<PAGE> 1
PURSUANT TO RULE 497(c)
SECURITY FIRST LIFE SEPARATE ACCOUNT A
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INDIVIDUAL FLEXIBLE PAYMENT
FIXED AND VARIABLE ANNUITY CONTRACTS
Security First Life Insurance Company
11365 West Olympic Boulevard
Los Angeles, California 90064
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The individual flexible payment, Fixed and Variable Annuity Contracts (the
"Contracts") described in this Prospectus are issued by Security First Life
Insurance Company ("Security First Life"). The Contracts are designed to provide
Annuity benefits in connection with required distributions from retirement plans
that qualify under the Internal Revenue Code of 1986, as amended (the "Code").
The Contracts may also be used to provide Annuity benefits prior to any
mandatory distributions and also in connection with retirement plans which are
not qualified under the Code.
Eleven Funds constitute the underlying investment medium for the Contracts: (i)
the Money Market Portfolio, Equity-Income Portfolio, Growth Portfolio and
Overseas Portfolio of the Variable Insurance Products Fund; (ii) the Asset
Manager Portfolio, Contrafund Portfolio and Index 500 Portfolio of the Variable
Insurance Products Fund II; (iii) the Virtus U.S. Government Income Series
(formerly the U.S. Government Income Series), T. Rowe Price Bond Series
(formerly the Bond Series) and T. Rowe Price Growth and Income Series (formerly
the Growth and Income Series) of the Security First Trust and (iv) 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 May 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
23 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.
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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.
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IMPORTANT NOTICE
ANNUITIES, MUTUAL FUNDS, AND OTHER INVESTMENTS ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. THEY ARE NOT DEPOSITS, OBLIGATIONS, OR GUARANTEED
BY ANY BANK. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
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Prospectus dated May 1, 1996 SF 135 R2C (5/96)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Glossary.......................................................................................... 3
Summary of the Contracts.......................................................................... 4
Fee Tables........................................................................................ 6
Condensed Financial Information................................................................... 9
Performance....................................................................................... 10
Financial Information............................................................................. 10
Description of Security First Life Insurance Company, The General Account
The Separate Account and The Funds.............................................................. 10
The Insurance Company......................................................................... 10
The General Account........................................................................... 10
The Separate Account.......................................................................... 10
The Funds..................................................................................... 11
Principal Underwriter............................................................................. 12
Servicing Agent................................................................................... 13
Custody of Securities............................................................................. 13
Contract Charges.................................................................................. 13
Premium Taxes................................................................................. 13
Surrender Charges............................................................................. 13
Administration Fees........................................................................... 14
Mortality Risk and Administrative Expense Risk Charge......................................... 14
10-Day Free Look.............................................................................. 14
Description of the Contracts...................................................................... 14
Assignment.................................................................................... 14
Purchase Payments............................................................................. 15
Conversions................................................................................... 15
Dollar Cost Averaging......................................................................... 15
Reallocation Election......................................................................... 15
Modification of the Contracts................................................................. 15
Accumulation Period............................................................................... 16
Crediting Accumulation Units in the Separate Account.......................................... 16
Separate Account Accumulation Unit Current Values............................................. 16
Net Investment Factor......................................................................... 16
Surrender from the Separate Account........................................................... 16
Statement of Account.......................................................................... 16
Annuity Benefits.................................................................................. 17
Variable Annuity Payments..................................................................... 17
Assumed Investment Return..................................................................... 17
Election of Annuity Date and Form of Annuity.................................................. 17
Frequency of Payment.......................................................................... 18
Level Payments Varying Annually............................................................... 18
Annuity Unit Values........................................................................... 19
Death Benefits.................................................................................... 19
Death Before the Annuity Date................................................................. 19
Death After the Annuity Date.................................................................. 20
Federal Income Tax Status......................................................................... 20
Qualified Contracts........................................................................... 20
Non-Qualified Contracts....................................................................... 21
Withholding................................................................................... 21
Voting Rights..................................................................................... 22
Legal Proceedings................................................................................. 22
Additional Information............................................................................ 22
Table of Contents of Statement of Additional Information.......................................... 23
</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> 3
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 days the New York Stock
Exchange is not open for trading.
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
and the Owner's interest in the General Account. The Owner's interest in the
Separate Account Series is the sum of the values of the Accumulation Units. The
Owner's interest in the General Account is the accumulated value of the amounts
allocated to the General Account plus the interest credited thereon as
guaranteed in the Contract, less any prior withdrawals and/or amounts applied to
Annuity options.
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.
FREE WITHDRAWAL AMOUNT -- The amount of the first surrender in a Contract Year
which may be surrendered without incurring a surrender charge.
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
3
<PAGE> 4
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.
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 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 20.)
The Contracts may also 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. This
Prospectus is intended to serve as a disclosure document for the variable
portion of the Contracts only.
PURCHASE PAYMENTS
Purchase Payments under the Contracts are made to the General Account, the
Separate Account or allocated between them. The minimum initial Purchase Payment
is $1,000 and each additional Purchase Payment must be at least $100 ($500
initial purchase payment and $100 additional payment for IRA's). There is no
initial sales charge, however, certain charges and deductions will be made to
the Contract Value. (See "Contract Charges," page 13.) Amounts allocated to the
Separate Account may be transferred among the Series at any time and any number
of times and may be transferred to the General Account at any time before being
applied to a Variable Annuity option. Amounts allocated to the General Account
may be transferred to the Separate Account only to be applied to a Variable
Annuity option. (See "Conversions," page 15.)
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 eleven series, each of which consists of the shares of a
different Fund. The Funds presently consist of the Money Market Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio of the Variable
Insurance Products Fund, the Asset Manager Portfolio, Contrafund Portfolio, and
Index 500 Portfolio of the Variable Insurance Products Fund II, the Virtus U.S.
Government Income Series, T. Rowe Price Bond Series and the T. Rowe Price Growth
and Income Series of the Security First Trust, and the Small Capitalization
Portfolio of The Alger American Fund. The investment adviser of the Variable
Insurance Products Fund and the Variable Insurance Products Fund II is Fidelity
Management & Research Company ("FMR"). The investment adviser and manager of
Security First Trust is Security First Investment Management Corporation
("Security Management"). T. Rowe Price Associates, Inc., ("Price Associates") is
subadvisor to Security Management with respect to T. Rowe Price Bond Series and
T. Rowe Price Growth and Income Series and Virtus Capital Management, Inc.
("Virtus") is the subadvisor for the Virtus U.S. Government Income Series of
Security First Trust. 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 11.)
CHARGES AND DEDUCTIONS
An administration fee will be deducted daily from the Owner's interest in
the Separate Account in the amount of .00041% (.15% per annum). (See
"Administration Fees," page 14.)
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 14.)
A surrender charge (contingent deferred sales charge) may be deducted in the
event the Owner requests a full or partial surrender from the Separate Account.
The surrender charge is based on a graduated table of charges starting at 7% of
a Purchase Payment and amounts credited respecting such payment in the first
year from receipt and decreasing
4
<PAGE> 5
1% per year so that no charge is made with respect to a Purchase Payment and
amounts credited thereon which was received seven or more years before the
surrender. No charge will be made for that part of the first surrender in a
Contract Year that does not exceed 10% of the Owner's interest in the Separate
Account and 10% of his or her interest in the General Account. (See "Surrender
Charges," page 13.)
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 13.)
FREE LOOK PERIOD
At any time within ten days (or such longer period as required by state law)
after the receipt of the Contract it may be returned for cancellation and a full
refund of all Purchase Payments or, if required by state law, the greater of the
Purchase Payments or the account value. (See "Free Look Period," page 14).
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 17.)
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 18.)
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 or the General Account to less than $500,
unless the entire amount allocated to that Series or the General Account is
being surrendered. A surrender charge may be assessed. (See "Surrender Charges,"
page 13.) In addition, 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 20.) Certain restrictions are applicable to surrender from
Contracts funding retirement plans qualified for special tax treatment under the
Code. (See "Qualified Contracts," page 20.)
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; (ii) the Contract Value at settlement or (iii) if
the Contract is issued on or before the date the Owner attains age 70, the
greater of the Contract Value on the seventh anniversary of the Contract Date or
each fifth anniversary thereafter, in each case reduced by amounts subsequently
applied to partial withdrawals or annuity income (see "Death Benefits," page
19).
5
<PAGE> 6
FEE TABLES
PARTICIPANT TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Years Percentage
------------ ------------
<S> <C> <C>
Deferred Sales Charge (as a
percentage less than 1 7%
of amounts accumulated with
respect to 1 but not 2 6%
a purchase payment) 2 but not 3 5%
3 but not 4 4%
4 but not 5 3%
5 but not 6 2%
6 but not 7 1%
7 or more 0%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE.
DEDUCTED DAILY FROM THE SEPARATE ACCOUNT.)
Administration Fee .15% per annum
Mortality and Expense Risk Fees 1.25% per annum
Total Separate Account Annual Expenses 1.40% per annum
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
(NET OF REIMBURSEMENT)2
<TABLE>
<CAPTION>
Small
Money Market Equity-Income Growth Overseas Asset Manager Capitalization
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ------------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(a) Management Fee......... 0.24% 0.51% 0.61% 0.76% 0.71% 0.85%
(b) Other Expenses......... 0.09% 0.10% 0.09% 0.15% 0.08% 0.07%
(c) Total Annual
Expenses................. 0.33% 0.61% 0.70% 0.91% 0.79% 0.92%
</TABLE>
<TABLE>
<CAPTION>
Virtus T. Rowe T. Rowe
U.S. Govt. Price Price
Contrafund Index 500 Income Bond Growth &
Portfolio Portfolio* Series Series Income Series
------------- ------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
(a) Management Fee......... 0.61% 0.09% 0.22% 0.50% 0.50%
(b) Other Expenses......... 0.11% 0.19% 0.48% 0.79% 0.24%
(c) Total Annual
Expenses................. 0.72% 0.28% 0.70% 1.29% 0.74%
</TABLE>
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* Effective August 27, 1992 (commencement of operations), the Portfolio's
investment advisor voluntarily agreed to limit expenses to .28% of average
net assets.
6
<PAGE> 7
EXAMPLES
<TABLE>
<CAPTION>
CONDITIONS
SEPARATE A PARTICIPANT WOULD PAY THE FOLLOWING EXPENSES ON A TIME PERIODS
ACCOUNT $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>
Money Market (a) upon surrender at the end of the stated time (a) $ 90 $ 109 $ 128 $201
Portfolio period
(b) if the Certificate WAS NOT surrendered (b) 17 54 92 201
- --------------- --------------------------------------------------- ---------- ------- ------- --------
Equity Income SAME (a) 92 117 141 230
Portfolio
(b) 20 62 107 230
- --------------- --------------------------------------------------- ------ ------- ------- --------
Growth SAME (a) 93 119 146 240
Portfolio
(b) 21 65 111 240
- --------------- --------------------------------------------------- ------ ------- ------- --------
Overseas SAME (a) 95 125 156 261
Portfolio
(b) 23 71 122 261
- --------------- --------------------------------------------------- ------ ------- ------- --------
Asset Manager SAME (a) 94 122 150 249
Portfolio
(b) 22 68 116 249
- --------------- --------------------------------------------------- ------ ------- ------- --------
Contrafund SAME (a) 93 120 147 242
Portfolio
(b) 21 65 112 242
- --------------- --------------------------------------------------- ------ ------- ------- --------
Index 500 SAME (a) 89 107 125 195
Portfolio
(b) 17 52 90 195
- --------------- --------------------------------------------------- ------ ------- ------- --------
Virtus U.S. SAME (a) 93 119 146 240
Govt. Income
Series
(b) 21 65 111 240
- --------------- --------------------------------------------------- ------ ------- ------- --------
T. Rowe Price SAME (a) 99 136 174 299
Bond
Series
(b) 27 83 141 299
- --------------- --------------------------------------------------- ------ ------- ------- --------
T. Rowe Price SAME (a) 93 120 148 244
Growth &
Income Series
(b) 21 66 113 244
- --------------- --------------------------------------------------- ------ ------- ------- --------
Small SAME (a) 95 126 157 262
Capitalization
Portfolio
(b) 23 71 122 262
- --------------- --------------------------------------------------- ------ ------- ------- --------
</TABLE>
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 13.
7
<PAGE> 8
2. The investment advisers to the Index 500 Portfolio 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 0.81% and
1.49%, respectively. (See the Variable Insurance Products Fund II and
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> 9
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. 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>
Seven Twelve Twelve Twelve Twelve Twelve Twelve Five Twelve Twelve
Months Months Months Months Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
Separate Account Series 7/31/87 7/31/88 7/31/89 7/31/90 7/31/91 7/31/92 7/31/93 12/31/93 12/31/94 12/31/95
- --------------------------------- ------- ------- ------- ------- ------- ------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series B (T. Rowe Price Bond
Series)
Beg. AUV $...................... 5.00 4.97 5.21 5.77 5.90 6.27 7.07 7.66 7.78 7.42
End. AUV $...................... 4.97 5.21 5.77 5.90 6.27 7.07 7.66 7.78 7.42 8.55
End. No. Non-Qualified AUs...... 4,018 8,795 14,195 35,914 29,408 34,855 45,488 45,035 35,534 45,117
End. No. Qualified AUs.......... -- 33,998 60,665 129,756 167,461 165,862 227,551 255,421 52,134 61,437
Series G (T. Rowe Price Growth
and Income Series)
Beg. AUV $...................... 5.00 5.57 5.23 6.96 6.26 6.84 7.70 8.27 8.70 8.85
End. AUV $...................... 5.57 5.23 6.96 6.26 6.84 7.70 8.27 8.70 8.85 11.46
End. No. Non-Qualified AUs...... 60,785 91,611 122,310 152,193 103,701 121,098 157,339 170,454 179,634 219,556
End. No. Qualified AUs.......... 10,688 21,057 120,735 396,570 598,731 826,262 1,300,789 1,510,626 265,635 318,557
Series FA (Asset Manager)
Beg. AUV $ (5/13/93)............ 5.00 5.15 5.62 5.21
End. AUV $...................... 5.15 5.62 5.21 6.02
End. No. Non-Qualified AUs...... 14,874 297,065 639,669 636,600
End. No. Qualified AUs.......... 14,679 233,747 881,502 1,048,666
Series FG (Growth Portfolio)
Beg. AUV $ (5/24/93)............ 5.00 5.06 5.40 5.33
End. AUV $...................... 5.06 5.40 5.33 7.13
End. No. Non-Qualified AUs...... 6,333 68,333 220,859 369,778
End. No. Qualified AUs.......... 6,703 69,326 351,616 691,102
Series FI (Index 500 Portfolio)
Beg. AUV $ (6/30/93)............ 5.00 4.97 5.20 5.19
End. AUV $...................... 4.97 5.20 5.19 7.04
End. No. Non-Qualified AUs...... -- 9,764 31,543 73,445
End. No. Qualified AUs.......... 2,334 8,392 30,822 120,370
Series FO (Overseas Portfolio)
Beg. AUV $ (5/24/93)............ 5.00 5.12 5.64 5.67
End. AUV $...................... 5.12 5.64 5.67 6.14
End. No. Non-Qualified AUs...... -- 11,178 82,312 71,276
End. No. Qualified AUs.......... 491 8,248 107,910 146,405
Series FM (Money Market
Portfolio)
Beg. AUV $ (1/1/94)............. 5.00 5.16
End. AUV $...................... 5.16 5.40
End. No. Non-Qualified AUs...... 47,324 177,174
End. No. Qualified AUs.......... 9,656 326,232
Yield........................... 4.45% 3.95%
Series FE (Equity-Income
Portfolio)
Beg. AUV $ (5/25/95)............ 5.00
End. AUV $...................... 6.13
End No. Non-Qualified AUs....... 48,543
End No. Qualified AUs........... 82,578
Series FC (Contrafund Portfolio)
Beg. AUV $ (5/16/95)............ 5.00
End. AUV $...................... 6.29
End. No. Non-Qualified AUs...... 98,145
End. No. Qualified AUs.......... 143,884
Series Su (Virtus U.S. Govt.
Income Series)
Beg. AUV $ (5/25/95)............ 5.00
End. AUV $...................... 5.43
End. No. Non-Qualified AUs...... 8,806
End. No. Qualified AUs.......... 10,909
Series AS (Small Cap. Portfolio)
Beg. AUV $ (5/22/95)............ 5.00
End. AUV $...................... 6.54
End. No. Non-Qualified AUs...... 115,588
End. No. Qualified AUs.......... 160,410
</TABLE>
- ---------------
AUV -- Accumulation Unit Value
AUs -- Accumulation Units
9
<PAGE> 10
PERFORMANCE
Security First Life may from time to time advertise the yield and effective
yield on the Series invested in the Money Market Portfolio of the Separate
Account and the average annual total returns for the other Series of 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 Series invested in 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 13. 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 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.
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") (formerly The Holden Group,
Inc.). The 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. Trilon Financial controls several
major Canadian corporations including London Life Insurance Company. 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 GENERAL ACCOUNT
The General Account is made up of all the assets of Security First Life,
other than those in the Separate Account and other segregated asset accounts.
The Owner may allocate amounts to the General Account at the time of purchase or
by subsequent transfers from the Separate Account. Amounts allocated to the
General Account will be credited with interest on the basis of interest rates
guaranteed or declared by Security First Life under the terms of the Contract.
Instead of the Owner bearing the risk of fluctuations in the value of the assets
as is the case for amounts invested in the Separate Account, Security First Life
bears the full investment risk for amounts in the General Account. Security
First Life has sole discretion to invest the assets of the General Account,
subject to applicable law. The General Account provisions of the Contract are
not intended to be offered by this Prospectus. Contract Owners are referred to
the terms of the Contract itself for more information concerning these
provisions.
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
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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
18.)
The Separate Account is divided into a number of Series of Accumulation and
Annuity Units, eleven 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 Money Market Portfolio, Equity-Income Portfolio, Growth Portfolio and
Overseas Portfolio of the Variable Insurance Products Fund, (ii) the Asset
Manager Portfolio, Contrafund Portfolio and Index 500 Portfolio of the Variable
Insurance Products Fund II, (iii) the Virtus U.S. Government Income Series, T.
Rowe Price Bond Series and T. Rowe Price Growth and Income Series of the
Security First Trust and (iv) 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 portfolio or series 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.
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.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Fund will
also consider the potential for capital appreciation. The Fund's goal is to
achieve a yield which exceeds the composite yield on the securities comprising
the Standard & Poor's 500 Composite Stock Price Index.
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.
Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among stocks, bonds and short-term, fixed
income instruments.
Contrafund Portfolio seeks capital appreciation by investing in companies
that the investment adviser believes to be undervalued due to an overly
pessimistic appraisal by the public.
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<PAGE> 12
Index 500 Portfolio seeks investment results that correspond to the total
return (i.e., the combination of capital changes and income) of common stocks
publicly traded in the United States, as represented by the Standard & Poor's
500 Composite Stock Price Index while keeping transaction costs and other
expenses low.
FMR is the investment adviser to each of the portfolios of the Variable
Insurance Products Fund and the Variable Insurance Products Fund II.
The Security First Trust is a Massachusetts business trust which has a
number of series, three of which are available under the Contracts:
Virtus U.S. Government Income Series (formerly 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.
T. Rowe Price Bond Series (formerly Bond Series) seeks to achieve the
highest investment income over the long-term consistent with the preservation of
principal through investment primarily in marketable debt instruments. Growth of
principal and income will also be objectives with respect to up to 10% of the T.
Rowe Price Bond Series' assets which may be invested in common and preferred
stocks.
T. Rowe Price Growth and Income Series (formerly Growth and Income Series)
seeks capital growth and a reasonable level of current income. While this series
will generally invest in common stocks and other equities, it may, depending on
economic conditions, reduce such investments and substitute fixed income
instruments.
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 three series of Security First Trust described above.
Under subadvisory agreements with Security Management, Price Associates provides
investment management services to the T. Rowe Price Bond and T. Rowe Price
Growth and Income Series and Virtus provides investment management services to
the Virtus U.S. Government Income Series.
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 within the range of companies included in the Russell
2000 Growth Index. 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 disadvantage 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 22.
Detailed information about the Funds, their investment objectives,
investment portfolios and the charges may be found in the prospectuses of the
Funds. An investor should carefully read the Funds' prospectuses before
investing. Prospectuses for Variable Insurance Products Fund, Variable Insurance
Products Fund II, Security First Trust 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
certain surrenders; (iii) against the value of the assets in the Separate
Account on a daily basis for administration of the Contract; and (iv) against
the value of the assets of the Separate Account on a daily basis for the
assumption of mortality risks and for administrative expenses 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.
SURRENDER CHARGES
No sales charge is deducted from any Purchase Payment. However, a surrender
charge (contingent deferred sales charge) may be assessed whenever a partial or
full surrender of the Contract Value is made. The surrender charge covers
expenses relating to the sale of the Contract, including commissions paid to
sales personnel and other promotion and acquisition expenses.
Up to 10% of the Contract Value in each of the Separate Account and General
Account received in the first surrender in the Contract Year will not be subject
to a surrender charge ("Free Withdrawal Amount"). Amounts surrendered in excess
of the Free Withdrawal Amount may be subject to a surrender charge.
The amount credited to the Owner's Account with respect to each Purchase
Payment will be subject to a charge equal to the applicable percentage of such
amount at the time a full or partial surrender is made.
<TABLE>
<CAPTION>
ELAPSED TIME SINCE PURCHASE
PAYMENT WAS RECEIVED APPLICABLE PERCENTAGE
- ------------------------------ ----------------------
<S> <C>
Less than one year 7%
1 year but less than 2 years 6%
2 years but less than 3 years 5%
3 years but less than 4 years 4%
4 years but less than 5 years 3%
5 years but less than 6 years 2%
6 years but less than 7 years 1%
7 years or more 0%
</TABLE>
These charges are applied by reducing the Series or General Account from
which the surrender will be taken by an amount determined by dividing the amount
elected to be surrendered by a factor derived from the above percentage charges.
This factor is equivalent to (a)-(b) where (a) is 1 and (b) is the percentage
charge expressed as a decimal. Accumulation Units are cancelled on a first-in,
first-out basis. In no event will surrender charges
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<PAGE> 14
imposed on Accumulation Units exceed an amount equal to 9% of Purchase Payments
allocated to the Separate Account. The effect of this varying schedule of
percentage charges is that amounts left in the Separate Account for longer
periods of time are subject to lower charges than amounts immediately
surrendered.
In the event of a partial surrender, the Owner will receive a check in the
amount requested. Surrender charges, if any, will be deducted from the Series
from which the partial surrender was taken, or proportionally from the remaining
Series in the event that a Series is fully surrendered.
Surrender charges will be waived on a lump sum withdrawal if the Owner is
confined to a hospital for a minimum of 30 consecutive days or a skilled nursing
home for a minimum of 90 consecutive days and the withdrawal is requested within
60 days after termination of confinement. Surrender charges will be eliminated
when the Contracts are issued to officers, directors or full time employees of
Security First Life or its affiliates. Contracts so purchased are purchased for
investment purposes only.
ADMINISTRATION FEES
An administration fee of .00041% (.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 20.) 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 the 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.
FREE LOOK PERIOD
The Contract provides for an initial "Free Look" period. The Owner has the
right to return the Contract within 10 days (or such longer period as required
by state law) after the Owner receives the Contract 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. The returned
Contract will be treated as if the Company never issued it, and the Company will
refund the Purchase Payments or, if required by state law, the greater of the
Purchase Payments or the account value. Effective on and after June 1, 1996,
Purchase Payments contributed to the Separate Account will be allocated to the
Money Market Portfolio for the number of days of the Free Look period required
by the state. At the end of the Free Look period, the account value in the Money
Market Portfolio will be reallocated to the series of the Separate Account
selected in the application.
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<PAGE> 15
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 ($500 initial purchase payment and $100 additional payment for IRA's).
Confirmation of each Purchase Payment received will be sent to the Owner.
CONVERSIONS
Accumulation Units may be converted among the Series or to the General
Account at any time. No conversion from the General Account to Accumulation
Units is permitted, except pursuant to a reallocation election. 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 trading on 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. Annuity Units
may not be converted to the General Account. However, amounts in the General
Account that have not been applied to a Fixed Annuity income option may be
converted to Annuity Units in one or more Series for a variable payout.
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 reallocation election or a dollar cost averaging
program, a minimum of $500 must be converted from any Series or from the General
Account. The value of the Accumulation and Annuity Units converted will be
calculated as of the close of business on the day the conversion occurs.
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 and in the General Account 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. No conversion from the General Account shall exceed
20% of the Owner's interest invested in the General Account. Changes in
allocation ratios can be made once each Contract Year.
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<PAGE> 16
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 Contract
Values for transaction charges, deductions from the 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.
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 upon receipt of each Purchase
Payment or conversion, as the case may be. The number of Accumulation Units to
be credited is determined 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 trading on
the New York Stock Exchange (currently 4:00 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," page 16.) 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 fees,
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
20.) 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 and subtracting the surrender charges, if
any. 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
withdrawn 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.
Surrenders 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
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<PAGE> 17
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 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.
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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
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 20.
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.
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<PAGE> 19
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.
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; (ii) the Contract
Value at the time of settlement; or (iii) in the event the Contract is issued on
or before the date on which the oldest of the Owners attains age 70, the greater
of the Contract Value at the end of the seventh Contract Year or the Contract
Value at the end of each fifth Contract Year thereafter, in each case increased
by subsequent Purchase Payments received by Security First Life and reduced by
amounts subsequently applied to produce Annuity Income payments or to partial
surrenders.
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 of the Contract, 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,
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<PAGE> 20
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.
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 unforseeable 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 plans and 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 (or retires in the case of
government plans and Section 457 Plans) or retires. If the Participant is 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 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.
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<PAGE> 21
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 or may qualify for special long term
capital gain treatment.
In addition to the minimum distribution requirements, any payouts under
Section 401 and 403(b) plans and IRAs must meet minimum incidental death benefit
requirements under the Code. This requirement does not apply in the case of
Section 401 plan Participants when the Participant's spouse is the designated
beneficiary. Similar requirements are applicable to Section 457 plans for tax
years beginning after December 31, 1988.
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, unreduced by surrender
charges, exceeds Purchase Payments.
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 except as otherwise described below. 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
21
<PAGE> 22
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.
OBTAINING TAX ADVICE
It should be recognized that the federal income tax information in this
prospectus is not exhaustive and is for information purposes only. The
discussion above does not purport to cover all situations involving the purchase
of an Annuity or the election of an option under the Contract. Tax results may
vary depending upon individual situations and special rules may apply in certain
cases. State and local tax results may also vary. For these reasons a qualified
tax adviser should be consulted.
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.
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 May 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.
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<PAGE> 23
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............................................................. 6
Net Investment Factor............................................................................ 7
Annuity Payments................................................................................. 7
Withholding on Annuity Payments and Other Distributions.......................................... 9
Underwriters, Distribution of the Contracts...................................................... 9
Calculation of Performance Data.................................................................. 10
Voting Rights.................................................................................... 11
Safekeeping of the Securities.................................................................... 11
Servicing Agent.................................................................................. 12
Independent Auditors............................................................................. 12
Legal Matters.................................................................................... 12
State Regulation of Security First Life.......................................................... 12
Financial Statements............................................................................. 12
</TABLE>
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<PAGE> 24
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
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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 Virtus Equity Series (formerly Value Equity Series) and Virtus U.S.
Government Income Series (formerly 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 May 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
IMPORTANT NOTICE
ANNUITIES, MUTUAL FUNDS, AND OTHER INVESTMENTS ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. THEY ARE NOT DEPOSITS, OBLIGATIONS, OR GUARANTEED
BY ANY BANK. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
Prospectus dated May 1, 1996 SF 135 R2V (5/96)
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Glossary....................................................................................... 3
Summary of the Contracts....................................................................... 4
Fee Tables..................................................................................... 6
Condensed Financial Information................................................................ 8
Performance.................................................................................... 8
Financial Information.......................................................................... 8
Description of Security First Life Insurance Company,
The General Account, The Separate Account and The Funds...................................... 9
The Insurance Company...................................................................... 8
The Separate Account....................................................................... 8
The Funds.................................................................................. 9
Principal Underwriter.......................................................................... 10
Servicing Agent................................................................................ 10
Custody of Securities.......................................................................... 10
Contract Charges............................................................................... 11
Premium Taxes.............................................................................. 11
No Sales Charge............................................................................ 11
Administration Fees........................................................................ 11
Mortality Risk and Administrative Expense Risk Charge...................................... 11
10-Day Free Look........................................................................... 11
Description of the Contracts................................................................... 12
Assignment................................................................................. 12
Purchase Payments.......................................................................... 12
Conversions................................................................................ 12
Dollar Cost Averaging...................................................................... 12
Reallocation Election...................................................................... 12
Modification of the Contracts.............................................................. 12
Accumulation Period............................................................................ 13
Crediting Accumulation Units in the Separate Account....................................... 13
Separate Account Accumulation Unit Current Values.......................................... 13
Net Investment Factor...................................................................... 13
Surrender from the Separate Account........................................................ 13
Statement of Account....................................................................... 13
Annuity Benefits............................................................................... 14
Variable Annuity Payments.................................................................. 14
Assumed Investment Return.................................................................. 14
Election of Annuity Date and Form of Annuity............................................... 14
Frequency of Payment....................................................................... 15
Level Payments Varying Annually............................................................ 15
Annuity Unit Values........................................................................ 16
Death Benefits................................................................................. 16
Death Before the Annuity Date.............................................................. 16
Death After the Annuity Date............................................................... 16
Federal Income Tax Status...................................................................... 17
Qualified Contracts........................................................................ 17
Non-Qualified Contracts.................................................................... 18
Withholding................................................................................ 18
Obtaining Tax Advice....................................................................... 18
Voting Rights.................................................................................. 19
Legal Proceedings.............................................................................. 19
Additional Information......................................................................... 19
Table of Contents of Statement of Additional Information....................................... 19
</TABLE>
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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> 26
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 days the New York Stock
Exchange is not open for trading.
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> 27
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 Virtus Equity Series and Virtus 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") is the subadvisor for the Virtus Equity Series and Virtus 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> 28
FREE LOOK PERIOD
At any time within ten days (or such longer period as required by state law)
after the receipt of the Contract it may be returned for cancellation and a full
refund of all Purchase Payments or, if required by state law, the greater of the
Purchase Payments or the account value. (See "Free Look Period," page 11).
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> 29
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>
Virtus Virtus
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................ 0.34% 0.22% 0.24% 0.61% 0.76% 0.61%
(b) Other Expenses................ 0.66% 0.48% 0.09% 0.09% 0.15% 0.11%
(c) Total Annual Expenses......... 1.00% 0.70% 0.33% 0.70% 0.91% 0.72%
</TABLE>
<TABLE>
<CAPTION>
Small
International Cap.
Portfolio Portfolio
------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(a) Management Fee................ 0.88% 0.85%
(b) Other Expenses................ 0.20% 0.07%
(c) Total Annual Expenses......... 1.08% 0.92%
</TABLE>
6
<PAGE> 30
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>
Virtus (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
- --------------- -------------------------------------------------- ------ ------- ------- --------
Virtus U.S. SAME (a) 21 65 111 240
Gov. Income
Series
(b) 21 65 111 240
- --------------- -------------------------------------------------- ------ ------- ------- --------
Money SAME (a) 17 54 92 201
Market
Portfolio (b) 17 54 92 201
- --------------- -------------------------------------------------- ------ ------- ------- --------
Growth SAME (a) 21 65 111 240
Portfolio
Series
(b) 21 65 111 240
- --------------- -------------------------------------------------- ------ ------- ------- --------
Overseas SAME (a) 23 71 122 261
Portfolio
Series
(b) 23 71 122 261
- --------------- -------------------------------------------------- ------ ------- ------- --------
Contrafund SAME (a) 21 65 112 242
Portfolio
(b) 21 65 112 242
- --------------- -------------------------------------------------- ------ ------- ------- --------
International SAME (a) 25 76 130 278
Portfolio
(b) 25 76 130 278
- --------------- -------------------------------------------------- ------ ------- ------- --------
Small SAME (a) 23 71 122 262
Capitalization
Portfolio
(b) 23 71 122 262
- --------------- -------------------------------------------------- ------ ------- ------- --------
</TABLE>
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 Virtus Equity Series and the Virtus U.S.
Government Income Series voluntarily reimbursed certain expenses of these
Funds. If there had been no reimbursement, total expenses would have been
1.71% and 1.49%, 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.
7
<PAGE> 31
CONDENSED FINANCIAL INFORMATION
As of the date of this Prospectus, no units had been issued under the
Contracts described in this Prospectus. As a result, no Condensed Financial
Information table has been provided.
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.
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") (formerly The Holden Group,
Inc.). The 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
8
<PAGE> 32
(i) the Virtus Equity Series and Virtus U.S. Government Income Series of the
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 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.
Virtus Equity Series (formerly 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. The Series is managed to take advantage of
trends in the stock market that favor different styles of stock selection (value
or growth) and different sizes of companies (consisting of large, medium and
small).
Virtus U.S. Government Income Series (formerly 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 provides
investment management services to the Virtus Equity Series and Virtus U.S.
Government Income Series.
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.
9
<PAGE> 33
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 within the range of companies included in the Russell
2000 Growth Index. 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.
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)
against the net value of assets in the Separate Account on a daily basis for
administration of the Contract; and (iii) against the value of the assets in the
10
<PAGE> 34
Separate Account on a daily basis, 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.
FREE LOOK PERIOD
The Contract provides for an initial "Free Look" period. The Owner has the
right to return the Contract within 10 days (or such longer period as required
by state law) after the Owner receives the Contract 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. The returned
Contract will be treated as if the Company never issued it, and the Company will
refund the Purchase Payments or, if required by state law, the greater of the
Purchase Payments or the account value. Effective on and after June 1, 1996,
Purchase Payments contributed to the Separate Account will be allocated to the
Money Market Portfolio for the number of days of the Free Look period required
by the state. At the end of the Free Look period, the account value in the Money
Market Portfolio will be reallocated to the series of the Separate Account
selected in the application.
11
<PAGE> 35
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 Separate
Account for mortality 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
12
<PAGE> 36
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. 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 Contract 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 Contract 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
13
<PAGE> 37
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
variable 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.
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<PAGE> 38
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
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.
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<PAGE> 39
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.
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 of the Contract, 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
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<PAGE> 40
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.
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 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,
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<PAGE> 41
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. All 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.
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 except as otherwise described below. 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.
OBTAINING TAX ADVICE
It should be recognized that the federal income tax information in this
prospectus is not exhaustive and is for information purposes only. The
discussion above does not purport to cover all situations involving the purchase
of an Annuity or the election of an option under the Contract. Tax results may
vary depending upon individual situations and special rules may apply in certain
cases. State and local tax results may also vary. For these reasons a qualified
tax adviser should be consulted.
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<PAGE> 42
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.
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 May 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>
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