<PAGE> 1
'33 Act File No. 33-7094
'40 Act File No. 811-3365
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 24 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 70 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
SECURITY FIRST LIFE SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
SECURITY FIRST LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
11365 WEST OLYMPIC BOULEVARD, LOS ANGELES, CALIFORNIA 90064
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 312-6100
RICHARD C. PEARSON
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
SECURITY FIRST LIFE INSURANCE COMPANY
11365 WEST OLYMPIC BOULEVARD, LOS ANGELES, CALIFORNIA 90064
(NAME AND ADDRESS OF AGENT FOR SERVICE)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE SPACE)
______ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
X ON MARCH 1, 1996 PURSUANT TO PARAGRAPH (B) OF RULE 485
______
______ 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485
______ ON [DATE] PURSUANT TO PARAGRAPH (A) OF RULE 485
______ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(II) OF RULE 485
______ ON [DATE] PURSUANT TO PARAGRAPH (A)(II) OF RULE 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
______ THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
THE COMPANY HAS ELECTED PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940 TO REGISTER AN INDEFINITE NUMBER OF SECURITIES. THE MOST RECENT RULE
24F-2 NOTICE WAS FILED ON FEBRUARY 23, 1996.
<PAGE> 2
SECURITY FIRST LIFE SEPARATE ACCOUNT A
Cross Reference Sheet
Part A - Prospectuses for Combination Fixed
and Variable and Variable only Annuity Contracts
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption in Prospectus
----------------------- ---------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Summary of the Contracts
4. Condensed Financial Information Condensed Financial Information; Performance;
Financial Information
5. General Description of Registrant, Depositor, Description of Security First Life Insurance
and Portfolio Companies Company, The General Account, The Separate
Account and The Funds; Voting Rights; Servicing
Agent
6. Deductions and Expenses Contract Charges
7. General Description of Variable Annuity Description of the Contracts; Accumulation
Contracts Period; Annuity Benefits
8. Annuity Period Annuity Benefits
9. Death Benefit Death Benefits
10. Purchases and Contract Value Description of the Contracts; Accumulation
Period; Principal Underwriter
11. Redemptions Accumulation Period
12. Taxes Federal Income Tax Status
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement of Additional Table of Contents of Statement of Additional
Information Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C> <C>
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company; The Separate Account; The
Funds
18. Services Servicing Agent; Safekeeping of Securities;
Independent Public Accountant; Legal Matters
19. Purchase of Securities Being Offered Purchase of Securities Being Offered
20. Underwriters Underwriters, Distribution of the Contracts
21. Calculation of Performance Data Calculation of Performance Data
22. Annuity Payments Annuity Payments
23. 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 of this
registration statement.
<PAGE> 4
SECURITY FIRST LIFE SEPARATE ACCOUNT A
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INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
Security First Life Insurance Company
11365 West Olympic Boulevard
Los Angeles, California 90064
- --------------------------------------------------------------------------------
The individual flexible payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus are issued by Security First Life Insurance Company
("Security First Life"). The Contracts may be issued pursuant to retirement
plans that do not qualify for special tax treatment under the Internal Revenue
Code of 1986 (the "Code"). The Contracts may also be issued to plans that
qualify for special tax treatment such as individual retirement annuities, tax-
sheltered annuities, Section 457 deferred compensation plans and pension plans.
Eight Funds constitute the underlying investment medium for the Contracts: (i)
the Value Equity Series and U.S. Government Income Series of Security First
Trust, (ii) the Money Market Portfolio, Growth Portfolio and Overseas Portfolio
of the Variable Insurance Products Fund, (iii) the Contrafund Portfolio of the
Variable Insurance Products Fund II, (iv) the International Portfolio of the
Scudder Variable Life Investment Fund and (v) the Small Capitalization Portfolio
of The Alger American Fund.
This Prospectus sets forth information a prospective investor should know before
investing. Additional information about the Contracts has been filed with the
Securities and Exchange Commission ("SEC") in a Statement of Additional
Information, dated March 1, 1996, which information is incorporated herein by
reference and is available without charge upon written request to Security First
Life Insurance Company, P.O. Box 92193, Los Angeles, California 90009 or by
telephoning 1(800)284-4536.
The table of contents of the Statement of Additional Information appears on page
20 of the Prospectus.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING OF SHARES OF ANY UNDERLYING FUND
FOR WHICH A CURRENT PROSPECTUS HAS NOT BEEN RECEIVED AND IN NO EVENT WILL
DESIGNATION OF AN UNDERLYING FUND FOR WHICH A CURRENT PROSPECTUS HAS NOT BEEN
RECEIVED BE PERMITTED UNLESS THE OWNER RECEIVES SUCH A PROSPECTUS.
PLEASE READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Prospectus dated March 1, 1996 SF 135 R2V (3/96)
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Glossary....................................................................................... 3
Summary of the Contracts....................................................................... 4
Fee Tables..................................................................................... 6
Condensed Financial Information................................................................ 9
Performance.................................................................................... 9
Financial Information.......................................................................... 9
Description of Security First Life Insurance Company,
The General Account, The Separate Account and The Funds...................................... 9
The Insurance Company...................................................................... 9
The Separate Account....................................................................... 10
The Funds.................................................................................. 10
Principal Underwriter.......................................................................... 11
Servicing Agent................................................................................ 12
Custody of Securities.......................................................................... 12
Contract Charges............................................................................... 12
Premium Taxes.............................................................................. 12
No Sales Charge............................................................................ 12
Administration Fees........................................................................ 12
Mortality Risk and Administrative Expense Risk Charge...................................... 12
10-Day Free Look........................................................................... 13
Description of the Contracts................................................................... 13
Assignment................................................................................. 13
Purchase Payments.......................................................................... 13
Conversions................................................................................ 13
Dollar Cost Averaging...................................................................... 13
Reallocation Election...................................................................... 13
Modification of the Contracts.............................................................. 13
Accumulation Period............................................................................ 14
Crediting Accumulation Units in the Separate Account....................................... 14
Separate Account Accumulation Unit Current Values.......................................... 14
Net Investment Factor...................................................................... 14
Surrender from the Separate Account........................................................ 14
Statement of Account....................................................................... 14
Annuity Benefits............................................................................... 15
Variable Annuity Payments.................................................................. 15
Assumed Investment Return.................................................................. 15
Election of Annuity Date and Form of Annuity............................................... 15
Frequency of Payment....................................................................... 16
Level Payments Varying Annually............................................................ 16
Annuity Unit Values........................................................................ 16
</TABLE>
<TABLE>
<S> <C>
Death Benefits................................................................................. 17
Death Before the Annuity Date.............................................................. 17
Death After the Annuity Date............................................................... 17
Federal Income Tax Status...................................................................... 18
Qualified Contracts........................................................................ 18
Non-Qualified Contracts.................................................................... 18
Withholding................................................................................ 19
Voting Rights.................................................................................. 19
Legal Proceedings.............................................................................. 20
Additional Information......................................................................... 20
Table of Contents of Statement of Additional Information....................................... 20
</TABLE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer described herein and, if given or made, such information or
representations must not be relied upon as having been authorized. This
Prospectus does not constitute an offer in any jurisdiction to any person to
whom such offer would be unlawful therein.
2
<PAGE> 6
GLOSSARY
As used in this Prospectus, these terms have the following meanings:
ACCUMULATION UNIT -- A measuring unit used to determine the value of an Owner's
interest in a Separate Account Series under a Contract at any time before
Annuity Payments commence.
ANNUITANT -- The person on whose life Annuity payments under a Contract are
based.
ANNUITY -- A series of income payments made to an Annuitant for a defined period
of time.
ANNUITY DATE -- The date on which Annuity payments begin.
ANNUITY UNIT -- A measuring unit used to determine the amount of Variable
Annuity payments based on a Separate Account Series under a Contract after such
payments have commenced.
ASSUMED INVESTMENT RETURN -- The investment rate selected by the Annuitant for
use in determining the Variable Annuity payments.
BENEFICIARY -- The person who has the right to a Death Benefit upon the death of
the Owner.
BUSINESS DAY -- Each Monday through Friday except for certain limited exceptions
such as days when changes in the value of the investment company's portfolio
securities do not affect the current net asset value of the investment company's
redeemable securities.
CONTRACT -- The agreement between Security First Life and the Contract Owner
covering the rights of the Owner.
CONTRACT DATE -- The date an Owner's Contract is issued.
CONTRACT VALUE -- The sum of the Owner's interest in the Separate Account
Series. The Owner's interest in the Separate Account Series is the sum of the
values of the Accumulation Units.
CONTRACT YEAR -- A 12-month period starting on the Contract Date and on each
anniversary thereof.
FIXED ANNUITY -- An Annuity providing guaranteed level payments. Such payments
are not based upon the investment experience of the Separate Account.
FUND -- A diversified, open-end management investment company, or series
thereof, registered under the Investment Company Act of 1940 ("1940 Act") which
serves as the underlying investment medium for a Series in the Separate Account.
GENERAL ACCOUNT -- All assets of Security First Life other than those in the
Separate Account or any of its other segregated asset accounts.
NORMAL ANNUITY DATE -- The first day of the month coincident with or next
following the anniversary of the Contract Date nearest the Annuitant's 85th
birthday, or the 10th anniversary, if later.
OWNER -- The person who has title to the Contract.
PURCHASE PAYMENT -- The amounts paid to Security First Life in order to provide
benefits under the Contract.
SEPARATE ACCOUNT -- The segregated asset account entitled "Security First Life
Separate Account A" which has been established by Security First Life pursuant
to Delaware law to receive and invest amounts allocated and to provide Variable
Annuity benefits under the Contracts. The Separate Account is registered as a
unit investment trust under the 1940 Act.
SERIES -- The Accumulation Unit values and Annuity Unit values maintained
separately for each Fund whose securities are owned by the Separate Account.
VALUATION DATE -- Any Business Day used by the Separate Account to determine the
value of part or all of its assets for purposes of determining Accumulation and
Annuity Unit values for the Contract. Accumulation Unit values will be
determined each Business Day. There will be one Valuation Date in each calendar
week for Annuity Unit values. Security First Life will establish the Valuation
Date at its discretion, but until notice to the contrary is given, that date
will be the last Business Day in a week.
3
<PAGE> 7
VALUATION PERIOD -- The period of time from one Valuation Date through the next
Valuation Date.
VARIABLE ANNUITY -- An Annuity providing payments which will vary annually in
accordance with the net investment experience of the applicable Separate Account
Series.
SUMMARY OF THE CONTRACTS
THE CONTRACTS
The Contracts may be issued pursuant to retirement plans that do not qualify
for special tax treatment ("Non-Qualified Contracts") and to individuals seeking
to accumulate funds for retirement whether or not such individuals are otherwise
participating in qualified or non-qualified retirement plans (See "Non-Qualified
Contracts," page 18). The Contracts may also be issued to plans qualifying for
special tax treatment ("Qualified Contracts"), such as individual retirement
annuities, Section 403(b) tax-sheltered annuities, Section 457 deferred
compensation plans, money purchase pension plans and profit sharing plans. (See
"Qualified Contracts," page 18.)
PURCHASE PAYMENTS
Purchase Payments under the Contracts are made to the Separate Account and
allocated among the Series as directed by the Owner, provided that purchase
payments of $100,000 or more will be initially allocated to the Money Market
Portfolio until the end of the applicable 10 day free look period. The minimum
initial Purchase Payment is $1,000 and each additional Purchase Payment must be
at least $100. There is no sales charge; however, certain charges and deductions
will be made to the Contract Value. (See "Contract Charges," page 12.) Amounts
allocated to the Separate Account may be transferred among the Series at any
time and any number of times. (See "Conversions," page 13.)
SEPARATE ACCOUNT
Pursuant to the Participant's designation, Purchase Payments allocated to
the Separate Account are invested at net asset value in Accumulation Units of
one or more of eight series, each of which consists of the shares of a different
Fund. The Funds presently consist of the Value Equity Series and U.S. Government
Income Series of the Security First Trust, the Money Market Portfolio, Growth
Portfolio and Overseas Portfolio of the Variable Insurance Products Fund, the
Contrafund Portfolio of the Variable Insurance Products Fund II, the
International Portfolio of the Scudder Variable Life Investment Fund and the
Small Capitalization Portfolio of The Alger American Fund. The investment
adviser and manager of Security First Trust is Security First Investment
Management Corporation ("Security Management"). Virtus Capital Management, Inc.
("Virtus"), the successor in interest to Signet Asset Management, is the
subadvisor for the Value Equity Series and U.S. Government Income Series of
Security First Trust. The investment adviser of the Variable Insurance Products
Fund and the Variable Insurance Products Fund II is Fidelity Management &
Research Company ("FMR"). The investment advisor and manager of the Scudder
Variable Life Investments Fund is Scudder, Stevens & Clark, Inc. ("Scudder").
The Small Capitalization Portfolio of The Alger American Fund is managed and
advised by Fred Alger Management, Inc. ("Alger Management"). (See "The Separate
Account," page 10 and "The Funds," page 10.)
CHARGES AND DEDUCTIONS
No sales charge is deducted from any purchase payment under the Contract or
any amount surrendered under the Contract.
An administration fee will be deducted daily from the Owner's interest in
the Separate Account in the amount of .000411% (.15% per annum). (See
"Administration Fees," page 12.)
Daily deductions will be made for mortality risks in the amount of .002192%
(.80% per annum) and for administrative expense risks in the amount of .001233%
(.45% per annum). (See "Mortality Risk and Administrative Expense Risk Charge,"
page 12.)
Premium taxes payable to any state or other governmental agency with respect
to the Owner's Account may be deducted on or after the date they were incurred.
Premium taxes currently range from 0% to 2.35% (3.50% in Nevada). Until further
notice, Security First Life will deduct premium taxes upon annuitization. (See
"Premium Taxes," page 12.)
4
<PAGE> 8
10-DAY FREE LOOK
At any time within 10 days after receipt of the Contract it may be returned
for cancellation and a full refund of all Purchase Payments. (See "10-Day Free
Look," page 13.)
VARIABLE ANNUITY PAYMENTS
Monthly Annuity payments will start on the Annuity Date. The Owner selects
the Annuity Date, an Annuity payment option, and an assumed investment return.
Any of these selections may be changed prior to the Annuity Date. The Variable
Annuity payment will vary annually based on a comparison of the assumed
investment returns with the investment experience of the Series in which the
Contract Value is invested. (See "Variable Annuity Payments," page 15.)
If Annuity payments from any one Series would be less than $50, Security
First Life reserves the right to change the frequency of the payments from that
Series to such intervals as will result in payments of at least $50 from each
Series. (See "Frequency of Payment," page 16.)
SURRENDER
An Owner may surrender, before the Annuity Date, all or part of his or her
Contract Value. However, no partial surrender is permitted if it would reduce
the Owner's interest in any Series to less than $500, unless the entire amount
allocated to that Series is being surrendered. The earnings surrendered will be
taxed as ordinary income and may be subject to a penalty tax under the Code.
(See "Federal Income Tax Status," page 18.) Certain restrictions are applicable
to surrender from Contracts funding retirement plans qualified for special tax
treatment under the Code. (See "Qualified Contracts," page 18.)
DEATH BENEFIT
Unless otherwise restricted, in the event of the Owner's death prior to the
Annuity Date, the designated Beneficiary may elect either to receive a death
benefit in a lump sum or to apply the death benefit under certain of the
available optional Annuity forms contained in the Contract. The death benefit is
the greater of: (i) Purchase Payments reduced by amounts applied to partial
withdrawals or annuity income or (ii) the Contract Value at settlement (see
"Death Benefits," page 17).
5
<PAGE> 9
FEE TABLES
PARTICIPANT TRANSACTION EXPENSES
None
SEPARATE ACCOUNT EXPENSES
(DEDUCTED DAILY FROM THE SEPARATE ACCOUNT.)
Administration fees 0.15% per annum
Mortality and Expense Risk Fees 1.25% per annum
Total Separate Account Annual Fees 1.40% per annum
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
(NET OF REIMBURSEMENT)
<TABLE>
<CAPTION>
Value U.S. Gov. Money
Equity Income Market Growth Overseas Contrafund
Series Series Portfolio Portfolio Portfolio Portfolio
------------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
(a) Management Fee................ .25% 0.24% 0.20% 0.62% 0.77% 0.62%
(b) Other Expenses................ .75% 0.46% 0.07% 0.07% 0.15% 0.27%
(c) Total Annual Expenses......... 1.00% 0.70% 0.27% 0.69% 0.92% 0.89%
</TABLE>
<TABLE>
<CAPTION>
Small
International Cap.
Portfolio Portfolio
------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(a) Management Fee................ .88% 0.85%
(b) Other Expenses................ .21% 0.11%
(c) Total Annual Expenses......... 1.08% 0.96%
</TABLE>
6
<PAGE> 10
EXAMPLES
<TABLE>
<CAPTION>
CONDITIONS
SEPARATE A PARTICIPANT WOULD PAY THE FOLLOWING EXPENSES ON TIME PERIODS
ACCOUNT A $1,000 INVESTMENT ASSUMING 5% ANNUAL RETURN ON ----------------------------------
SERIES ASSETS: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------- -------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Value (a) upon surrender at the end of the stated time (a) $ 24 $ 74 $ 126 $270
Equity period
Series (b) if the Certificate WAS NOT surrendered or was (b) 24 74 126 270
annuitized
- --------------- -------------------------------------------------- ------ ------- ------- --------
U.S. Gov. SAME (a) 21 65 111 240
Income Series
(b) 21 65 111 240
- --------------- -------------------------------------------------- ------ ------- ------- --------
Money SAME (a) 17 52 89 194
Market
Portfolio (b) 17 52 89 194
- --------------- -------------------------------------------------- ------ ------- ------- --------
Growth SAME (a) 21 65 111 239
Portfolio
Series
(b) 21 65 111 239
- --------------- -------------------------------------------------- ------ ------- ------- --------
Overseas SAME (a) 23 71 122 262
Portfolio
Series
(b) 23 71 122 262
- --------------- -------------------------------------------------- ------ ------- ------- --------
Contrafund SAME (a) 23 71 121 259
Portfolio
(b) 23 71 121 259
- --------------- -------------------------------------------------- ------ ------- ------- --------
International SAME (a) 25 76 130 278
Portfolio
(b) 25 76 130 278
- --------------- -------------------------------------------------- ------ ------- ------- --------
Small SAME (a) 24 73 124 266
Capitalization
Portfolio
(b) 24 73 124 266
- --------------- -------------------------------------------------- ------ ------- ------- --------
</TABLE>
7
<PAGE> 11
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the foregoing tables and examples is to assist the Owner in
understanding the various costs and expenses that he or she will bear
directly or indirectly. The table reflects expenses of the Separate Account
as well as the underlying Funds. For additional information see "Contract
Charges," beginning on page 12.
2. The investment advisers to the Value Equity Series and the U.S. Government
Income Series voluntarily reimbursed certain expenses of these Funds. If
there had been no reimbursement, total expenses would have been 1.72% and
1.15%, respectively (see the Security First Trust prospectuses for more
information).
3. Premium taxes are not reflected. Presently, premium taxes ranging from 0% to
2.35% (3.50% in Nevada) may be deducted from each Purchase Payment or upon
annuitization. However, Security First Life presently deducts premium tax
only from amounts annuitized.
4. NEITHER THE TABLE NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<PAGE> 12
CONDENSED FINANCIAL INFORMATION
The following table sets forth condensed financial information on
Accumulation Units respecting contracts issued under this prospectus through the
Separate Account. The information is derived from the financial statements of
the Separate Account which have been audited by Ernst & Young LLP, the Separate
Account's independent auditors. No Accumulation Units for Series SV (Value
Equity Series), Series SU (U.S. Government Income Series), Series FC (Contrafund
Portfolio), Series SI (International Portfolio) or Series AS (Small
Capitalization Portfolio) had been issued as of December 31, 1994. The
information should be read in conjunction with the financial statements, related
notes and other financial information in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Twelve Five Twelve
Months Months Months
Ended Ended Ended
Separate Account Series 7/31/93 12/31/93 12/31/94
----------------------- --------- --------- --------
<S> <C> <C> <C>
Series FG (Growth Portfolio)
Beg. AUV $ (5/24/93)....................................................... 5.00 5.06 5.40
End. AUV $................................................................. 5.06 5.40 5.33
End. No. Non-Qualified AUs................................................. 6,333 68,333 220,859
End. No. Qualified AUs..................................................... 6,703 69,326 351,616
Series FO (Overseas Portfolio)
Beg. AUV $ (5/24/93)....................................................... 5.00 5.12 5.64
End. AUV $................................................................. 5.12 5.64 5.67
End No. Non-Qualified AUs.................................................. 0 11,178 82,312
End. No. Qualified AUs..................................................... 491 8,248 107,910
Series FM (Money Market Portfolio)
Beg. AUV $ (1/1/94)........................................................ 5.00
End. AUV $................................................................. 5.16
End. No. Non-Qualified AUs................................................. 47,324
End. No. Qualified AUs..................................................... 9,656
</TABLE>
- --------------------------------------------------------------------------------
AUV -- Accumulation Unit Value
AUs -- Accumulation Units
PERFORMANCE
Security First Life may from time to time advertise the yield and effective
yield on the Money Market Portfolio of the Separate Account and the average
annual total returns for the other Funds in the Separate Account. Yields and
average annual total returns are determined in accordance with the methods of
computation set forth by the SEC in the Form N-4 Registration Statement and are
more particularly described in the Statement of Additional Information. Yields
are expressed for a seven day period, and average annual total returns are
expressed for at least one, five and ten year periods (or from inception if
shorter).
The yields of the Money Market Portfolio are determined based upon the
change in the value of an outstanding unit in the Separate Account over a seven
day period and annualizing the result. The computation takes into account
recurring deductions from account values, but no deduction is made for surrender
charges which may apply upon a full or partial surrender. These charges are
described in "Surrender Charges," page 12. In the event of a surrender of the
Contract, the imposition of surrender charges will have the effect of reducing
the yield earned over the period of ownership.
The computation of average annual total returns does take into consideration
recurring charges and any non-recurring charges applicable to a Contract which
is surrendered in full at the end of the stated holding period.
FINANCIAL INFORMATION
Financial Statements of the Separate Account and Security First Life are
contained in the Statement of Additional Information.
DESCRIPTION OF SECURITY FIRST LIFE INSURANCE COMPANY,
THE GENERAL ACCOUNT, THE SEPARATE ACCOUNT AND THE FUNDS
THE INSURANCE COMPANY
Security First Life is a stock life insurance company founded in 1960 and
organized under the laws of the State of Delaware. Its principal executive
offices are located at 11365 West Olympic Boulevard, Los Angeles, California
90064. Security First Life owns all of the outstanding stock of Fidelity
Standard Life Insurance Company. Security First Life is a wholly-owned
subsidiary of Security First Group, Inc. ("SFG") (the successor to The Holden
Group, Inc.) The
9
<PAGE> 13
outstanding voting stock of SFG is owned by London Insurance Group, Inc., a
Canadian insurance service corporation and publicly traded subsidiary of the
Trilon Corporation of Toronto, Canada. Security First Life is authorized to
transact the business of life insurance, including annuities. Security First
Life presently is licensed to do business in 49 states and the District of
Columbia.
THE SEPARATE ACCOUNT
The Separate Account was established by Security First Life on May 29, 1980,
in accordance with the provisions of the Delaware Insurance Code. It is
registered as a unit investment trust under the 1940 Act. Registration with the
SEC does not involve supervision by the SEC of the management or investment
practices or policies of the Separate Account or Security First Life.
The Separate Account and each Series therein are administered and accounted
for as part of the general business of Security First Life, but the income and
realized capital gains or losses of each Series are credited to or charged
against the assets held for that Series in accordance with the terms of the
Contracts. This is done without regard to the income, realized capital gains or
losses of any other Series or the experience of Security First Life in any other
business it may conduct. The assets within each Series are not chargeable with
liabilities incurred by any other Series, or arising out of any other business
Security First Life may conduct.
All obligations arising under the Contracts, including the guarantee to make
annuity payments, are general corporate obligations of Security First Life, and
all of Security First Life's assets are available to meet its expenses and
obligations under the Contracts. However, while Security First Life is obligated
to make the Variable Annuity payments under the Contracts, the amount of such
payments is guaranteed only to the extent of the level amount calculated at the
beginning of each Annuity year. (See "Level Payments Varying Annually," page
16.)
The Separate Account is divided into a number of Series of Accumulation and
Annuity Units, eight of which are available under the Contracts, and each Series
invests in the shares of only one of the Funds. The Funds consist of (i) the
Value Equity Series and U.S. Government Income Series of the Security First
Trust, (ii) the Money Market Portfolio, Equity-Income Portfolio, Growth
Portfolio and Overseas Portfolio of the Variable Insurance Products Fund, (iii)
the Asset Manager Portfolio, Contrafund Portfolio and Index 500 Portfolio of the
Variable Insurance Products Fund II, (iv) the International Portfolio of the
Scudder Variable Life Investment Fund, and (v) the Small Capitalization
Portfolio of The Alger American Fund. The shares of each Fund are purchased,
without sales charge, for the corresponding Series at the net asset value per
share next determined by each Fund following receipt of the applicable payment.
Any dividend or capital gain distributions received from a Fund are reinvested
in Fund shares which are retained as assets of the applicable Series. Fund
shares will be redeemed without fee to the Series to the extent necessary for
Security First Life to make Annuity or other payments under the Contracts.
If shares of any Fund should no longer be available for investment by a
Series or if in the judgment of Security First Life's management further
investment in the shares of any fund should become inappropriate in view of the
purposes of the Contracts issued, Security First Life may substitute for the
Fund shares already purchased, and apply future Purchase Payments under the
Contracts to the purchase of shares of another Fund or other securities. No
substitution of securities of any Series may take place, however, without a
prior favorable vote of a majority of the Owners entitled to vote who have
invested in the Series and the prior approval of the SEC.
THE FUNDS
Each of the Funds is a series or portfolio of an open-end management
investment company registered with the SEC under the 1940 Act. Registration does
not involve supervision by the SEC of the investments or investment policies of
the Funds. There can be no assurance that the investment objectives of the Funds
will be achieved.
The Security First Trust is a Massachusetts business trust which has a
number of series, two of which are available under the Contracts.
Value Equity Series seeks to provide growth of capital and income. The
Series pursues this objective by investing in common stocks of high quality
companies. Emphasis is placed on stocks where the value is low when compared to
present earnings.
U.S. Government Income Series seeks to provide current income. The Series
pursues this objective by investing in a professionally managed, diversified
portfolio limited primarily to U.S. government securities.
Security Management, a subsidiary of SFG and an affiliate of Security First
Life and Security First Financial, Inc., provides investment advice and
management services to the two series of Security First Trust described above.
Under a subadvisory agreement with Security Management, Virtus, a wholly owned
subsidiary of Signet Banking Corp., provides investment management services to
the Value Equity Series and U.S. Government Income Series.
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Variable Insurance Products Fund and Variable Insurance Products Fund II are
Massachusetts business trusts. Each is divided into separate portfolios. The
following portfolios from these trusts are available under the Contracts:
Money Market Portfolio seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The portfolio
will invest only in high quality U.S. dollar denominated money market securities
of domestic and foreign issuers.
Growth Portfolio seeks to achieve capital appreciation normally through the
purchase of common stocks (although the portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
Contrafund Portfolio seeks capital appreciation by investing in equity or
debt securities of companies that the investment adviser believes to be
undervalued due to an overly pessimistic appraisal by the public.
FMR is the investment adviser to each of the portfolios of the Variable
Insurance Products Fund and the Variable Insurance Products Fund II.
Scudder Variable Life Investment Fund is a Massachusetts business trust
which is divided into separate Portfolios. The following Portfolio is available
under the Contracts.
International Portfolio seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity investments. The Portfolio
invests in companies, wherever organized, which do business primarily outside
the United States. The Portfolio intends to diversify investments among several
countries and to have represented in its holdings business activities in not
less than three different countries. The Portfolio does not intend to
concentrate investments in any particular industry.
The investment advisor of the Scudder Variable Life Investment Fund is
Scudder.
The Alger American Fund is a Massachusetts business trust which has a number
of portfolios, one of which is available under the Contracts.
Small Capitalization Portfolio seeks long-term capital appreciation by
investing in a diversified, actively managed portfolio of equity securities,
primarily of companies with total market capitalization of less than $1 billion.
Income is a consideration in the selection of investments but is not an
investment objective of the Portfolio.
The investment adviser of The Alger American Fund is Alger Management.
The Funds are available to registered separate accounts offering variable
annuity and variable life products of participating insurance companies and to
other entities permitted under Section 817(h) of the Code. Although it is not
anticipated that any disadvantages will result, there is a possibility that a
material conflict may arise between the interest of the Separate Account and one
or more of the other separate accounts participating in the Funds. A conflict
may occur due to a change in law affecting the operations of variable life and
variable annuity separate accounts, differences in the voting instructions of
our Owners and those of other companies, or some other reason. In the event of a
conflict, the Separate Account will take any steps necessary to protect Owners
and variable annuity payees, which may include withdrawal of amounts invested in
the Fund by the Separate Account.
The rights of Participants or Beneficiaries to instruct Security First Life
on voting shares of the Funds are described under "Voting Rights," page 19.
Detailed information about the Funds, their investment objectives,
investment portfolios and charges may be found in the prospectuses of the Funds.
Delivery of prospectuses of the Funds must precede or accompany delivery of this
prospectus. An investor should carefully read the Funds' prospectuses before
investing. Prospectuses for Security First Trust, Variable Insurance Products
Fund, Variable Insurance Products Fund II, Scudder Variable Life Investment Fund
and The Alger American Fund may be obtained without charge by written request to
Security First Life Insurance Company, P.O. Box 92193, Los Angeles, California
90009.
PRINCIPAL UNDERWRITER
Security First Financial, Inc., 11365 West Olympic Boulevard, Los Angeles,
California 90064, a broker-dealer registered under the Securities Exchange Act
of 1934 and a member of the National Association of Securities Dealers, Inc., is
the principal underwriter for the Contracts. Security First Financial, Inc., is
a Delaware corporation and a subsidiary of SFG.
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SERVICING AGENT
Security First Life receives certain administrative services such as office
space, supplies, utilities, office equipment, travel expenses and periodic
reports pursuant to an agreement with SFG.
CUSTODY OF SECURITIES
The custodian of the assets of the Separate Account is Security First Life.
The assets of each Series will be kept physically segregated by Security First
Life and held separate from the assets of the other Series and of any other
firm, person, or corporation. Additional protection for the assets of the
Separate Account is afforded by fidelity bonds covering all of Security First
Life's officers and employees.
CONTRACT CHARGES
Contract charges are assessed as follows: (i) for premium taxes; (ii) on a
daily basis for administration of the Contract; and (iii) against the value of
the assets of the Separate Account for the assumption of mortality risks and
administrative expense risks. These charges may not be changed under the
Contract, and Security First Life may profit from these charges in the
aggregate.
An investor should note that there are deductions from and expenses paid out
of the assets of the Funds that are described in their respective prospectuses.
PREMIUM TAXES
Certain state and governmental entities impose a premium tax of up to 2.35%
(3.50% in Nevada) of Purchase Payments or amounts applied to an Annuity option.
The Contracts permit Security First Life to deduct any applicable premium taxes
from the Contract Value at or after the time they are incurred. Until further
notice, Security First Life will deduct any premium tax only from amounts
applied to an Annuity option.
NO SALES CHARGE
Security Life has waived all sales charges under the Contract. As a result,
there are no sales loads on purchase payments and no surrender charges on full
or partial surrenders.
ADMINISTRATION FEES
An administration fee of .000411% (.15% per annum) is deducted from the
Owner's interest in the Separate Account on a daily basis. Contract
administration expenses include the cost of policy issuance; salaries; rent;
postage; telephone and travel expenses; legal, administrative, actuarial and
accounting fees; periodic reports; office equipment; stationery; office space;
and custodial expenses. These fees will not exceed the cost of providing such
administration services.
MORTALITY RISK AND ADMINISTRATIVE EXPENSE RISK CHARGE
The minimum death benefit provided for by the Contracts requires Security
First Life to assume a mortality risk that the Contract Value will be less than
the Owner's Purchase Payments adjusted for prior withdrawals and/or amounts
applied to Annuity options. (See "Death Before the Annuity Date," page 17.) In
addition, because the Contracts provide life Annuity options, Security First
Life assumes a mortality risk that the death rate of Annuitants as a group will
be lower than the death rate upon which the mortality tables specified in the
Contracts are based. A fee will be charged by Security First Life to compensate
it for assuming these mortality risks in connection with amounts allocated to
the Separate Account. Security First Life will make a daily deduction from the
Separate Account for mortality risks equal to .80% on an annual basis of the
Separate Account assets funding the Contracts.
Although Security First Life charges an administration fee equal to 0.15%
per annum from the value of Separate Account assets funding the Contract, there
is no assurance that these fees will be sufficient to absorb the administrative
expenses incurred by Security First Life during the term of the Contract. As
compensation for assuming the risk that administrative expenses will exceed such
fees, Security First Life will make a daily deduction from the value of the
Separate Account assets funding the Contracts equal to .45% on an annual basis.
If Security First Life has gains from the receipt of the mortality and
expense risk charges over its costs of assuming these risks under the Contracts,
it may use the gains in its discretion, including reduction of expenses incurred
in distributing the Contracts.
Security First Life may, in its discretion, voluntarily waive a portion of
the mortality and administrative expense risk charges, which waiver may be
terminated at any time.
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10-DAY FREE LOOK
Any time within 10 days after receipt of the Contract, it may be returned
for cancellation by delivering or mailing it to Security First Life at its
administrative office. If the Contract is mailed, it will be deemed mailed on
the date of the postmark or, if sent by certified or registered mail, the date
of certification or registration. Such delivery or mailing of the Contract shall
void it from the beginning, and the parties shall be in the same position as if
it had not been issued. All Purchase Payments for the Contract shall be
refunded.
DESCRIPTION OF THE CONTRACTS
ASSIGNMENT
The Contracts provide that an Owner may freely assign his or her rights
under them. However, the Code provides that Contracts issued in connection with
Section 401 or 403 plans and IRAs must be nontransferable and nonassignable.
PURCHASE PAYMENTS
Purchase Payments may be made at any time. The minimum initial Purchase
Payment is $1,000; with each additional Purchase Payment subject to a $100
minimum. Confirmation of each Purchase Payment received will be sent to the
Owner.
CONVERSIONS
Accumulation Units may be converted among the Series at any time. Conversion
instructions may be communicated in writing or, if permitted by Security First
Life, by telephone. If telephone conversions of Accumulation Units are
permitted, the Owner will be required to complete an authorization on the
Contract application or on another form provided by Security First Life.
Security First Life will employ reasonable procedures to confirm that telephone
instructions are genuine (including requiring one or more forms of personal
identification), and Security First Life will not be liable for following
instructions it reasonably believes to be genuine.
Accumulation Units will be converted on the first valuation after receipt of
written or telephone instructions. Because Accumulation Unit values are
determined at the close of the New York Stock Exchange (currently 4:00 P.M.
Eastern Time) on a Valuation Date, conversion instructions received up to that
time will be effected at the value calculated on that Date and instructions
received after that time will be effected at the value next calculated.
Annuity Units may be converted among the Series at any time. Conversions
described in this paragraph may be elected in writing only and will be effective
on the first valuation following receipt of the instructions. Except as
permitted under a dollar cost averaging program or a reallocation election, a
minimum of $500 must be converted from any Series.
DOLLAR COST AVERAGING
Security First Life offers a program for dollar cost averaging in which
Owners with Contract Values of $5,000 or more may participate. The program will
periodically convert Accumulation Units from the Series invested in the Money
Market Portfolio of the Variable Insurance Products Fund to any of the other
Series selected by the Owner. The program allows the Owner to invest in
non-money market Series over any period selected by the Owner rather than
investing in those Series all at once. Conversions may be made monthly,
quarterly, semi-annually or annually in a minimum amount of $100, and Security
First Life reserves the right to limit the number of Series to which conversions
can be made (but there are not current limitations). An Owner may terminate the
program at any time on written notice to Security First Life.
REALLOCATION ELECTION
An Owner with a Contract Value of $5,000 or more may elect in writing on a
form provided by Security First Life to systematically reallocate values
invested in Accumulation Units among the Series in order to achieve an
allocation ratio established by the Owner. Conversions will be made annually on
the third business day of the month in which the anniversary of the Contract
Date occurs. Changes in allocation ratios can be made once each Contract Year.
MODIFICATION OF THE CONTRACTS
The Contracts include Security First Life's assurance that Annuity payments
involving life contingencies will be based on the minimum guaranteed Annuity
purchase rates incorporated in the Contracts, regardless of actual mortality
experience. The Contracts include provisions legally binding on Security First
Life with respect to these Annuity purchase rates and such other matters as
death benefits, deductions from Purchase Payments, deductions from the
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Separate Account for actuarial risk and administrative expense risk fees, and
guaranteed rates with respect to fixed benefits. Security First Life may
unilaterally change such provisions, but only: (i) with respect to any Purchase
Payments received as a tax free exchange under the Code after the effective date
of the change; (ii) with respect to benefits and values provided by Purchase
Payments made after the effective date of the change to the extent that such
Purchase Payments in any Contract Year exceed the first year's Purchase
Payments; or (iii) to the extent necessary to conform the Contract to any
Federal or state law, regulation or ruling.
A Contract may also be modified by written agreement between Security First
Life and the Owner.
Inquiries as to any Contract provisions should be made in writing to
Security First Life Insurance Company, P.O. Box 92193, Los Angeles, California
90009 or by telephoning 1(800)284-4536.
ACCUMULATION PERIOD
CREDITING ACCUMULATION UNITS IN THE SEPARATE ACCOUNT
Accumulation Units are credited to a Series as directed by the Owner upon
receipt of each Purchase Payment or conversion, as the case may be, provided
that purchase payments of $100,000 or more will be initially invested in the
Money Market Portfolio until the end of the applicable 10 day free look period.
The number of Accumulation Units to be credited is determined each business day
at the close of the New York Stock Exchange (currently 4:00 P.M. Eastern Time)
by dividing the net amount allocated to a Series by the value of an Accumulation
Unit in the Series next computed following receipt of the Payment or conversion.
SEPARATE ACCOUNT ACCUMULATION UNIT CURRENT VALUES
The current value of Accumulation Units of a Series varies with the
investment experience of the Fund in which the assets of the Series are
invested. Such value is determined each business day at the close of the New
York Stock Exchange (currently 4 P.M. Eastern Time) by multiplying the value of
an Accumulation Unit in the Series on the immediately preceding Valuation Date
by the net investment factor for the period since that day. (See "Net Investment
Factor," below.) The Owner bears the investment risk that the aggregate current
value invested in the Series may at any time be less than, equal to, or more
than the amounts originally allocated to the Series.
NET INVESTMENT FACTOR
The net investment factor is an index of the percentage change (adjusted for
distributions by the Fund and the deduction of the administration fee, mortality
risk fee and administrative expense risk fee) in the net asset value of the Fund
in which a Series is invested, since the preceding Valuation Date. The net
investment factor may be greater or less than one, depending upon the Fund's
investment performance.
SURRENDER FROM THE SEPARATE ACCOUNT
An Owner may surrender all or a portion of his or her cash value at any time
prior to the Annuity Date. A surrender may result in adverse federal income tax
consequences to the Owner including current taxation of the distribution and a
penalty tax on a premature distribution. (See "Federal Income Tax Status," page
18.) Owners should consult their tax advisers before making withdrawals.
The cash value of an Owner's interest in the Separate Account prior to the
Annuity Date may be determined at any time by multiplying the number of
Accumulation Units for each Series credited to the Contract by the current value
of an Accumulation Unit in the Series. Upon receipt of a written request for a
full or partial surrender, Security First Life will determine the value of the
number of Accumulation Units surrendered at the Accumulation Unit value next
computed.
A request for a partial surrender from more than one Series must specify the
allocation of the partial surrender among the Series. No partial surrender may
be made that would cause an Owner's interest in any Series to have a value after
the surrender of less than $500, unless the entire amount allocated to such
Series is being surrendered.
Payment of any amount surrendered from the Series will be made within seven
days of the date the written request is received by Security First Life.
Surrender may be suspended when: (i) trading on the New York Stock Exchange is
restricted by the SEC or such Exchange is closed for other than weekends or
holidays; (ii) the SEC has by order permitted such suspension; or (iii) an
emergency as determined by the SEC exists making disposal of portfolio
securities or valuation of assets of the Funds not reasonably practicable.
STATEMENT OF ACCOUNT
Prior to the Annuity Date, each Owner will be provided with a written
statement of account each calendar quarter in which a transaction occurred, but
in no event less than one annually. The statement of account will show all
transactions
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for the period being reported as well as the number of Accumulation Units of
each Series then credited to the Contract, the current Accumulation Unit value
for each Series, and the Contract Value as of the end of the reporting period.
ANNUITY BENEFITS
VARIABLE ANNUITY PAYMENTS
The Owner's interest in the Series will be applied to provide a Variable
Annuity. The dollar amount of Variable Annuity payments will reflect the
investment experience of the Series but will not be affected by adverse
mortality experience which may exceed the mortality risk charge provided for
under the Contract.
ASSUMED INVESTMENT RETURN
Variable Annuity payments will vary from payments based on the Assumed
Investment Return depending on whether the investment experience of the Series
is better or worse than the assumed return. The choice of the Assumed Investment
Return affects the pattern of annuity payments. Over a period of time, if the
Separate Account achieved a net investment result equal to the Assumed
Investment Return applicable to a particular option, the Annuity Unit would not
change in value, and the amount of the Annuity payments would be level. However,
if the Separate Account achieved a net investment result greater than the
Assumed Investment Return, the Annuity Unit would increase in value and the
amount of the Annuity payments would increase in value each year. Similarly, if
the Separate Account achieved a net investment result smaller than the Assumed
Investment Return, the Annuity Unit would decrease in value and the amount of
the Annuity payments would decrease each year.
Although a higher initial payment would be received under a higher Assumed
Investment Return, there is a point in time after which payments under a lower
Assumed Investment Return would be greater, assuming payments continue through
that point in time. The effect of a higher or lower Assumed Investment Return
can be summarized as follows: a higher Assumed Investment Return will result in
a larger initial payment but more slowly rising or more rapidly falling
subsequent payments than a lower Assumed Investment Return.
Unless otherwise elected, the Assumed Investment Return will be 4.25% per
annum. To the extent permitted by state law and regulations, Security First Life
will permit election of an Assumed Investment Return of 3.50%, 5% or 6%. It
should not be inferred, however, that such returns will bear any relationship to
the actual net investment experience of the Series.
ELECTION OF ANNUITY DATE AND FORM OF ANNUITY
The Annuity Date and the form of Annuity payment are elected by the Owner.
The normal Annuity Date is the Contract anniversary nearest to the Annuitant's
85th birthday, or the 10th anniversary of the Contract Date, whichever is later,
except in the case of Qualified Contracts, which may require a different date.
To the extent not prohibited by any Qualified Contract requirements, an optional
Annuity Date may be elected; such date may be the first day of any month prior
to the normal Annuity Date. The election must be made at least 31 days before
the optional Annuity Date elected.
The normal form of Annuity payment under the Contracts is Option 2, a life
Annuity with 120 monthly payments certain. Unless indicated otherwise, Option 2
will be automatically applied. Changes in the optional form of Annuity payment
may be made at any time up to 31 days prior to the date on which Annuity
payments are to begin. Option 1 through 4 may be elected as either Variable
Annuities or Fixed Annuities, while Option 5 may be elected only as a Fixed
Annuity. The first year's Annuity payments described in Option 1 through 4 are
determined on the basis of (i) the mortality table specified in the Contract,
(ii) the age and, where permitted, the sex of the Annuitant, (iii) the type of
Annuity payment option(s) selected, and (iv) the Assumed Interest Return
selected. Fixed Annuity payments described in Option 5 are determined on the
basis of (i) the number of years in the payment period and (ii) the interest
rate guaranteed with respect to the option. Fixed Annuities are funded through
the General Account of Security First Life.
OPTION 1 -- LIFE ANNUITY
An Annuity payable monthly during the lifetime of an individual, ceasing
with the last payment due prior to the death of an individual. This option
offers the maximum level of monthly payments since there is no guarantee of a
minimum number of payments or of death benefits for Beneficiaries.
OPTION 2 -- LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS CERTAIN
An Annuity payable monthly during the lifetime of an individual with a
guaranteed minimum number of monthly payments not less than 120, 180 or 240
months, as elected. If at the death of the individual the specified number of
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payments have not been made, Annuity payments will be continued during the
remainder of such period to the designated Beneficiary.
OPTION 3 -- INSTALLMENT REFUND LIFE ANNUITY
An Annuity payable monthly during the lifetime of an individual with a
guaranteed minimum number of monthly payments equal to the amount applied under
this option divided by the first monthly payment. If the payee dies before
receiving the "minimum number" of payments, the remaining payments will continue
to the designated beneficiary.
OPTION 4 -- JOINT AND LAST SURVIVOR ANNUITY
An Annuity payable monthly during the joint lifetime of two individuals and
thereafter during the lifetime of the survivor, ceasing with the last payment
due prior to the death of the survivor.
OPTION 5 -- PAYMENTS FOR A DESIGNATED PERIOD
A fixed dollar Annuity payable monthly for a specified number of years from
5 to 30. The amount of each payment will be based on an interest rate determined
by Security First Life, that will not be less than 3.50% per annum. Fixed
Annuity payments under this option may not be commuted to a lump sum, except as
provided under "Death Benefits," page 17.
FREQUENCY OF PAYMENT
Payments under all options will be made on a monthly basis, unless a
different arrangement has been requested by the Owner and agreed to by Security
First Life. If at any time any payments to be made to any payee under any Series
are or become less than $50 each, Security First Life shall have the right to
decrease the frequency of payments to such intervals as will result in a payment
of at least $50 from each Series.
LEVEL PAYMENTS VARYING ANNUALLY
Under the Contract, Variable Annuity payments are determined annually rather
than monthly, so that Annuity payments, uniform in amount, are made monthly
during each Annuity year. The level of payments for each year is based on the
investment performance of the Series up to the Valuation Date as of which the
payments are determined for the year. Thus, amounts of the Annuity payments vary
with the investment performance of the Series from year to year rather than from
month to month.
The monthly Variable Annuity payments for the first year will be determined
on the last Valuation Date of the second calendar week preceding the Annuity
Date by using a formula described in the Contract. On each anniversary of the
Annuity Date, Security First Life will determine the total monthly payments for
the year then beginning. These will be determined by multiplying the number of
Annuity Units in each Series from which payments are to be made by the Annuity
Unit value of that Series for the Valuation Period in which the first payment
for that year is due.
The amount of the year's Variable Annuity payments is transferred to the
General Account at the beginning of the year. Although an amount in the Separate
Account is credited to an Annuitant and transferred to the General Account to
make Annuity payments, it should not be inferred that the Annuitant has any
property rights in this amount. The Annuitant has only a contractual right to
Annuity payments from the amount credited to him or her in the Separate Account.
The monthly Annuity payments for the year are made from the General Account
with interest credited, in effect, using the Assumed Investment Return of 4.25%
or the alternative Assumed Investment Return selected by the Owner. Security
First Life will experience profits or loss on the amounts placed in the General
Account to provide level monthly payments during the year to the extent that net
investment income and gains in the General Account exceed or are lower than the
Assumed Investment Return selected.
Because Annuity payments for the year are set at the beginning of the year,
the Annuitant will not benefit from increases in Annuity Unit values during the
year and likewise will not be at risk for decreases during the year. However,
such increases and decreases will be reflected in the calculation of Annuity
payments for the subsequent year.
ANNUITY UNIT VALUES
The value of an Annuity Unit at a Valuation Date is determined by
multiplying the value of the Annuity Unit at the preceding Valuation Date by an
"Annuity Change Factor." The Annuity Change Factor is an adjusted measurement of
the investment performance of the Fund since the end of the preceding Valuation
Period. The Annuity Change Factor is determined by dividing the value of the
Accumulation Unit at the Valuation Date by the value of the Accumulation Unit at
the preceding Valuation Date and multiplying the result by a neutralization
factor.
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The neutralization factor is determined by dividing 1 by the weekly
equivalent of the Assumed Investment Return previously selected by the
Annuitant. For example, the neutralization factor for the Assumed Investment
Return of 4.25% is 0.9991999.
The number of Annuity Units for a Series is determined by dividing the
monthly Annuity payment for the first year by that Series' Annuity Unit value on
the same date the first year's Annuity payments are calculated. The number of
Annuity Units will not change unless the Owner converts Annuity Units to or from
other Series or amounts from the General Account.
DEATH BENEFITS
DEATH BEFORE THE ANNUITY DATE
In the event that the Annuitant who is not the Owner dies before the Annuity
Date, the Owner shall become the Annuitant. If the Owner dies before the Annuity
Date, whether or not he or she is the Annuitant, the Beneficiary will be
entitled to receive a death benefit. For purposes of determining the death of
the Owner, the death of any joint Owner shall be deemed to be the death of the
Owner. With respect to Nonqualified Contracts, if the Owner is not a natural
person and the Annuitant dies, the cash value will be paid in a lump sum to the
Owner or the Contract will be transferred to a natural person, in accordance
with the Owner's written request, and the transferee will become the Owner and
Annuitant.
The death benefit shall be the greater of: (i) the Purchase Payments
received under the Contract, reduced by amounts already applied to produce
Annuity Income payments or for any prior partial surrenders or (ii) the Contract
Value at the time of settlement.
The Beneficiary may elect to receive the death benefit as either: (i)
Annuity Income under Annuity Income Options One, Two, or Five described in
Article 7, provided that an election of an Annuity Income Option is subject to
the following conditions: (a) payments must begin within one year of the Owner's
death (provided that under a Qualified Contract the spouse of the Owner may
delay commencement of payments to the date on which the Owner would have
attained age 70 1/2); (b) the guaranteed period under Option Two or the
designated period under Option Five may not be longer than the Beneficiary's
life expectancy under applicable tables specified by the Internal Revenue
Service; and (c) the Contract Value as of the date of the first Annuity Income
payment will be used to determine the amount of the death benefit to be applied;
or (ii) a lump sum payout, provided that this payout shall be made within five
(5) years of the date of death of the Owner.
If the sole Beneficiary is the spouse of the Owner, the spouse may elect to
succeed to all rights of the Owner under this Contract. If there is more than
one Beneficiary living at the time of the Owner's death, each will share in the
proceeds of the death benefit equally, unless the Owner has elected otherwise.
If the Owner outlives all Beneficiaries, the death benefit will be paid to the
Owner's estate in a lump sum. No Beneficiary shall have the right to assign,
anticipate or commute any future payments under any of the options, except as
provided in the election or by law.
Rights to the death benefit will pass as if the Owner outlived the
Beneficiary if: (i) the Beneficiary dies at the same time as the Owner; or (ii)
the Beneficiary dies within 15 days of the Owner's death and prior to the date
due proof of the Owner's death is received by Security First Life. Due proof of
death will be a certified death certificate, an attending physician's statement,
a decree of a court of competent jurisdiction as to the finding of death, or
such other documents as Security First Life may, at its option, accept.
DEATH AFTER THE ANNUITY DATE
If the Annuitant under a Contract dies on or after the Annuity Date, the
remaining portion of his or her interest will be distributed at least as rapidly
as under the method of distribution being used at the date of the Annuitant's
death. If no designated Beneficiary survives the Annuitant, the present value of
any remaining payments certain on the date of death of the Annuitant, calculated
on the basis of the assumed investment return previously elected, may be paid in
one sum to the estate of the Annuitant unless other provisions have been made
and approved by Security First Life. This value is calculated as of the date of
payment following receipt of due proof of death.
Unless otherwise restricted, a Beneficiary receiving variable payments under
Option 2 or 3 after the death of an Annuitant may elect at any time to receive
the present value of the remaining number of Annuity payments certain in a
single payment, calculated on the basis of the assumed investment return
previously selected. However, such election is not available to a Beneficiary
receiving Fixed Annuity payments.
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FEDERAL INCOME TAX STATUS
The operations of the Separate Account form part of the operations of
Security First Life, but the Code provides that no federal income tax will be
payable by Security First Life on the investment income and capital gains of the
Separate Account. No federal income tax is payable by the Owner on the
investment income and capital gains under a Contract until Annuity payments
commence or a full or partial withdrawal is made.
QUALIFIED CONTRACTS
Under a section 401 pension plan, withdrawals may be made only in the event
of death, disability, separation from service, or attainment of normal
retirement age. Under Section 403(b) of the Code withdrawal prior to age 59 1/2
of amounts attributable to contributions and earnings made after December 31,
1988, are restricted in a manner similar to those under Section 401 pension
plans. However, under a 403(b) annuity, the Code permits withdrawals of the
contributed amounts (and not the earnings thereon) in cases of financial
hardship. The restrictions on withdrawals from Section 403(b) annuities do not
apply to Contract values attributable to Contract values before January 1, 1989.
In the case of Section 457 deferred compensation plan, benefits are not
permitted to be made available earlier than when the employee attains age
70 1/2, separates from service or is faced with an unforeseeable emergency.
Withdrawals from an IRA can be made when the Owner attains age 59 1/2, dies or
becomes disabled.
Generally, all withdrawals made prior to age 59 1/2 that are not a result of
death, disability, domestic relations order, deductible medical expense or
received as a series of substantially equal payments made for the life of the
Owner or the joint lives of the Owner and Owner's beneficiary will be subject to
an additional 10% tax. Distributions from a Section 457 plan are not subject to
this 10% penalty tax.
In the case of section 401 or section 457 plans, the Contract Value must be
distributed, or Annuity payments for life or a period not exceeding the life
expectancy of the Participant or the Participant and a designated Beneficiary
must commence by April 1 of the calendar year following the calendar year in
which the employee attains age 70 1/2 (in the case of government plans and
Section 457 Plans) or retires. The exception for retirement terminates on
December 31, 1988 except for governmental plans and employees who have attained
age 70 1/2 before January 1, 1988. If the Participant is a "5 percent Owner" (as
defined in Section 416 of the Code) in the plan year ending in the calendar year
in which he attains age 70 1/2 or the Owner of an IRA, then the required
distributions described above must be made or commenced no later than the
following April 1. The same distribution requirements apply to Section 403(b)
tax sheltered annuities with respect to benefits accruing after December 31,
1986 in taxable years ending after that date.
Providing certain requirements of the Code are met, distributions, other
than required distributions, from a plan may be rolled over tax-free to another
plan. Distributions from a section 401 plan may be rolled over to another
section 401 plan or to an IRA. Distributions from a tax-sheltered Annuity may be
rolled over to another tax-sheltered Annuity or to an IRA. Distributions from an
IRA may be rolled over to another IRA and, if the IRA contains only permissible
rollover amounts, to a section 401 plan or a tax-sheltered Annuity.
All distributions, with the exception of a return of nondeductible employee
contributions, received from a section 401, 403(b), 457 plan or IRA are included
in gross income. In the case of section 401, or 403(b) plans and IRAs, a
distribution is includible in the year in which it is paid. In the case of a
section 457 plan, a distribution is includible in the year it is paid or when
made available depending upon whether certain Code requirements are met. In very
limited situations, a lump sum distribution from a section 401 plan may qualify
for special forward income averaging may qualify for special long term capital
gain treatment.
In addition to the minimum distribution requirements, any payouts under
Section 401, 403(b) and 457 plans and IRAs must meet minimum incidental death
benefit requirements under the Code. This requirement does not apply in the case
of 401 plan Participants when the Participant's spouse is the designated
beneficiary.
Employers may deduct their contributions to self-employed and corporate
pension and profit-sharing plans described in section 401 of the Code and tax-
sheltered Annuities described in section 403(b) in the year when made, up to the
limits specified in the Code. In addition these plans may permit nondeductible
employee contributions. Any nondeductible employee contribution will be received
tax free as a portion of each annuity payment.
NON-QUALIFIED CONTRACTS
Distributions before the Annuity Date are treated as coming first from
earnings, rather than purchase payments, until the entire amount of earnings has
been distributed. For federal tax purposes, distributions include the receipt of
proceeds from loans and the assignment or pledge of any portion of the Contract
Value, as well as withdrawals, income payments, or death benefits. Deferred
annuity contracts issued by an issuer to a policyholder in one calendar year
will be treated as one contract for purposes of determining the tax consequences
of any distribution. Distributions before the Annuity Date are taxable as
ordinary income to the extent that the Contract Value exceeds Purchase Payments.
18
<PAGE> 22
Different rules apply to amounts distributed as an Annuity. A portion of
each Annuity payment is treated as a nontaxable return of Purchase Payments. The
remaining portion of each Annuity payment is taxable as ordinary income. The
amount of each Annuity payment which is taxable is based on the period over
which payments are to be made or, in the case of a life Annuity, the life
expectancy of the Annuitant. A lump sum taken in lieu of remaining Annuity
payments will be treated for tax purposes as a withdrawal.
Income distributed as an Annuity or as a lump sum withdrawal will be subject
of a 10% excise tax unless the distribution (1) occurs after the taxpayer
attained age 59 1/2, (2) occurs after death or disability of the holder, (3) is
attributable to an investment prior to August 14, 1982, (4) is in the form of an
immediate annuity or (5) is a part of substantially equal payments to be made
over the life or life expectancy of the taxpayer or the taxpayer and his or her
designated beneficiary. The penalty will be imposed if an individual who elected
to receive payments in substantially equal installments as a life or life
expectancy annuity prior to age 59 1/2 changes the method of distribution before
age 59 1/2. This individual will be assessed the penalty even after age 59 1/2
if annuity payments have not continued for five (5) years.
Code Section 72(e)(11) provides that multiple annuity contracts which are
issued within a calendar year to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences.
WITHHOLDING
Security First Life is required to withhold federal income tax on Annuity
payments, lump sum distributions and partial withdrawals. However, recipients of
Contract distributions are allowed to make an election not to have federal
income tax withheld. After an election is made with respect to Annuity payments,
an Annuitant may revoke the election at any time, and thereafter commence
withholding. Security First Life will notify the payee at least annually of his
or her right to revoke the election.
Security First Life is required to withhold 20% of certain taxable amounts
constituting "eligible rollover distributions" to participants (including lump
sum distributions) in retirement plans under Code Section 401 and tax deferred
annuities under Code Section 403(b). This withholding requirement does not apply
to distributions from such plans and annuities in the form of a life and life
expectancy annuity (individual or joint), an annuity with a designated period of
10 years or more, or any distribution required by the minimum distribution
requirements of Code Section 401(a)(9). Withholding on these latter types of
distribution will continue to be made under the rules described in the prior
paragraph. A participant cannot elect out of the 20% withholding requirement.
However, if an eligible rollover distribution is rolled over into an eligible
retirement plan or IRA in a direct trustee-to-trustee transfer, no withholding
will be required.
Payees are required by law to provide Security First Life (as payor) with
their correct taxpayer identification number ("TIN"). If the payee is an
individual, the TIN is the same as his or her social security number.
VOTING RIGHTS
Each Owner will have the right to instruct Security First Life with respect
to voting the Fund shares which are the assets underlying his interest in the
Separate Account, at all regular and special shareholders meetings. Security
First Life will mail to each Owner, at his last known address, all periodic
reports and proxy material of the applicable Fund and a form with which to give
voting instructions. Fund shares as to which no timely instructions are received
will be voted by Security First Life in proportion according to the instructions
received from all Owners giving timely instructions. Security First Life is
under no duty to inquire as to the instructions received or the authority of
persons to instruct the voting of Fund shares, and unless Security First Life
has actual knowledge to the contrary, the instructions given to it will be valid
as they affect Security First Life or the Funds.
Once Annuity payments with respect to an Owner's Account have begun, the
Annuitant shall have any voting rights exercisable with respect to the Fund
shares.
The number of votes to be cast by each person having the right to vote shall
be determined as of a record date within 90 days prior to the meeting of the
Fund, and voting instructions will be solicited by written communication at
least 10 days prior to such meeting. To be entitled to vote, an Owner or
Annuitant must have been such on the record date. The number of shares as to
which voting instructions may be given to Security First Life is determined by
dividing that portion of the Contract Value then allocated to the Series for
that Fund on the record date by the net asset value of a Fund share as of the
same date.
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<PAGE> 23
LEGAL PROCEEDINGS
Security First Life, 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. There are no present or pending material legal
proceedings affecting the Separate Account.
ADDITIONAL INFORMATION
For further information contact Security First Life at the address and phone
number on the cover of this Prospectus. A copy of the Statement of Additional
Information, dated March 1, 1996, which provides more detailed information about
the Contracts, may also be obtained. Set forth below is the table of contents
for the Statement of Additional Information.
A registration statement has been filed with the SEC under the Securities
Act of 1933 with respect to the Contracts offered hereby. This Prospectus does
not contain all the information set forth in the registration statement, to all
of which reference is made for further information concerning the Separate
Account, Security First Life and the Contracts offered hereby. Statements
contained in this Prospectus as to the contents of the Contracts and other legal
instruments are summaries. For a complete statement of the terms thereof
reference is made to such instruments as filed.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Insurance Company............................................................................ 3
The Separate Account............................................................................. 3
The Funds........................................................................................ 3
Purchase of Securities Being Offered............................................................. 7
Net Investment Factor............................................................................ 7
Annuity Payments................................................................................. 7
Withholding on Annuity Payments and Other Distributions.......................................... 9
Underwriters, Distribution of the Contracts...................................................... 10
Calculation of Performance Data.................................................................. 10
Voting Rights.................................................................................... 12
Safekeeping of the Securities.................................................................... 12
Servicing Agent.................................................................................. 12
Independent Auditors............................................................................. 12
Legal Matters.................................................................................... 12
State Regulation of Security First Life.......................................................... 12
Financial Statements............................................................................. 13
</TABLE>
20
<PAGE> 24
Rule 497(c)
'33 Act File No. 33-7094
STATEMENT OF
ADDITIONAL INFORMATION
SECURITY FIRST LIFE SEPARATE ACCOUNT A
__________________________________________________________
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACTS
__________________________________________________________
SECURITY FIRST LIFE INSURANCE COMPANY
MARCH 1, 1996
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus. A copy of the prospectus, dated March 1,
1996, may be obtained without charge by writing to Security First Life
Insurance Company, P.O. Box 92193, Los Angeles, California 90009 or by
telephoning 1 (800)284-4536.
1
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Insurance Company 3
The Separate Account 3
The Funds 3
Purchase of Securities Being Offered 7
Net Investment Factor 7
Annuity Payments 7
Withholding on Annuity Payments and Other Distributions 9
Underwriters, Distribution of the Contracts 10
Calculation of Performance Data 10
Voting Rights 12
Safekeeping of Securities 12
Servicing Agent 12
Independent Auditors 12
Legal Matters 12
State Regulation of Security First Life 12
Financial Statements 13
</TABLE>
2
<PAGE> 26
THE INSURANCE COMPANY
Security First Life Insurance Company ("Security First Life") is a wholly owned
subsidiary of The Holden Group, Inc. ("THG"). The common shares of THG are
held by London Insurance Group, a Canadian insurance services corporation and a
publicly-traded subsidiary of the Trilon Financial Corporation of Toronto,
Canada.
THE SEPARATE ACCOUNT
The Security First Life Separate Account A ("Separate Account") presently funds
the Contracts described in this Prospectus and group variable annuity contracts
on Forms SF 224R1, SF 224FL, SF 226R1, SF 234 and SF 236. These group variable
annuity contracts are described in other prospectuses. The individual
combination fixed and variable and variable annuity contracts ("Contracts")
described in this Statement of Additional Information and related prospectuses
are distinct contracts from the above described group variable annuity
contacts.
Amounts transferred to the Separate Account under the Contracts are invested in
the securities of eight Funds: (i) the Value Equity Series and U.S. Government
Income Series of Security First Trust, (ii) the Money Market Portfolio, Growth
Portfolio and Overseas Portfolio of the Variable Insurance Products Fund, (iii)
the Contrafund Portfolio of the Variable Insurance Products Fund II, (iv) the
International Portfolio of the Scudder Variable Life Investment Fund and (v)
the Small Capitalization Portfolio of The Alger American Fund. The Separate
Account is divided into a number of Series of Accumulation and Annuity Units,
eight of which are offered under the Contracts: Series SV (Value Equity
Series), Series SU (U.S. Government Income Series), Series FM (Money Market
Portfolio), Series FG (Growth Portfolio), Series FO (Overseas Portfolio),
Series FC (Contrafund Portfolio), Series SI (International Portfolio) and
Series SC (Small Capitalization Portfolio).
THE FUNDS
Security First Trust (the "Trust") is a Massachusetts business trust which was
formed on February 13, 1987 and is registered with the Securities and Exchange
Commission as an open-end management investment company.
Value Equity Series seeks to provide growth of capital and income. The Series
pursues this objective by investing in common stocks of high quality companies.
Emphasis is placed on stocks where the value is low when compared to present
earnings.
U.S. Government Income Series seeks to provide current income. The Series
pursues this objective by investing in a professionally managed, diversified
portfolio limited primarily to U.S. government securities.
The Variable Insurance Products Fund and Variable Insurance Products Fund II
are Massachusetts business trusts and are registered with the Securities and
Exchange Commission as open-end, diversified management investment companies.
Money Market Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The Portfolio will
invest only in high quality U.S. dollar denominated money market securities of
domestic and foreign issuers.
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<PAGE> 27
Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
Overseas Portfolio seeks long term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
Contrafund Portfolio seeks capital appreciation by investing in equity or debt
securities of companies that the investment adviser believes to be undervalued
due to an overly pessimistic appraisal by the public.
Scudder Variable Life Investment Fund is a Massachusetts business trust which
is divided into separate Portfolios. The following Portfolio is available
under the Contracts.
International Portfolio seeks long-term growth of capital primarily through
diversified holdings of marketable forein equity investments. The Portfolio
invests in companies, wherever organized, which do business primarily outside
the United States. The Portfolio intends to diversify investments among
several countries and to have represented in its holdings business activities
in not less than three different countries. The Portfolio does not intend to
concentrate investments in any particular industry.
The investment advisor of the Scudder Variable Life Investment Fund is Scudder.
The Alger American Fund is a Massachusetts business trust which has a number of
portfolios, one of which is available under the Contracts:
Small Capitalization Portfolio seeks long-term capital appreciation by
investing in a diversified, actively managed portfolio of equity securities,
primarily of companies with total market capitalization of less than $1
billion. Income is a consideration in the selection of investments but is not
an investment objective of the Portfolio.
Security First Trust has contracted to receive investment advice and management
services from Security First Investment Management Corporation ("Security
Management") a wholly-owned subsidiary of THG, and an affiliate of Security
First Life and Security First Financial, Inc. Security Management receives an
annual fee, accrued daily and payable in monthly installments, based on .90%
for the Value Equity Series and U.S. Government Income Series.
Security Management has entered into a sub-advisory agreement with Virtus
Capital Management, Inc. ("Virtus"), the successor in interest to Signet Asset
Management under which Virtus provides investment advisory services to the
U.S. Government Income Series of Security First Trust. Virtus is entitled to
receive an annual fee from Security Management, accrued daily and payable in
monthly installments equal to 0.75% of average daily net assets of the Series.
In 1994 the fees charged by Security Management and Virtus were voluntarily
reduced to .09% and .13%, respectively.
4
<PAGE> 28
Variable Insurance Products Fund and Variable Insurance Products Fund II have
entered into investment advisory agreements with Fidelity Management and
Research Company ("FMR") under which it received investment advisory fees.
Money Market Portfolio's advisory fee is made up of two components: (a) a basic
fee rate and (b) an income-based component. The basic fee rate is the sum of
the following two components:
a. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and it
drops as total assets in all these funds rise. The effective group fee
rate for December 1994 was .1563%.
b. An individual fund fee rate of 0.03%.
One-twelfth of the combined annual fee rate is applied to the fund's net assets
averaged over the most recent month, giving a dollar amount which is the fee
for that month. If the fund's gross yield is 5% or less, the basic fee is the
total management fee. The income-based component is added to the basic fee
only when the fund's yield is greater than 5%. The income-based fee is 6% of
that portion of the fund's yield that represents a gross yield of more than 5%
per year. The maximum income-based component is .24%.
For fiscal year 1994, the Portfolio's Management fee was 0.20% of the average
net assets of the Portfolio--approximately $2.00 for every $1,000 of the
Portfolio's average net assets.
Growth, Overseas and Contrafund Portfolios' annual fee rates are the sum of two
components:
a. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .52%, and it
drops as total assets in all these funds rise. The effective group fee
rate for December 1994 was .3193%.
b. An individual fund fee rate of .30% for the Growth Portfolio, .45%
for the Overseas Portfolio, .20% for the Equity-Income Portfolio, .40%
for the Asset Manager Portfolio and .30% for the Contrafund Portfolio.
One-twelfth of the combined annual rate is applied to each Portfolio's net
assets averaged over the most recent month, giving a dollar amount which is the
fee for that month.
In fiscal year 1994, FMR's fee was .62% of Growth Portfolio's average net
assets ($6.20 per $1,000), .77% of Overseas Portfolio's average net assets
($7.70 per $1,000), and is estimated for 1995 to be .62% of Contrafund
Portfolio's average net assets ($6.20 per $1,000). Overseas Portfolio's total
fee may be higher than those of other mutual funds because of the greater
complexity, expense and commitment of resources involved in international
investing.
The mutual funds advised by FMR have over 22 million shareholder accounts with
a total value of more than $250 billion.
The Scudder Variable Life Investment Fund has contracted to receive investment
advice and management services from Scudder, Stevens & Clark, Inc. ("Scudder").
Scudder
5
<PAGE> 29
receives an annual fee, accrued daily and paid monthly, equal to .875% of the
International Portfolio's average daily net assets.
The Alger American Fund has contracted to receive investment advice and
management services from Fred Alger Management, Inc. ("Alger Management"), a
wholly owned subsidiary of Alger Associates, Inc. Alger Management receives an
annual fee, accrued daily and paid monthly, equal to .85% of the Small
Capitalization Portfolio's average daily net assets.
The primary objective of a Variable Annuity having Separate Account assets
chiefly invested in a portfolio of common stocks is to provide Annuitants with
Annuity Payments which will tend to remain level during a period when the
economy is relatively stable and to provide increased Annuity Payments during
periods of economic growth and inflation. It is believed that the value of
such Separate Account investment will, over the long-term, tend to reflect
changes in the general economic price level. Historically, the value of
diversified portfolio of common stocks held for an extended period of time has
tended to rise during periods of economic growth and inflation. However, there
is no exact correlation between the two. In some periods, the value of a
common stock portfolio has declined while the cost of living has increased.
The primary objective of a Variable Annuity having Separate Account assets
chiefly invested in fixed income securities is to provide Annuitant with
Annuity Payments which will be higher in amount than those provided by
conventional Fixed Annuities. It should be recognized, however, that a
portfolio consisting of nonconvertible fixed income securities and which is
designed to obtain a high level of current yield involves market risks that are
not found in a Fixed Annuity and differ from those found in a Variable Annuity
that is invested primarily in common stocks.
The market value of nonconvertible fixed income securities usually reflects
yields then generally available in securities of similar quality and type.
Based upon historical analysis, when interest rates decline, the market value
of a portfolio already invested at higher interest rates may be expected to
rise if such securities are not subject to call at the option of the issuer.
Conversely, when such interest rates increase, the market value of a portfolio
already invested at lower interest rates may be expected to decline. The Bond
Series and the Growth and Income Series may, pursuant to their investment
policies, invest a significant portion of their assets in long-term fixed
income securities. Because of this, Owners who select one of these Series as
the basis for Annuity payments should recognize that Annuity Payments may
decrease during periods when interest rates and general prices are rising.
Owners should carefully consider which of the underlying Funds is best suited
to their long-term needs.
PURCHASE OF SECURITIES BEING OFFERED
Purchase Payments may be made at any time. The minimum initial Purchase
Payment is $1,000 with each additional Purchase Payment subject to a $100
minimum. Purchase Payments to the combination fixed and variable annuity
contract may be allocated to the General Account, Separate Account or allocated
between these Accounts. Purchase Payments to the variable annuity contract may
only be allocated among the Series of the Separate Account. Amounts in
Separate Account Series may be converted to amounts in any one or more other
Separate Account Series at any time. Amounts invested in the combination fixed
and variable annuity contract may also be
6
<PAGE> 30
transferred from the Separate Account to the General Account; however, amounts
may not be transferred from the General Account to the Separate Account except
upon annuitization.
NET INVESTMENT FACTOR
The Separate Account net investment factor is an index of the percentage change
(adjusted for distributions by the Fund and the deduction of the actuarial risk
fee) in the net asset value of each Fund in which the Series in invested, since
the preceding Business Day. The Separate Account net investment factor for
each Series of Accumulation Units is determined for any Business Day by
dividing (i) the net asset value of a share of the Fund which is represented by
such Series at the close of business on such day, plus the per share amount of
any distributions made by such Fund on such day by (ii) the net asset value of
a share of such Fund determined as of the close of business on the preceding
Business Day and then subtracting from the result the daily factors for
administration fees, mortality risks and administrative expense risks
(.003836%) for each calendar day between the preceding Business Day and the end
of the current Business Day.
ANNUITY PAYMENTS
Basis of Variable Benefits
The Variable Annuity benefits rates used in determining Annuity Payments under
the Contracts are based on actuarial assumptions, reflected in tables in the
Contracts, as to the expected mortality and adjusted age and the form of
Annuity selected. The mortality basis for these tables is Security First
Life's Modified Select Annuity Mortality Table, projected to the year 2000 on
Projection Scale C, with interest at 4.25% for all functions involving life
contingencies and the portion of any period certain beyond 10 years, and 3.25%
for the first 10 years of any certain period. Adjusted age in those tables
means actual age to the nearest birthday at the time the first payment is due,
adjusted according to the following table:
<TABLE>
<CAPTION>
Calendar Year Adjusted
of Birth Age is
------------- --------
<S> <C>
Before 1916 Actual Age
1916 - 1935 Actual Age Minus 1
1936 - 1955 Actual Age Minus 2
1956 - 1975 Actual Age Minus 3
1976 - 1995 Actual Age Minus 4
</TABLE>
Determination of Amount of Monthly Variable Annuity Payments For
First Year
The Separate Account value used to establish the monthly Variable Annuity
Payment for the first year consists of the value of Accumulation Units of each
Series of the Separate Account credited to a Contract Owner on the last day of
the second calendar week before the Annuity Date. The Contracts contain tables
showing monthly payment factors and Annuity premium rates per $1,000 of
Separate Account value to be applied under Options 1 through 4.
At the beginning of the first payment year an amount is transferred from the
Separate Account to the General Account and level monthly Annuity Payments for
the year are
7
<PAGE> 31
made out of the General Account for that year. That amount to be transferred
is determined by multiplying the Annuity premium rate per $1,000 set forth in
Contract tables by the number of thousands of dollars of Separate Account value
credited to a Contract Owner. The level monthly payment for the first payment
year is then determined by multiplying the amount transferred (the Annuity
premium) by the monthly payment factor in the same table. In the event the
Contract involved has Separate Account Accumulation Units in more than one
Series, the total monthly Annuity Payment for the first year is the sum of the
monthly Annuity Payments, determined in the same manner as above, for each
Series.
At the time the first year's monthly payments are determined, a number of
Annuity Units for each Separate Account Series is also established for the
Annuitant by dividing the monthly payment derived from that Series for the
first year by the Separate Account Annuity Unit values for the Series on the
last Business Day of the second calendar week before the first Annuity Payment
is due. The number of Annuity Units remains fixed during the Annuity period
unless Annuity Units are converted to another Series.
Determination of Amount of Monthly Variable Annuity Payments for
Second and Subsequent Years
As of each anniversary of the Annuity Date, Security First Life will determine
the amount of the monthly Variable Annuity Payments for the year then
beginning. Separate determinations will be made for each Separate Account
Payments for the year then beginning. Separate determinations will be made for
each Separate Account Series in which the Annuitant has Annuity Units, with the
total Annuity Payment being the sum of the payments derived from the Series.
The amount of monthly payments for any Separate Account Series for any year
after the first will be determined by multiplying the number of Annuity Units
for that Series by the Annuity Unit value for that Series for the Valuation
Period in which the first payment for the year is due. It will be Security
First Life's practice to mail Variable Annuity Payments no later than seven
days after the last day of the Valuation Period upon which they are based or
the monthly anniversary thereof.
The objective of a Variable Annuity contract is to provide level payments
during periods when the economy is relatively stable and to reflect as
increased payments only the excess of investment results flowing from inflation
or an increase in productivity. The achievement of this objective will depend
in part upon the validity of the assumption that the net investment return of
the Separate Account equals the Assumed Investment Return during periods of
stable prices. Subsequent years' payments will be smaller than, equal to or
greater than the first year's payments depending on whether the actual net
investment return for the Separate Account is smaller than equal to or greater
than the Assumed Investment Return.
Annuity Unit Value
The initial value of an Annuity Unit is $5 for each Series for the first
Valuation Period as of which the first Variable Annuity Payment from such
Series is made. The value of an Annuity Unit for each Series on any later date
is determined by multiplying the value of an Annuity Unit at the end of the
preceding Valuation Period by the "Annuity change factor" for the second
preceding Valuation Period. The Annuity change factor is an adjusted
measurement of the investment performance of the Fund since the end of the
preceding Valuation Period. The Annuity change factor is determined by
dividing the value of an Accumulation Unit at the end of the Valuation Period
by the value of an
8
<PAGE> 32
Accumulation Unit at the end of the preceding Valuation Period and multiplying
the result by a neutralization factor.
Variable Annuity Payments for each year after the first reflect variations in
the investment performance of the Separate Account above and below an Assumed
Investment Return. This assumed investment rate is included for purposes of
actuarial computations and does not relate to the actual investment performance
of the underlying Fund. Therefore, the Assumed Investment Return must be
"neutralized" in computing the Annuity change factor. For weekly Valuation
Periods and a 4.25% Assumed Investment Return, the neutralization factor is
0.9991999.
WITHHOLDING ON ANNUITY PAYMENTS AND OTHER DISTRIBUTIONS
Security First Life is required to withhold federal income tax on Contract
distributions (such as Annuity Payments, lump sum distributions or partial
surrenders). However, recipients of Contract distributions are allowed to make
an election not to have federal income tax withheld. After such election is
made with respect to Annuity Payments, an Annuitant may revoke the election at
any time, and thereafter commence withholding. In such a case, Security First
Life will notify the payee at least annually of his or her right to change such
election.
The withholding rate followed by Security First Life will be applied only
against the taxable portion of Contract distributions. Federal tax will be
withheld from Annuity Payments pursuant to the recipient's withholding
certificate. If no withholding certificate is filed with Security First Life,
federal tax will be withheld from Annuity Payments on the basis that the payee
is married with three withholding exemptions. Federal tax on the taxable
portion of a partial or total surrender (i.e., non-periodic distribution)
generally will be withheld at a flat 10% rate. In the case of a plan qualified
under Sections 401(a) or 403(a) of the Code, if the balance to the credit of a
participant in a plan is distributed within one taxable year to the recipient
("total distribution"), the amount of withholding will approximate the federal
income tax on a lump sum distribution. If a total distribution is made from
such a plan or a tax-sheltered annuity on account of the participant's death,
the amount of withholding will reflect the exclusion from federal income tax
for employer-provided death benefits.
As of January 1, 1993, Security First Life is required to withhold 20% of
certain taxable amounts constituting "eligible rollover distributions" to
participants (including lump sum distributions) in retirement plans under Code
Section 401 and tax deferred annuities under Code Section 403(b). This
withholding requirement does not apply to distributions from such plans and
annuities in the form of a life and life expectancy annuity (individual or
joint), an annuity with a designated period of 10 years or more, or any
distribution required by the minimum distribution requirements of Code Section
401(a)(9). Withholding on these latter types of distribution will continue to
be made under the rules described in the prior paragraph. A participant cannot
elect out of the 20% withholding requirement. However, if an eligible rollover
distribution is rolled over into an eligible retirement plan or IRA in a direct
trustee-to-trustee transfer, no withholding will be required.
Payees are required by law to provide Security First Life (as payor) with their
correct taxpayer identification number ("TIN"). If the payee is an individual,
the TIN is the same as his or her social security number. If the payee elects
not to have federal income tax withheld on an Annuity Payment or a nonperiodic
distribution and a correct TIN has not been provided, such election is
ineffective, and such payment will be subject to withholding as noted above.
9
<PAGE> 33
UNDERWRITERS, DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold as a continuous offering by individuals who are
appropriately licensed as insurance agents of Security First Life for the sale
of life insurance and Variable Annuity Contracts in the state where the sale is
made. In addition, these individuals will be registered representatives of the
principal underwriter, Security First Financial, Inc., or of other broker-
dealers registered under the Securities Exchange Act of 1934 whose registered
representatives are authorized by applicable law to sell Variable Annuity
Contracts issued by Security First Life. Commissions on sales of contracts
range from 0% to 8.5%. Agents are paid from the General Account of Security
First Life. Such commissions bear no direct relationship to any of the charges
under the Contracts. It is expected that the Contracts will be sold in 48
states. No direct underwriting commissions are paid to Security First
Financial, Inc.
CALCULATION OF PERFORMANCE DATA
a. Money Market Portfolio. The yield of the Money Market Portfolio of the
Separate Account for the seven day period ended December 31, 1994 was 4.36%.
This yield was computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance
of one accumulation unit of the Series at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from account values,
and dividing the difference by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by (365/7) with the resulting yield figure carried to a least the
nearest hundredth of one percent.
The effective yield of the Money Market Portfolio of the Separate Account for
the seven day period ended December 31, 1994 was 4.45%. This effective yield
was computed by determining the net change, exclusive of capital changes, in
the value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Series at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from account values, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula:
EFFECTIVE YIELD = (BASE PERIOD RETURN + 1)365/7 - 1.
b. Other Funds. The average annual total return of the other Funds in the
Separate Account as of December 31, 1994 are as follows:*
<TABLE>
<CAPTION>
Average Annual Total Returns
----------------------------
1 yr. 5 yr. Inception to Date
------ ----- ------------------
<S> <C> <C> <C>
Growth Portfolio -1.27% 3.79% (5/25/93)
Overseas Portfolio 0.49% 7.42% (5/25/93)
</TABLE>
__________________________________
* The Series investing in the Value Equity Series, U.S. Government Income
Series, Contrafund Portfolio, International Portfolio or Small Capitalization
Portfolio had not commenced operations as of the date of this statement.
10
<PAGE> 34
Average annual total return was computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year periods
(or fractional portion thereof).
The computation of average annual total returns do take into consideration
recurring charges and any non-recurring charges applicable to a Contract which
is surrendered in full at the end of the stated holding period.
VOTING RIGHTS
Unless otherwise restricted by the plan under which a Contract is issued each
Owner will have the right to instruct Security First Life with respect to
voting the Fund Shares which are the assets underlying the Owner's interest in
the Separate Account, at all regular and special shareholders meetings. An
Annuitant's voting power with respect to Fund shares held by the Separate
Account declines during the time the Annuitant is receiving a Variable Annuity
based on the investment performance of the Separate Account, because amounts
attributable to the Annuitant's interest are being transferred annually to the
General Account to provide the variable payments.
SAFEKEEPING OF SECURITIES
Custody of all assets of the Separate Account are held by Security First Life.
The assets of each Separate Account Series will be kept physically segregated
by Security First Life and held separate from the assets of any other firm,
person, or corporation. Additional protection for the assets of the Separate
Account is afforded by fidelity bonds covering all of Security First Life's
officers and employees.
SERVICING AGENT
An administrative services agreement has been entered into between Security
First Life and THG under which the latter has agreed to perform certain of the
administrative services relating to the Contracts and for the Separate Account.
THG performs substantially all of the recordkeeping and administrative services
for the Separate Account. Security First Life has not paid any fees to THG for
these services.
INDEPENDENT AUDITORS
The financial statements of Security First Life and its Separate Account
included in this Statement of Additional Information and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, for the periods
indicated in their reports thereon which appear elsewhere herein and in the
Registration Statement. The financial statements audited by Ernst & Young LLP
have been included in reliance on their reports, given on their authority as
experts in accounting and auditing.
11
<PAGE> 35
LEGAL MATTERS
Legal matters concerning federal securities laws applicable to the issue and
sale of the variable annuity contracts have been passed upon by Routier and
Johnson, P.C., 1700 K Street, N.W., Washington, D.C. 20006.
STATE REGULATION OF SECURITY FIRST LIFE
Security First Life is subject to the laws of the state of Delaware governing
insurance companies and to regulation by the Delaware Commissioner of
Insurance. An annual statement, in a prescribed form, is filed with the
Commissioner on or before March 1 each year covering the operations of Security
First Life for the preceding year and its financial condition on December 31 of
such year. Security First Life's books and assets are subject to review or
examination by the Commissioner or his agents at all times, and a full
examination of its operations is usually conducted by the National Association
of Insurance Commissioners at least once in every three years. Security First
Life was last examined as of December 31, 1990, and an examination as of
December 31, 1993 is currently in progress. While Delaware insurance law
prescribes permissible investments for Security First Life, it does not
prescribe permissible investments for the Separate Account, nor does it involve
supervision of the investment management or policy of Security First Life.
In addition, Security First Life is subject to the insurance laws and
regulations of other jurisdictions in which it is licensed to operate. State
insurance laws generally provide regulations for the licensing of insurers and
their agents, govern the financial affairs of insurers, require approval of
policy forms, impose reserve requirements and require filing of an annual
statement. Generally, the insurance departments of these other jurisdictions
apply the laws of Delaware in determining permissible investments for Security
First Life.
FINANCIAL STATEMENTS
The financial statements of Security First Life contained herein should be
considered only for the purposes the of informing investors as to its ability
to carry out the contractual obligations as a sponsor under the Annuity
contracts and as custodian as described elsewhere herein and in the prospectus.
The financial statements of the Separate Account are also included in this
Statement of Additional Information.
12
<PAGE> 36
[LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors
Security First Life Insurance Company
and Contract Owners
Security First Life Separate Account A
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of certain series of Security First
Life Separate Account A (Series B, G, T, P, I, FA, FG, FI, FO and FM and
terminating on January 31, 1994 Series M) as of December 31, 1994, and the
related statements of operations and changes in net assets for each of the
periods indicated. These financial statements are the responsibility of the
Separate Account's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1994,
by correspondence with the respective mutual fund managers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of certain series of Security
First Life Separate Account A (Series B, G, T, P, I, FA, FG, FI, FO and FM and
terminating on January 31, 1994 Series M) at December 31, 1994, and the results
of their operations and changes in their net assets for each of the periods
indicated in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
-----------------------
ERNST & YOUNG LLP
Los Angeles, California
March 29, 1995
<PAGE> 37
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments -- Notes 1 and 2 and Schedule I
Security First Trust - Bond Series
(1,426,812 shares at net asset value
of $3.58 per share; cost $5,664,715) $5,109,780
Security First Trust - Growth and
Income Series (5,391,107 shares at
net asset value of $9.05 per share;
cost $49,162,613) $48,779,742
T. Rowe Price Growth Stock Fund, Inc.
(1,567,532 shares at net asset value
of $18.75 per share; cost $31,165,042) $29,391,227
T. Rowe Price Prime Reserve Fund, Inc.
(2,592,010 shares at net asset value
of $1.00 per share; cost $2,592,010) $2,592,010
T. Rowe Price International Fund, Inc.
(435,381 shares at net asset value of
$11.32 per share; cost $5,261,595) $4,928,515
Dividends receivable 11,808
Receivable from Security First Life
Insurance Company for purchases 1,378 45,211 31,785 329 29,244
Other assets 124 911 10 137
---------- ----------- ----------- ---------- ----------
TOTAL ASSETS $5,111,282 $48,825,864 $29,423,022 $2,604,284 $4,957,759
</TABLE>
<PAGE> 38
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Payable to Security First Life
Insurance Company for mortality
and expense risk -- Note 2 $ 4,056 $ 37,438 $ 21,149 $ 2,070 $ 3,445
Payable to Security First Life
Insurance Company for redemptions 210 3,269 2,922 240 420
Payable to Mutual Funds 1,378 45,049
Other liabilities 158 2,061 15
---------- ----------- ------------ ---------- -----------
TOTAL LIABILITIES 5,802 87,817 24,071 2,310 3,880
NET ASSETS -- Notes 4 and 5
Cost to Investors:
Series B Accumulation Units 5,660,415
Series G Accumulation Units 49,120,918
Series T Accumulation Units 31,172,766
Series P Accumulation Units 2,601,974
Series I Accumulation Units 5,286,959
Accumulated Undistributed Loss:
Net unrealized depreciation (554,935) (382,871) (1,773,815) (333,080)
---------- ----------- ----------- ---------- ----------
NET ASSETS APPLICABLE TO
OUTSTANDING UNITS OF CAPITAL -- Note $5,105,480 $48,738,047 $29,398,951 $2,601,974 $4,953,879
========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 39
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series M Series I
---------- ---------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 296,862 $ 1,665,611 $ 2,615,686 $99,544 $2,005 $ 301,721
EXPENSES:
Charges for mortality and
expense risk 51,537 436,445 242,266 24,617 707 27,928
Other expense (income) 6,504 14,003 5,586 730 13 (4,466)
--------- ----------- ----------- ------- ------ ---------
58,041 450,448 247,852 25,347 720 23,462
--------- ----------- ----------- ------- ------ ---------
Net Investment Income 238,821 1,215,163 2,367,834 74,197 1,285 278,259
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain on sale
of investments 19,242 2,736,099 1,786,634 147,429
Unrealized depreciation (508,208) (3,086,482) (4,153,007) (555,178)
--------- ----------- ----------- ------- ------ ---------
Net loss on investments (488,966) (350,383) (2,366,373) (407,749)
--------- ----------- ----------- ------- ------ ---------
Increase (decrease) in net assets
resulting from operations $(250,145) $ 864,780 $ 1,461 $74,197 $1,285 $(129,490)
========= =========== =========== ======= ====== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 40
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series M Series I
------------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 238,821 $ 1,215,163 $ 2,367,834 $ 74,197 $ 1,285 $ 278,259
Net realized gain on
investments 19,242 2,736,099 1,786,634 147,429
Net unrealized depreciation
of investments (508,208) (3,086,482) (4,153,007) (555,178)
------------- ----------- ------------ ----------- ------------ -----------
Increase (decrease) in net
assets resulting from operations (250,145) 864,780 1,461 74,197 1,285 (129,490)
Increase in net assets resulting
from capital unit transactions --
Notes 2, 4 and 6 (279,127) 4,586,417 4,781,841 (564,963) (2,478,148) 3,540,284
------------- ----------- ------------- ------------ ----------- -----------
Total Increase (Decrease) (529,272) 5,451,197 4,783,302 (490,766) (2,476,863) 3,410,794
Net Assets at December 31, 1993 5,634,752 43,286,850 24,615,649 3,092,740 2,476,863 1,543,085
------------- ------------ ------------- ------------ ------------ -----------
Net Assets at December 31, 1994 $ 5,105,480 $ 48,738,047 $ 29,398,951 $ 2,601,974 $ 0 $ 4,953,879
============= ============ ============= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 41
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
FIVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series M Series I
------------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 277,422 $ 842,194 $ 1,189,477 $ 23,389 $ 13,293 $ 31,174
Net realized gain on investments 216,848 2,510,878 422,453 11,511
Net unrealized appreciation
(depreciation) of investments (404,663) (1,245,837) 885,629 160,637
------------- ------------ ----------- ----------- ---------- ----------
Increase in net assets resulting
from operations 89,607 2,107,235 2,497,559 23,389 13,293 203,322
Increase in net assets resulting from
capital unit transactions --
Notes 2 and 4 2,173,779 19,328,389 3,689,335 1,597,979 608,327 503,324
------------- ------------ ----------- ----------- ---------- ----------
Total Increase 2,263,386 21,435,624 6,186,894 1,621,368 621,620 706,646
Net Assets at July 31, 1993 3,371,366 21,851,226 8,428,755 1,471,372 1,855,243 836,439
------------- ------------ ----------- ----------- ---------- ----------
Net Assets at December 31, 1993 $ 5,634,752 $ 43,286,850 $ 4,615,649 $ 3,092,740 $2,476,863 $1,543,085
============= ============ =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 42
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31, 1993
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series M Series I
---------- ----------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 130,194 $ 258,145 $ 806,432 $ 33,360 $ 24,002 $ 8,019
Net realized gain on investments 5,965 223,428 312,295 2,637
Net unrealized appreciation of
investments during the year 101,180 957,799 204,072 61,459
---------- ----------- ----------- ---------- ---------- --------
Increase in net assets resulting
from operations 237,339 1,439,372 1,322,799 33,360 24,002 72,115
Increase (decrease) in net assets
resulting from capital unit
transactions -- Notes 2 and 4 624,898 5,339,061 2,643,563 (912,133) (407,120) 763,620
---------- ----------- ----------- --------- --------- --------
Total Increase (Decrease) 862,237 6,778,433 3,966,362 (878,773) (383,118) 835,735
Net Assets at July 31, 1992 2,509,129 15,072,793 14,462,393 2,350,145 2,238,361 704
---------- ----------- ----------- ---------- ---------- --------
Net Assets at July 31, 1993 $3,371,366 $21,851,226 $18,428,755 $1,471,372 $1,855,243 $836,439
========== =========== =========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 43
SECURITY FIRST LIFE SEPARATE ACCOUNT A
INVESTMENTS
DECEMBER 31, 1994
SCHEDULE I
<TABLE>
<CAPTION>
Carrying
Value Unrealized Cost
Name of Issue Shares (Note A) Depreciation (Note B)
---------------- ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Security First Trust Bond Series -
capital shares 1,426,812 $ 5,109,780 $ (554,935) $ 5,664,715
Security First Trust Growth and
Income Series - capital shares 5,391,107 $ 48,779,742 $ (382,871) $ 49,162,613
T. Rowe Price Growth Stock Fund,
Inc. - capital shares 1,567,532 $ 29,391,227 $(1,773,815) $ 31,165,042
T. Rowe Price Prime Reserve Fund,
Inc. - capital shares 2,592,010 $ 2,592,010 $ 2,592,010
T. Rowe Price International Stock
Fund, Inc. - capital shares 435,381 $ 4,928,515 $ (333,080) $ 5,261,595
</TABLE>
Note A The carrying value of the investments is the reported net asset
value of the investment companies capital shares.
Note B Cost is determined by using the first-in, first-out cost method.
The accompanying notes are an integral part of these financial statements.
<PAGE> 44
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments -- Notes 1, 2 and Schedule I
Fidelity Investments - VIP Asset Manager
(1,827,416 shares at net asset value
of $13.79 per share; cost $26,191,495) $25,200,065
Fidelity Investments - VIP Growth
Portfolio (539,005 shares at net
asset value of $21.69; cost $11,418,538) $11,691,023
Fidelity Investments - VIP Index 500
(16,842 shares at net asset value of
$56.22; cost $939,600) $ 946,857
Fidelity Investments - VIP Overseas
Portfolio (68,894 shares at net asset
value of $15.67; cost $1,100,465) $ 1,079,571
Fidelity Investments - VIP Money Market
Series (3,572,651 shares at net asset
value of $1.00 per share; cost $3,572,651) $ 3,572,651
Receivable from Security First Life
Insurance Company for purchases 93,403 40,403 3,161 3,457 8,277
Receivable from Mutual Funds 1,900
Other assets 999 486 15 41
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $25,294,467 $11,731,912 $ 950,033 $ 1,083,028 $ 3,582,869
</TABLE>
<PAGE> 45
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
----------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Payable to Security First Life
Insurance Company for mortality
and expense risk -- Note 2 $ 24,055 $ 10,438 $ 869 $ 1,056 $ 2,804
Payable to Security First Life
Insurance Company for redemptions 6,319 1,964 60 12 95
Payable to Mutual Funds 94,250 40,403 3,219 3,457 8,152
Other liabilities 2,496
----------- ----------- -------- ---------- ----------
TOTAL LIABILITIES 124,624 52,805 4,148 4,525 13,547
NET ASSETS -- Notes 4 and 5
Cost to Investors:
Series FA Accumulation Units 26,161,273
Series FG Accumulation Units 11,406,622
Series FI Accumulation Units 938,628
Series FO Accumulation Units 1,099,397
Series FM Accumulation Units 3,569,322
Accumulated Undistributed Income (Loss)
Net unrealized appreciation (depreciation) (991,430 272,485 7,257 (20,894)
----------- ----------- -------- ---------- ----------
NET ASSETS APPLICABLE TO OUTSTANDING
UNITS OF CAPITAL -- Note 5 $25,169,843 $11,679,107 $945,885 $1,078,503 $3,569,322
=========== =========== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 46
SECURITY FIRST LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 295,684 $ 119,132 $ 414 $ 665 $ 128,528
EXPENSES:
Charges for mortality and expense risk 180,786 71,450 5,998 7,659 29,175
Other expense (income) 27,477 8,794 350 (88) (3,092)
----------- --------- ---------- ---------- ----------
208,263 80,244 6,348 7,571 26,083
----------- --------- ---------- ---------- -----------
Net Investment Income (Loss) 87,421 38,888 (5,934) (6,906) 102,445
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on sale of investments (5,869) (42,592) (412) 2,128
Unrealized appreciation (depreciation) (1,215,262) 245,068 9,612 (23,815)
----------- --------- ---------- ----------
Net gain (loss) on investments (1,221,131) 202,476 9,200 (21,687)
----------- --------- ---------- ---------- -----------
Increase (decrease) in net assets
resulting from operations $(1,133,710) $ 241,364 $ 3,266 $ (28,593) $ 102,445
=========== ========= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 47
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 87,421 $ 38,888 $ (5,934) $ (6,906) $ 102,445
Net realized gain (loss) on investments (5,859) (42,592) (412) 2,128
Net unrealized appreciation (depreciation)
of investments during the year (1,215,262) 245,068 9,612 (23,815)
------------- ------------ ----------- ------------ ------------
Increase (decrease) in net assets
resulting from operations (1,133,710) 241,364 3,266 (28,593) 102,445
Increase in net assets resulting from
capital unit transactions -- Notes 2 and 4 21,658,209 9,936,238 773,367 997,557 3,456,453
------------- ------------ ------------ ------------ ------------
Total Increase 20,524,499 10,177,602 776,633 968,964 3,558,898
Net Assets at December 31, 1993 4,645,344 1,501,505 169,252 109,539 10,424
------------- ------------ ------------ ------------ ------------
Net Assets at December 31, 1994 $ 25,169,843 $ 11,679,107 $ 945,885 $ 1,078,503 $ 3,569,322
============= ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 48
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
FIVE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM (1)
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 11,423 $ (3,990) $ 4,982 $ (241) $ 21
Net realized gain on investments 4,291 1,713 5 688
Net unrealized appreciation (depreciation)
of investments during the year 220,058 27,173 (2,349) 2,921
---------- ---------- ---------- ---------- ----------
Increase in net assets resulting
from operations 235,772 24,896 2,638 3,368 21
Increase in net assets resulting from
capital unit transactions -- Notes 2 and 4 4,057,804 1,382,385 152,063 103,657 10,403
---------- ---------- ---------- ---------- ----------
Total Increase 4,293,576 1,407,281 154,701 107,025 10,424
Net Assets at July 31, 1993 351,768 94,224 14,551 2,514 0
---------- ---------- ---------- ---------- ----------
Net Assets at December 31, 1993 $4,645,344 $1,501,505 $ 169,252 $ 109,539 $ 10,424
========== ========== ========== ========== ==========
</TABLE>
(1) Series FM commenced operations on November 12, 1993.
The accompanying notes are an integral part of these financial statements.
<PAGE> 49
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS(1)
YEAR ENDED JULY 31, 1993
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 1,334 $ 117 $ 54 $ 14
Net realized gain on investments 208 95 55
Net unrealized appreciation (depreciation)
of investments during the year 3,774 243 (5)
---------- --------- ---------- ----------
Increase in net assets resulting from operations 5,316 455 49 69
Increase in net assets resulting from capital
unit transactions -- Notes 2 and 4 346,452 93,769 14,502 2,445
---------- --------- ---------- ----------
Total Increase 351,768 94,224 14,551 2,514
Net Assets at July 31, 1992 0 0 0 0
---------- --------- ---------- ----------
Net Assets at July 31, 1993 $ 351,768 $ 94,224 $ 14,551 $ 2,514
========== ========= ========== ==========
</TABLE>
(1) Series FA commenced operations on May 13, 1993; Series FG and FO on May
24, 1993; Series FI on June 30, 1993.
The accompanying notes are an integral part of these financial statements.
<PAGE> 50
SECURITY FIRST LIFE SEPARATE ACCOUNT A
INVESTMENTS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
SCHEDULE I
Carrying Unrealized
Value Appreciation Cost
Name of Issue Shares (Note A) (Depreciation) (Note B)
- ----------------------------------- ----------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Fidelity Investments VIP Asset
Manager - capital shares 1,827,416 $ 25,200,065 $(991,430) $ 26,191,495
Fidelity Investments VIP Growth
Portfolio - capital shares 539,005 $ 11,691,023 $ 272,485 $ 11,418,538
Fidelity Investments VIP Index 500 -
capital shares 16,842 $ 946,857 $ 7,257 $ 939,600
Fidelity Investments Overseas
Portfolio - capital shares 68,894 $ 1,079,571 $ (20,894) $ 1,100,465
Fidelity Investments VIP Money
Market Fund - capital shares 3,572,651 $ 3,572,651 $ 3,572,651
</TABLE>
Note A The carrying value of the investments is the reported net asset
value of the investment companies capital shares.
Note B Cost is determined by using the first-in, first-out cost method.
The accompanying notes are an integral part of these financial statements.
<PAGE> 51
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 -- BASIS OF PRESENTATION
Security First Life Separate Account A (Separate Account) was established on
May 29, 1980, as a separate account of Security First Life Insurance Company
(Security Life), the sponsor company, and is registered under the Investment
Company Act of 1940 as a unit investment trust. The Separate Account is
designed to provide annuity benefits pursuant to certain variable annuity
contracts (the Contracts) issued by Security Life.
In accordance with the terms of the Contracts, all payments allocated to the
Separate Account by the contract owners must be allocated to purchase shares of
any or all of two series of Security First Trust (the Trust), a Massachusetts
business trust, and eight mutual funds. The series of the Trust are Bond
Series, and Growth and Income Series, and the mutual funds are T. Rowe Price
Growth Stock Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price
International Stock Fund, Inc., and Fidelity Investments: VIP Asset Manager,
VIP Growth Portfolio, VIP Index 500, VIP Overseas Portfolio and VIP Money
Market Fund. The Trust and the mutual funds (investment companies) are
registered as diversified, open-end management investment companies under the
Investment Company Act of 1940. The Separate Account is correspondingly
divided into ten series of Accumulation Units, Series B, G, T, P, I, FA, FG,
FI, FO and FM, relating to investments in each of the investment companies,
respectively. Five other distinct series are part of Security First Life
Separate Account A. The five series are not investment options for the
Contracts presented in these financial statements and, accordingly, have their
own financial statements and prospectus.
All series of the Trust receive administrative services for a fee from Security
First Investment Management Corporation (Security Management). Security First
Financial, Inc. is the principal underwriter for the Contracts. Security Life,
Security Management, and Security First Financial, Inc. are wholly-owned
subsidiaries of The Holden Group, Inc. Investment advice is provided to the
Trust by T. Rowe Price Associates, Inc.
The Separate Account and each Series therein is administered and accounted for
as part of the business of Security Life, but the investment income and capital
gains and losses of each Separate Account Series are identified with the assets
held for that Series in accordance with the terms of the Contracts, without
regard
<PAGE> 52
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 -- BASIS OF PRESENTATION (continued)
to investment income and capital gains and losses arising out of any other
business Security Life may conduct.
The Separate Account incurs no liability for remuneration to directors,
advisory boards, officers or such other persons who may from time to time
perform services for the Separate Account.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS -- Investments are carried at market value, which is
determined by multiplying the investment company's shares owned by the Separate
Account by the reported net asset value per share of each respective investment
company. Realized investment gains and losses of Separate Account investments
are determined on the first-in, first-out cost basis.
EXPENSES AND CHARGES -- The Separate Account accrues charges incurred for the
mortality and expense risk assumed by Security Life. The charges are
calculated daily by multiplying the value of the assets of the Separate Account
by the daily mortality and expense risk rate. Security Life has the option of
calling for payment of such charges at any time. The following table
illustrates the rates for the respective contracts:
<TABLE>
<CAPTION>
Contract Type Annual Rate Daily Rate
-------------------------------- ----------- ----------
<S> <C> <C>
SF 234; SF 89; SF 224FL;
SF 236FL; SF 1700 Contracts .89% .0000244
SF 135R; SF 226RI Contracts 1.25% .0000342
</TABLE>
The following charges are deducted from a contract holder's account by Security
Life as a capital transaction by reducing the separate account units held, and
such charges are not an expense of the Separate Account. An administration
charge (contract charge) is deducted from each contract and paid to Security
Life at the end of each contract year prior to the annuity date, and when the
entire contract value is withdrawn on any date other than a contract
anniversary. In the event that a participant withdraws all or a portion of the
participant's account, a contingent deferred sales charge (CDSC) may be applied
to the amount of the contract value withdrawn to cover certain expense relating
to the sale of contracts. The following table illustrates contract charges and
CDSC with respect to the various types of contracts:
<PAGE> 53
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (continued)
<TABLE>
<CAPTION>
Maximum Contract
Contract Type Charge Per Year CDSC
--------------- ------------------- ---------------------------------------------
<S> <C> <C>
SF 236FL $12.00 Based on elapsed time since premium received.
Disappears on or before 6th anniversary.
SF 224FL $40.00 Based on elapsed time since premium received.
Disappears on or before 6th anniversary.
SF 1700 $42.50 Based on elapsed time since premium received.
Disappears on or before 6th anniversary.
Group Form
226RI $41.50 Seven percent of premium received.
Disappears on or before 6th anniversary.
All other groups $19.50 Five percent of premium received.
Disappears on or before 6th anniversary.
Individual None Based on elapsed time since premium received.
Disappears after 7th year.
</TABLE>
In addition, transaction charges of $10 are incurred for each surrender or
annuitization. Upon conversion of either accumulation or annuity units from
one series to another, a $10 conversion charge is incurred. The amount
deducted for contract charges and CDSC was $117,729 for the year ended December
31, 1994, $30,632 for the five months ended December 31, 1993 and $54,468 for
the fiscal year ended July 31, 1993.
INCOME RECOGNITION AND REINVESTMENT -- Income is recognized as declared payable
by the investment companies. All distributions received are reinvested in the
investment companies.
NOTE 3 -- FEDERAL INCOME TAXES
The operations of the Separate Account form a part of, and are taxed with, the
operations of Security Life, which is taxed as a "life insurance company" under
the Internal Revenue Code, and as such, Security Life is liable for income
taxes, if any, which become payable with respect to the Separate Account's
operations.
<PAGE> 54
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 -- CAPITAL TRANSACTIONS
The Deficit Reduction Act of 1984 eliminated the taxation of separate accounts
as long as specified diversification requirements are met. The Separate
Account believes it meets such requirements.
Additions and deductions to Units of Capital consisting of the effect of
capital unit transactions were as follows:
<TABLE>
<CAPTION>
Additions to Capital Deductions From Capital
$ Units $ Units
------------ ---------- ----------- ----------
<S> <C> <C> <C>
Year ended December 31, 1994:
SF 135R; SF 226RI Contracts
---------------------------
Series B Accumulation Units 450,410 59,234 1,964,889 255,231
Series G Accumulation Units 2,256,171 255,847 11,816,179 1,346,467
Series M Accumulation Units 3,404 513 1,896,616 286,075
Series T Accumulation Units 25,699 2,710 11,921,075 1,244,060
Series FA Accumulation Units 18,699,464 3,451,499 1,087,647 202,875
Series FG Accumulation Units 8,227,024 1,580,400 278,031 53,770
Series FI Accumulation Units 588,897 113,711 6,953 1,338
Series FO Accumulation Units 1,019,668 174,720 22,111 3,810
Series FM Accumulation Units 1,187,375 234,573 571,042 111,981
SF 234; SF 89; SF 224FL; SF 236FL; SF 1700 Contracts
----------------------------------------------------
Series B Accumulation Units 2,365,192 145,428 1,129,840 70,689
Series G Accumulation Units 19,236,016 714,441 5,089,591 188,577
Series M Accumulation Units 163 17 585,099 60,337
Series T Accumulation Units 20,139,827 857,260 3,462,610 148,948
Series P Accumulation Units 610,483 49,901 1,175,446 96,364
Series I Accumulation Units 4,068,516 585,985 528,232 76,552
Series FA Accumulation Units 4,252,178 825,943 205,786 40,076
Series FG Accumulation Units 2,075,220 420,944 87,975 17,729
Series FI Accumulation Units 194,766 39,124 3,343 662
Series FM Accumulation Units 3,785,144 753,094 945,024 186,554
</TABLE>
<PAGE> 55
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 -- CAPITAL TRANSACTIONS (continued)
<TABLE>
<CAPTION>
Additions to Capital Deductions From Capital
$ Units $ Units
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Five months ended December 31, 1993:
SF 234; SF 135R; SF 226RI Contracts
-----------------------------------
Series B Accumulation Units 426,660 54,856 143,300 18,448
Series G Accumulation Units 3,348,665 395,651 1,025,701 122,951
Series M Accumulation Units 355,850 54,157 327,932 49,604
Series T Accumulation Units 2,011,467 224,457 797,008 88,569
Series FA Accumulation Units 3,860,082 721,757 6,484 1,219
Series FG Accumulation Units 1,223,923 229,761 359 67
Series FI Accumulation Units 150,150 29,217
Series FO Accumulation Units 103,657 18,935
Series FM Accumulation Units 12,403 2,479 2,000 399
SF 89; SF 224FL; SF 1700 Contracts
----------------------------------
Series B Accumulation Units 2,043,795 125,932 153,376 9,194
Series G Accumulation Units 17,452,989 689,174 447,564 16,912
Series M Accumulation Units 606,833 63,054 26,424 2,734
Series T Accumulation Units 2,877,842 135,452 402,966 18,033
Series P Accumulation Units 1,715,757 143,251 117,778 9,810
Series I Accumulation Units 503,324 79,221
Series FA Accumulation Units 204,206 39,393
Series FG Accumulation Units 158,821 31,169
Series FI Accumulation Units 1,913 383
Year ended July 31, 1993:
SF 234; SF 135R Contracts
-------------------------
Series B Accumulation Units 835,568 114,112 305,190 41,790
Series G Accumulation Units 4,999,852 637,819 1,002,802 127,051
Series M Accumulation Units 730,169 111,443 1,139,416 174,098
Series T Accumulation Units 3,736,734 453,708 1,099,462 133,334
Series FA Accumulation Units 346,452 68,335
Series FG Accumulation Units 93,769 18,609
Series FI Accumulation Units 14,502 2,927
Series FO Accumulation Units 2,445 491
</TABLE>
<PAGE> 56
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 -- CAPITAL TRANSACTIONS (continued)
<TABLE>
<CAPTION>
Additions to Capital Deductions From Capital
$ Units $ Units
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Year ended July 31, 1993 (continued):
SF 89; SF 224FL Contracts
-------------------------
Series B Accumulation Units 182,505 11,861 188,713 12,269
Series G Accumulation Units 1,945,801 81,746 1,406,049 59,492
Series T Accumulation Units 1,360,545 67,586 1,354,254 67,959
Series P Accumulation Units 290,336 24,445 1,202,469 101,269
Series I Accumulation Units 823,027 157,058 59,407 11,188
SF 226R1 Contracts
------------------
Series B Accumulation Units 100,812 16,772 84 10
Series G Accumulation Units 827,468 134,576 25,209 718
Series M Accumulation Units 2,174 331 47 8
</TABLE>
NOTE 5 -- UNITS OF CAPITAL
The following are the units outstanding and corresponding unit values as of
December 31, 1994:
<TABLE>
<CAPTION>
Units Unit Value
Description Outstanding $
--------------------------------------------- ----------- ---------
<S> <C> <C>
SF 135R2C; SF 226 RI Contracts
------------------------------
Series B Accumulation Units 130,212 7.42
Series G Accumulation Units 774,066 8.85
Series M Accumulation Units 0 N/A
Series T Accumulation Units 0 N/A
Series FA Accumulation Units 4,037,497 5.21
Series FG Accumulation Units 1,774,933 5.33
Series FI Accumulation Units 144,517 5.19
Series FO Accumulation Units 190,336 5.67
Series FM Accumulation Units 124,672 5.16
</TABLE>
<PAGE> 57
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5 -- UNITS OF CAPITAL (continued)
<TABLE>
<CAPTION>
Units Unit Value
Description Outstanding $
--------------------------------------------- ----------- ---------
<S> <C> <C>
SF 234; SF 89; SF 224FL; SF 236FL; SF 1700 Contracts
----------------------------------------------------
Series B Accumulation Units 262,563 15.77
Series G Accumulation Units 1,541,743 27.17
Series M Accumulation Units 0 N/A
Series T Accumulation Units 1,254,282 23.44
Series P Accumulation Units 209,807 12.40
Series I Accumulation Units 734,663 6.74
Series FA Accumulation Units 825,260 5.00
Series FG Accumulation Units 434,384 5.10
Series FI Accumulation Units 38,845 5.03
Series FM Accumulation Units 566,540 5.16
</TABLE>
NOTE 6 -- SECURITY FIRST TRUST - MONEY MARKET SERIES INVESTMENT OPTION
Effective January 31, 1994, the Security First Trust Money Market Series
(Series M) was closed and liquidated. Policyholders were notified of this and
allowed to transfer their funds. The Fidelity Investments VIP Money Market
Fund has similar investment objectives and many policyholders elected to
transfer their Security First Trust Money Market investments into it.
<PAGE> 58
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments:
Security First Trust - Bond Series
(1,522,345 shares at net asset value
of $4.00 per share; cost $5,990,256) $ 6,088,565
Security First Trust - Growth and
Income Series (5,746,147 shares
at net asset value of $11.08
per share; cost $53,481,925) $ 63,653,364
T. Rowe Price Growth
Stock Fund, Inc. (1,730,831
shares at net asset value
of $23.33 per share;
cost $35,042,871) $40,380, 297
T. Rowe Price Prime Reserve
Fund, Inc. (2,651,107
shares at net asset value
of $1.00 per share;
cost $2,651,107) $ 2,651,107
T. Rowe Price International
Fund, Inc. (618,047 shares
at net asset value of $12.28 per
share; cost $7,398,194) $ 7,589,622
Receivable from Security
First Life Insurance
Company for purchases 2,113 71,396 56,342 609 57,651
Other assets 1,586 1,559
------------- ------------ ------------ ------------- ------------
TOTAL ASSETS $ 6,090,678 $ 63,724,760 $ 40,438,225 $ 2,651,716 $ 7,648,832
</TABLE>
<PAGE> 59
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
UNAUDITED
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Payable to Security First Life
Insurance Company for mortality
and expense risk $ 4,681 $ 47,152 $ 28,281 $ 1,896 $ 5,291
Payable to Security First Life
Insurance Company for redemptions 260 2,996 27,169 340 237
Payable to Mutual Funds 2,092 71,316
Other liabilities 284 2,109 757
------------- ------------ ------------- ------------- ------------
TOTAL LIABILITIES 7,317 123,573 55,450 2,993 5,528
NET ASSETS
Cost to Investors:
Series B Accumulation Units 5,985,052
Series G Accumulation Units 53,429,748
Series T Accumulation Units 35,045,349
Series P Accumulation Units 2,648,723
Series I Accumulation Units 7,451,876
Accumulated Undistributed Income:
Net unrealized appreciation 98,309 10,171,439 5,337,426 191,428
------------- ------------ ------------- ------------- ------------
NET ASSETS APPLICABLE TO
OUTSTANDING UNITS OF CAPITAL $ 6,083,361 $ 63,601,187 $ 40,382,775 $ 2,648,723 $ 7,643,304
============= ============ ============= ============= ============
</TABLE>
<PAGE> 60
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 107,599
EXPENSES:
Charges for mortality and expense risk $ 40,913 $ 393,640 $ 230,288 17,809 $ 42,055
Other income (1,933) (15,619) (6,801) (829) (1,511)
------------- ------------ ------------- ------------- -----------
38,980 378,021 223,487 16,980 40,544
------------- ------------ ------------- ------------- -----------
Net Investment Income (Loss) (38,980) (378,021) (223,487) 90,619 (40,544)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain (loss) on sale of investments (38,122) 727,010 463,792 34,552
Unrealized appreciation 653,244 10,554,310 7,111,241 524,508
------------- ------------ ------------- -----------
Net gain on investments 615,122 11,281,320 7,575,033 559,060
------------- ------------ ------------- ------------- -----------
Increase in net assets
resulting from operations $ 576,142 $ 10,903,299 $ 7,351,546 $ 90,619 $ 518,516
============= ============ ============= ============= ============
</TABLE>
<PAGE> 61
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
NINE MONTHS ENDED SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (38,980) $ (378,021) $ (223,487) $ 90,619 $ (40,544)
Net realized gain (loss) on investments (38,122) 727,010 463,792 34,552
Net unrealized appreciation of investments 653,244 10,554,310 7,111,241 524,508
------------- ------------ ------------- ------------ -----------
Increase in net assets resulting
from operations 576,142 10,903,299 7,351,546 90,619 518,516
Increase (decrease) in net assets
resulting from capital unit transactions 401,739 3,959,841 3,632,278 (43,870) 2,170,909
------------- ------------ ------------- ------------ ------------
Total Increase 977,881 14,863,140 10,983,824 46,749 2,689,425
Net Assets at December 31, 1994 5,105,480 48,738,047 29,398,951 2,601,974 4,953,879
------------- ------------ ------------- ------------ ------------
Net Assets at September 30, 1995 $ 6,083,361 $ 63,601,187 $ 40,382,775 $ 2,648,723 $ 7,643,304
============= ============ ============= ============ ============
</TABLE>
<PAGE> 62
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments:
Fidelity Investments - VIP Asset
Manager (2,577,745 shares at net
asset value of $15.21 per share;
cost $36,727,311) $ 39,207,503
Fidelity Investments - VIP Growth
Portfolio (997,235 shares at
net asset value of $30.47;
cost $23,151,017) $ 30,385,763
Fidelity Investments - VIP
Index 500 (56,337 shares at
net asset value of $71.49;
cost $3,564,850) $ 4,027,513
Fidelity Investments - VIP
Overseas Portfolio (77,461
shares at net asset value
of $16.70; cost $1,236,421) $ 1,293,596
Fidelity Investments - VIP
Money Market Series (6,566,685
shares at net asset value of
$1.00 per share; cost $6,566,685) $ 6,566,685
Receivable from Security First
Life Insurance Company for purchases 152,617 119,088 47,496 71,834
Other assets 1,137 17,937 3,588 38 72
------------- ------------ ------------- ------------- ------------
TOTAL ASSETS $ 39,361,257 $ 30,522,788 $ 4,078,597 $ 1,293,634 $ 6,638,591
</TABLE>
<PAGE> 63
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
UNAUDITED
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Payable to Security First Life
Insurance Company for mortality
and expense risk $ 36,213 $ 27,597 $ 3,241 $ 1,282 $ 5,409
Payable to Security First Life
Insurance Company for redemptions 4,506 2,536 226 104 476
Payable to Mutual Funds 152,119 119,088 47,496 71,834
Other liabilities 100
------------- ------------ ------------- ------------- ------------
TOTAL LIABILITIES 192,838 149,221 51,063 1,386 77,719
NET ASSETS
Cost to Investors:
Series FA Accumulation Units 36,688,227
Series FG Accumulation Units 23,138,821
Series FI Accumulation Units 3,564,871
Series FO Accumulation Units 1,235,073
Series FM Accumulation Units 6,560,872
Accumulated Undistributed Income:
Net unrealized appreciation 2,480,192 7,234,746 462,663 57,175
------------- ------------ ------------- ------------- ------------
NET ASSETS APPLICABLE TO OUTSTANDING
UNITS OF CAPITAL $ 39,168,419 $ 30,373,567 $ 4,027,534 $ 1,292,248 $ 6,560,872
============= ============ ============= ============= ============
</TABLE>
<PAGE> 64
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 562,504 $ 70,665 $ 20,703 $ 8,662 $ 215,308
EXPENSES:
Charges for mortality and expense risk 289,533 171,832 17,131 11,340 38,132
Other expense (income) (8,360) (91,755) (9,266) 3,839 39,860
------------- ------------ ------------- ------------- ------------
281,173 80,077 7,865 15,179 77,992
------------- ------------ ------------- ------------- ------------
Net Investment Income (Loss) 281,331 (9,412) 12,838 (6,517) 137,316
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on sale of investments 20,892 18,310 19,955 3,905
Unrealized appreciation 3,471,623 6,962,261 455,406 78,069
------------- ------------ ------------- -------------
Net gain on investments 3,492,515 6,980,571 475,361 81,974
------------- ------------ ------------- ------------- ------------
Increase in net assets resulting
from operations $ 3,773,846 $ 6,971,159 $ 488,199 $ 75,457 $ 137,316
============= ============ ============= ============= ============
</TABLE>
<PAGE> 65
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
UNAUDITED
Series FA Series FG Series FI Series FO Series FM
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 281,331 $ (9,412) $ 12,838 $ (6,517) $ 137,316
Net realized gain on investments 20,892 18,310 19,955 3,905
Net unrealized appreciation of investments 3,471,623 6,962,261 455,406 78,069
------------- ------------ ------------- -------------
Increase in net assets resulting
from operations 3,773,846 6,971,159 488,199 75,457 137,316
Increase in net assets resulting from
capital unit transactions 10,224,730 11,723,301 2,593,450 138,288 2,854,234
------------- ------------ ------------- ------------- ------------
Total Increase 13,998,576 18,694,460 3,081,649 213,745 2,991,550
Net Assets at December 31, 1994 25,169,843 11,679,107 945,885 1,078,503 3,569,322
------------- ------------ ------------- ------------- ------------
Net Assets at September 30, 1995 $ 39,168,419 $ 30,373,567 $ 4,027,534 $ 1,292,248 $ 6,560,872
============= ============ ============= ============= ============
</TABLE>
<PAGE> 66
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
UNAUDITED
Series FC Series FE Series AL Series US Series SC
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments:
Fidelity Investments - VIP Contra
Fund (196,448 shares at net asset
value of $13.94 per share;
cost $2,610,109) $ 2,738,479
Fidelity Investments - VIP Equity
Income Portfolio (18,188 shares
at net asset value of $18.25 per share;
cost $319,385) $ 331,923
Alger American Small Capitalization
Portfolio (49,452 shares at net
asset value of $42.83 per share;
cost $2,001,993) $ 2,118,010
Security First Trust U.S. Government
Income Series (5,236 shares at net
asset value of $5.21 per share;
cost $26,991) $ 27,292
Scudder International Fund (16,150
shares at net asset value of $11.82
per share; cost $184,544) $ 190,890
Receivable from Security First Life
Insurance Company for purchases 18,396 13,668 21,535 557
Other assets 3,667 192 7,298 30
------------- ------------ ------------- ------------- ------------
TOTAL ASSETS $ 2,760,542 $ 345,783 $ 2,146,843 $ 27,322 $ 191,447
</TABLE>
<PAGE> 67
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
UNAUDITED
<TABLE>
<CAPTION>
Series FC Series FE Series AL Series US Series SC
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
LIABILITIES
Payable to Security First Life Insurance
Company for mortality and expense risk $ 2,302 $ 269 $ 1,808 $ 18 $ 153
Payable to Security First Life Insurance
Company for redemptions 25 20
Payable to Mutual Funds 18,396 13,668 4,333 557
Other liabilities 96
------------- ------------ ------------- ------------- ------------
TOTAL LIABILITIES 20,723 13,937 6,161 18 806
NET ASSETS
Cost to Investors:
Series FC Accumulation Units 2,611,449
Series FE Accumulation Units 319,308
Series AL Accumulation Units 2,024,665
Series US Accumulation Units 27,003
Series SC Accumulation Units 184,295
Accumulated Undistributed Income:
Net unrealized appreciation 128,370 12,538 116,017 301 6,346
------------- ------------ ------------- ------------- ------------
NET ASSETS APPLICABLE TO OUTSTANDING
UNITS OF CAPITAL $ 2,739,819 $ 331,846 $ 2,140,682 $ 27,304 $ 190,641
============= ============ ============= ============= ============
</TABLE>
<PAGE> 68
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS (1)
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
UNAUDITED
Series FC Series FE Series AL Series US Series SC
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,550
EXPENSES:
Charges for mortality and expense
risk $ 5,406 575 $ 3,690 $ 44 $ 435
Other expense (income) (25,530) (336) (28,808) 44 (194)
------------- ------------ ------------- ------------ ------------
(20,124) 239 (25,118) 88 241
------------- ------------ ------------- ------------ ------------
Net Investment Income (Loss) 20,124 1,311 25,118 (88) (241)
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Realized gain on sale of investments 14,248 18,180 171
Unrealized appreciation 128,370 12,538 116,017 301 6,346
------------- ------------ ------------- ------------- ------------
Net gain on investments 142,618 12,538 134,197 301 6,517
------------- ------------ ------------- ------------- ------------
Increase in net assets resulting
from operations $ 162,742 $ 13,849 $ 159,315 $ 213 $ 6,276
============= ============ ============= ============= ============
</TABLE>
(1) Series FC commenced operations on May 16, 1995; Series AL and SC on
May 22, 1995; Series FE on May 25, 1995; and Series US on June 13,
1995.
<PAGE> 69
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS (1)
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
UNAUDITED
Series FC Series FE Series AL Series US Series SC
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 20,124 $ 1,311 $ 25,118 $ (88) $ (241)
Net realized gain on investments 14,248 18,180 171
Net unrealized appreciation
of investments 128,370 12,538 116,017 301 6,346
------------- ------------ ------------- ------------- ------------
Increase in net assets resulting
from operations 162,742 13,849 159,315 213 6,276
Increase in net assets resulting from
capital unit transactions 2,577,077 317,997 1,981,367 27,091 184,365
------------- ------------ ------------- ------------- ------------
Total Increase 2,739,819 331,846 2,140,682 27,304 190,641
Net Assets at December 31, 1994 0 0 0 0 0
------------- ------------ ------------- ------------- ------------
Net Assets at September 30, 1995 $ 2,739,819 $ 331,846 $ 2,140,682 $ 27,304 $ 190,641
============= ============ ============= ============= ============
</TABLE>
(1) Series FC commenced operations on May 16, 1995; Series AL and SC on
May 22, 1995; Series FE on May 25, 1995; and Series US on June 13,
1995.
<PAGE> 70
[LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Security First Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security First
Life Insurance Company and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security First
Life Insurance Company and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Notes 3 and 5 to the consolidated financial statements,
Security First Life Insurance Company and subsidiaries made certain accounting
changes in 1994 and 1993.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
February 9, 1996
<PAGE> 71
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1995 1994
------------- -------------
(In thousands)
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed maturities:
Available-for-sale $2,176,985 $1,602,387
Held-for-investment 197,379
Equity securities 5,129 5,827
Investment real estate 2,311 2,298
Policy and mortgage loans 18,798 16,239
Short-term investments 7,024 26,215
---------- ----------
2,210,247 1,850,345
CASH AND CASH EQUIVALENTS 7,990 13,359
ACCRUED INVESTMENT INCOME 30,459 27,018
DEFERRED POLICY ACQUISITION COSTS 56,515 47,985
OTHER ASSETS
Property under capital lease 10,680 11,260
Assets held in separate accounts 340,287 184,196
Other 4,318 4,517
---------- ----------
$2,660,496 $2,138,680
========== ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
<PAGE> 72
<TABLE>
<CAPTION>
December 31
1995 1994
------------- ------------
(In thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholder liabilities $2,047,818 $1,790,456
Obligation under capital lease 15,966 16,183
Notes payable to parent 35,000 35,000
Note payable 1,000 2,000
Federal income taxes 35,052 1,723
Liabilities related to separate accounts 340,287 184,196
Other 5,293 5,060
---------- ----------
2,480,416 2,034,618
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Preferred stock, $1 par value
Authorized, issued and outstanding -- 200,000 shares 200 200
Common stock, $200 par value
Authorized -- 15,000 shares
Issued and outstanding -- 11,000 shares 2,200 2,200
Additional paid-in capital 48,147 48,147
Net unrealized investment gains (losses) 38,972 (21,561)
Retained earnings 90,561 75,076
---------- ----------
180,080 104,062
---------- ----------
$2,660,496 $2,138,680
========== ==========
</TABLE>
3
<PAGE> 73
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
REVENUES
Net investment income $158,174 $146,101 $137,450
Annuity product income 14,815 6,121 2,499
Net realized investment gains (losses) 1,347 (1,735) 921
Other 701 709 721
-------- -------- --------
TOTAL REVENUES 175,037 151,196 141,591
BENEFITS AND EXPENSES
Interest credited to policyholders 103,959 102,776 102,513
Benefits in excess of policyholder liabilities 5,738 4,119 1,907
Amortization of deferred policy acquisition costs 15,505 5,612 1,981
Operating expenses 28,201 23,543 17,397
-------- -------- --------
TOTAL BENEFITS AND EXPENSES 153,403 136,050 123,798
-------- -------- --------
21,634 15,146 17,793
Income tax expense
Current 3,044 1,776 5,467
Deferred 3,105 3,388 597
-------- -------- --------
6,149 5,164 6,064
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 15,485 9,982 11,729
Cumulative effect of change in accounting for income taxes 1,510
-------- -------- --------
NET INCOME $ 15,485 $ 9,982 $ 13,239
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 74
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Net
Additional Unrealized Total
Preferred Common Paid-in Investment Retained Stockholder's
Stock Stock Capital Gains (Losses) Earnings Equity
--------- ------ ---------- -------------- -------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $200 $2,200 $48,147 $ 226 $51,855 $102,628
Net income 13,239 13,239
Net unrealized investment losses (269) (269)
---- ------ ------- ------- ------- --------
Balance at December 31, 1993 200 2,200 48,147 (43) 65,094 115,598
Net income 9,982 9,982
Cumulative effect of change
in accounting principle at
January 1 28,618 28,618
Net unrealized investment losses -- (50,136) (50,136)
---- ------ ------- ------- ------- --------
Balance at December 31, 1994 200 2,200 48,147 (21,561) 75,076 104,062
Net income 15,485 15,485
Net unrealized investment gains -- 60,533 60,533
---- ------ ------- ------- ------- --------
Balance at December 31, 1995 $200 $2,200 $48,147 $38,972 $90,561 $180,080
==== ====== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 75
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993
------------- ------------- -----------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 15,485 $ 9,982 $ 13,239
Adjustments to reconcile net income to net cash
provided by operations:
Cumulative effect of accounting change (1,510)
Net realized investment losses (gains) (1,347) 3,014 (12,121)
Depreciation and amortization 1,391 2,281 1,703
Accretion of discount and amortization of
premium on investments 1,059 (2,423) (8,212)
Changes in operating assets and liabilities:
Accrued investment income (3,441) (648) (3,957)
Deferred policy acquisition costs (15,676) (4,915) (16,946)
Other assets 2,194 4,560 (4,504)
Other liabilities 673 (9,050) 2,207
------------- ------------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES 338 2,801 (30,101)
INVESTING ACTIVITIES
Fixed maturity securities -- available-for-sale
Purchases (636,371) (1,033,097)
Sales and maturities 439,897 860,239
Fixed maturity securities -- held-for-investment
Purchases (1,037,222)
Sales and maturities 783,570
Equity securities
Purchases (117)
Sales 931 1,085
Disposal (acquisition) of real estate, net (13) 2,192 (161)
Net sale (purchase) of short-term investments 19,191 (26,215)
Repayment (issuance) of loans, net (2,558) 5,792 (359)
Purchase of equipment (388) (896)
------------- ------------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (179,428) (190,900) (254,172)
FINANCING ACTIVITIES
Receipts credited to policyholder accounts 565,698 468,898 509,223
Amounts returned to policyholders (390,760) (326,691) (208,422)
Issuance of note payable to parent 10,000 25,000
Repayment of notes payable (1,000) (1,000) (1,000)
Reduction of capital lease obligation (217) (192) (170)
------------- ------------- -----------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 173,721 151,015 324,631
------------- ------------- -----------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (5,369) (37,084) 40,358
Cash and cash equivalents at beginning of year 13,359 50,443 10,085
------------- ------------- -----------
CASH AND CASH
EQUIVALENTS AT END OF YEAR $ 7,990 $ 13,359 $ 50,443
============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 76
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- Security First Life Insurance Company (Security First
Life) and subsidiaries (collectively, the Company) is a wholly-owned subsidiary
of Security First Group, Inc. (SFG), formerly The Holden Group, Inc. SFG has
been a wholly-owned subsidiary of London Insurance Group, Inc. (LIG) since May
1994. The Company sells a broad range of fixed and variable annuity contracts.
The Company's consolidated financial statements are prepared in conformity with
generally accepted accounting principles (GAAP) which vary in some respects
from statutory accounting practices prescribed or permitted by regulatory
authorities (statutory basis) and include the accounts of its wholly-owned
subsidiaries, Fidelity Standard Life Insurance Company (Fidelity Standard Life)
and Security First Life Insurance Company of Arizona (SFL-Arizona). All
significant intercompany transactions and accounts are eliminated in
consolidation.
INVESTMENTS -- Investments are reported on the following bases:
Fixed Maturities:
Available-for-sale -- at fair value, which differs from the amortized
cost of such investments. Unrealized gains and losses on these
investments (net of related adjustments for deferred policy
acquisition costs and applicable deferred income taxes) are credited
or charged to stockholder's equity and, accordingly, have no effect on
net income.
Held-for-investment -- at cost, adjusted for amortization of premium
or accretion of discount and other-than-temporary declines in fair
value. The amortized cost of such investments differs from their fair
values. See Note 3 regarding the reclassification in 1995 of
held-for-investment securities to available-for-sale.
For those fixed maturities which are mortgage-backed, the Company
recognizes income using a constant effective yield based on
anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to
reflect actual payments to date and anticipated future payments. The
net investment in the security is adjusted to the amount that would
have existed had the new effective yield been applied since the
acquisition of the security. Such adjustment is included in net
investment income.
The Company does not maintain a trading portfolio, or at December 31,
1995, a held-for-investment portfolio.
7
<PAGE> 77
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Equity securities (common and non-redeemable preferred stocks) -- at fair
value if publicly traded. Changes in fair values of equity securities, net
of applicable deferred income taxes, are reported as unrealized gains or
losses directly in stockholder's equity and, accordingly, have no effect on
net income.
Investment real estate -- at lower of cost less accumulated depreciation or
fair value.
Mortgage loans and policy loans -- at unpaid balances.
Short-term investments -- at cost, which approximates fair value.
Realized gains and losses on disposal of investments are determined on a
specific identification basis.
CASH EQUIVALENTS -- Cash equivalents consist of investments in money market
funds. The carrying amount of cash equivalents approximates fair value.
DEFERRED POLICY ACQUISITION COSTS -- As of January 1, 1995, the Company adopted
the account value deposit method of reporting on two-tier annuities (those
annuities that have a different interest credited rate for annuitization as
compared to withdrawal). The Company had previously adopted this method for
single-tier annuities. Under this method, commissions and other costs of
acquiring annuities that vary with and are primarily related to the acquisition
of such business are included in deferred policy acquisition costs. Prior to
that date, certain commission costs for two-tier annuities were reported as a
component of policyholder liabilities. As a result of this change, deferred
policy acquisition costs and policyholder liabilities increased by $38,590,000
on January 1, 1995 with no effect on stockholder's equity. Additionally, the
presentation of certain revenue and expense items in the consolidated statement
of income for the year ended December 31, 1995 has been effected by this change
with no significant impact on net income.
Deferred policy acquisition costs are being amortized in proportion to the
present value of estimated future gross margins which includes the impact of
realized investment gains and losses.
8
<PAGE> 78
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
POLICYHOLDER LIABILITIES -- As indicated previously, the Company adopted the
account value deposit method for reporting on two-tier annuities as of January
1, 1995. Under this method, the policyholder liabilities for two-tier
annuities are the lower tier account values. Prior to that date, policyholder
liabilities for the Company's two-tier fixed annuity products were calculated
using a prospective approach. Under the prospective approach, the policyholder
liability was equal to the present value of future benefits using a
"break-even" discount rate which resulted in no gain or loss when a policy was
issued. This method allowed profits to emerge in relation to the difference
between actual investment earnings and the break-even discount rate used in the
calculation of the policyholder liabilities. Policyholder liabilities for the
Company's single-tier fixed annuity products are the account values.
The fair value of policyholder liabilities is estimated assuming all
policyholders surrender their policies. The carrying amounts and estimated
fair values are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Amount Estimated Fair Value
--------------- --------------------
<S> <C> <C>
December 31, 1995 $2,047,818 $1,976,079
December 31, 1994 1,790,456 1,760,999
</TABLE>
NOTES PAYABLE -- Notes payable are carried at their unpaid balances which
approximate fair value because the interest rates on these notes approximate
market rates.
INCOME TAXES -- The Company files consolidated federal income tax returns with
SFG. Income taxes are provided on the basis as if the companies filed
separately.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Such differences are related principally to the deferral of policy
acquisition costs, the valuation of fixed maturities and the provision for
policyholder liabilities. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
SEPARATE ACCOUNTS -- The assets held in separate accounts represent funds which
are separately administered by the Company pursuant to variable annuity
contracts. The liabilities related to separate accounts consist of
policyholder liabilities for variable annuities. The separate account assets
and liabilities are reported at fair value. The Company receives a fee for
administrative services provided to the separate accounts. Investment risks
associated with fair value changes are borne by the contract holders.
9
<PAGE> 79
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ANNUITY REVENUES AND BENEFITS -- Annuity product income represents fees earned
from policyholders of annuity contracts, including surrender charges,
annuitization charges and administration fees. Benefits in excess of
policyholder liabilities consists of the difference between the policyholder
account values surrendered or annuitized during the period and the related
policyholder liability balances.
ESTIMATES -- Certain amounts reported in the accompanying consolidated
financial statements are based on management's best estimates and judgments.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARD -- In March 1995, the Financial Accounting Standards
Board (FASB) issued a new standard on accounting for long-lived assets which
are impaired or to be disposed of. The Company must adopt the standard by
1996. The standard requires that an impaired long-lived asset be measured
based on the fair value of the asset to be held and used or the fair value less
cost to sell the asset to be disposed of. When adopted, this standard is not
expected to have a material effect on the financial position or results of
operations of the Company.
RECLASSIFICATIONS -- Certain reclassifications of prior-year amounts have been
made to conform with current-year classifications.
10
<PAGE> 80
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 -- STATUTORY CAPITAL AND RESTRICTIONS
Security First Life and each of its subsidiaries are required to file annual
statements with various state insurance regulatory authorities on a statutory
basis.
The statutory-basis capital and surplus at December 31, 1995, 1994 and 1993,
and statutory-basis net income (loss) for those years are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Net
and Surplus Income (Loss)
----------- -------------
<S> <C> <C>
December 31, 1995
-----------------
Security First Life Insurance Company $100,027* $3,161*
Fidelity Standard Life Insurance Company 15,573* 831*
Security First Life Insurance Company of Arizona 12,715* 612*
December 31, 1994
-----------------
Security First Life Insurance Company $ 99,272 $1,758
Fidelity Standard Life Insurance Company 14,894 409
Security First Life Insurance Company of Arizona 12,118 1,246
December 31, 1993
-----------------
Security First Life Insurance Company $ 90,967 $5,057
Fidelity Standard Life Insurance Company 14,651 (160)
Security First Life Insurance Company of Arizona 10,890 1,358
</TABLE>
* These unaudited amounts are preliminary and subject to change upon
completion of the statutory annual statements.
The difference between statutory-basis net income (loss) and net income
reported based on GAAP relates primarily to different reserving methods used to
calculate policyholder liabilities, the recognition of deferred policy
acquisition costs and deferred income taxes.
Security First Life and Fidelity Standard Life are incorporated and domiciled
in Delaware. SFL-Arizona is incorporated and domiciled in Arizona. The
payment of dividends by Security First Life and each of its subsidiaries is
subject to statutory limitations which are based on each company's
statutory-basis net income and surplus levels. At December 31, 1995, the
maximum amount of dividends Security First Life could pay SFG without prior
approval from state insurance regulatory authorities is $9,762,000.
11
<PAGE> 81
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 -- INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115 (SFAS
No. 115), Accounting for Certain Investments in Debt and Equity Securities, as
of January 1, 1994. In accordance with SFAS No. 115, prior period financial
statements were not restated to reflect the change in accounting principle.
The cumulative effect as of January 1, 1994 of adopting SFAS No. 115 was an
increase in stockholder's equity of $28,618,000 -- net of related adjustments
for deferred policy acquisition costs of $62,166,000 which was recorded as an
adjustment to policyholder liabilities and deferred income taxes of $14,743,000
- -- to reflect the net unrealized gains on securities previously carried at
amortized cost. There was no effect on net income as a result of the adoption
of SFAS No. 115.
In November 1995, the FASB issued a Special Report, A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities. In accordance with provisions in that Special Report, the Company
chose to reclassify securities from held-for-investment to available-for-sale.
At the date of transfer, the amortized cost of those securities was
$169,879,000 and the unrealized gain on those securities was $2,291,000, which
is included in stockholder's equity.
Unrealized investment gains and losses reported in the accompanying financial
statements are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1995 1994
-------- --------
<S> <C> <C>
Unrealized investment gains (losses) $104,593 $(76,004)
Less: Adjustment for deferred policy acquisition costs 45,736 (43,719)
Deferred income taxes (benefit) 19,885 (10,724)
-------- --------
Net unrealized investment gains (losses) $ 38,972 $(21,561)
======== ========
</TABLE>
The adjustment for deferred policy acquisition costs of $43,719,000 in 1994 was
recorded as an adjustment to policyholder liabilities. Included in unrealized
investment gains (losses) are net losses related to equity securities of
$58,000 and $230,000 at December 31, 1995 and 1994, respectively.
12
<PAGE> 82
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 -- INVESTMENTS (continued)
The amortized cost and fair value of fixed maturities as of December 31, 1995
and 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
December 31, 1995
-----------------
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 131,672 $ 12,467 $ (153) $ 143,986
Debt securities issued by
foreign governments 16,779 1,687 18,466
Corporate securities 894,766 64,723 (5,194) 954,295
Mortgage-backed securities 1,029,090 33,049 (1,901) 1,060,238
---------- -------- -------- ----------
$2,072,307 $111,926 $ (7,248) $2,176,985
========== ======== ======== ==========
December 31, 1994
-----------------
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 114,207 $ 2,100 $ (4,649) $ 111,658
Debt securities issued by
foreign governments 21,916 334 (481) 21,769
Corporate securities 760,618 9,679 (39,496) 730,801
Mortgage-backed securities 781,296 6,735 (49,872) 738,159
---------- -------- -------- ----------
$1,678,037 $ 18,848 $(94,498) $1,602,387
========== ======== ======== ==========
Held-for-investment:
Mortgage-backed securities $ 197,379 $ 1,471 $(13,215) $ 185,635
========== ======== ======== ==========
</TABLE>
13
<PAGE> 83
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 -- INVESTMENTS (continued)
The amortized cost and fair value of fixed maturities by contractual maturity
at December 31, 1995, are summarized below. Actual maturities will differ from
contractual maturities because certain borrowers have the right to call or
prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
(In thousands)
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 18,459 $ 18,666
Due after one year through five years 162,465 172,269
Due after five years through ten years 580,386 611,671
Due after ten years 281,907 314,142
Mortgage-backed securities 1,029,090 1,060,237
---------- ----------
$2,072,307 $2,176,985
========== ==========
</TABLE>
Proceeds from sales of fixed maturities are $441,790,000 and $695,755,000 in
1995 and 1994, respectively.
The Company reports realized gains (losses) on investment transactions net of
any adjustment to the amortization of deferred policy acquisition costs when
such amortization is accelerated or decelerated as a result of the realization
of gains or losses other than as originally anticipated on the sale of
investments associated with annuity products. Net realized investment gains
(losses) reported in the accompanying financial statements are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities -- available-for-sale
Gross gains $ 6,181 $ 7,174
Gross losses (4,621) (6,328)
----------- -----------
1,560 846
Fixed maturities -- held-for-investment
Gross gains $ 14,755
Gross losses (2,634)
-----------
12,121
Loss on equity securities (213) (31)
Loss on real estate (2,250)
Accelerated amortization
of deferred policy acquisition costs (300) (11,200)
----------- ----------- -----------
Net realized investment gains (losses) $ 1,347 $ (1,735) $ 921
=========== =========== ===========
</TABLE>
14
<PAGE> 84
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 -- INVESTMENTS (continued)
The Company has recorded a valuation reserve for possible other-than-temporary
impairment in the value of fixed maturities of $2,000,000 at December 31, 1995
and 1994.
Concentrations of credit risk with respect to fixed maturities are limited due
to the large number of issues owned and their dispersion across many different
industries and geographic areas. Accordingly, at December 31, 1995, the
Company had no significant concentration of credit risk.
The fair values for fixed maturities and equity securities are primarily based
on values obtained from independent pricing services.
The cost of equity securities was $5,214,000 and $6,177,000 on December 31,
1995 and 1994, respectively.
Investment real estate is net of accumulated depreciation of $1,596,000 and
$1,538,000 as of December 31, 1995 and 1994, respectively, and a $2,250,000
provision for decline in fair value at those dates.
The carrying amount of mortgage loans ($945,000 and $934,000 at December 31,
1995 and 1994, respectively) and policy loans ($17,853,000 and $15,305,000 at
December 31, 1995 and 1994, respectively) approximates fair value because the
interest rates on these loans approximate market rates.
The Company places its temporary cash investments with high-credit quality
financial institutions and, by corporate policy, limits the amount of credit
exposure to any one financial institution.
At December 31, 1995, investment securities having an amortized cost of
$10,561,000 were on deposit with various states in accordance with state
insurance department requirements.
15
<PAGE> 85
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 -- INVESTMENTS (continued)
Investment income by major category of investment is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities $159,266 $148,303 $139,404
Policy loans 884 749 620
Real estate 894 406 367
Mortgage loans 345 769 974
Short-term investments 1,943 114
Cash and cash equivalents 388 783 831
-------- -------- --------
163,720 151,124 142,196
Investment expenses (5,546) (5,023) (4,746)
-------- -------- --------
Net investment income $158,174 $146,101 $137,450
======== ======== ========
</TABLE>
The Company has no significant amounts of non-income producing investments.
NOTE 4 -- NOTES PAYABLE
Notes payable consist of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
5% Surplus note due to SFG, interest payable monthly,
principal payable upon regulatory approval $25,000 $25,000
8% Note due to The Capitol Life Insurance Company,
interest payable quarterly, principal payments of
$1,000,000 each paid annually on December 31 1,000 2,000
8% Surplus note due to SFG, interest payable monthly,
principal payable upon regulatory approval 10,000 10,000
------- -------
$36,000 $37,000
======= =======
</TABLE>
Security First Life has a $15,000,000 bank revolving credit line which bears
interest at a floating rate based on London Interbank Offered Rates. There
were no borrowings outstanding under this revolving credit line at December 31,
1995 and 1994. The $25,000,000 and $10,000,000 surplus notes payable to SFG
are pledged, along with the common and preferred stock of Security First Life,
as collateral for SFG's bank revolving credit line.
Principal payments due on the notes payable during the next five years are
$1,000,000 in 1996.
16
<PAGE> 86
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 -- NOTES PAYABLE (continued)
Interest paid by the Company totaled $2,225,000 in 1995, $1,799,000 in 1994 and
$343,000 in 1993.
NOTE 5 -- INCOME TAXES
The Company files a consolidated federal income tax return with SFG and its
subsidiaries. Taxes are provided for and paid to SFG as if the Company filed
separately.
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, effective January 1, 1993 and, as permitted under
the new rules, did not restate prior years' financial statements. The
cumulative effect of this change in accounting for income taxes as of January
1, 1993 of $1,510,000 is reported separately in the consolidated statement of
income for the year ended December 31, 1993.
The liability for federal income taxes includes deferred taxes of $35,875,000
and $3,324,000 at December 31, 1995 and 1994, respectively. Significant
components of these deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $32,937 $14,701
Fixed maturities 19,980
Other assets 301
Other, net 495 1,050
------- -------
Total deferred tax liabilities 53,412 16,052
Deferred tax assets:
Fixed maturities 8,654
Policyholder liabilities 13,384 1,674
Capital lease 765 628
Other liabilities 3,388 1,772
------- -------
Total deferred tax assets 17,537 12,728
------- -------
Net deferred tax liabilities $35,875 $ 3,324
======= =======
</TABLE>
Income taxes paid by the Company were $3,248,000 in 1995, $2,000,000 in 1994
and $4,325,000 in 1993.
17
<PAGE> 87
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 -- INCOME TAXES (continued)
In 1995, the Company's income tax provision differs from the statutory rate of
34%. The following is a reconciliation of the federal income tax at statutory
rates with the income tax provision as shown in the consolidated statement of
income for the year ended December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Federal income tax at 34% $7,356
Dividends received deduction (317)
True up of prior year taxes (875)
Other (15)
------
Provision for income tax expense $6,149
======
</TABLE>
NOTE 6 -- CAPITAL LEASE
Security First Life has a lease for office space that expires in 2014. This
lease is treated as a capital lease for financial reporting purposes.
The Company subleases space on an annual basis to SFG to use as its home
office. Related income offset against the lease costs was $1,663,000,
$1,649,000 and $1,578,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. Future payments under the lease are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 2,166
1997 2,166
1998 2,166
1999 2,166
2000 2,166
Thereafter 29,051
--------
Total minimum rental payments 39,881
Amount representing interest (23,915)
--------
Present value of minimum rental payments $ 15,966
========
</TABLE>
The property under capital lease is net of accumulated amortization of
$6,717,000 in 1995 and $6,137,000 in 1994.
18
<PAGE> 88
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 -- COMMITMENTS, CONTINGENCIES AND RISKS
The Company has forward contracts with commitments to purchase mortgage-backed
securities with total par values of $25,500,000 at December 31, 1995. The
Company uses these contracts to hedge the interest rate risk on future
investments that match policyholder liabilities, primarily related to
guaranteed-rate products. Gains or losses realized on such contracts are
included in the carrying value of the underlying anticipated investment. The
Company is subject to the risk that the counterparties to such contracts would
fail to deliver the securities to the Company on settlement date, if the
Company were to hold the contract on that date. The Company's current cash
balances and expected future cash flows are sufficient to settle the
commitments under these forward contracts.
Included in the accompanying balance sheet are assets of $6,000,000 at December
31, 1995 related to The Capitol Life Insurance Company (CLICO) and its parent.
CLICO is currently operating under supervision by the Colorado Division of
Insurance. The Company anticipates that CLICO will continue as an ongoing
enterprise. However, there can be no certainty that this will occur.
NOTE 8 -- RELATED PARTY TRANSACTIONS
The Company has marketing and administrative agreements with SFG and previously
with its subsidiary, Holden Financial Company, under which these companies
provide all of the Company's marketing and policyholder administration
services. Amounts incurred under these agreements were $38,954,000,
$31,183,000 and $26,026,000 for 1995, 1994 and 1993, respectively.
The Company has management agreements with SFG under which the latter provides
certain personnel, administrative services and office space. Amounts incurred
under these agreements were $4,308,000 in 1995 and 1994 and $4,248,000 in 1993.
The Company has investment advisory agreements with Security First Investment
Management Corporation, a subsidiary of SFG. Fees of $4,756,000, $4,508,000
and $4,067,000 were paid in 1995, 1994 and 1993, respectively, pursuant to
these agreements.
19
<PAGE> 89
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements contained herein
(1) Security First Life Separate Account A
Part A - Condensed Financial Information - to be filed
Part B - Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes
in Net Assets, Statement of Investments - to
be filed
(2) Security First Life Insurance Company
Part B - Depositor's financial statements with notes
- to be filed
(b) Exhibits
(10) Consent of Independent Auditors - herewith
All previously filed Exhibits to Security First Life Separate Account A
registration statement and all post-effective amendments thereto are
specifically incorporated herein by reference.
Item 25. Directors and Officers of the Depositor
The officers and directors of Security First Life Insurance Company are listed
below. Their principal business address is 11365 West Olympic Boulevard, Los
Angeles, California 90064.
<TABLE>
<CAPTION>
Name Position and Offices with Depositor
---- -----------------------------------
<S> <C>
R. Brock Armstrong Chairman of the Board and Director
Gordon R. Cunningham Director
Frank E. Farella Director
Melvin M. Hawkrigg Director
General P.X. Kelley Director
Robert G. Mepham Director, President and Chief Executive Officer
Richard C. Pearson Director, Senior Vice President, General Counsel
and Secretary
Howard H. Kayton Executive Vice President and Chief Actuary
Robert D. Badun Senior Vice President, Investments
Jane F. Eagle Senior Vice President, Finance
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
Peter R. Jones Senior Vice President, Public Services
Cheryl M. MacGregor Senior Vice President, Administration
Alex H. Masson Senior Vice President, Information Systems
Michael R. McCoy Senior Vice President, Banking
Robert L. Pina Senior Vice President, Human Resources
George R. Bateman Vice President, Public Employees Services
James C. Turner Vice President, Taxation
George J. Olah Treasurer
</TABLE>
Item 26. Persons Controlled by or under Common Control with Depositor of
Registrant
The Registrant is a Separate Account of Security First Life Insurance Company
(Depositor). For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the depositor, see
Exhibit 13 which is incorporated herein by reference.
Item 27. Number of Contractowners
As of December 31, 1994, there were 2,508 owners of the Contracts which are the
subject of this post-effective amendment.
Item 28. Indemnification
None
Item 29. Principal Underwriters
Security First Financial, Inc., the principal underwriter for Security First
Life Separate Account A, also acts as principal underwriter for the Capitol
Life Separate Account A and Fidelity Standard Life Separate Account.
The following are the directors and officers of Security First Financial, Inc.
Their principal business address is 11365 West Olympic Boulevard, Los Angeles,
California 90064.
<TABLE>
<CAPTION>
Name Position with Underwriter
---- -------------------------
<S> <C>
Robert Grant Mepham Director and Chairman of the Board
Richard Carl Pearson Director, President, General Counsel and
Secretary
Jane Frances Eagle Director, Senior Vice President, Finance and
Treasurer
Howard H. Kayton Senior Vice President and Chief Actuary
James Cyrus Turner Vice President, Taxation and Assistant Secretary
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Name of Principal Discount and Redemption or Brokerage
Underwriter Commissions* Annuitization Commission Compensation
- ----------------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Security First None None None None
Financial, Inc.
</TABLE>
*Fee paid by Security First Life Insurance Company for serving as underwriter.
Item 30. Location of Accounts and Records
Security First Financial, Inc., underwriter for the registrant, is located at
11365 West Olympic Boulevard, Los Angeles, California 90064. It maintains
those accounts and records required to be maintained by it pursuant to Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
Security First Life Insurance Company, the depositor for the registrant, is
located at 11365 West Olympic Boulevard, Los Angeles, California 90064. It
maintains those accounts and records required to be maintained by it pursuant
to Section 31(a) of the Investment Company Act and the rules promulgated
thereunder and as custodian for the Registrant.
Security First Group, Inc. is located at 11365 West Olympic Boulevard, Los
Angeles, California 90064. It performs substantially all of the recordkeeping
and administrative services in connection with the Registrant.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
<PAGE> 92
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 23rd day of February 1996.
SECURITY FIRST LIFE SEPARATE ACCOUNT A
(Registrant)
By SECURITY FIRST LIFE INSURANCE COMPANY
(Sponsor)
By /s/ Robert G. Mepham
------------------------------------------
Robert G. Mepham, 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/ Robert G. Mepham President, Director February 23, 1996
- ---------------------------
Robert G. Mepham
/s/ Jane F. Eagle Principal Financial and February 23, 1996
- --------------------------- Accounting Officer
Jane F. Eagle
R. Brock Armstrong* Chairman, Director February 23, 1996
- ----------------------
R. Brock Armstrong
Gordon R. Cunningham* Director February 23, 1996
- ---------------------
Gordon R. Cunningham
Melvin M. Hawkrigg* Director February 23, 1996
- ----------------------
Melvin M. Hawkrigg
Paul X. Kelley* Director February 23, 1996
- ---------------------------
Paul X. Kelley
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Frank E. Farella* Director February 23, 1996
- ---------------------------
Frank E. Farella
/s/ Richard C. Pearson Director February 23, 1996
- ---------------------------
Richard C. Pearson
/s/ Richard C. Pearson February 23, 1996
- ---------------------------
*(Richard C. Pearson as
Attorney-in-Fact for each
of the persons indicated)
</TABLE>
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Condensed Financial
Information" and "Independent Auditors" and to the use of our report on
Security First Life Separate Account A dated March 29, 1995 and our report on
Security First Insurance Company dated February 9, 1996 in the Registration
Statement (Form N-4 Post-Effective Amendments No. 24 under the Securities Act
of 1933 and No. 70 under the Investment Company Act of 1940) contained in the
Statement of Additional Information.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Los Angeles, California
March 1, 1996
