitte
& Touche's report, along with the series financial statements, are included in
the Statement of Additional Information, which is available upon request.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JULY 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 5.45 $ 5.36 $ 5.15 $ 5.13 $ 4.91
------------- ------------- ------------- ------------- -------------
Income From Investment Operations:
Net Investment Income............... $ .30 $ .27 $ .23 $ .18 $ .21
Net Gains or (Losses) on Securities
(both realized and unrealized).... $ (.24) $ .06 $ .20 $ .04 $ .15
------------- ------------- ------------- ------------- -------------
Total From Investment
Operations...................... $ .06 $ .33 $ .43 $ .22 $ .36
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends (from Net Investment
Income)........................... (.31) (.24) (.22) (.19) (.14)
Distributions (from Capital
Gains)............................ (.10) (.01)
------------- ------------- ------------- ------------- -------------
Total Distributions............... (.41) (.24) (.22) (.20) (.14)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Period........ $ 5.10 $ 5.45 $ 5.36 $ 5.15 $ 5.13
============= ============= ============= ============= =============
Total Return.......................... 1.10% 6.16% 8.35% 4.29% 7.33%
Ratios/Supplemental Data:
Net Assets, End of Period............. $ 32,312,549 $ 34,090,919 $ 28,889,460 $ 14,888,824 $ 5,996,149
Ratio of Expenses to Average Net
Assets.............................. .71% .66% .70% .70% .70%
Ratio of Net Investment Income to
Average Net Assets.................. 5.37% 5.53% 5.68% 5.38% 5.19%
Portfolio Turnover Rate............... 307% 103% 62% 148% 16%
</TABLE>
- ---------------
SERIES PERFORMANCE
Information concerning the performance of the series of the Trust is
contained in the Annual and Semi-Annual Reports for the Trust, copies of which
may be obtained free of charge by writing to the Trust at 11365 West Olympic
Boulevard, Los Angeles, California 90064, Attention: Customer Service or by
calling (310) 312-6100 or (800) 283-4536.
THE TRUST
The Trust was established under Massachusetts law pursuant to a Declaration
of Trust dated February 13, 1987, as an unincorporated business trust, a form of
organization that is commonly called a Massachusetts business trust.
The Trust is registered with the Securities and Exchange Commission as a
diversified open-end management investment company ("mutual fund") under the
Investment Company Act of 1940 ("1940 Act"). Such registration does not involve
the supervision of investments or investment policy.
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares and to divide such shares into an unlimited number of series, all
without shareholder approval. Shares of the Series, when issued, are without par
value, fully paid, fully transferable and redeemable at the option of the
shareholder.
<PAGE>
+ SECURITY FIRST TRUST
--------------------
If you want more information about the Trust and its series, the following
documents are available free upon request:
ANNUAL/SEMIANNUAL REPORTS. These reports contain information about the series'
actual investments. Annual reports discuss the effect of recent market
conditions and the series' investment strategy on the series' performance during
its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI, dated November ___, 1999,
provides more detailed information about the Trust and series and is
incorporated in this prospectus by reference.
You can get free copies of the annual/semiannual reports, the SAI, and other
information about the Trust and its series, and make inquiries about the Trust
and its series by contacting:
Security First Trust
11365 West Olympic Boulevard
Los Angeles, California 90064
Telephone: (310) 312-6100
Information about the Trust and its series (including its prospectus, SAI, and
shareholder reports) can be reviewed and copied at:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. Reports and other information about
the Trust and its series are available on the Commission's Internet website at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Room at the above address.
The Trust's Investment Company Act file number is 811-2480.
<PAGE>
`33 Act File No. 2-51173
SECURITY FIRST TRUST
T. ROWE PRICE GROWTH AND INCOME SERIES
BOND SERIES
EQUITY SERIES
U.S. GOVERNMENT INCOME SERIES
11365 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-6100
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the Prospectus of Security First Trust (the "Trust"), dated
November __, 1999, which may be obtained by writing to Security First Trust,
11365 West Olympic Boulevard, Los Angeles, California 90064, Attention: Customer
Services or by telephoning (310) 312- 6100 or (800) 283-4536.
The date of this Statement of Additional Information is November __, 1999.
<PAGE>
TABLE OF CONTENTS
The Trust 3
Investment Policies and Restrictions 4
Investment Adviser and Other Services 16
Principal Holders of Securities 20
Management of the Trust 21
Brokerage 22
Portfolio Turnover 23
Pricing and Redemption of Securities Being Offered 24
Taxation 25
Bond Ratings 26
Commercial Paper Ratings 27
Custodian 27
Independent Auditors 28
Federal Registration of Shares 28
Legal Counsel 28
2
<PAGE>
THE TRUST
GENERAL INFORMATION ABOUT THE TRUST
Security First Trust (the "Trust") is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended,("1940 Act") as a diversified, open-end investment management company.
The Trust was established on February 11, 1987, pursuant to a Declaration of
Trust under the laws of the Commonwealth of Massachusetts as a voluntary
association known as a "Massachusetts business trust." It operates as a "series
company" as that term is used in Rule 18f-2 under the 1940 Act with four series
of shares.
The assets received by the Trust from the issue or sale of the shares
of a Series and all income, earnings, profits and proceeds attributable to them,
subject only to the rights of creditors, are specifically allocated to that
Series and are required to be segregated on the books of account of the Trust.
The assets of a Series are also required to be charged with all of the expenses
attributable to that Series. Any general expenses of the Trust not readily
identifiable as belonging to a particular Series shall be allocated by or under
the direction of the Board of Trustees in such manner as the Board determines to
be fair and equitable.
Each share of a Series represents an equal proportionate interest in
that Series with each other share of that Series and is entitled to such
dividends and distributions out of the income belonging to that Series as are
declared by the Board of Trustees. Upon the liquidation of a Series, its
shareholders are entitled to share pro rata in the net assets belonging to that
Series available for distribution.
The Declaration of Trust provides that no annual or regular meetings of
shareholders are required. In addition, after the Trustees were initially
elected by shareholders, the Trustees became a self-perpetuating body. Thus,
there will ordinarily be no shareholder meetings unless otherwise required by
the 1940 Act.
The 1940 Act specifically requires that a shareholder meeting be held
for the purpose of electing Trustees if at any time less than a majority of the
Trustees has been elected by the shareholders of the Trust. The shareholders
also have the power to remove a Trustee by the affirmative vote of the holders
of not less than two-thirds of the shares of the Trust outstanding and entitled
to vote either by a declaration in writing filed with the custodian or by votes
cast in person or by proxy at a meeting called for the purpose of removal. The
Trustees will promptly call such a meeting when requested to do so by the record
holders of not less than 10 percent of the outstanding shares.
Ten or more shareholders who have been shareholders for at least six
months preceding the date of application and who hold in the aggregate either
shares having a net asset value of at least $100,000 or at least 1 percent of
the outstanding shares, whichever is less, may apply in writing to the Trustees
stating that they wish to communicate with other shareholders to obtain
signatures in order to request a meeting to remove a Trustee. This application
must be accompanied by the proposed communication and form of the request that
they wish to transmit. The Trustees will, within five business days after
receipt of such application, either afford to the applicants access to a list of
the names and addresses of all shareholders or inform such applicants as to the
approximate number of shareholders of record and the approximate cost of mailing
to them the proposed communication and form of request.
Shares of each Series vote separately as a class on any matter
submitted to shareholders except as to voting for Trustees and as otherwise
required by the 1940 Act, in which cases the shareholders of all of the Series
vote together as one class. In the event that the Trustees determine that a
matter affects only the interest of one or more Series, then only the
shareholders of the affected Series will be entitled to vote on the matter.
3
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
Certain of the investment policies and restrictions of the Series
described below are fundamental policies that may not be changed without the
approval of at least a majority of the outstanding shares of a Series or of 67%
of the shares of a Series represented at a meeting of shareholders at which the
holders of 50% or more of the outstanding shares of the Series are represented.
Investment policies or restrictions which are not fundamental may be changed
without the approval of shareholders.
T. ROWE PRICE GROWTH AND INCOME SERIES
The following investment policies of the T. Rowe Price Growth and
Income Series are fundamental. While the purchase of equity securities will
generally be limited to seasoned and readily marketable securities of issuers
listed on national securities exchanges, the T. Rowe Price Growth and Income
Series may invest in securities not listed on a national exchange but generally
such securities will have well-established over-the-counter markets. The fixed
income debt instruments in which this Series may invest include: (1) marketable
straight debt securities rated at the time of purchase within the four highest
grades assigned by Moody's (Aaa, Aa, A or Baa) or by Standard & Poor's (AAA, AA,
A or BBB); (2) securities issued or guaranteed by the United States government
or its agencies or instrumentalities; (3) marketable securities issued or
guaranteed by the Dominion of Canada, any Province of Canada, or any
instrumentality or political subdivision thereof; (4) bank obligations such as
certificates of deposit and bankers' acceptances having investment quality and
which in the opinion of the Board of Trustees are comparable with debt
securities which may be purchased by the Series as described in (1) above;
(5)commercial paper; (6) repurchase agreements; and (7) other debt securities
including securities convertible into or carrying warrants to purchase common
stock or other equity interests. The T. Rowe Price Growth and Income Series
reserves the right to hold cash reserves, and it may do so temporarily as the
Board of Trustees deems necessary for defensive or emergency purposes.
INVESTMENT RESTRICTIONS FOR THE T. ROWE PRICE GROWTH AND INCOME SERIES
As matters of fundamental investment policy, the T. Rowe Price Growth
and Income Series may not: (1) purchase any security if, as a result of such
purchase, more than 5% of the value of a Series' total assets would be invested
in the securities of a single issuer, except securities issued or guaranteed by
the United States Government or its agencies or instrumentalities; (2) purchase
any security if, as a result of such purchase, more than 10% of the outstanding
securities of any class of any issuer would be held by a Series (for this
purpose, all indebtedness of any issuer shall be deemed a single class), except
securities issued or guaranteed by the United States Government or any of its
agencies or instrumentalities; (3) purchase any security if, as a result of such
purchase, 25% or more of the value of a Series' total assets would be invested
in the securities of issuers having their principal business activities in the
same industry, except this limitation does not apply to securities issued or
guaranteed by the United States Government or any of its agencies or
instrumentalities, or to certificates of deposit or bankers, acceptances;
(4)purchase any security if, as a result of such purchase, more than 5% of the
value of a Series' total assets would be invested in the securities of issuers
which at the time of purchase had been in operation for less than three years,
except obligations issued or guaranteed by the United States Government or any
of its agencies or instrumentalities (for this purpose, the period of operation
of any issuer shall include the period of operation of any predecessor issuer or
unconditional guarantor of such issuer); (5) purchase securities with legal or
contractual restrictions on resale ("restricted securities") (excluding
repurchase agreements), except debt securities in private placements within the
limits imposed in restriction (11) below pertaining to loans; (6) purchase or
sell real estate, except that the Series may invest in the securities of
companies whose business involves the purchase or sale of real estate,
(7)purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition or organization; (8) purchase or sell
commodities or commodity contracts; (9) purchase participations or other direct
interests in oil, gas, or other mineral exploration or development programs;(10)
make short sales of securities or purchase securities on margin, except for such
4
<PAGE>
short-term credits as may be necessary for the clearance or purchases of
portfolio securities, (11) make loans, except that the Series may acquire
publicly distributed bonds, debentures, notes and other debt securities and may
enter into repurchase agreements; (12) borrow money, except as a temporary
measure for extraordinary or emergency purposes and then only from banks in
amounts not exceeding the lesser of 10% of a Series' total assets valued at cost
or 5% of its total assets valued at market and only if immediately thereafter
there is an asset coverage of at least 300~; (13) invest in puts, calls,
straddles, spreads, or any 37 combinations thereof, (14) mortgage, pledge or
hypothecate securities, except in connection with the borrowings permitted under
restriction (12) and then only where the market value of the securities
mortgaged, pledged or hypothecated does not exceed 10% of its net assets taken
at market; (15) underwrite securities issued by other persons; (16) invest in
companies for the purpose of exercising management or control; (17) purchase or
retain the securities of any issuer if, to the knowledge of the Trustees, those
Trustees or officers of the Trust and of its investment adviser who each own
beneficially more than 0.50% of the outstanding securities of such issuer
together own beneficially more than 5% of such securities; (18) purchase any
securities which would cause more than 2% of the value of either of the Series'
total assets at the time of such purchase to be invested in warrants which are
not listed on the New York Stock Exchange or the American Stock Exchange, or
more than 5% of the value of either's total assets to be invested in warrants
whether or not so listed, such warrants in each case to be valued at the lesser
of cost or market, but assigning no value to warrants acquired by the Series in
units with or attached to debt securities; (19) issue securities or other
obligations senior to shares of the Series; and (20) purchase any security if,
as a result of such purchase, more than 10% of the value of either Series' total
assets would be invested in foreign securities which are not publicly traded in
the United States.
BOND SERIES
The following investment policies of the Bond Series are not
fundamental. Under normal circumstances, the Bond Series will invest not less
than 65% of its total assets in fixed- income debt instruments, including debt
securities issued in private placements. The Series may also invest in
residential and commercial real estate mortgages secured by first liens and up
to 10% of the value of its total assets in common and preferred stocks. U.S.
dollar denominated foreign fixed income debt securities and Canadian government
securities may also be purchased. The Series may enter into financial futures
contracts or options on financial futures contracts for hedging and non-hedging
purposes where such is deemed in the interest of shareholders. The percentage of
the Series' assets which may be invested in common and preferred stocks, as
opposed to investments in fixed-income instruments, can be expected to vary from
time to time in light of changes in business and market conditions, fiscal and
monetary policies and underlying security values and shall be limited to
securities listed on a national securities exchange or regularly traded on a
national or regional basis.
The fixed income debt instruments in which the Bond Series may invest
include: (1) marketable convertible and non-convertible debt securities rated at
the time of purchase within the four highest grades assigned by Moody's (Aaa,
Aa, A or Baa) or by Standard & Poor's (AAA, AA, A or BBB) or comparable unrated
securities; (2) marketable convertible and non-convertible debt securities rated
at the time of purchase within the grades Ba or B assigned by Moody's or grades
BB or B assigned by Standard & Poor's or comparable unrated securities, limited
to a maximum of 20% of the value of the Series total net assets; (3) securities
issued or guaranteed by the United States government or its agencies or
instrumentalities; (4) U.S. dollar denominated marketable foreign securities;(5)
securities issued or guaranteed by the Dominion of Canada, and any Province of
Canada, or any instrumentality or political subdivision thereof; (6) bank
obligations such as certificates of deposit and bankers' acceptances having
investment quality and which in the opinion of the Board of Trustees are
comparable with debt securities which may be purchased by the Series as
described in (1) above. (7)commercial paper; (8) repurchase agreements; (9)
other debt securities including securities convertible into or carrying warrants
to purchase common stock or other equity interests; and (10) mortgage-backed
securities as well as residential and commercial real estate mortgages secured
by first liens. The Series reserves the right to hold cash reserves, and it may
do so temporarily as management deems necessary for defensive or emergency
purposes.
5
<PAGE>
INVESTMENT RESTRICTIONS FOR THE BOND SERIES
The Bond Series has certain fundamental policies which may not be
changed without shareholder approval. As matters of fundamental investment
policy, the Bond Series may not: (1) purchase any security if, as a result of
such purchase, more than 5% of the value of the Series' total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the United States Government or its agencies or
instrumentalities;(2) purchase any security if, as a result of such purchase,
more than 10% of the outstanding securities of any class of any issuer would be
held by the Series(for this purpose, all indebtedness of any issuer shall be
deemed a single class), except securities issued or guaranteed by the United
States Government or any of its agencies or instrumentalities; (3) purchase any
security if, as a result of such purchase, 25% or more of the value of a Series'
total assets would be invested in the securities of issuers having their
principal business activities in the same industry, except this limitation does
not apply to securities issued or guaranteed by the United States Government or
any of its agencies or instrumentalities, or to certificates of deposit or
bankers' acceptances; (4) purchase or sell commodities or commodity contracts;
(5)purchase participations or other direct interests in oil, gas, or other
mineral exploration or development programs; (6) make loans, except that the
Series may acquire publicly distributed bonds, debentures, notes and other debt
securities and may enter into repurchase agreements; (7) borrow money, except as
a temporary measure for extraordinary or emergency purposes and then only from
banks in amounts not exceeding the lesser of 10% of the Series' total assets
valued at cost or 5% of its total assets valued at market and only if
immediately thereafter there is an asset coverage of at least 300%; (8)
mortgage, pledge or hypothecate securities, except in connection with the
borrowings permitted under restriction (7) and then only where the market value
of the securities mortgaged, pledged or hypothecated does not exceed 10% of its
net assets taken at market; (9) underwrite securities issued by other
persons;(10) invest in companies for the purpose of exercising management or
control;(11) purchase or retain the securities of any issuer if, to the
knowledge of the Trustees, those Trustees or officers of the Trust and of its
investment adviser who each own beneficially more than 0.50% of the outstanding
securities of such issuer together own beneficially more than 5% of such
securities; and (12) issue securities or other obligations senior to shares of
the Series. The following investment restrictions are not fundamental to the
Bond Series. The Bond Series may not: (1) invest more than 5% of its total
assets in the securities of companies with less than 3 years of continuous
operation unless such securities are guaranteed by the United States, Canada or
a foreign government; (2) purchase securities of open-end investment companies
and may not purchase the shares of closed-end investment companies except in the
open market at normal rates; (3) purchase securities on margin or make short
sales unless fully covered; (4) invest more than 15% of its total assets in
securities with legal or contractual restrictions on resale("restricted
securities") or otherwise illiquid securities (excluding repurchase agreements
maturing in less than 7 days); (5) invest more than 5% of its total assets in
puts, calls, straddles, spreads or any combination thereof (excluding options on
financial futures contracts); (6) enter into a futures contract or purchase an
option on a futures contract for non-hedging purposes if the initial margin
deposit and premium would exceed 5% of its total assets; (7) purchase or sell
real estate or real estate limited partnerships unless acquired as a result of
ownership of securities, except that it may invest in the securities of
companies that own or deal in real estate; (8) purchase any securities which
would cause more than 2% of the value of the Series' total assets at the time of
such purchase to be invested in warrants which are not listed on the New York
Stock Exchange or the American Stock Exchange, or more than 5% of the value of
total assets to be invested in warrants whether or not so listed, such warrants
in each case to be valued at the lesser of cost or market but assigning no value
to warrants acquired by the Series in units with or attached to debt securities,
(9) invest more than 20% of its total assets in high-yield, high-risk bonds (see
discussion below on Certain Risk Factors Relating to High-Yield Bonds); or (10)
invest more than 10% of total assets in U.S. dollar denominated foreign
securities which are not publicly traded in the United States (see Risks and
Considerations Applicable to Investment Securities of Foreign Issuers below).
CERTAIN RISK FACTORS RELATING TO THE BOND SERIES INVESTMENTS
HIGH YIELD BONDS. As noted above, the Bond Series may invest up to 20%
of its assets in high-yield, high-risk bonds. These bonds present certain risks
not normally found in the lower yield investment grade bonds:
6
<PAGE>
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. HIGH-YIELD BONDS are
very sensitive to adverse economic changes and corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issue
of a bond defaulted on its obligations to pay interest or principal or entered
into bankruptcy proceeding, the Bond Series may incur losses or expenses in
seeking recovery of amounts owed to it. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high-yield bonds and the Bond Series' net asset value.
PAYMENT EXPECTATIONS. High-yield bonds may contain redemption or call
provisions. If an issuer exercised these provisions in a declining interest rate
market, the Bond Series would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high-
yield bond's value will decrease in a rising interest rate market, as will the
value of the Bond Series' assets. If the Bond Series experiences unexpected net
redemptions, this may force it to sell high-yield bonds without regard to their
investment merits, thereby decreasing the asset base upon which their expenses
can be spread and possibly reducing the Bond Series' rate of return.
LIQUIDITY AND VALUATION. There may be little trading in the secondary
market for particular bonds, which may affect adversely the Bond Series' ability
to value accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield bonds, especially in a thin market.
ILLIQUID SECURITIES. The Bond Series may invest up to 15% of its net
assets in restricted or illiquid securities. The term "illiquid securities" for
this purpose means securities that the Series may not be able to dispose of
within seven days in the ordinary course of business at approximately the amount
at which the Bond Series has valued the securities. Illiquid restricted
securities may be sold only in privately negotiated transactions or in public
offerings with respect to which a registration statement is in effect under the
Securities Act of 1933.
However, not all restricted securities are illiquid. In recent years a
large institutional market has developed for certain securities that are not
registered under the 1933 Act, including private placements, repurchase
agreements, commercial paper, foreign securities and corporate bonds and notes.
These instruments are often restricted securities because the securities are
sold in transactions not requiring registration. Institutional investors
generally will not seek to sell these instruments to the general public, but
instead will often depend either on an efficient institutional market in which
such unregistered securities can be readily resold or on an issuer's ability to
honor a demand for repayment. Therefore, the fact that there are contractual or
legal restrictions on resale to the general public or certain institutions is
not dispositive of the liquidity of such investments.
The Board of Trustees is responsible for establishing policies and
procedures for investments in restricted securities and other illiquid
securities, and the Board will monitor compliance with these policies and
procedures by investment advisers to the Series.
RISKS AND CONSIDERATIONS APPLICABLE TO INVESTMENT IN SECURITIES OF
FOREIGN ISSUERS. Elements of risk and opportunity which must be recognized and
evaluated by the Investment Adviser when investment in foreign issuers are made
for the Bond Series include trade imbalances and related economic policies;
expropriation or confiscatory taxation; limitation on the removal of funds or
other assets, political or social instability; the diverse structure and
liquidity of securities markets in various countries and regions; policies of
governments with respect to possible nationalization of their industries; and
other specific local political and economic considerations. Foreign companies
and foreign investment practices are generally not subject to uniform
accounting, auditing and financial reporting standards and practices or
regulatory requirements comparable to those of U.S. companies. There may be less
information publicly available about foreign companies. Additional costs may
also be incurred in connection with the Bond Series' investment activities in
the area of foreign securities. Foreign brokerage commissions are generally
higher than in the United States. Administrative difficulties (such as the
applicability of foreign laws to foreign custodians in various circumstances
including bankruptcy, ability to recover lost assets, expropriation,
nationalization, record access, etc.) may be associated with the maintenance of
assets in foreign jurisdictions.
7
<PAGE>
EQUITY SERIES
The Equity Series invests primarily in the securities of high quality
companies, including common stocks, preferred stocks, corporate bonds, notes,
warrants and convertible securities.
Convertible Securities - Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number of
the issuer's underlying common stock at the option of the holder during a
specified time period. Convertible securities may take the form of convertible
preferred stock, convertible bonds or debentures, units consisting of "usable"
bonds and warrants or a combination of the features of several of these
securities. The investment characteristics of each convertible security vary
widely, which allows convertible securities to be employed for different
investment objectives.
The Equity Series will exchange or convert the convertible securities
held in its portfolio into shares of the underlying common stock in instances in
which, in the sub-adviser's opinion, the investment characteristics of the
underlying common shares will assist the Series in achieving its investment
objectives. Otherwise, the Series may hold or trade convertible securities. In
selecting convertible securities for the Series, the sub-adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a particular
convertible security, the sub-adviser considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
Warrants - Warrants are basically options to purchase common stock at a
specific price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants may have
a life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stocks does not exceed the warrant's
exercise price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The percentage
increase or decrease in the market price of the warrant may tend to be great
than the percentage increase or decrease in the market price of the optioned
common stock.
Futures and Options Transactions - As a means of reducing fluctuations
in the net asset value of the Equity Series, the Series may attempt to hedge all
or a portion of its portfolio by buying and selling financial futures contracts
buying put options on portfolio securities and listed put options on futures
contracts, and writing call options on futures contracts. The Equity Series may
also write covered call options on portfolio securities to attempt to increase
its current income. The Series will maintain its positions in securities, option
rights, ad segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out only on an exchange which provides a secondary
market for options of the same series.
Financial Futures Contracts - A futures contract is a firm commitment
by two parties; the seller who agrees to make delivery of the specific type of
security called for in the contract ("going short") and the buyer who agrees to
take delivery of the security ("going long") at a certain time in the future.
Financial futures contracts call for the delivery of shares of common stocks
represented in a particular index.
Put Options on Financial Futures Contracts - The Series may purchase
listed put options on financial futures contracts. Unlike entering directly into
a futures contract, which requires the purchaser to buy a financial instrument
on a set at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide on or before a
future date whether to assume a short position at the specified price.
8
<PAGE>
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease in value
and the option will increase in value. In such an event, the Series will
normally close out its option by selling an identical option. If the hedge is
successful, the proceeds received by the Series upon the sale of the second
option will be large enough to offset both the premium paid by the Series for
the original option plus the decrease in value of the hedged securities.
Alternatively, the Series may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract of the
type underlying the option (for a price less than the strike price of the
option) and exercise the option. The Series would then deliver the futures
contract in return for payment of the strike price. If the Series neither closes
out nor exercises an option, the option will expire on the date provided in the
option contract, and only the premium paid for the contract will be lost.
Call Options on Financial Futures Contracts - In addition to purchasing
put options on futures, the Equity Series may write listed call options on
futures contracts to hedge its portfolio. When the Series writes a call option
on a futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract)at the fixed strike price at any
time during the life of the option if the option is exercised. As stock prices
fall, causing the prices of futures to go down, the Series' obligation under a
call option on a future (to sell a futures contract) costs less to fulfill,
causing the value of the Series' call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call, so
that the Series keeps the premium received for the option. This premium can
substantially offset the drop in value of the Series' fixed income or indexed
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Series, or exercise of
it by the buyer, the Series may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be less
than the premium received by the Series for the initial option. The net premium
income of the Series will then substantially offset the decrease in value of the
hedged securities.
The Series will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Series will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
Risks - When the Equity Series uses financial futures and options on
financial futures as hedging devices, there is a risk that the process of the
securities subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Series' portfolio. This may cause the future
contract and any related options to react differently than the portfolio
securities to market changes. In addition, the Series' sub-adviser could be
incorrect in its expectations about the direction or extent of market factors
such as stock price movements. In these events, the Series may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the sub-adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The
Series' ability to establish and close out futures and options positions depends
on this secondary market.
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"Margin" in Futures Transactions - Unlike the purchase or sale of a
security, the Series does not pay or receive money upon the purchase or sale of
a futures contract. Rather, the Equity Series is required to deposit an amount
of "initial margin" in cash or U.S. Treasury bills with its custodian (or the
broker, if legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities transactions in that
futures contract initial margin does not involve the borrowing of funds by the
Series to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned to the
Series upon termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by the Series is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Series pays
or received cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Series but is instead
settlement between the Series and the broker of the amount one would owe the
other if the futures contract expired. In computing its daily net asset value,
the Series will mark to market its open futures positions. The Series is also
required to deposit and maintain margin when it writes call options on futures
contracts.
Purchasing Put Options on Portfolio Securities - The Series may
purchase put options on portfolio securities to protect against price movements
in particular securities in it portfolio. A put option gives the Series, in
return for a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option.
Writing Covered Call Options on Portfolio Securities - The Series may
also write covered call options to generate income. As write of a call option,
the Series has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Series may only sell call options either on securities held in its portfolio
or on securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration).
Over-the-Counter - The Series may purchase and write over-the-counter
options on portfolio securities in negotiated transactions with the buyers or
writers of the options for those options on portfolio securities held by the
Series and not traded on an exchange.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options are
third party contracts with standardized strike prices and expiration dates and
are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while
over-the-counter options may not.
U.S. Government Obligations - The types of U.S. government obligations
in which the Series may invest are described below under "U.S. Government Income
Series".
Commercial Paper - The Series may invest in commercial paper rated at
lease A-1 by Standard & Poor's Corporation, or Prime-1 by Moody's Investors
Service, Inc., or F-1 by Fitch Investors Service, Inc., and money market
instruments (including commercial paper) which are unrated but of comparable
quality, including Canadian Commercial Paper ("CCPs") and Europaper. In the case
where commercial paper, CCPs or Europaper has received different ratings from
different rating services, such commercial paper, CCPs or Europaper is an
acceptable investment so long as at least one rating is one of the preceding
high quality ratings and provided the sub-adviser has determined that such
investment presents minimal credit risks.
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Bank Instruments - The Series may invest in the instruments of banks
and savings and loans whose deposits are insured by the Bank Insurance
Fund("BIF"), which is administered by the Federal Deposit Insurance
Corporation("FDIC"), or the Savings Association Insurance Fund ("SAIF"), which
is administered by the FDIC, such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances (which are not necessarily
guaranteed by those organizations).
In addition to domestic bank obligations such as certificates of
deposit, demand and time deposits, savings shares, and bankers' acceptance, the
Series may invest in:
o Eurodollar Certificates of Deposit ("ECDs") issued by foreign
branches of U.S. or foreign banks;
o Eurodollar Time Deposits ("ETDs"), which are U.S.
dollar-denominated deposits in foreign branches of U.S. or
foreign banks;
o Canadian Time Deposits, which are U.S. dollar-denominated
deposits issued by branches of major Canadian banks located in
the United States; and
o Yankee Certificates of Deposit ("Yankee CDs"), which are U.S.
dollar-denominated certificates of deposits issued by U.S.
branches of foreign banks and held in the United States.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks
than domestic obligations of domestic banks or corporations. Examples of these
risks include international economic and political developments, foreign
governmental restrictions that may adversely affect the payment of principal or
interest, foreign withholding or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing entity, and the possible
impact of interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan limitations, examinations, accounting,
auditing, record keeping, and the public availability of information. These
factors will be carefully considered by the Equity Series' sub-adviser in
selecting investments for the Series.
When-Issued and Delayed Delivery Transactions - These transactions are
arrangements in which the Equity Series purchases securities with payment and
delivery scheduled for a future time. The Series engages in when-issued and
delayed delivery transactions only for the purpose of acquiring portfolio
securities consistent with the Series' investment objective and policies, not
for investment leverage. In when-issued and delayed delivery transactions, the
Series relies on the seller to complete the transaction. The sellers failure to
complete the transaction may cause the Series to miss a price or yield
considered to be advantageous.
These transactions are made to secure what is considered to be an
advantageous price or yield for the Series. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Series sufficient to make payment for
the securities to be purchased are segregated on the Series' records at the
trade date. These securities are marked to market daily and maintained until the
transaction is settled.
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Restricted and Illiquid Securities - The Series intends to invest in
restricted securities. Restricted securities are any securities in which the
Series may otherwise invest pursuant to its investment objective and policies
but which are subject to restriction on resale under federal securities law.
However, the Series will limit investments in illiquid securities, including
certain restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, and repurchase agreements providing for settlement
in more than seven days after notice, to 10% of its net assets.
The Series may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Series, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Series through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity.
The Series believes that Section 4(2) commercial paper and possibly
certain other restricted securities which meet the criteria for liquidity
established by the Board of Trustees are liquid. The Series intends, therefore,
to treat the restricted securities which meet the criteria for liquidity
established by the Trustees, including Section 4(2) commercial paper, as
determined by the sub-adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because such Section
4(2) commercial paper is liquid, the Series intends to not subject such paper to
the limitation applicable to restricted securities.
The Board of Trustees is responsible for establishing policies and
procedures for investments in restricted securities and other illiquid
securities, and the Board will monitor compliance with these policies and
procedures by investment advisers to the Series.
Repurchase Agreements - The Series or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Series might be delayed pending court action. The Series believes that under the
regular procedures normally in effect for custody of the Series' portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Series and allow retention or disposition of such
securities. The Series will only enter into repurchase agreements with banks and
other recognized financial institutions such as broker/dealers which are deemed
by the sub-adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Reverse Repurchase Agreements - The Series may also enter into reverse
repurchase agreements. These transactions are similar to borrowing cash. In a
reverse repurchase agreement, the Series transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Series will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the Series
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, by the ability to enter into reverse repurchase agreements does
not ensure that the Series will be able to avoid selling portfolio instruments
at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Series in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Series' records at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled.
Lending of Portfolio Securities - The collateral received when the
Equity Series lends portfolio securities must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the Series. During the time portfolio securities on
loan, the borrower pays the Series any dividends or inter paid on such
securities. Loans are subject to termination at the option of the Series or the
borrower. The Series may pay a negotiated portion of the interest earned on the
cash or equivalent collateral to the borrower or placing broker. The Series does
not have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
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U.S. GOVERNMENT INCOME SERIES
The U.S. Government Income Series invests primarily in securities which
are guaranteed as to payment of principal and interest by the U.S. government or
its instrumentalities.
U.S. Government Obligations - The types of U.S. government obligations
in which the Series may invest generally include direct obligations of the U.S.
Treasury (such as U.S. Treasury bills, notes, and bonds) and obligations issued
or guaranteed by U.S. government agencies or instrumentalities. These securities
are backed by: (1) the full faith and credit of the U.S. Treasury; (2) the
issuer's right to borrow from the U.S. Treasury; (3) the discretionary authority
of the U.S. government to purchase certain obligations of agencies or
instrumentalities; or (4) the credit of the agency or instrumentality issuing
the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are: Federal Land Banks; Central Bank
for Cooperatives; Federal Intermediate Credit Banks; Federal Home Loan Banks;
Farmers Home Association; and Federal National Mortgage Association.
Collateralized Mortgage Obligations (CMOs) - Privately issued CMOs
generally represent an ownership Interest in federal agency mortgage
pass-through securities such as those issued by the Government National Mortgage
Association. The terms and characteristics of the mortgage instruments may vary
among pass-through mortgage loan pools. The market for such CMOs has expanded
considerably since its inception. The size of the primary issuance market and
the active participation in the secondary market by securities dealers and other
investors make government-related pools highly liquid.
Adjustable Rate Mortgage Securities (ARMS) - Not unlike other U.S.
government securities, the market value of ARMS will generally vary inversely
with changes in market interest rates. Thus, the market value of ARMS generally
declines when interest rates rise and generally rises when interest rates
decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital appreciation
than other similar investments (e.g., investments with comparable maturities)
because as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns.
When-Issued and Delayed Delivery Transactions - These transactions are
arrangements in which the U.S. Government Income Series purchases securities
with payment and delivery scheduled for a future time. The Series engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Series' investment objective and
policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Series relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Series to miss a
price or yield considered to be advantageous.
These transactions are made to secure what is considered to be an
advantageous price or yield for the Series. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are
incurred. However, liquid assets of the Series sufficient to make payment for
the securities to be purchased are segregated on the Series' records at the
trade date. These securities are marked to market daily and maintained until the
transaction is settled.
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Repurchase Agreements - The Series or its custodian will take
possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. In the event that a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Series might be delayed pending court action. The Series believes that under the
regular procedures normally in effect for custody of the Series' portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Series and allow retention or disposition of such
securities. The Series will only enter into repurchase agreements with banks and
other recognized financial institutions such as broker/dealers which are deemed
by the sub-adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Reverse Repurchase Agreements - The Series may also enter into reverse
repurchase agreements. These transactions are similar to borrowing cash. In a
reverse repurchase agreement, the Series transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Series will repurchase the
portfolio instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the Series
to avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Series will be able to avoid selling portfolio
instruments at a disadvantageous time. When effecting reverse repurchase
agreements, liquid assets of the Series in a dollar amount sufficient to make
payment for the obligations to be purchased, are segregated on the Series'
records at the trade date. These securities are marked to market daily and
maintained until the transaction is settled.
Lending of Portfolio Securities - The collateral received when the U.S.
Government Income Series lends portfolio securities must be valued daily and,
should the market value of the loaned securities increase, the borrower must
furnish additional collateral to the Series. During the time portfolio
securities are on loan, the borrower pays the Series any dividends or interest
paid on such securities. Loans are subject to termination at the option of the
Series or the borrower. The Series may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Series does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
INVESTMENT RESTRICTIONS FOR THE EQUITY SERIES AND U.S. GOVERNMENT INCOME SERIES
The investment restrictions of the Series described below are
fundamental policies that may not be changed without the approval of at least a
majority of the outstanding shares of a Series or of 67% of the shares of a
Series represented at a meeting of shareholders at which the holders of 50% or
more of the outstanding shares of the Series are represented.
As a matter of fundamental policy, neither Series may: (1) issue senior
securities except that the Series may borrow money directly or through reverse
repurchase agreements in amounts up to one-third of the value of its net assets,
including the amount borrowed (the Series will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Series to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Series will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding. During the
period any reverse repurchase agreements are outstanding, the Series will
restrict the purchase of portfolio securities to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements,
but only to the extent necessary to assure completion of the reverse repurchase
agreements); (2) purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of purchases and sales of
securities (the deposit or payment by the Series of initial or variation margin
in connection with financial futures contracts or related options transactions
is not considered the purchase of a security on margin); (3) mortgage, pledge,
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or hypothecate any assets, except to secure permitted borrowings (in those
cases, it may pledge assets having a value of 15% of its assets taken at cost.
Margin deposits for the purchase and sale of financial futures contracts and
related options are not deemed to be a pledge); (4) lend any of its assets
except portfolio securities up to one-third of the value of its total assets
(this shall not prevent the Series from purchasing or holding bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by the
Series' investment objective, policy, and limitations or Declaration of
Trust);(5) purchase or sell commodities, commodity contracts, or commodity
futures contracts except that the Equity Series may buy and sell financial
futures contracts; (6) purchase or sell real estate, although it may invest in
securities secured by real estate or interests in real estate or issued by
companies, including real estate investment trusts, which invest in real estate
or interests therein; (7) with respect to 75% of the value of its total assets,
purchase securities issued by any one issuer (other than cash, cash items or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities), if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer; (8) acquire
more than 10% of the outstanding voting securities of any one issuer; (9) invest
25% or more of its total assets in securities of issuers having their principal
business activities in the same industry; (10) underwrite any issue of
securities, except as it may be deemed to be an underwriter under the Securities
Act of 1933 in connection with the sale of securities in accordance with its
investment objective, policies, and limitations; or (11) purchase restricted
securities if immediately thereafter more than 10% of the net assets of the
Series, taken at market value, would be invested in such securities (except for
commercial paper issued under Section 4(2) of the Securities Act of 1933 and
certain other restricted securities which meet the criteria for liquidity as
established by the Board of Trustees).
The above limitations cannot be changed without shareholder approval.
The following limitations for the Equity and U.S. Government Income Series,
however, may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these limitation
becomes effective. Under these limitations, neither Series securities, including
repurchase agreements providing for settlement in more than seven days after
notice and certain restricted securities determined by the Trustees not to be
liquid; (2) invest in other investment companies to the extent of more than 3%
of the total outstanding voting stock of any investment company, invest more
than 5% of its total assets in any one investment company, or invest more than
10% of its total assets in investment companies in general (a Series will
purchase securities of closed-end investment companies only in open market
transactions involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization or acquisition of assets); (3) invest more than 5%
of the value of its total assets in securities of issuers which have records of
less than three years of continuous operations, including the operation of any
predecessor; (4) purchase or retain the securities of any issuer if the officers
and Trustees of the Trust or its investment adviser, owning individually more
than 1/2 of 1% of the issuer's securities, together own more than 5% of the
issuer's securities; (5) purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in the
securities of issuers which invest in or sponsor such programs; (6) in the case
of the Equity Series, purchase securities of a company for the purpose of
exercising control or management; (7) invest more than 5% of its net assets in
warrants, including those acquired in units or attached to other securities (to
comply with certain state restrictions, the Series will limit its investment in
such warrants not listed on the New York or American Stock Exchanges to 2% of
its net assets. If state restrictions change, this latter restriction may be
revised without notice to shareholders. For purposes of this investment
restriction, warrants will be valued at the lower of cost or market, except that
warrants acquired by the Series in units with or attached to securities may be
deemed to be without value); (8) enter into transactions for the purpose of
engaging in arbitrage; (9) purchase put options on securities unless the
securities are held in the Series' portfolio and not more than 5% of the value
of the Series' total assets would be invested in premiums on open put option
positions; (10) write call options on securities unless the securities are held
in its portfolio or unless the Series is entitled to them in deliverable form
without further payment or after segregating cash in the amount of any further
payment, or (11) sell securities short unless (a) it owns, or has right to
acquire, an equal amount of such securities, or (b) it has segregated an amount
of its other assets equal to the lesser of the market value of the securities
sold short or the amount required to acquire such securities. (The segregated
amount will not exceed 10% of the Series' net assets. While in a short position,
the Series will retain the securities, rights, or segregated assets).
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Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
REPURCHASE AGREEMENTS
The T. Rowe Price Growth and Income Series and the Bond Series may
invest in repurchase agreements. A repurchase agreement is an instrument through
which an investor (such as a Series) purchases a security from a bank with an
agreement by the seller to repurchase the security at the same price, plus
interest at a specified rate. The underlying securities are limited to those
which would otherwise qualify for investment by the Series. Repurchase
agreements usually have a short duration, often less than one week. As a
fundamental investment policy of the T. Rowe Price Growth and Income Series, the
Series will not will enter into a repurchase agreement of a duration of more
than seven business days if, as a result, more than 10% of the value of the
Series' total assets would be so invested. As a non-fundamental policy of the
Bond Series, the Series will not invest more than 10% of its assets in
repurchase agreements maturing in more than seven days. Neither of the Series
will enter into repurchase agreements with securities dealers unless the Series
has been advised by legal counsel that such a transaction would not constitute a
purchase of an interest in such a dealer under section 12(d)(3) of the
Investment Company Act of 1940.
INVESTMENT ADVISER AND OTHER SERVICES
The following sets forth certain additional information concerning
Security First Investment Management Corporation ("Security Management"), the
investment adviser for the Series; T. Rowe Price Associates, Inc. ("Price
Associates"), the sub-adviser to Security Management for the T. Rowe Price
Growth and Income; Neuberger Berman, the sub-advisor to the Bond Series; and
BlackRock Financial Management, Inc. ("BlackRock") the sub-adviser to Security
Management for the Equity Series and the U.S. Government Income Series.
SECURITY MANAGEMENT AND THE ADVISORY AGREEMENTS
Security Management serves as the investment adviser to the T. Rowe
Price Growth and Income Series and the Bond Series, pursuant to a Master
Investment Management and Advisory Agreement dated October 30, 1997 and serves
as the investment adviser to the Equity Series and the U.S. Government Income
Series pursuant to a Master Investment Management and Advisory Agreement dated
March 27, 1998 ("the Advisory Agreements"). Security Management was incorporated
in Delaware on December 6, 1973 and is a wholly-owned subsidiary of Security
First Group, Inc., also a Delaware corporation. Security Management and Security
First Group, Inc. maintain their principal places of business at 11365 West
Olympic Boulevard, Los Angeles California 90064. The common stock of Security
First Group is currently wholly owned by a subsidiary of Metropolitan Life
Insurance Company, a New York life insurance company. Security Management also
acts as investment adviser to an affiliated insurance company, Security First
Life Insurance Company.
The Advisory Agreements provide that Security Management is responsible
for supervising and directing the investments of each of the Series in
accordance with the investment objectives of each. Pursuant to the Advisory
Agreements, Security Management shall obtain and evaluate information relating
to the economy, industries, business, securities markets, and particular issues
of securities. In addition, Security Management agrees to formulate and
implement a continuing program for the management of each of the Series' assets,
give investment advice and manage the investment and reinvestment of the Series'
securities. Security Management's obligations include the making and execution
of investment decisions, and the placement of orders for the purchase and sale
of securities with or through such brokers, dealers or issuers as Security
Management may select. Security Management is also authorized to enter into
sub-advisory agreements with third parties for the provision of investment
advice to Security Management relating to each Series' portfolio of securities,
investments, cash and other properties.
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The Advisory Agreements provide that Security Management and the Trust
agree to maintain and preserve such accounts, books and records for such period
or periods, as may be prescribed by the Securities and Exchange Commission. They
also provide that the accounts, books and records will be made available for
reasonable inspections by the Securities and Exchange Commission, the Trust's
auditors, or any governmental instrumentality having regulatory authority over
the Trust.
Under the Advisory Agreements, the Trust will assume and pay legal and
independent accounting and auditing expenses of the Trust, costs related to
reports, notices and proxy material, compensation and expense of disinterested
trustees, share issuance expenses, expenses of custodians, transfer agents and
registrars, brokers' commissions, all taxes and fees payable to governmental
agencies, expenses of shareholders' and trustees' meetings and interest
expenses. Security Management will be responsible for paying all expenses and
charges not assumed by the Trust.
The Advisory Agreements provide that Security Management, its officers,
directors and employees shall not be liable for any error of judgment, mistake
of law, or loss suffered by the Trust, while rendering services under the
Agreements, except for loss resulting from willful misfeasance, bad faith, gross
negligence in the performance of their duties on behalf of the Trust or reckless
disregard of their duties and obligations under the Agreements.
For its services to the T. Rowe Price Growth and Income Series and Bond
Series, Security Management receives from the Trust fees computed by using an
annual rate of .50% (1/2 of 1%) based on the average daily net assets of each of
the Series. Such compensation is accrued daily and payable monthly. For its
services to the Equity Series and U.S. Government Income Series, Security
Management receives from the Trust fees computed by using an annual rate of 70%
and .55%, respectively, of the average daily net assets of the respective
Series. Such compensation is accrued daily and payable monthly.
Security Management is obligated under the Advisory Agreement to waive
that portion of its advisory fees, to the extent required by law, where
aggregate annual operating expenses of each Series, exclusive of taxes,
interest, brokerage fees and certain extraordinary expenses, exceed 2.5% of the
first $30.0 million of average net assets of a Trust Series, 2.0% of the next
$70.0 million of average net assets of the Series, plus 1.5% of the remaining
net assets, calculated on the basis of the Trust's fiscal year. Such expense
limitations are currently required by California law. Such waiver (or
reimbursement) shall not exceed the full amount of the management fee for such
year, except as may be elected by Security Management in its discretion. Each
Series (except the Equity Series and U.S. Government Income Series) will
subsequently repay Security Management for any amounts so contributed to the
Series by Security Management (excluding advisory fees), provided such
subsequent repayment does not result in increasing the Series' aggregate annual
operating expenses above the expense limitation percentages.
The Trust determines the aggregate repayment due Security Management
from a Series, if any, on the day following the end of the fiscal year.
Thereafter, during the fiscal year the Trust will determine any repayment due on
as daily basis. Settlement of such repayment amounts from each Series shall be
no less frequently than monthly, except where the cumulative expenses of a
Series on an annual basis do not exceed the expense limitation percentages. If
during a fiscal year payments are made and the expenses of a Series subsequently
exceed such limitations, that Series shall recover any prior repayments from
Security Management to the extent of the excess determined on August 1.
For the fiscal year ended July 31, 1999, management fees of $479,726
were paid by the T. Rowe Price Growth and Income Series to Security Management.
During the fiscal year ended July 31, 1999, management fees in the
amount of $33,791 were earned by Security Management from the Bond Series.
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In regard to the U.S. Government Income Series, for the fiscal year
ended July 31, 1999, Security Management earned advisory fees of $185,159
($50,498 after payment of advisory fees). In regard to the Equity Series, for
the fiscal year ended July 31, 1999, Security Management earned advisory fees of
$390,010 ($83,574 after payment of advisory fees). Each Advisory Agreement
provides that it will remain in effect for an initial term of two years from its
initial effective date and will continue in effect from year to year thereafter
as to each Series provided that such continuance is specifically approved at
least annually by the Board of Trustees(at a meeting called for that purpose),
or by vote of a majority of the outstanding shares of each Series. In either
case, renewal of the Advisory Agreement must be approved by a majority of the
Trust's independent Trustees. Each Advisory Agreement provides that it will
terminate automatically if assigned and that it may be terminated as to a
particular Series without penalty by either party upon 60 days' prior written
notice to the other party, provided that termination by the Trust must be
authorized by a resolution of a majority of the Board of Trustees or by a vote
of a majority of the outstanding shares of the affected Series.
PRICE ASSOCIATES AND THE PRICE SUB-ADVISORY AGREEMENT
Price Associates serves as sub-adviser to Security Management with
respect to the T. Rowe Price Growth and Income Series pursuant to a Sub-Advisory
Agreement (the "Price Sub-Advisory Agreement") dated October 30, 1997. Price
Associates is a Maryland corporation which was incorporated in 1947, as the
successor to the investment counseling business founded by the late Mr. T. Rowe
Price in 1937. Its principal offices are located at 100 East Pratt Street,
Baltimore, Maryland 21202. Price Associates and its subsidiaries serve as
investment advisers to individual and institutional investors (including mutual
funds) with total net assets under supervision of approximately $159.2 billion
as of June 30, 1999. Price Associates is registered as an investment adviser
under the Investment Advisers Act of 1940.
Under the Price Sub-Advisory Agreement Price Associates provides
investment management services to the T. Rowe Price Growth and Income Series.
Price Associates has the discretion to purchase or sell securities on behalf of
the Trust in accordance with the Trust's investment objectives or restrictions
and to communicate with brokers, dealers, custodians or other parties on behalf
of the Trust and to allocate brokerage or obtain research services. In
performing these services, Price Associates must obtain and evaluate information
relating to the economy, industries, business, securities markets and securities
as it may deem necessary, and it must formulate and implement a continuing plan
for performance of its services.
The Price Sub-Advisory Agreement provides that Price Associates, its
officers, directors and employees shall not be liable for any error of judgment,
mistake of law, or loss suffered by the Trust, while rendering services under
the Agreement, except for loss resulting from willful misfeasance, bad faith,
gross negligence in the performance of their duties on behalf of the Trust or
reckless disregard of their duties and obligations under the Price Sub-Advisory
Agreement.
For its services, Price Associates receives a fee from Security
Management computed by using an annual rate of .35% based on the average daily
net assets of the T. Rowe Price Growth and Income Series. Such compensation is
accrued daily and payable monthly.
For the fiscal year ended July 31, 1999, Price Associates received
advisory fees from the T. Rowe Price Growth and Income Series of $1,118,247. For
the fiscal year ended July 31, 1999, the ratios of total expenses to average net
assets for this Series was .59%.
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The Price Sub-Advisory Agreement provides that it will remain in effect
for an initial term of two years and will continue in effect from year to year
thereafter as to each Series, provided that such continuance is specifically
approved at least annually by the Board of Trustees (at a meeting called for
that purpose), or by vote of a majority of the outstanding shares of each
Series. In either case, renewal of the Price Sub-Advisory Agreement must be
approved by a majority of the Trust's independent Trustees. The Price
Sub-Advisory Agreement provides that it will terminate automatically if assigned
and that it may be terminated without penalty by either party or by a Series of
the Trust upon 60 days prior written notice to the other party, provided that
termination by a Series of the Trust must be authorized by a resolution of a
majority of the Board of Trustees or by a vote of a majority of the outstanding
shares of the Series of the Trust.
No single shareholder owns beneficially more than 10% of the stock of
Price Associates.
NEUBERGER BERMAN AND NEUBERGER BERMAN SUB-ADVISORY AGREEMENT
Neuberger Berman was founded in 1939 to manage assets for high net
worth individuals. It is an investment adviser registered as such with the
Securities and Exchange Commission ("SEC") under the Investment Advisers Act of
1940. It is also registered with the SEC as a broker-dealer under the Securities
Exchange Act of 1934, and is a member of the New York Stock Exchange. Its
offices are located at 605 Third Avenue, New York, New York 10158. Currently, it
provides investment management services to a wide variety of clients, including
individuals, investment companies, pension and profit-sharing plans, trusts and
charitable organizations, and has approximately $(need new number) billion in
assets under its management for clients, including approximately $(need new
number) billion under management by its Fixed Income Group.
Under the Neuberger Berman Sub-Advisory Agreement, dated October 30,
1997 Neuberger Berman provides investment management services to the Bond
Series. Neuberger Berman has the discretion to purchase or sell securities on
behalf of the Trust in accordance with the Trust's investment objectives or
restrictions and to communicate with brokers, dealers, custodians or other
parties on behalf of the Trust and to allocate brokerage or obtain research
services. In performing these services, Neuberger Berman must obtain and
evaluate information relating to the economy, industries, business, securities
markets and securities as it may deem necessary, and it must formulate and
implement a continuing plan for performance of its services.
The Neuberger Berman Sub-Advisory Agreement provides that Neuberger
Berman, its officers, directors and employees shall not be liable for any error
of judgment, mistake of law, or loss suffered by the Trust, while rendering
services under the Agreement, except for loss resulting from willful
misfeasance, bad faith, gross negligence in the performance of their duties on
behalf of the Trust or reckless disregard of their duties and obligations under
the Neuberger Berman Sub-Advisory Agreement.
For its services, Neuberger Berman receives a fee from Security
Management computed by using an annual rate of .35% based on the average daily
net assets of the Bond Series. Such compensation is accrued daily and payable
monthly.
Neuberger Berman began providing sub-advisory services to the Bond
Series on July 15, 1997. In the fiscal year ended July 31, 1999, Neuberger
Berman received advisory fees of $78,847.
The Neuberger Berman Sub-Advisory Agreement provides that it will
remain in effect for an initial term of two years and will continue in effect
from year to year thereafter as to the Bond Series, provided that such
continuance is specifically approved at least annually by the Board of
Trustees(at a meeting called for that purpose), or by vote of a majority of the
outstanding shares of each Series. In either case, renewal of the Neuberger
Berman Sub-Advisory Agreement must be approved by a majority of the Trust's
independent Trustees. The Neuberger Berman Sub-Advisory Agreement provides that
it will terminate automatically if assigned and that it may be terminated
without penalty by either party or by a Series of the Trust upon 60 days prior
written notice to the other party, provided that termination by a Series of the
Trust must be authorized by a resolution of a majority of the Board of Trustees
or by a vote of a majority of the outstanding shares of the Series of the Trust.
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BLACKROCK AND THE BLACKROCK SUB-ADVISORY AGREEMENT
BlackRock serves as sub-adviser to Security Management with respect to
the Equity Series and U.S. Government Income Series pursuant to sub-advisory
agreements (the "BlackRock Sub-Advisory Agreements") dated March 27, 1998.
BlackRock is a wholly-owned subsidiary of BlackRock, Inc., which is 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 $(need new number) billion in
assets.
As compensation for providing services under the BlackRock Sub-Advisory
Agreements, BlackRock receives from Security Management fees computed by using
an annual rate of 0.55% based on average daily assets of the Equity Series and
an annual rate of 0.40% based on the average daily net assets of the U.S.
Government Income Series. These fees are accrued daily, and paid monthly.
The BlackRock Sub-Advisory Agreements provide that BlackRock shall
waive its subadvisory fees to the extent the expenses of either the Series must
be reduced in order to comply with any state law expense limitation.
Under the BlackRock Sub-Advisory Agreements BlackRock provides
investment management services to the Equity Series and U.S. Government Income
Series. BlackRock has the discretion to purchase or sell securities on behalf of
the Series in accordance with the Series' investment objectives or restrictions
and to communicate with brokers, dealers, custodians or other parties on behalf
of the Series and to allocate brokerage or obtain research services. In
performing these services, BlackRock must obtain and evaluate information
relating to the economy, industries, business, securities markets and securities
as it may deem necessary, and it must formulate and implement a continuing plan
for performance of its services.
The BlackRock Sub-Advisory Agreements provide that BlackRock and its
officers, directors and employees shall not be liable for any error of judgment,
mistake of law, or loss suffered by the Trust, while rendering services under
the BlackRock Sub-Advisory Agreements, except for loss resulting from willful
misfeasance, bad faith, gross negligence in the performance of their duties on
behalf of the Trust or reckless disregard of their duties and obligations.
During the fiscal year ended July 31, 1999, BlackRock earned a
sub-advisor fee of $306,436 from the Equity Series. During the same period,
BlackRock earned a sub-advisor fee of $134,661 from the U.S. Government Income
Series.
The BlackRock Sub-Advisory Agreements provide that it will remain in
effect for an initial term of two years and will continue in effect from year to
year thereafter, provided that such continuance is specifically approved at
least annually by the Board of Trustees (at a meeting called for that purpose),
or by vote of a majority of the outstanding shares of the Series. In either
case, renewal of the BlackRock Sub-Advisory Agreement must be approved by a
majority of the Trust's independent Trustees. The BlackRock Sub-Advisory
Agreement provides that it will terminate automatically if assigned and that it
may be terminated without penalty by either party or by the relevant Series upon
60 days prior written notice to the other party, provided that termination by
the Series must be authorized by a resolution of a majority of the Board of
Trustees or by a vote of a majority of the outstanding shares of the Series.
PRINCIPAL HOLDERS OF SECURITIES
Investment companies registered as unit investment trusts under the
1940 Act, Security First Life Separate Account A, the depositors of which is the
Security First Life Insurance Company, has entered into participation agreements
with the Trust for the purchase of Series shares at net asset value. As of July
31, 1999, Security First Life Separate Account A was the owner of 99.42% of the
outstanding shares of Bond Series, 99.37% of the outstanding shares of the T.
Rowe Price Growth & Income Series and 100% of the outstanding shares of the
Equity Series and U.S. Government Income Series. The address of Security First
Life Separate Account A the depositor, Security First Life Insurance Company, is
11365 West Olympic Boulevard, Los Angeles, California 90064.
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MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust, their principal occupations for the past
five years, and the positions they hold with affiliated persons of the Trust
are:
Jack R. Borsting - Trustee. Executive Director, Center for
Telecommunications Management, University of Southern California, 3415 South
Figueroa, DCC 217, Los Angeles, CA 90089- 0871. Prior to 1995, he was the Dean
of the Department of Information & Operations Management, School of Business
Administration, University of Southern California.
Katherine L. Hensley - Trustee. Retired. Formerly, Partner of O'Melveny
& Myers. 400 South Hope Street, Los Angeles, CA 90071-2899.
Howard H Kayton* - Trustee. Senior Vice President and Chief Actuary of
Security First Group, Inc. 11365 West Olympic Boulevard, Los Angeles, CA 90064.
Lawrence E. Marcus - Trustee. Retired. Formerly, Executive Vice
President of Neiman-Marcus Company, a general merchandise retailer. 4616 Dorset,
Dallas, Texas 75229.
Richard C. Pearson - President. 11365 West Olympic Boulevard, Los
Angeles, California 90064. President of Security First Group, Inc. and an
officer of its subsidiaries.
Jane F. Eagle - Senior Vice President, Finance. 11365 West Olympic
Boulevard, Los Angeles, CA 90064. Senior Vice President of Security First Group,
Inc. and an officer of its subsidiaries.
Cheryl M. MacGregor - Senior Vice President, Administration. 11365 West
Olympic Boulevard, Los Angeles, CA 90064. Senior Vice President, Administration
of Security First Group, Inc. and an officer of its subsidiaries.
James C. Turner - Vice President, Taxation. 11365 West Olympic
Boulevard, Los Angeles, California 90064. Vice President, Taxation of Security
First Group, Inc.
Each disinterested Trustee receives a Trustee's fee of $7,000 per year,
$1,000 for each Trustees' meeting attended and reimbursement of expenses.
Ms. Eagle is also Senior Vice President, Finance of Security
Management. Mr. Pearson is also President of Security Management. Mr. Turner is
also Vice President, Taxation and Assistant Secretary of Security Management.
* Interested Trustee
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BROKERAGE
Decisions with respect to the purchase and sale of portfolio securities
on behalf of the Trust are made by Security Management pursuant to the terms of
the Advisory Agreement. However, pursuant to the terms of the Sub-Advisory
Agreements, Price Associates, Neuberger Berman and BlackRock may allocate
brokerage and principal business or obtain research services from organizations
with which the Trust or Security Management may be dealing. Security Management
is ultimately responsible for implementing these decisions, including the
allocation of principal business and portfolio brokerage and the negotiation of
commissions.
In purchasing and selling the Series' portfolio securities, it is
Security Management's, Price Associates', Neuberger Berman's and BlackRock's
policies to seek quality execution at the most favorable prices through
responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates. However, under certain conditions and with the
exception of the Bond Series advised by Neuberger Berman, a Series may pay
higher brokerage commissions in return for brokerage and research services. In
selecting broker-dealers to execute a Series' portfolio transactions,
consideration will be given to such factors as the price of the security, the
rate of commission, the size and difficulty of the order, the reliability
integrity, financial condition, general execution and operational capabilities
of competing broker-dealers, and brokerage and research services which they
provide to Security Management, Price Associates, Neuberger Berman, BlackRock or
the Series.
Security Management, Price Associates or BlackRock may cause a Series
to pay a broker-dealer who furnishes brokerage and/or research services a
commission that is in excess of the commission another broker-dealer would have
received for executing the transaction if it is determined that such commission
is reasonable in relation to the value of the brokerage and/or research services
which have been provided. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities of Security
Management, Price Associates and BlackRock with respect to the accounts over
which they exercise investment discretion. In some cases, research services are
generated by third parties, but are provided to Security Management, Price
Associates, Neuberger Berman or BlackRock by or through broker-dealers.
Price Associates, Neuberger Berman and BlackRock may effect principal
transactions on behalf of a Series with a broker-dealer who furnishes brokerage
and/or research services, designate any such broker-dealer to receive selling
concessions, discounts or other allowances, or otherwise deal with any such
broker-dealer in connection with the acquisition of securities in underwritings.
Additionally, purchases and sales of fixed income securities are transacted with
the issuer, the issuer's underwriter, or with a primary market maker acting as
principal or agent. The Trust does not usually pay brokerage commissions for
these purchases and sales, although the price of the securities generally
includes compensation which is not disclosed separately. The prices the Trust
pays to underwriters of newly-issued securities usually include a concession
paid by the issuer to the underwriter. Transactions placed through dealers who
are serving as primary market makers reflect the spread between the bid and
asked prices. Security Management, Price Associates, Neuberger Berman and
BlackRock receive a wide range of research services from broker-dealers
including information on securities markets, the economy, individual companies,
statistical information, accounting and tax law interpretations, technical
market action, pricing and appraisal services, and credit analysis. Research
services are received primarily in the form of written reports, telephone
contacts, personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, government representatives, and access
to various computer-generated data. Research services received from
broker-dealers are supplemental to Security Management's, Price Associates',
Neuberger Berman's and BlackRock's own research efforts and, when utilized, are
subject to internal analysis before being incorporated into the investment
process.
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Each year Security Management, Price Associates, Neuberger Berman and
BlackRock assess the contribution of the brokerage and research services
provided by broker-dealers and allocate a portion of the brokerage business of
their clients on the basis of these assessments. In addition, broker-dealers
sometimes suggest a level of business they would like to receive in return for
the various brokerage and research services they provide. Actual brokerage
received by any firm may be less than the suggested allocations, but can (and
often does) exceed the suggestions because total brokerage is allocated on the
basis of all the considerations described above. In no Instance is a
broker-dealer excluded from receiving business because it has not been
identified as providing research services.
Security Management, Price Associates, Neuberger Berman and BlackRock
cannot readily determine the extent to which commissions or net prices charged
by broker-dealers reflect the value of their unsolicited research services. In
some instances, Security Management and/or Price Associates, and/or Neuberger
Berman and/or BlackRock will receive research services they might otherwise have
had to perform for themselves. The research services provided by broker- dealers
can be useful to Security Management, Price Associates, Neuberger Berman and
BlackRock in serving their other clients, but they can also be useful in serving
the Trust.
Security Management, Price Associates, Neuberger Berman and BlackRock
do not allocate business to any broker- dealer on the basis of its efforts in
promoting sales of shares of the Series. However, this does not mean that such
broker-dealers will not receive business from the Trust.
Some of Price Associates', Neuberger Berman's or BlackRock's other
clients have investment objectives and programs similar to one or more of the
Series. They may occasionally make recommendations to other clients which result
in their purchasing or selling securities simultaneously with a Series. As a
result, the demand for securities being purchased or the supply of securities
being sold may increase, and this could have an adverse effect on the price of
those securities. It is Price Associates', Neuberger Berman's and BlackRock's
policy not to favor one client over another in making recommendations or in
placing orders. If two or more clients are purchasing or selling a given
security on the same day from or to the same broker-dealer, the advisor may
average the price of the transactions and allocate the average among the clients
participating in the transaction. Price Associates has established a general
investment policy that it will ordinarily not make additional purchases of a
common stock of a company for its clients (including the T. Rowe Price Funds)
if, as a result of such purchases, 10% or more of the outstanding common stock
of such company would be held by its clients in the aggregate.
All brokerage commissions will be allocated by Price Associates,
Neuberger Berman and BlackRock according to the foregoing policies. The T. Rowe
Price Growth and Income Series paid brokerage commissions to securities dealers
in connection with underwritings during the fiscal year ended July 31, 1999, of
$179,682. The Equity Series paid brokerage commissions to securities dealers
during said fiscal year of $28,759. The Bond Series and U.S. Government Income
Series did not pay any brokerage commissions or discounts to securities dealers
in those years.
PORTFOLIO TURNOVER
The portfolio turnover rate can be expected to be higher during periods
of rapidly changing economic or market conditions than in a more stable period.
Portfolio turnover may be defined as the ratio of the total dollar amount of the
lesser of the purchase or sales of securities to the monthly average value of
portfolio securities owned by the Trust. The portfolio turnover rate for the T.
Rowe Price Growth and Income Series for the fiscal year ended July 31, 1999, was
15%. The portfolio turnover rate for the Bond Series for the fiscal year ended
July 31, 1999, was 147%. The portfolio turnover rate during said period for the
Equity Series was 23%. The portfolio turnover rate for the U.S. Government
Income Series for said period was 307%.
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High portfolio turnover involved correspondingly greater brokerage
commissions, to the extent such commissions are payable, and other transaction
costs that are borne directly by the Series involved. Higher turnover rates
reflect an increased rate of realization of gains and losses by the Series,
which would normally affect the taxable income of the Series' shareholders.
Where the shareholder is an insurance company separate account funding variable
annuity contracts, qualified as such under the Internal Revenue Code ("Code"),
however, the contract owners are not currently charged with such income or
losses except to the extent provided under the Code (normally when distributions
under the contracts are made).
PRICING AND REDEMPTION OF SECURITIES BEING OFFERED
DETERMINING NET ASSET VALUE
The net asset value per share of each Series is determined by dividing
the value of the Series' securities, plus any cash and other assets (including
dividends and interest accrued and not collected), less all liabilities
(including accrued expenses), by the number of shares outstanding.
T. ROWE PRICE GROWTH AND INCOME AND BOND SERIES
Debt securities other than convertible securities and short-term
obligations are valued at prices obtained for the day of valuation from a bond
pricing service of a major dealer in bonds, when such prices are available.
However, when such prices are not available and where Security Management deems
it appropriate to do so, an over-the-counter or exchange quotation may be used.
The market value of the Series' other portfolio securities is determined as
follows: securities traded on a national securities exchange are valued at the
bid price for such securities, as reported by securities dealers. When market
quotations are not readily available, or when restricted securities are being
valued, such securities are valued at fair value as determined in good faith by
the Board of Trustees. Any other assets are also valued at their fair value as
determined in good faith by the Board.
EQUITY AND U.S. GOVERNMENT INCOME SERIES
The market values of the Series' portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a
national securities exchange, if available;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked
prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service or
for short-term obligations with maturities of less than 60 days,
at amortized cost; or
o for all other securities, at fair value as determined in good
faith by the Board of Trustees.
The Series will value future contracts, options, put options on futures
and financial futures at their market values established by the exchanges at the
close of option trading on such exchanges unless the Board determines in good
faith that another method of valuing option positions is necessary to appraise
their fair value.
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REDEMPTION OF SHARES
The Trust will redeem shares at the net asset value per share next to
be determined after receipt of a duly executed request for redemption.
Redemption of shares or payment may be suspended at times (i) when the New York
Stock Exchange is closed other than customary weekends and holidays, (ii) when
trading on said exchange is restricted, (iii) when an emergency (as determined
by the Securities and Exchange Commission) exists, making disposal of portfolio
securities or the valuation of net assets of the Series not reasonably
practicable, or (iv) when the Securities and Exchange Commission has by order
permitted such suspension for the protection of shareholders of the Trust.
The Trust's redemption procedures will not be changed without prior
notice to shareholders.
TAXATION
Under the Code, each of the Series is treated as a separate regulated
investment company providing the qualification requirements of Subchapter M are
otherwise met. As a regulated investment company, a Series will not be subject
to federal income tax on net investment income and capital gains (short- and
long-term), if any, that it distributes to its shareholders if at least 90% of
its net investment income and net short-term capital gains for the taxable year
is distributed.
In order to qualify as a regulated investment company under the Code, a
Series must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stocks or securities, or other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stocks or
securities;(b) derive less than 30% of its gross income from the sale or other
disposition of stocks or securities held less than three months (repealed
effective for tax years beginning after August 5, 1997), and (c) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Series' assets is represented by cash, Government securities
and other securities limited in respect of any one issuer to 5% of the Series'
assets and to not more than 10% of the voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than Government securities).
In addition to the diversification requirements contained in the
Trust's investment restrictions, the Trust is also subject to diversification
requirements applicable to variable annuities under Section 817(h) of the Code.
Under this section, a variable annuity will not receive the tax treatment
afforded annuities if its underlying investments are not adequately diversified.
Under applicable regulations, no more than 55% of total assets can be invested
in one investment, 70% in two investments, 80% in three investments and 90% in
four investments. Investments are generally defined as securities issued by any
one issuer. U.S. Government agencies or instrumentalities are considered
separate issuers.
Unlike public shareholders, under the Code a life insurance company
separate account will not incur any federal income tax liability on dividends
and capital gains distributions received from a regulated investment company by
a separate account funding variable annuity contracts as defined in section
817(d) of the Code.
To the extent that there is in excess of $250,000 invested in a Series
other than through variable contract premium payment, the Code imposes a 4%
nondeductible excise tax on the undistributed income of such Series to the
extent the Series does not distribute at least 98% of its net investment income
and its net capital gains (both long- and short-term) for each taxable year by
the end of such year. For purposes of the 4% excise tax, dividends and
distributions will be treated as paid when actually distributed, except that
dividends declared in December payable to shareholders of record on a specified
date in December, and paid before February 1 of the following year, will be
treated as having been (i) paid by the Series on the record date and
(ii)received by each shareholder on such date. Net capital gains realized for
the one year period ending on October 31 of each tax year are subject to
distribution in this manner.
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Series which do not have in excess of $250,000 invested other than
through variable contract premium payments are not subject to the above
described 4% excise tax. Each Series will send written notices to its
shareholders (Separate Accounts) regarding the tax status of all distributions
made during each taxable year.
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
STANDARD & POOR'S CORPORATION
Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA has a very strong capacity to pay interest and repay
principal, and differs from the higher-rated issues only in small degree.
Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher-rated
categories.
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds In higher- rated categories.
FITCH INVESTORS SERVICE, INC.
Fitch's investment grade bond ratings are summarized as follows: AAA -
Bonds considered to be investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events; AA Bonds
considered to be investment grade and of very high credit quality. The obligors'
ability to pay interest and repay principal is very strong, although not quite
as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA'
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated 'F-1+'; A - Bonds considered
to be investment grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings; BBB - Bonds considered to be investment grade and of
satisfactory credit quality. The obligors' ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
26
<PAGE>
Plus (+) Minus (-) - Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the 'AAA' category.
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
Moody's employs the following three designations, all judged to be of
investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short- term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. Categories A-1, A-2 and A-3
are as follows: A-1--This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation;
A-2--Capacity for timely payments on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1"; and A-3--Issues carrying this designation have adequate
capacity for timely payment. They are, however, more vulnerable to the adverse
effects of changes In circumstances than obligations carrying the higher
designations.
CUSTODIAN
The Bank of New York (the "Custodian"), 1 Wall Street, New York, New
York 10286, serves as the Trust's custodian. Pursuant to the terms of the
Custodian Agreement executed with the Trust, the Trust will forward to the
Custodian the proceeds of each purchase of Series shares. The Custodian will
hold such proceeds and make disbursements therefrom in accordance with the terms
of the Custodian Agreement. It will retain possession of the securities
purchased with such proceeds and maintain appropriate records with respect to
receipt and disbursements of money, receipt and release of securities, and all
other transactions of the Custodian with respect to the securities and other
assets of the Series.
27
<PAGE>
The Custodian Agreement provides that each of the Series shall pay to
the Custodian compensation for its services, in accordance with the Custodian's
regularly established rate schedule. Said compensation shall be computed on the
basis of the Series' average daily net assets payable as of the end of each
month. The Custodian Agreement may be terminated by either the Trust or the
Custodian upon 60 days' written notice to the other party. Such termination
shall not be in contravention of any applicable federal or state laws or
regulations, or any provision of the Trust Declaration or By-Laws.
INDEPENDENT AUDITORS
The financial statements of Security First Trust at July 31, 1999, and
for the periods indicated in this report appearing in this Statement of
Additional Information and Registration Statement have been audited by Deloitte
& Touche LLP, independent auditors, as set forth in their report appearing
elsewhere in the registration statement, and is included in reliance upon their
report of such firm given upon their authority as experts in accounting and
auditing. The consolidated financials statements and the related financial
statements schedules of Security First Trust at July 31, 1998 and 1997 included
elsewhere in the registration statement have been audited by Ernst & Young LLP,
independent auditors, as stated in their reports appearing elsewhere in the
registration statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
FEDERAL REGISTRATION OF SHARES
The Trust's shares are registered for sale under the Securities Act of
1933.
LEGAL COUNSEL
Sullivan & Worchester LLP whose address is 1025 Connecticut Avenue
N.W., Washington, D.C. 20036 is legal counsel to the Trust.
28
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and the Board of Trustees
of the Security First Trust:
We have audited the statements of assets and liabilities, including the
portfolio of investments, of the Security First Trust comprised of the Bond
Series, the T. Rowe Price Growth and Income Series, the Equity Series, and the
U.S. Government Income Series (collectively, the "Trust") as of July 31, 1999,
and the related statements of operations, statements of changes in net assets,
and the financial highlights for the year then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statements of changes in net assets
of the Trust for the year ended July 31, 1998, and the financial highlights for
the four years ended July 31, 1998, were audited by other auditors whose report,
dated September 14, 1998, expressed an unqualified opinion on those statements
and the financial highlights for each of the four years.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of July 31, 1999, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Security First Trust's Bond Series, T. Rowe Price Growth and Income Series,
Equity Series, and U.S. Government Income Series as of July 31, 1999, and the
results of their operations, the changes in their net assets and financial
highlights for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
September 10, 1999
Los Angeles, California
<PAGE>
<TABLE>
====================================================================================================================================
SECURITY FIRST TRUST
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999
<CAPTION>
T. Rowe Price
Growth and U.S. Government
Income Equity Income
Bond Series Series Series Series
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments at market - Note A and Schedule I:
Investment securities (cost:
Bond Series - $24,705,369; Growth
and Income Series - $267,445,522;
Equity Series - $44,265,252;
U.S. Government Income Series -
$32,756,552) $ 23,948,048 $ 367,297,873 $ 57,999,389 $ 31,760,918
Cash 506,915 1,375,426 354,162 145,855
Interest receivable 298,061 4,714 1,092 434,814
Dividends receivable 466,455 61,807
Receivable for securities sold 450 87,724 2,315
Receivable for capital shares purchased 153,829
Unrealized appreciation on foreign
currency contracts 3,612
-------------- -------------- -------------- --------------
24,757,086 369,298,297 58,504,174 32,343,902
LIABILITIES
Payable for securities purchased 102,164
Accrued expenses 13,411 75,982 14,673 13,303
Payable for capital shares redeemed 18,550 45,878 6,795
Payable to investment adviser - Note B 7,156 108,701 27,668 10,579
Payable for directors' fees 265 2,429 629 676
-------------- -------------- -------------- --------------
39,382 187,112 191,012 31,353
NET ASSETS
Capital shares (authorized 100,000,000
shares of $.01 par value for each series) 24,992,823 254,632,508 43,017,733 32,775,232
Undistributed net investment income 765,101 3,364,585 210,605 1,057,930
Undistributed net realized gain (loss) (286,511) 11,261,741 1,350,687 (524,979)
Net unrealized appreciation (depreciation)
of investments (753,709) 99,852,351 13,734,137 (995,634)
-------------- -------------- -------------- --------------
NET ASSETS $ 24,717,704 $ 369,111,185 $ 58,313,162 $ 32,312,549
============== ============== ============== ==============
Capital shares outstanding 6,284,950 20,495,939 6,827,497 6,336,073
Net asset value per share $3.93 $18.01 $8.54 $5.10
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
====================================================================================================================================
SECURITY FIRST TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1999
<CAPTION>
T. Rowe Price
Growth and U.S. Government
Income Equity Income
Bond Series Series Series Series
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 6,098,773 $ 820,370
Interest $ 1,369,651 1,517,513 25,097 $ 2,040,305
-------------- -------------- -------------- --------------
1,369,651 7,616,286 845,467 2,040,305
EXPENSES
Custodian fees 15,767 52,929 16,873 16,317
Adviser fees - Note B 78,847 1,118,247 306,436 134,661
Management fees - Note B 33,791 479,726 83,574 50,498
Printing expenses 7,749 130,177 17,860 18,664
Audit fees 5,583 6,727 5,606 4,465
Insurance expenses 2,269 34,154 5,758 3,293
Directors' fees and expenses 1,856 24,818 4,421 3,117
Miscellaneous expenses 894 5,126 6,330 5,923
-------------- -------------- -------------- --------------
146,756 1,851,904 446,858 236,938
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME 1,222,895 5,764,382 398,609 1,803,367
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS - Notes A and C
Net realized gain (loss) on sale of investments (198,084) 17,734,362 1,354,678 (13,673)
Net unrealized appreciation (depreciation) of:
Investments during the year (971,834) 31,098,623 7,802,709 (1,476,045)
Assets denominated in foreign currencies 3,612
-------------- -------------- -------------- --------------
Net gain (loss) on investments (1,166,306) 48,832,985 9,157,387 (1,489,718)
-------------- -------------- -------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 56,589 $ 54,597,367 $ 9,555,996 $ 313,649
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
====================================================================================================================================
SECURITY FIRST TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JULY 31, 1999
<CAPTION>
T. Rowe Price
Growth and U.S. Government
Income Equity Income
Bond Series Series Series Series
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income $ 1,222,895 $ 5,764,382 $ 398,609 $ 1,803,367
Net realized gain (loss) on sale
of investments (198,084) 17,734,362 1,354,678 (13,673)
Net unrealized appreciation (depreciation)
during the period (968,222) 31,098,623 7,802,709 (1,476,045)
-------------- -------------- -------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 56,589 54,597,367 9,555,996 313,649
DISTRIBUTIONS TO SHAREOWNERS
Net investment income (968,742) (5,234,796) (449,055) (1,847,027)
Net realized gains (207,719) (18,412,869) (8,668,236) (597,259)
CAPITAL SHARE TRANSACTIONS - NOTE D
Reinvestment of net investment income
distributed 968,742 5,234,796 449,055 1,847,027
Reinvestment of net realized gains 207,719 18,412,869 8,668,236 597,259
Sales of capital shares 9,504,353 37,641,014 793,709 2,362,361
Redemptions of capital shares (2,777,630) (13,568,724) (6,839,695) (4,454,380)
-------------- -------------- -------------- --------------
INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS 7,903,184 47,719,955 3,071,305 352,267
-------------- -------------- -------------- --------------
TOTAL INCREASE IN NET ASSETS 6,783,312 78,669,657 3,510,010
TOTAL DECREASE IN NET ASSETS (1,778,370)
NET ASSETS
BEGINNING OF YEAR 17,934,392 290,441,528 54,803,152 34,090,919
-------------- -------------- -------------- --------------
END OF YEAR (including undistributed net
investment income: Bond Series -$765,101;
Growth and Income Series - $3,364,585;
Equity Series - $210,605; U.S. Government
Income Series - $1,057,930) $ 24,717,704 $ 369,111,185 $ 58,313,162 $ 32,312,549
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
====================================================================================================================================
SECURITY FIRST TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JULY 31, 1998
<CAPTION>
T. Rowe Price
Growth and U.S. Government
Income Equity Income
Bond Series Series Series Series
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income $ 793,704 $ 4,757,262 $ 449,747 $ 1,841,411
Net realized gain on sale of investments 258,714 14,401,027 11,847,457 137,839
Net unrealized appreciation (depreciation)
during the year (52,442) 3,597,110 (4,704,685) 68,011
-------------- -------------- -------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 999,976 22,755,399 7,592,519 2,047,261
DISTRIBUTIONS TO SHAREOWNERS
Net investment income (647,867) (4,191,181) (482,528) (1,507,408)
Net realized gains (13,443,002) (4,086,984)
CAPITAL SHARE TRANSACTIONS - NOTE D
Reinvestment of net investment income
distributed 647,867 4,191,181 482,528 1,507,408
Reinvestment of net realized gains
distributed 13,443,002 4,086,984
Sales of capital shares 7,387,828 68,143,134 6,440,386 6,833,426
Redemptions of capital shares (1,088,132) (5,160,103) (6,801,222) (3,679,228)
-------------- -------------- -------------- --------------
INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS 6,947,563 80,617,214 4,208,676 4,661,606
-------------- -------------- -------------- --------------
TOTAL INCREASE IN NET ASSETS 7,299,672 85,738,430 7,231,683 5,201,459
NET ASSETS
BEGINNING OF YEAR 10,634,720 204,703,098 47,571,469 28,889,460
-------------- -------------- -------------- --------------
END OF YEAR (including undistributed net
investment income: Bond Series -$510,948;
Growth and Income Series - $2,834,998;
Equity Series - $261,051; U.S. Government
Income Series - $1,101,590) $ 17,934,392 $ 290,441,528 $ 54,803,152 $ 34,090,919
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
BOND SERIES
PORTFOLIO OF INVESTMENTS
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
CORPORATE NOTES 28.1%
Aerospace & Defense: 1.3%
Boeing Co., 8.75%, 08/15/21 $ 50,000 $ 56,500
Lockheed Martin Corp., 7.75% , 05/01/26 90,000 88,988
Tyco International Group, 6.375%, 06/15/05 165,000 159,638
--------------
305,126
Automobiles & Related: 1.4%
Borg Warner Automotive, Inc., 6.5%, 02/15/09 235,000 220,606
GMAC Corporate Bond., 9.625%, 12/15/01 100,000 106,625
--------------
327,231
Banking: 2.3%
Banc One Corp., 7.75%, 07/15/25 200,000 206,250
Chase Manhattan Corp., 6.00%, 11/01/05 250,000 238,125
HSBC Fin Nederland Bank, 7.40%, 04/15/03 100,000 101,250
--------------
545,625
Building Materials & Garden Supplies: 0.3%
NBTY, Inc., 8.625%, 09/15/07 100,000 85,125
Computer & Office Equipment: 1.4%
Hydrochem Industrial Svcs., Inc., 10.375%, 08/01/07 85,000 74,694
IBM Corp., 5.375%, 02/01/09 235,000 212,088
Printpack, Inc., 10.625%, 08/15/06 60,000 57,225
--------------
344,007
Chemicals and Allied Products: 1.9%
Fort James Corp., 6.875%, 09/15/07 245,000 242,550
Rohm & Haas Co., 6.95%, 07/15/04 200,000 201,250
--------------
443,800
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
BOND SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
CORPORATE NOTES (CONTINUED)
Electric Utilities: 1.8%
CMS Energy Corp., 8.00%, 07/01/11 $ 225,000 $ 225,844
National Rural Utilities, 6.50%, 09/15/02 100,000 100,000
Public Service Electric & Gas Co., 6.25%, 01/01/07 100,000 95,875
--------------
421,719
Finance & Credit: 4.9%
G.E. Capital Mortgage Svcs, Inc., 6.25%, 12/25/28 248,770 174,139
G.E. Capital Mortgage Svcs, Inc., 6.50%, 04/25/29 308,980 220,148
Northwest Asset Corp., 6.75%, 05/25/29 249,798 189,269
Standard Credit Card, 7.25%, 04/07/08 100,000 101,875
Salomon Smith Barney, Inc., 7.375%, 05/15/07 300,000 300,000
Texaco Capital Inc., 5.5%, 01/15/09 220,000 198,825
--------------
1,184,256
Food & Beverages: 1.7%
Archer Daniels Midland Co., 6.625%, 05/01/29 120,000 108,900
Hershey Foods Corp., 6.95%, 08/15/12 235,000 237,350
Southern Foods Group, 9.875% , 09/01/07 60,000 61,875
--------------
408,125
Forest Products: 0.8%
Noranda Forest, Inc., 7.50%, 07/15/03 100,000 99,750
Stone Container Corp., 12.25%, 04/01/02 80,000 80,400
--------------
180,150
Health Services: 0.7%
ICN Pharmaceuticals, Inc., 8.75%, 11/15/08 100,000 100,375
Tenet Healthcare Corp., 7.875%, 01/15/03 70,000 68,338
--------------
168,713
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
BOND SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
CORPORATE NOTES (CONTINUED)
Insurance Carriers: 1.2%
Conseco, Inc., 6.40%, 06/15/01 $ 200,000 $ 195,750
Prudential Insurance Co. America, 6.875%, 04/15/03 100,000 99,625
--------------
295,375
Media & Communications: 0.6%
Liberty Media Corp., 7.875%, 07/15/09 150,000 149,813
Miscellaneous Business Services: 0.4%
Allied Waste North America, 7.875%, 01/0/09 115,000 106,375
Miscellaneous Consumer Products: 2.3%
French Fragrances, Inc., 10.375% , 05/15/07 60,000 60,900
Hedstrom Corp., 10.00%, 06/01/2007 70,000 62,912
Home Products International, Inc., 9.625%, 05/15/08 70,000 64,925
Jones Apparel Group, Inc., 7.875%, 06/15/06 230,000 229,138
Kinder Care Learning Centers, 9.50%, 02/15/09 70,000 67,375
S C International Service, Inc., 9.25%, 09/01/07 60,000 61,875
--------------
547,125
Oil and Gas Extraction: 0.4%
Quaker State Corp., 6.63%, 10/15/05 100,000 98,875
Building & Real Estate: 0.4%
Webb Del Corp., 10.25%, 02/15/10 100,000 100,250
Telephone Communication: 2.4%
GTE Corp., 6.94%, 4/15/28 100,000 94,125
Global Crossing Holdings Ltd., 9.625%, 05/15/08 100,000 104,500
Telecom Argentina Stetfrances, 9.75%, 07/12/01 200,000 198,000
U.S. West Communications, 7.50%, 06/15/23 80,000 75,400
Worldcom, Inc., 6.95%, 08/15/28 100,000 93,125
--------------
565,150
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
BOND SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
CORPORATE NOTES (CONTINUED)
Textile Mill Products: 0.4%
GFSI, Inc., 9.625%, 03/01/07 $ 45,000 $ 39,544
Polymer Group, Inc., 9.00%, 07/01/07 60,000 58,800
--------------
98,344
Transportation: 1.5%
Newport News Shipbuilding, Inc., 9.25%, 12/01/06 60,000 62,850
Norfolk Southern Corp., 7.8%, 05/15/27 100,000 102,500
Sea Containers Ltd., 7.875%, 02/15/08 200,000 187,000
--------------
352,350
--------------
TOTAL CORPORATE NOTES
(COST $6,984,143) 6,727,534
FEDERAL AGENCIES 41.2%
Federal Home Loan Mortgage Corp.: 0.2%
9.50%, 04/01/19 26,722 28,559
9.00%, 06/01/19 13,651 14,521
--------------
43,080
Federal National Mortgage Assn.: 11.8%
5.75%, 04/15/03 910,000 891,836
6.92%, 03/19/07 75,000 76,412
6.21%, 11/07/07 1,205,000 1,175,273
7.00%, 09/01/10 195,217 194,545
7.00%, 05/01/12 146,912 146,407
6.50%, 03/01/13 332,982 325,384
7.50%, 08/25/21 9,069 9,094
--------------
2,818,951
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
BOND SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
FEDERAL AGENCIES (CONTINUED)
Government National Mortgage Association: 29.2%
9.00%, 04/15/09 $ 2,335 $ 2,457
9.00%, 05/15/09 12,868 13,540
9.00%, 05/15/09 3,721 3,915
9.00%, 05/15/09 3,917 4,121
9.00%, 05/15/09 1,137 1,196
9.00%, 05/15/09 1,894 1,993
9.00%, 05/15/09 8,404 8,843
11.25%, 09/15/15 79,903 88,193
11.50%, 11/15/15 42,216 47,334
10.00%, 06/15/17 21,774 23,713
9.25%, 07/15/17 7,168 7,611
10.00%, 11/15/17 7,765 8,456
11.50%, 02/15/18 3,296 3,696
10.00%, 03/15/19 33,662 36,660
10.00%, 03/15/20 13,858 15,093
9.25%, 05/15/20 29,860 31,707
9.25%, 05/15/21 88,272 93,734
9.25%, 06/15/21 21,385 22,708
7.50%, 06/15/23 91,471 91,413
7.00%, 08/15/23 87,031 84,856
7.50%, 10/15/23 141,552 141,463
7.00%, 01/15/24 141,441 137,905
7.00%, 03/15/24 93,591 91,251
7.00%, 01/15/25 399,796 390,049
9.50%, 01/15/25 27,162 29,258
9.50%, 05/15/25 8,845 9,528
7.00%, 02/15/26 507,990 495,290
7.50%, 09/15/26 183,001 182,886
8.00%, 05/15/27 229,977 235,078
6.50%, 04/15/28 780,602 741,322
7.00%, 05/15/28 373,599 364,259
7.00%, 06/15/28 333,639 325,298
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
BOND SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
FEDERAL AGENCIES (CONTINUED)
Government National Mortgage Association (CONTINUED)
6.50%, 10/15/28 $ 1,871,641 $ 1,777,460
6.50%, 11/15/28 539,506 512,358
6.50%, 03/15/29 815,283 774,258
8.00%, 07/15/29 209,979 214,633
--------------
7,013,535
TOTAL FEDERAL AGENCIES
(COST $ 10,247,597) 9,875,566
U.S. GOVERNMENT OBLIGATIONS 24.5%
U.S. Treasury Bond: 4.4%
6.75%, 08/15/26 1,000,000 1,058,040
U.S. Treasury Notes: 20.1%
6.375%, 08/15/02 115,000 116,845
5.375%, 06/30/03 1,290,000 1,269,218
3.375%, 01/15/07 933,619 894,230
5.625%, 05/15/08 2,605,000 2,530,132
--------------
4,810,425
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $5,980,437) 5,868,465
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
BOND SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ---------------- -------------- -------------- --------------
<S> <C> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS 6.2%
Canada Government Bond, 6.00%, 06/01/08 $ 538,961 $ 562,142
New South Wales Treasury Corp., 6.50%, 05/01/06 932,148 914,341
--------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(COST $1,493,192) 1,476,483
--------------
TOTAL INVESTMENTS
(COST $ 24,705,369) 100.0% 23,948,048
Forward Foreign Currency Contracts
- ---------------------------------- -----------
CONTRACT TO SELL
800,000 Aussie Dollars (Settlement Date 08/23/99;
Receivable amt. $521,680; Market value $520,000) 1,680
CONTRACT TO BUY
120,000 Euro Dollars (Settlement Date 09/10/99;
Payable amt. $126,744; Market value $128,676) 1,932
--------------
3,612
Other assets less liabilities 766,044
--------------
NET ASSETS $ 24,717,704
==============
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
T. ROWE PRICE GROWTH AND INCOME SERIES
PORTFOLIO OF INVESTMENTS
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
CAPITAL EQUIPMENT 3.1%
Electrical Equipment: 3.1%
General Electric Co. 50,000 $ 5,450,000
Honeywell, Inc. 30,000 3,594,375
Hubbell, Inc. Class B 60,000 2,475,000
--------------
11,519,375
CONSUMER CYCLICALS 0.7%
Automobiles & Related: 0.7%
Genuine Parts Co. 80,000 2,485,000
CONSUMER NONDURABLES 19.9%
Food & Beverages: 6.9%
Anheuser-Busch Company, Inc. 50,000 3,946,875
Campbell Soup Co. 100,000 4,400,000
General Mills, Inc. 54,000 4,471,875
Hershey Foods, Inc. 40,000 2,320,000
McCormick & Co. 100,000 3,306,250
Pepsico, Inc. 50,000 1,956,250
Quaker Oats Company 30,000 2,041,875
Ralston-Ralston Purina Group 100,000 2,993,750
--------------
25,436,875
Health Services: 0.6%
Baxter International, Inc. 30,000 2,060,625
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
T. ROWE PRICE GROWTH AND INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
CONSUMER NONDURABLES (CONTINUED)
Miscellaneous Consumer Products: 7.2%
Colgate Palmolive Co. 60,000 $ 2,962,500
Eastman Kodak 50,000 3,456,250
Fortune Brands, Inc. 92,300 3,645,850
Int'l. Flavors & Fragrance 100,000 4,531,250
Owens Corning Fiber 70,000 2,161,250
Philip Morris Companies, Inc. 100,000 3,725,000
Stanley Works 100,000 2,793,750
UST, Inc. 100,000 3,100,000
--------------
26,375,850
Pharmaceuticals: 5.2%
Abbott Laboratories 100,000 4,293,750
American Home Products 60,000 3,060,000
Johnson & Johnson 45,000 4,145,625
Merck & Co. 27,500 1,861,406
Pharmacia-Upjohn, Inc. 36,250 1,950,703
Schering-Plough Corp. 80,000 3,920,000
--------------
19,231,484
CONSUMER SERVICES 12.9%
Entertainment & Leisure: 0.8%
Hilton Hotels Corp. 225,000 2,939,063
General Merchandise Stores: 5.2%
Dayton Hudson Corp. 90,000 5,821,875
J.C. Penney, Inc. 50,000 2,187,500
Neiman-Marcus Group, Inc.* 90,000 2,250,000
Rite Aid Corp. 150,000 3,178,125
Toys R Us, Inc.* 200,000 3,250,000
Tupperware Corp. 100,000 2,362,500
--------------
19,050,000
*Non-income producing.
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
T. ROWE PRICE GROWTH AND INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
Media & Communications: 3.4%
CBS Corp. 75,000 $ 3,295,313
Walt Disney Co. 100,000 2,762,500
Knight Ridder, Inc. 60,000 3,217,500
Meredith Corp. 60,000 2,156,250
Readers Digest Assn., Inc. 35,000 1,102,500
--------------
12,534,063
Miscellaneous Business Services: 1.9%
Browning Ferris, Inc. 125,000 5,609,375
Waste Management, Inc. 50,750 1,297,297
--------------
6,906,672
Building & Real Estate: 1.6%
Crescent Real Estate Equity Co. 90,000 1,980,000
Starwood Hotel & Resort Trust 150,000 4,050,000
--------------
6,030,000
ENERGY 10.9%
Oil And Gas Extraction: 10.9%
Amerada Hess Corp. 55,000 3,255,313
Atlantic Richfield Co. 30,000 2,701,875
BP Amoco PLC. 96,166 11,143,235
Baker Hughes, Inc. 175,000 6,092,188
Chevron Corp. 40,000 3,650,000
Exxon Corp. 36,000 2,857,500
Mobil Corp. 16,000 1,636,000
Pioneer Natural Resources Co. 125,000 1,453,121
Royal Dutch Petroleum Co. ADR 40,000 2,440,000
Texaco, Inc. 30,600 1,906,763
Unocal Corp. 75,000 2,976,563
--------------
40,112,558
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
T. ROWE PRICE GROWTH AND INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
FINANCIAL 12.5%
Banking: 3.7%
Chase Manhattan Corp. 30,000 $ 2,306,250
Mellon Bank Corp. 100,000 3,375,000
National City Corp. 40,000 1,190,000
Washington Mutual, Inc. 120,000 4,117,500
Wells Fargo & Co. 66,660 2,599,740
--------------
13,588,490
Federal Agencies: 0.9%
Freddie Mac 60,000 3,442,500
Financial Services: 4.7%
American Express Co. 25,000 3,293,750
H&R Block, Inc. 60,000 3,277,500
Citigroup, Inc. 165,547 7,377,188
J.P. Morgan & Co., Inc. 25,000 3,196,875
--------------
17,145,313
Insurance Carriers: 3.2%
Chubb Corp. 27,800 1,662,788
Loews Corp. 30,000 2,103,750
St. Paul Companies, Inc. 105,136 3,272,358
Travelers Aetna P&C 120,000 4,740,000
--------------
11,778,896
PROCESS INDUSTRIES 13.4%
Chemicals And Allied Products: 8.0%
Dow Chemical Co. 30,000 3,720,000
Dupont Co. 50,000 3,603,125
Fort James Corp. 125,000 4,562,500
Great Lakes Chemical Corp. 60,000 2,655,000
Hercules, Inc. 120,000 4,185,000
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
T. ROWE PRICE GROWTH AND INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
PROCESS INDUSTRIES (CONTINUED)
Chemicals And Allied Products (CONTINUED)
Imperial Chemical ADR 100,000 $ 4,612,500
Minnesota Mining & Manufacturing Co. 38,300 3,368,006
Pall Corp. 125,000 2,632,813
--------------
29,338,944
Forest Products: 0.5%
Weyerhaeuser Co. 30,000 1,940,625
Metal Mining: 2.6%
Inco Ltd. 175,000 3,106,250
Newmont Mining Corp. 75,000 1,387,500
Phelps Dodge Corp. 50,000 2,965,625
Reynolds Metals Co. 40,000 2,265,000
--------------
9,724,375
Paper And Allied Products: 2.3%
Kimberly-Clark 100,000 6,100,000
International Paper Co. 47,278 2,417,088
--------------
8,517,088
TECHNOLOGY 6.5%
Computer and Office Equipment: 6.5%
Computer Associates International, Inc. 75,000 3,440,625
First Data Corp. 125,000 6,195,313
Hewlett-Packard Co. 70,000 7,328,125
Motorola, Inc. 75,000 6,843,750
--------------
23,807,813
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
T. ROWE PRICE GROWTH AND INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- -------------- --------------
<S> <C> <C> <C>
TRANSPORTATION 7.2%
Aerospace and Defense: 4.4%
Allied Signal, Inc. 90,000 $ 5,821,875
Boeing Company 100,000 4,537,500
Lockheed Martin Corp. 60,000 2,088,750
Raytheon Co CL B 50,000 3,515,625
--------------
15,963,750
Railroad Transportation: 2.8%
Burlington Northern Santa Fe 75,000 2,400,000
Norfolk Southern Corp. 140,000 4,095,000
Union Pacific Corp. 70,000 3,801,875
--------------
10,296,875
UTILITIES 5.8%
Telephone Communication: 2.9%
AT&T Co. 30,000 1,558,125
GTE Corp. 40,000 2,947,500
SBC Communications, Inc. 104,865 5,996,967
--------------
10,502,592
Utility Holding Companies: 2.9%
Edison International 50,000 1,265,625
GPU 16,000 614,000
Niagara Mohawk Holdings, Inc.* 137,500 2,165,625
Peco Energy Co. 50,000 2,118,750
Pacificorp 70,000 1,277,500
Unicom Corp. 75,000 2,943,750
--------------
10,385,250
--------------
TOTAL EQUITY SECURITIES
(COST $241,262,283) 341,114,076
*Non-income producing
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
T. ROWE PRICE GROWTH AND INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Short-Term Investments Portfolio Principal Value
- ---------------------- ------------- -------------- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS 7.1%
Commercial Paper: 7.1%
Abbey National North America, 4.80%, 08/09/1999 $ 3,720,000 $ 3,715,506
Ciesco Ltd., 5.10%, 08/17/1999 6,565,000 6,549,133
Commonwealth Bank/Australia, 4.80%, 08/10/1999 3,000,000 2,995,929
Duke University, 5.17%, 10/06/1999 1,000,000 990,780
General Electric Capital Corp., 4.81%, 08/11/1999 295,000 294,561
Internationale Nederlanden, 5.14%, 10/07/1999 275,000 272,457
Motiva Enterprises LLC, 5.10%, 09/23/1999 2,000,000 1,984,696
Repsol International Finance, 4.82%, 08/12/1999 1,600,000 1,597,394
Shell Oil Co., 5.15%, 08/02/1999 530,000 529,849
Yale University, 5.11%, 09/09/1999 7,295,000 7,253,492
--------------
(COST $26,183,239) 26,183,797
--------------
TOTAL INVESTMENTS
(COST $267,445,522) 100.0% 367,297,873
Other assets less liabilities 1,813,312
--------------
NET ASSETS $ 369,111,185
==============
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
EQUITY SERIES
PORTFOLIO OF INVESTMENTS
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
CAPITAL EQUIPMENT 4.8%
Electrical Equipment: 4.3%
General Electric Co. 19,200 $ 2,092,800
Emerson Electric Co. 6,400 382,000
-------------
2,474,800
Machinery: 0.5%
Illinois Tool Works, Inc. 4,100 304,681
CONSUMER NONDURABLES 19.0%
Food & Beverages: 3.8%
Anheuser-Busch Company, Inc. 4,700 371,006
Best Foods 10,200 497,250
Coca Cola 15,100 910,719
Pepsico, Inc. 10,800 422,550
-------------
2,201,525
Health Services: 1.4%
Columbia/HCA Health System, Inc. 10,000 222,500
Medtronic, Inc. 3,700 266,631
United Healthcare Corp. 4,900 298,900
-------------
788,031
Miscellaneous Consumer Products: 5.1%
Colgate Palmolive Co. 8,800 434,500
Gillette Co. 6,000 262,875
Heinz (H J) Co. 6,100 287,463
McDonalds Corp. 12,200 508,587
Philip Morris Companies, Inc. 16,700 622,075
Proctor & Gamble Co. 9,500 859,750
-------------
2,975,250
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
EQUITY SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
CONSUMER NONDURABLES (CONTINUED)
Pharmaceuticals: 8.7%
American Home Products Co. 14,400 $ 734,400
Bristol Myers Squibb Co. 14,300 950,950
Johnson & Johnson 6,900 635,663
Eli Lilly & Co. 8,200 538,125
Merck & Co. 15,200 1,028,850
Pfizer, Inc. 20,700 702,506
Warner Lambert Co. 7,200 475,200
-------------
5,065,694
CONSUMER CYCLICALS 1.4%
Automobiles & Related: 1.4%
Ford Motor Co. 9,300 452,213
General Motors Corp. 5,900 359,531
-------------
811,744
CONSUMER SERVICES 8.6%
Building & Real Estate: 0.3%
Starwood Hotel & Resort Trust 7,500 202,500
General Merchandise Stores: 5.4%
Albertsons, Inc. 5,200 258,375
Home Depot, Inc. 9,900 631,744
K Mart Corp.* 23,400 339,300
J.C. Penney, Inc. 7,200 315,000
Pep Boys Manny Moe & Jack 7,200 119,700
Sears Roebuck & Co. 6,800 275,400
Toys R Us, Inc.* 9,400 152,750
Walmart Stores 25,200 1,064,700
-------------
3,156,969
*Non-income producing
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
EQUITY SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
Media & Communications: 2.8%
Walt Disney Co. 18,800 $ 519,350
Fox Entertainment Group, Inc. 10,600 263,675
Time Warner, Inc. 6,800 489,600
Tribune Co. 4,300 378,669
-------------
1,651,294
0.1%
Miscellaneous Business Services:
Waste Management, Inc. 3,300 84,356
ENERGY 8.1%
Oil And Gas Extraction: 8.1%
Atlantic Richfield Co. 4,100 369,256
BP Amoco PLC. 2,400 278,100
Chevron Corp. 3,900 355,875
Enron Corp. 3,600 306,675
Exxon Corp. 16,200 1,285,875
Mobil Corp. 5,400 552,150
Royal Dutch Petroleum Co. ADR 13,200 805,200
Schlumberger Ltd. 6,300 381,544
Unocal Corp. 9,100 361,156
-------------
4,695,831
FINANCIAL 16.2%
Banking: 7.6%
Banc One Corp. 15,614 851,939
Bankamerica Corp. 14,246 945,578
Bank of Boston Corp. 3,700 173,669
Chase Manhattan Corp. 11,300 868,688
Household International, Inc. 5,900 253,331
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
EQUITY SERIES
PORTFOLIO OF INVESTMENTS(CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
FINANCIAL (CONTINUED)
Banking (CONTINUED)
Suntrust Banks, Inc. 3,800 $ 245,100
U S Bancorp. 8,400 261,450
Washington Mutual, Inc. 6,150 211,021
Wells Fargo & Co. 15,000 585,000
-------------
4,395,776
Federal Agencies: 0.9%
Federal National Mortgage Assn. 7,600 524,400
Financial Services: 4.8%
American Express Co. 1,500 197,625
Associates First Capital Corp. 5,374 205,891
CIT Group, Inc. 6,700 179,225
Citigroup, Inc. 18,375 818,836
Equifax, Inc., 6,400 210,400
Fleet Financial Group 8,700 352,350
Lehman Brothers Holdings, Inc. 2,000 107,500
Morgan Stanley Dean Witter 7,685 692,611
-------------
2,764,438
Insurance Carriers: 2.9%
Allstate Corp. 9,300 330,150
American International Group 8,550 992,869
Cigna Corp. 2,100 185,194
Conseco, Inc. 5,800 167,112
-------------
1,675,325
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
EQUITY SERIES
PORTFOLIO OF INVESTMENTS(CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
PROCESS INDUSTRIES 3.5%
Chemicals and Allied Products: 2.6%
Air Products & Chemical 5,000 $ 167,188
Dow Chemical Co. 2,100 260,400
Dupont Co. 8,500 612,531
Fort James Corp. 8,000 292,000
PPG Industries, Inc. 3,000 178,875
-------------
1,510,994
Metal Mining: 0.5%
Alcoa, Inc. 2,800 167,650
Barrick Gold Corp. 5,800 107,663
-------------
275,313
Paper And Allied Products: 0.4%
Bowater, Inc. 5,000 248,750
TECHNOLOGY 23.1%
Computer & Office Equipment: 23.1%
America Online, Inc.* 3,200 304,400
Applied Materials, Inc.* 5,000 359,688
Cisco Systems, Inc.* 21,600 1,341,900
Dell Computer Corp.* 12,100 494,588
EMC Corp.* 7,000 423,938
Hewlett Packard Co. 8,300 868,906
Intel Corp. 21,400 1,476,600
International Business Machines Corp. 16,200 2,036,138
Lucent Technologies, Inc. 15,500 1,008,469
Microsoft Corp. 31,300 2,685,930
Motorola, Inc. 6,400 584,000
Oracle Corp.* 14,200 540,488
Sun Microsystems * 4,500 305,437
Texas Instruments, Inc. 4,200 604,800
*Non-income producing
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
EQUITY SERIES
PORTFOLIO OF INVESTMENTS(CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
TECHNOLOGY (CONTINUED)
Computer & Office Equipment (CONTINUED)
Xerox Corp. 6,600 $ 321,749
-------------
13,357,031
TRANSPORTATION 3.6%
Aerospace & Defense: 2.6%
Boeing Company 5,300 240,488
Lockheed Martin Corp. 8,200 285,463
Tyco International, Ltd. 7,600 742,425
United Technologies Corp. 3,400 226,737
-------------
1,495,113
Transportation Services: 1.0%
AMR Corp. 4,100 265,987
Burlington Northern Santa Fe 3,700 118,400
Delta Air Lines, Inc. 3,500 208,688
-------------
593,075
UTILITIES 11.7%
Telephone Communication: 9.5%
AT&T Co. 20,200 1,049,138
Alltel Corp. 5,300 380,606
Bell Atlantic Corp. 9,100 580,125
BellSouth Corp. 6,300 302,400
GTE Corp. 10,100 744,244
MCI Worldcom, Inc.* 10,800 891,000
Mediaone Group, Inc. 1,000 72,375
SBC Communications, Inc. 21,100 1,206,656
US West Communications, Inc. 3,800 217,787
-------------
5,444,331
*Non-income producing
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
EQUITY SERIES
PORTFOLIO OF INVESTMENTS(CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of No. of Market
Equity Securities Portfolio Shares Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
UTILITIES (CONTINUED)
Utility Holding Companies: 2.2%
Cinergy Corp. 7,800 $ 233,513
Duke Energy Corp. 3,400 179,988
Entergy Corp. 8,300 251,593
FPL Group, Inc. 7,400 399,138
Southern Co. 9,000 237,936
-------------
1,302,168
-------------
TOTAL INVESTMENTS
(COST $44,265,252) 100.0% 57,999,389
Other assets less liabilities 313,773
-------------
NET ASSETS $ 58,313,162
=============
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
U.S. GOVERNMENT INCOME SERIES
PORTFOLIO OF INVESTMENTS
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
CORPORATE NOTES 8.7%
Finance & Credit: 8.7%
Bear Stearns Mortgage Sec., Inc., 8.125%, 09/25/27 $ 400,000 $ 394,625
Commercial Mortgage Asset Trust, 6.25%, 08/17/06 196,538 190,518
GMAC Mortgage Securities, Inc., 6.42%, 08/15/08 10,000 9,530
GMAC Mortgage Corp., 5.94%, 07/01/13 457,480 421,923
First Union Lehman Bros. Trust, 7.15%, 02/18/04 652,396 655,159
LB Commercial Conduit Trust, 6.78%, 04/15/09 375,000 361,466
Morgan Stanley Capital, Inc., 6.33%, 08/01/10 117,480 113,727
Residential Accredit Lines, Inc., 7.75%, 04/25/27 600,000 608,304
-------------
TOTAL CORPORATE NOTES
(COST $2,847,544) 2,755,252
U.S. GOVERNMENT OBLIGATIONS 31.6%
U.S. Treasury Bond: 22.0%
8.75%, 11/15/08 500,000 549,425
12.75%, 11/15/10 600,000 801,504
14.00%, 11/15/11 50,000 72,389
8.50%, 02/15/20 1,575,000 1,954,166
6.375%, 08/15/27 3,580,000 3,624,464
-------------
7,001,948
U.S. Treasury Notes: 9.6%
6.50%, 10/15/06 2,900,000 2,968,150
5.5%, 05/15/09 75,000 72,732
-------------
3,040,882
-------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $10,610,021) 10,042,830
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
U.S. GOVERNMENT INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
FEDERAL AGENCIES 59.7%
Federal Farm Credit Bank: 7.0%
6.05%, 04/21/03 $ 550,000 $ 546,695
6.94%, 05/19/05 125,000 127,968
7.37%, 08/01/06 1,500,000 1,532,565
-------------
2,207,228
Federal Home Loan Bank: 0.8%
8.00%, 08/27/01 250,000 259,628
Federal Home Loan Mortgage Corp.: 23.1%
7.36%, 06/05/07 1,500,000 1,520,400
7.00%, 07/01/07 85,508 84,518
7.00%, 09/01/10 178,488 178,153
6.50%, 04/01/11 1,119,642 1,095,144
6.00%, 05/11/11 1,188,056 1,138,300
5.50%, 05/01/14 500,000 468,750
6.50%, 04/01/29 1,487,620 1,417,880
6.50%, 05/01/29 499,231 475,827
6.50%, 05/01/29 499,113 475,715
6.50%, 06/01/29 499,582 476,161
-------------
7,330,848
Federal National Mortgage Assn.: 22.7%
6.00%, 11/01/03 66,451 64,830
6.125%, 11/25/03 213,309 209,444
5.125%, 02/13/04 175,000 166,206
6.09%, 10/01/08 518,871 487,525
6.00%, 11/01/08 316,004 307,904
6.50%, 03/01/09 113,977 114,618
7.00%, 04/01/11 963,969 960,653
5.50%, 07/01/13 475,377 445,072
8.00%, 11/01/13 657,097 671,264
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
======================================================================================================================
SECURITY FIRST TRUST SCHEDULE I
U.S. GOVERNMENT INCOME SERIES
PORTFOLIO OF INVESTMENTS (CONTINUED)
JULY 31, 1999
<CAPTION>
Percentage
of Market
Value of Market
Fixed Maturities Portfolio Principal Value
- ----------------- -------------- ------------- -------------
<S> <C> <C> <C>
FEDERAL AGENCIES (CONTINUED)
Federal National Mortgage Assn. (CONTINUED)
5.50%, 01/01/14 $ 484,500 $ 453,613
5.50%, 02/01/14 483,836 452,991
6.00%, 02/01/14 186,105 178,136
6.00%, 02/01/14 158,148 151,376
6.00%, 03/01/14 634,110 606,957
6.00%, 06/01/14 457,777 438,175
6.50%, 05/17/15 700,000 683,375
6.315%, 10/01/23 703,743 647,444
8.00%, 10/01/25 171,155 174,847
-------------
7,214,430
Government National Mortgage Assn.: 4.8%
8.25%, 02/15/09 256,464 265,037
7.50%, 01/15/26 785,449 784,954
6.00%, 04/15/14 498,346 477,321
-------------
1,527,312
Other Federal Agencies: 1.3%
Small Business Admin., 5.50%, 10/01/18 349,342 322,222
Student Loan Marketing Assn., 7.50%, 03/08/00 100,000 101,168
-------------
423,390
-------------
TOTAL FEDERAL AGENCIES
(COST $19,298,987) 18,962,836
-------------
TOTAL INVESTMENTS
(COST $ 32,756,552) 100.0% 31,760,918
Other assets less liabilities 551,631
-------------
NET ASSETS $ 32,312,549
=============
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
SECURITY FIRST TRUST
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
NOTE A -- ORGANIZATION OF THE TRUST AND SIGNIFICANT ACCOUNTING POLICIES
Security First Trust (the Trust) was established under Massachusetts law
pursuant to a Declaration of Trust dated February 13, 1987, as an unincorporated
business trust, a form of organization that is commonly called a Massachusetts
Business Trust. The Trust is registered with the Securities and Exchange
Commission as a diversified open-end management investment company (mutual fund)
under the Investment Company Act of 1940 (1940 Act).
On June 17, 1987, the shareowners of Security First Legal Reserve Fund, Inc. and
Security First Variable Life Fund, Inc. (the Funds), each of which was a
Maryland corporation registered as an investment company under the 1940 Act,
approved Plans of Reorganization and Liquidation and on July 24, 1987, the Funds
became Series of the Trust and their shareowners became shareowners of the Bond
Series and the T. Rowe Price Growth and Income Series (the Growth and Income
Series), respectively, in a tax-free exchange of shares. The Trust operates as a
"series company," as that term is used in Rule 18f-2 under the 1940 Act.
Financial information for periods prior to June 17, 1987, reflect the results of
the respective funds.
The Declaration of Trust permits the Trustees to issue an unlimited number of
shares and to divide such shares into an unlimited number of series, all without
shareowner approval. Pursuant to this authority, the Board of Trustees of
Security First Trust established the Equity Series and the U.S. Government
Income Series on January 11, 1993, which commenced operations May 19, 1993.
The following is a summary of significant accounting policies followed by the
Trust:
FEDERAL INCOME TAXES -- Each series of the Trust has elected to qualify as a
"Regulated Investment Company." No provision for federal income taxes is
necessary because each series intends to maintain its qualification as a
"Regulated Investment Company" under the Internal Revenue Code and distribute
each year substantially all of its net income and realized capital gains to its
shareowners. Income and gains to be distributed are determined annually as of
December 31.
PORTFOLIO VALUATION -- Investments are carried at market value. The market value
of equity securities is determined as follows: securities traded on a national
securities exchange are valued at the last sale price; securities not traded on
a national securities exchange are valued at the bid price for such securities
as reported by security dealers. Fixed maturities are valued at prices obtained
from a major dealer in bonds.
Short-term investments which have remaining maturities of more than 60 days and
for which representative market quotations are readily available are valued at
the most recent bid price or yield equivalent as quoted by a major broker-dealer
in money market securities. Securities with remaining maturities of 60 days or
less are valued at their amortized cost, which approximates market value due to
the short duration to maturity. Securities and other assets for which such
procedures are deemed not to reflect fair value, or for which representative
quotes are not readily available, are valued at prices deemed best to reflect
their fair value as determined in good faith by or under supervision of officers
of the Trust in a manner specifically authorized by the Board of Directors and
applied on a consistent basis.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
SECURITY FIRST TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A -- ORGANIZATION OF THE TRUST AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CURRENCY TRANSLATION -- Assets and liabilities are translated into U.S. dollars
at the prevailing exchange rate at the end of the reporting period. Purchases
and sales of securities and income and expenses are translated into U.S. dollars
at the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
FOREIGN CURRENCY CONTRACTS -- The Trust may use foreign currency contracts to
facilitate transactions in foreign securities and to manage the Trust's currency
exposure.
Contracts to buy and to sell foreign currency generally are used to minimize the
effect of currency fluctuation on the portfolios. Also, a contract to buy or to
sell can offset a previous contract. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contractual terms.
The U.S. dollar value of forward foreign currency contracts is determined using
forward currency exchange rates supplied by The Wall Street Journal. Purchases
and sales of forward foreign currency contracts having the same settlement date
are offset, and any gain or loss is recognized on the date of offset; otherwise,
the gain or loss is recognized on the settlement date.
DIVIDENDS AND DISTRIBUTIONS -- Each series declares dividends annually. Net
realized gains from security transactions, if any, are distributed annually.
OTHER -- As is common in the industry, security transactions are accounted for
no later than the day following the date the securities are purchased or sold.
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Net realized gain or loss on sale of investments is determined by the
specific identification method.
NOTE B -- REMUNERATION OF MANAGER AND OTHERS
BOND SERIES AND T. ROWE PRICE GROWTH AND INCOME SERIES:
Security First Investment Management Corporation (Security Management or
Manager) serves as both investment adviser and manager, and is entitled by
agreement to a monthly fee equal to 1/24 of 1% of the average daily net asset
value of the Bond Series and Growth and Income Series (equivalent annually to
.5%), less compensation payable to the Series' sub-advisers, Neuberger & Berman,
LLC and T. Rowe Price Associates, respectively. However, to the extent that
operating expenses (including management fees but excluding interest and taxes
and certain extraordinary expenses) of each series exceed 2.5% of the first $30
million of each series' average daily net assets, 2.0% of the next $70 million
of each series' average daily net assets, and 1.5% of each series' average daily
net assets in excess of that amount, calculated on the basis of each series'
fiscal year (the expense limitation), the agreement requires that Security
Management waive its fee. In addition, for the year ended July 31, 1999,
Security Management has also agreed to reimburse the Bond Series for any
remaining expenses exceeding a limitation equivalent annually to 1.5%. Security
Management may elect on an annual basis to reimburse the Series for future
excess expenses.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
SECURITY FIRST TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- REMUNERATION OF MANAGER AND OTHERS (CONTINUED)
If during the fiscal year repayments are made to the Manager and the series'
expenses subsequently exceed the expense limitation, the Series shall recover
such repayments from the Manager to the extent of the excess determined.
Conversely, if during the fiscal year repayments are made by the Manager and the
series' expenses subsequently are within the expense limitation, the Manager
shall recover such repayments to the extent of the excess repaid. It is
management's opinion that it is reasonably possible that actual operating
expense may be less than the expense limitation; however, in accordance with the
requirements of FASB Statement No. 5, no accrual has been made for the
contingent obligation to repay Security Management for excess expense
reimbursements since the conditions required for such accrual have not, in the
opinion of management, been met.
T. Rowe Price Associates provides investment advice and makes investment
decisions for the Growth and Income Series, while Neuberger & Berman, LLC
provides the same for the Bond Series. T. Rowe Price Associates and Neuberger &
Berman, LLC are each paid an annual fee of .35% of the average daily net assets
of the series for which they respectively provide investment advice less any
compensation payable to Security Management acting as adviser on certain assets
in which a series may invest.
EQUITY SERIES AND U.S. GOVERNMENT INCOME SERIES:
Security Management serves as both investment adviser and manager, and is
entitled by agreement to a monthly fee equal to 1/17 of 1% (equivalent annually
to .7%) of the average daily net asset value of the Equity Series and 1/22 of 1%
(equivalent annually to .55%) of the average daily net asset value of the U.S.
Government Income Series, less compensation payable to the Series' sub-adviser,
Blackrock, Inc. (Blackrock). However, to the extent that operating expenses
(including management fees but excluding interest and taxes and certain
extraordinary expenses) of each series exceed 2.5% of the first $30 million of
each series' average daily net assets, 2.0% of the next $70 million of each
series' average daily net assets and 1.5% of each series' average daily net
assets in excess of that amount, calculated on the basis of each series' fiscal
year (the expense limitation), the agreement requires that Security Management
and Blackrock waive their fees.
Blackrock provides investment advice and makes investment decisions for the U.S.
Government Income Series and for the Equity Series. Blackrock is paid an annual
fee of .40% of the average daily net assets of the U.S. Government Income Series
and an annual fee of .55% of the average daily net assets of the Equity Series.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
SECURITY FIRST TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- INVESTMENT SECURITIES TRANSACTIONS
Purchases and sales of fixed maturities and equity securities for the year ended
July 31, 1999 were as follows:
<TABLE>
<CAPTION>
T. Rowe Price
Growth U.S.
and Government
Income Equity Income
Bond Series Series Series Series
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
U.S. Government Securities:
Purchases $ 24,478,274 $ 97,036,942
Sales 21,160,842 98,189,292
Other Investment Securities:
Purchases 14,711,578 $ 95,525,002 $ 12,926,717 3,265,959
Sales 9,819,588 44,339,369 17,088,851 2,812,222
</TABLE>
The cost of investments at July 31, 1999 was the same for both financial
statement and federal income tax purposes. At July 31, 1999, the composition of
unrealized appreciation and depreciation of investment securities was as
follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation Depreciation Net
-------------- -------------- --------------
<S> <C> <C> <C>
Bond Series $ 51,525 $ 805,234 $ (753,709)
T. Rowe Price Growth and Income Series 114,817,646 14,965,295 99,852,351
Equity Series 15,456,520 1,722,383 13,734,137
U.S. Government Income Series 73,246 1,068,880 (995,634)
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
SECURITY FIRST TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of the Trust were as follows:
<TABLE>
<CAPTION>
Shares Issued
in Connection
with Reinvestment of
Net Net
Investment Realized
Income Gain
Sold Distributions Distributions Redeemed Net
--------- ------------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31, 1999
Bond Series 2,312,332 240,383 51,543 (682,801) 1,921,457
T. Rowe Price Growth and Income Series 2,272,424 331,107 1,164,634 (812,020) 2,956,145
Equity Series 94,561 56,914 1,098,636 (814,089) 436,022
U.S. Government Income Series 441,277 351,815 113,764 (828,203) 78,653
YEAR ENDED JULY 31, 1998
Bond Series 1,821,690 164,017 (270,227) 1,715,480
T. Rowe Price Growth and Income Series 4,129,204 270,050 866,173 (313,712) 4,951,715
Equity Series 797,059 63,241 535,647 (821,153) 574,794
U.S. Government Income Series 1,267,299 286,579 (683,910) 869,968
</TABLE>
NOTE E -- IMPACT OF YEAR 2000 (UNAUDITED)
Security Management has conducted a comprehensive review of its computer systems
to identify the systems that could be affected by the Year 2000 issue and has
performed the necessary repairs to the systems as well as upgrades to
infrastructure. All systems have been tested and certified and testing will
continue throughout 1999. Security Management currently believes that the Year
2000 issue will not pose significant operational problems for Security
Management's computer systems. However, there can be no assurance that the
failure by vendors or other third parties to solve the Year 2000 issue will not
have a material impact on the operations of Security Management.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
==================================================================================================================================
SECURITY FIRST TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- FINANCIAL HIGHLIGHTS
The per share information for each respective series' capital stock outstanding throughout the period is as follows:
<CAPTION>
NET REALIZED
AND TOTAL DISTRIBUTIONS
NET ASSET UNREALIZED INCOME DIVIDENDS FROM NET ASSET
VALUE AT NET GAINS FROM FROM NET REALIZED VALUE AT
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT INVESTMENT CAPITAL END OF TOTAL
OF YEAR INCOME INVESTMENTS OPERATIONS INCOME GAINS YEAR RETURN(1)
----------- --------- ----------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOND SERIES
Year ended July 31,
1995 $ 3.82 $ .24 $ .08 $ .32 $ (.22) $ 3.92 8.38%
1996 3.92 .24 (.04) .20 (.24) 3.88 5.10
1997 3.88 .24 .14 .38 (.24) 4.02 9.79
1998 4.02 .19 .11 .30 (.21) 4.11 7.46
1999 4.11 .18 (.14) .04 (.18) (.04) 3.93 0.97
T. ROWE PRICE
GROWTH AND
INCOME SERIES
Year ended July 31,
1995 $ 9.26 $ .29 $ 1.35 $ 1.64 $ (.26) $ (.06) $ 10.58 17.71%
1996 10.58 .30 1.56 1.86 (.30) (.04) 12.10 17.58
1997 12.10 .30 4.69 4.99 (.29) (.54) 16.26 41.24
1998 16.26 .28 1.27 1.55 (.30) (.95) 16.56 9.53
1999 16.56 .29 2.45 2.74 (.29) (1.00) 18.01 16.55
EQUITY SERIES
Year ended July 31,
1995 $ 4.99 $ .05 $ .71 $ .76 $ (.05) $ 5.70 15.23%
1996 5.70 .10 .46 .56 (.05) $ (.16) 6.05 9.82
1997 6.05 .09 2.60 2.69 (.11) (.45) 8.18 44.46
1998 8.18 .07 1.04 1.11 (.08) (.64) 8.57 13.57
1999 8.57 .06 1.42 1.48 (.07) (1.44) 8.54 17.27
U.S. GOVERNMENT
INCOME SERIES
Year ended July 31,
1995 $ 4.91 $ .21 $ .15 $ .36 $ (.14) $ 5.13 7.33%
1996 5.13 .18 .04 .22 (.19) $ (.01) 5.15 4.29
1997 5.15 .23 .20 .43 (.22) 5.36 8.35
1998 5.36 .27 .06 .33 (.24) 5.45 6.16
1999 5.45 .30 (.24) .06 (.31) (.10) 5.10 1.10
(1) Total return computed after deduction of all series expenses, but before deduction of actuarial risk charges and other fees of
the variable annuity account.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
================================================================================================================
SECURITY FIRST TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- FINANCIAL HIGHLIGHTS (CONTINUED)
<CAPTION>
Ratio of
Ratio of Net
Operating Investment
Expenses Income Portfolio Net Assets
to Average to Average Turnover End of
Net Assets Net Assets Rate Year
---------- ------------ --------- -------------
<S> <C> <C> <C> <C>
BOND SERIES
Year ended July 31,
1995 1.29% 6.27% 56% $ 7,977,781
1996 .90 6.32 34 8,981,365
1997 .75 6.41 54 10,634,720
1998 .73 5.78 125 17,934,392
1999 .66 5.46 147 24,717,704
T. ROWE PRICE
GROWTH AND INCOME SERIES
Year ended July 31,
1995 .74% 3.10% 8% $ 83,789,646
1996 .64 2.73 8 112,552,893
1997 .57 2.44 14 204,703,098
1998 .57 1.92 11 290,441,528
1999 .59 1.83 15 369,111,185
EQUITY SERIES
Year ended July 31,
1995 1.00% 1.29% 84% $ 7,765,719
1996 1.00 2.24 88 20,701,776
1997 1.00* 1.56* 55 47,571,469
1998 .91* .86* 87 54,803,152
1999 .81 .72 23 58,313,162
U.S. GOVERNMENT INCOME SERIES
Year ended July 31,
1995 .70% 5.19% 16% $ 5,996,149
1996 .70 5.38 148 14,888,824
1997 .70** 5.68** 62 28,889,460
1998 .66** 5.53** 103 34,090,919
1999 .71 5.37 307 32,312,549
* The former investment adviser had agreed to waive a portion of its management
and advisory fees. Absent this agreement, the ratio of expenses to average net
assets and the ratio of net investment income to average net assets would have
been .98% and .81% and 1.05% and 1.51% for 1998 and 1997 respectively.
** The former investment adviser had agreed to waive a portion of its management
and advisory fees. Absent this agreement, the ratio of expenses to average net
assets and the ratio of net investment income to average net assets would have
been .90% and 5.27% and 1.04% and 5.34% for 1998 and 1997 respectively.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Financial Statements
--------------------
(1) Prospectus/Statement of Additional Information Describing
Equity Series and U.S. Government Income Series:
o Condensed Financial Information (Per Share
Income and Capital Changes Table) is included in
Part A of the Registration Statement
o Financial statements for the above-referenced
Series of Security First Trust are included in
Part B of the Registration Statement
(2) Prospectus/Statement of Additional Information Describing
T. Rowe Price Growth and Income Series, Bond Series and U.S.
Government Income Series:
o Condensed Financial Information (Per Share
Income and Capital Changes Table) is included in
Part A of the Registration Statement
o Financial statements for the above-referenced
Series of Security First Trust are included in
Part B of the Registration Statement
(b) Exhibits
--------
(1) Declaration of Trust* (PEA No. 20)
(2) By-Laws* (PEA No. 20)
(5) a. Master Investment Management (PEA No. 36)
and Advisory Agreement, dated October 30, 1997
b. Sub-Advisory Agreement, October 30, 1997 (PEA No. 36)
c. Sub-Advisory Agreement, October 30, 1997 (PEA No. 36)
d. Sub-Advisory Agreement, March 27, 1998 (PEA No. 37)
(11) Consents of Independent Auditors herewith
(16) Powers of Attorney (PEA No. 26)
Item 24. Persons Controlled by or Under Common Control with the Fund
Previously filed with the Securities and Exchange Commission as part of
the Registration Statement of Security First Trust and incorporated
herein by reference.
Item 25. Indemnification
Previously filed as part of the registration statement of Security First
Trust and incorporated herein by reference.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
Security First Investment Management Corporation is also investment
adviser to two affiliated life insurance companies.
Each of the directors and officers of Security First Investment
Management Corporation is also an officer of its parent, Security First Group,
Inc., and certain of its subsidiaries, including Security First Life Insurance
Company. Each of these companies is located at 11365 West Olympic Boulevard, Los
Angeles, California 90064.
Item 27. Principal Underwriters
Not applicable.
Item 28. Location of Accounts and Records
Books and documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules (17 CFR 270.31a-1 to 31a-3)
promulgated thereunder and records relating to shareholder records are
maintained by The Bank of New York at 1 Wall Street, New York, New York 10286.
Registrant's Agreement and Declaration of Trust, By-Laws and other records are
maintained by the Registrant at its principal executive offices.
Item 29. Management Services
Registrant asserts that all material management related services
contract provisions have been discussed in the Prospectus and Statement of
Additional Information.
Item 30. Undertakings
The Trust undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Trust's latest annual or semi-annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it has duly caused this amended Registration
Statement to be signed on its behalf in the City of Los Angeles and State of
California on this 29th day of September 1999.
SECURITY FIRST TRUST
(Registrant)
By: /s/ Richard C. Pearson
-----------------------------
Richard C. Pearson, President
As required by the Securities Act of 1933, this amended Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> >C? <C>
/s/ Richard C. Pearson President September 29, 1999
- ------------------------
Richard C. Pearson
/s/ Jane F. Eagle Senior Vice President & September 29, 1999
- ------------------------ Chief Financial Officer
Jane F. Eagle
Jack R. Borsting* Trustee September 29, 1999
- ------------------------
Jack R. Borsting
Katherine L. Hensley* Trustee September 29, 1999
- ------------------------
Katherine L. Hensley
/s/ Howard H Kayton Trustee September 29, 1999
- ------------------------
Howard H (nmn) Kayton
Lawrence E. Marcus* Trustee September 29, 1999
- ------------------------
Lawrence E. Marcus
/s/ Richard C. Pearson
- ------------------------
*(Richard C. Pearson as
Attorney-in-Fact for each
of the persons indicated)
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Condensed Financial
Information" and "independent Auditors" in the Registration Statement (Form N-1A
Post-Effective Amendment No. 38 under the Securities Act of 1933 and No. 37
under the Investment Company Act of 1940) and related Statement of Additional
Information of Security First Trust.
/s/ Ernst & Young, LLP
Ernst & Young LLP
Los Angeles, California
September 27, 1999
INDEPENDENT AUDITORS' CONSENT
Security First Trust:
We consent to (a) the use in this Post-Effective Amendment No. 38 to
Registration Statement No. 2-51173 under the Securities Act of 1933 and in this
Amendment No. 37 to Registration Statement No. 811-2480 under the Investment
Company Act of 1940 on Form N-1A of our report dated September 10, 1999
regarding Security First Trust's financial statements appearing in the Statement
of Additional Information, which is part of this Registration Statement, (b) the
reference to us under the heading "Financial Highlights" in the Prospectus,
which is part of this Registration Statement and (c) the reference to us under
the heading "Independent Auditors" in the Statement of Additional Information,
which is part of this Registration Statement.
/s/s Deloitte & Touche LLP
Los Angeles, California
September 27, 1999
