<PAGE> 1
'33 ACT FILE NO. 33-7094
'40 ACT FILE NO. 811-3365
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ____ / /
POST-EFFECTIVE AMENDMENT NO. 28 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 98 /X/
(CHECK APPROPRIATE BOX OR BOXES.)
SECURITY FIRST LIFE SEPARATE ACCOUNT A
--------------------------------------
(EXACT NAME OF REGISTRANT)
SECURITY FIRST LIFE INSURANCE COMPANY
--------------------------------------
(NAME OF DEPOSITOR)
11365 WEST OLYMPIC BOULEVARD, LOS ANGELES, CALIFORNIA 90064
-----------------------------------------------------------
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 312-6100
--------------
RICHARD C. PEARSON
PRESIDENT AND GENERAL COUNSEL
SECURITY FIRST LIFE INSURANCE COMPANY
11365 WEST OLYMPIC BOULEVARD, LOS ANGELES, CALIFORNIA 90064
-----------------------------------------------------------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE SPACE)
IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485
-----
ON MAY 1, 1998 PURSUANT TO PARAGRAPH (b) OF RULE 485
-----
X 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485
-----
ON [DATE] PURSUANT TO PARAGRAPH (a) OF RULE 485
-----
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
-----
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
THE COMPANY HAS ELECTED PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940 TO REGISTER AN INDEFINITE NUMBER OF SECURITIES. THE MOST RECENT RULE
24f-2 NOTICE WAS FILED ON FEBRUARY 26, 1998.
<PAGE> 2
SECURITY FIRST LIFE SEPARATE ACCOUNT A
Cross Reference Sheet
Part A - Prospectuses for Combination Fixed
and Variable and Variable only Annuity Contracts
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption in Prospectus
----------------------- ---------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Summary of the Contracts
4. Condensed Financial Information Condensed Financial Information; Performance;
Financial Information
5. General Description of Registrant, Description of Security First Life Insurance
Depositor, and Portfolio Companies Company, The General Account, The Separate Account
and The Funds; Voting Rights; Servicing Agent
6. Deductions and Expenses Contract Charges
7. General Description of Variable Annuity Description of the Contracts; Accumulation Period;
Contracts Annuity Benefits
8. Annuity Period Annuity Benefits
9. Death Benefit Death Benefits
10. Purchases and Contract Value Description of the Contracts; Accumulation Period;
Principal Underwriter
11. Redemptions Accumulation Period
12. Taxes Federal Income Tax Status
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement of Table of Contents of Statement of
Additional Information Additional Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C> <C>
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History The Insurance Company; The Separate Account; The
Funds
18. Services Servicing Agent; Safekeeping of Securities;
Independent Public Accountant; Legal Matters
19. Purchase of Securities Being Offered Purchase of Securities Being Offered
20. Underwriters Underwriters, Distribution of the Contracts
21. Calculation of Performance Data Calculation of Performance Data
22. Annuity Payments Annuity Payments
23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this registration statement.
<PAGE> 4
SECURITY FIRST LIFE SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
Security First Life Insurance Company
11365 West Olympic Boulevard
Los Angeles, California 90064
- --------------------------------------------------------------------------------
The individual flexible payment Variable Annuity Contracts (the "Contracts")
described in this Prospectus are issued by Security First Life Insurance Company
("Security First Life"). The Contracts may be issued pursuant to retirement
plans that do not qualify for special tax treatment under the Internal Revenue
Code of 1986 (the "Code"). The Contracts may also be issued to plans that
qualify for special tax treatment such as individual retirement annuities, tax-
sheltered annuities, Section 457 deferred compensation plans and pension plans.
Three Funds constitute the underlying investment medium for the Contracts: (i)
Bond Series and T. Rowe Price Growth and Income Series of the Security First
Trust, (ii) the Money Market Portfolio of the Variable Insurance Products 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 , 1998 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 , 1998 SF 135 R2V/PP ( /98)
<PAGE> 5
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... 8
The Insurance Company................................... 8
The Separate Account.................................... 8
The Funds............................................... 9
Principal Underwriter....................................... 10
Servicing Agent............................................. 10
Custody of Securities....................................... 10
Contract Charges............................................ 10
Premium Taxes........................................... 10
No Sales Charge......................................... 10
Mortality and Expense Risk Charge....................... 10
Free Look Period........................................ 11
Description of the Contracts................................ 11
Assignment.............................................. 11
Purchase Payments....................................... 11
Transfers............................................... 11
Dollar Cost Averaging................................... 11
Reallocation Election................................... 12
Modification of the Contracts........................... 12
Accumulation Period......................................... 12
Crediting Accumulation Units in the Separate Account.... 12
Separate Account Accumulation Unit Current Values....... 12
Net Investment Factor................................... 12
Surrender from the Separate Account..................... 12
Statement of Account.................................... 13
Annuity Benefits............................................ 13
Variable Annuity Payments............................... 13
Assumed Investment Return............................... 13
Election of Annuity Date and Form of Annuity............ 13
Frequency of Payment.................................... 14
Level Payments Varying Annually......................... 14
Annuity Unit Values..................................... 15
Death Benefits.............................................. 15
Death Before the Annuity Date........................... 15
Death After the Annuity Date............................ 16
Federal Income Tax Status................................... 16
Qualified Contracts..................................... 16
Non-Qualified Contracts................................. 17
Withholding............................................. 17
Obtaining Tax Advice.................................... 18
Voting Rights............................................... 18
Legal Proceedings........................................... 18
Additional Information...................................... 18
Table of Contents of Statement of Additional Information.... 19
</TABLE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer described herein and, if given or made, such information or
representations must not be relied upon as having been authorized. This
Prospectus does not constitute an offer in any jurisdiction to any person to
whom such offer would be unlawful therein.
2
<PAGE> 6
GLOSSARY
As used in this Prospectus, these terms have the following meanings:
ACCUMULATION UNIT -- A measuring unit used to determine the value of an Owner's
interest in a Separate Account Series under a Contract at any time before
Annuity Payments commence.
ANNUITANT -- The person on whose life Annuity payments under a Contract are
based.
ANNUITY -- A series of income payments made to an Annuitant for a defined period
of time.
ANNUITY DATE -- The date on which Annuity payments begin.
ANNUITY UNIT -- A measuring unit used to determine the amount of Variable
Annuity payments based on a Separate Account Series under a Contract after such
payments have commenced.
ASSUMED INVESTMENT RETURN -- The investment rate selected by the Annuitant for
use in determining the Variable Annuity payments.
BENEFICIARY -- The person who has the right to a Death Benefit upon the death of
the Owner.
BUSINESS DAY -- Each Monday through Friday except for 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> 7
VALUATION PERIOD -- The period of time from one Valuation Date through the next
Valuation Date.
VARIABLE ANNUITY -- An Annuity providing payments which will vary annually in
accordance with the net investment experience of the applicable Separate Account
Series.
SUMMARY OF THE CONTRACTS
THE CONTRACTS
The Contracts may be issued pursuant to retirement plans that do not qualify
for special tax treatment ("Non-Qualified Contracts") and to individuals seeking
to accumulate funds for retirement whether or not such individuals are otherwise
participating in qualified or non-qualified retirement plans (See "Non-Qualified
Contracts," page 17). The Contracts may also be issued to plans qualifying for
special tax treatment ("Qualified Contracts"), such as money purchase pension
plans, profit sharing plans, and rollovers to individual retirement annuities or
Roth IRA's. (See "Qualified Contracts," page 16.)
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 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 $100,000 and each additional Purchase Payment must be at least $25,000. There
is no sales charge; however, certain charges and deductions will be made to the
Contract Value. (See "Contract Charges," page 10.) Amounts allocated to the
Separate Account may be transferred among the Series at any time and any number
of times. (See "Transfers," page 11.)
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 three series, each of which consists of the shares of a different
Fund. The Funds presently consist of the Bond Series and T. Rowe Price Growth
and Income Series of the Security First Trust, and the Money Market Portfolio of
the Variable Insurance Products Fund. The investment advisor 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 the T. Rowe Price Growth and
Income Series, and Neuberger & Berman, LLC ("N&B") is subadvisor with respect to
the Bond Series. The investment advisor of the Variable Insurance Products Fund
is Fidelity Management & Research Company ("FMR"). (See "The Separate Account,"
page 8 and "The Funds," page 9.)
CHARGES AND DEDUCTIONS
No sales charge is deducted from any purchase payment under the Contract or
any amount surrendered under the Contract.
Daily deductions will be made for mortality and expense risks in the amount
of 0.003425% (1.25% per annum). Until further notice, Security First Life will
waive the daily mortality and expense risk charge to 0.00106849% (0.39% per
annum), and this reduction is permanent for Contracts issued prior to the
termination or reduction of the waiver. (See "Mortality and Expense Risk
Charge," page 10.)
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 10.)
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).
4
<PAGE> 8
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 13.)
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 14.)
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 16.) Certain restrictions are applicable
to surrender from Contracts funding retirement plans qualified for special tax
treatment under the Code. (See "Qualified Contracts," page 16.)
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. If the owner (or the
oldest of the joint owners) is age 75 or younger on the Contract Date, 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.
If the owner (or the oldest of the joint owners) is 76 or older on the Contract
Date, the death benefit will equal the Contract Value at settlement. (See "Death
Benefits," page 15).
5
<PAGE> 9
FEE TABLES
PARTICIPANT TRANSACTION EXPENSES
None
SEPARATE ACCOUNT EXPENSES
(DEDUCTED DAILY FROM THE SEPARATE ACCOUNT)
Mortality and Expense Risk Fees* 0.39% per annum
Total Separate Account Annual Fees* 0.39% per annum
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
(NET OF REIMBURSEMENT)
<TABLE>
<CAPTION>
T. Rowe
Price
Growth & Money
Bond Income Market
Series Series Portfolio
------ -------- ---------
<S> <C> <C> <C>
(a) Management Fee..................... 0.81% 0.47% 0.21%
(b) Other Expenses..................... 0.19% 0.23% 0.09%
(c) Total Annual Expenses.............. 1.00% 0.70% 0.30%
</TABLE>
- --------------------------------------------------------------------------------
* Security First Life has determined to voluntarily waive its mortality and
expense risk charge to 0.39% per annum. Absent this waiver, the charges would
have been 1.25% per annum. This may be terminated at any time, but any change
in this waiver will not affect Contracts issued prior to the change.
6
<PAGE> 10
EXAMPLES
<TABLE>
<CAPTION>
SEPARATE CONDITIONS TIME PERIODS
ACCOUNT A PARTICIPANT WOULD PAY THE FOLLOWING EXPENSES ON A -------------------------------------
SERIES $1,000 INVESTMENT ASSUMING 5% ANNUAL RETURN ON ASSETS: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------------------------------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Bond (a) upon surrender at the end of the stated time (a) $ 87 $116 $146 $248
Series period
(b) if the Certificate WAS NOT surrendered or was (b) 22 67 115 248
annuitized
- -------------- -------------------------------------------------- ---- ---- ---- ----
T. Rowe Price SAME (a) 85 111 138 230
Growth &
Income
Series (b) 20 62 106 230
- -------------- -------------------------------------------------- ---- ---- ---- ----
Money SAME (a) 17 54 92 201
Market
Portfolio (b) 17 54 92 201
- -------------- -------------------------------------------------- ---- ---- ---- ----
</TABLE>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. Security First Life has determined to voluntarily waive its mortality and
expense risk charge to 0.39% per annum. Absent this waiver, the charges would
have been 1.25% per annum. This may be terminated at any time, but any change
in this waiver will not affect Contracts issued prior to the change.
2. 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 10.
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> 11
CONDENSED FINANCIAL INFORMATION
Condensed financial information for the Separate Account is not contained in
this Prospectus or the Statement of Additional Information, because as of the
date of this Prospectus, the public offering of the Contracts had not commenced.
As a consequence, as of that date, the Separate Account had no assets and no
liabilities attributable to the Contracts. The Separate Account also funds other
contracts issued by Security First Life that are not described in this
Prospectus and which are separately accounted for.
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 is a wholly-owned subsidiary of Security First Group,
Inc. ("SFG"). SFG is a wholly-owned subsidiary of Metropolitan Life Insurance
Company ("MetLife"), a New York mutual life insurance company. MetLife, with
assets of $202 billion at December 31, 1997 is the second largest life insurance
company in the United States in terms of total assets. As a mutual life
insurance company, MetLife has no shareholders. 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
8
<PAGE> 12
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 14.)
The Separate Account is divided into a number of Series of Accumulation and
Annuity Units, three 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
Bond Series and T. Rowe Price Growth and Income Series of the Security First
Trust, and (ii) the Money Market Portfolio of the Variable Insurance Products
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.
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 Bond Series assets which may
be invested in common and preferred stocks.
T. Rowe Price 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.
Variable Insurance Products Fund is a Massachusetts business trust and is
divided into separate portfolios. The following portfolio from the trust is
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.
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 18.
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 and Variable Insurance Fund,
may be obtained without charge by written request to Security First Life
Insurance Company, P.O. Box 92193, Los Angeles, California 90009.
9
<PAGE> 13
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
Security First Life represents that the charges deducted under the Contract,
described below, are, in the aggregate, reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by Security
First Life.
Contract charges are assessed as follows: (i) for premium taxes; (ii)
against the value of the assets in the Separate Account on a daily basis, for
the assumption of mortality and 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.
MORTALITY AND 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 15.)
Further, 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. In addition, 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 these risks,
Security First Life will make a daily deduction from the value of the Separate
Account assets funding the Contracts equal to 1.25% 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.
10
<PAGE> 14
Security First Life may, in its discretion, voluntarily waive a portion of
the mortality and expense risk charges, which waiver may be terminated at any
time. Until further notice, Security First Life has determined to reduce its
mortality and expense risk charge to 0.39% per annum. This reduction in the
mortality and expense risk charges is permanent for Contracts issued prior to
the termination or reduction of the waiver.
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 amount. The amount of the refund will depend on the state in which
the Contract is issued. Ordinarily the amount of the refund will be the Contract
Value; however, some states may require a return of Purchase Payments or the
greater of the Purchase Payments or the Contract Value. The amount of the refund
will be paid within seven days after receipt of written notice of cancellation
and the return of the Contract.
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 $100,000; with each additional Purchase Payment subject to a $25,000
minimum. Confirmation of each Purchase Payment received will be sent to the
Owner.
TRANSFERS
Accumulation Units may be transferred among the Series at any time. Transfer
instructions may be communicated in writing or, if permitted by Security First
Life, by telephone. If telephone transfers 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 transferred 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, transfer 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 transferred among the Series at any time. Transfers
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 transferred from any Series.
DOLLAR COST AVERAGING
Security First Life offers a program for dollar cost averaging in which
Owners with Contract Values of $25,000 or more may participate. The program will
periodically transfer 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. Transfers 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 transfers 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.
11
<PAGE> 15
REALLOCATION ELECTION
An Owner with a Contract Value of $25,000 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. Transfers will be made quarterly, as
permitted by Security First Life, on the third business day of the month in
which the quarterly 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 and expense risk fees, and guaranteed rates with respect
to fixed benefits. Security First Life may unilaterally change such provisions
to the extent permitted by the Contract, but only: (i) with respect to any
Purchase Payments received as a tax free exchange under the Code after the
effective date of the change; (ii) with respect to benefits and values provided
by Purchase Payments made after the effective date of the change to the extent
that such Purchase Payments in any Contract Year exceed the first year's
Purchase Payments; or (iii) to the extent necessary to conform the Contract to
any Federal or state law, regulation or ruling.
A Contract may also be modified by written agreement between Security First
Life and the Owner.
Inquiries as to any Contract provisions should be made in writing to
Security First Life Insurance Company, P.O. Box 92193, Los Angeles, California
90009 or by telephoning 1(800)284-4536.
ACCUMULATION PERIOD
CREDITING ACCUMULATION UNITS IN THE SEPARATE ACCOUNT
Accumulation Units are credited to a Series as directed by the Owner upon
receipt of each Purchase Payment or conversion, as the case may be. 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 transfer.
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
and 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 16.) 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
12
<PAGE> 16
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 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.
Although care is taken to ensure the accuracy of allocations and transfers
to and within the Separate Account, the possibility of an error still exists.
Owners are asked to review their statements and confirmations of transactions
carefully and to promptly advise Security First Life of any discrepancy. Unless
Security First Life receives prior written notice of an error, allocations and
transfers reflected in the statements will be considered final at the end of 60
days from the date of the statement.
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
13
<PAGE> 17
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.
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 15.
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.
14
<PAGE> 18
The monthly Variable Annuity payments for the first year will be determined
on the last Valuation Date of the second calendar week preceding the Annuity
Date by using a formula described in the Contract. On each anniversary of the
Annuity Date, Security First Life will determine the total monthly payments for
the year then beginning. These will be determined by multiplying the number of
Annuity Units in each Series from which payments are to be made by the Annuity
Unit value of that Series for the Valuation Period in which the first payment
for that year is due.
The amount of the year's Variable Annuity payments is transferred to the
General Account at the beginning of the year. Although an amount in the Separate
Account is credited to an Annuitant and transferred to the General Account to
make Annuity payments, it should not be inferred that the Annuitant has any
property rights in this amount. The Annuitant has only a contractual right to
Annuity payments from the amount credited to him or her in the Separate Account.
The monthly Annuity payments for the year are made from the General Account
with interest credited, in effect, using the Assumed Investment Return of 4.25%
or the alternative Assumed Investment Return selected by the Owner. Security
First Life will experience profits or loss on the amounts placed in the General
Account to provide level monthly payments during the year to the extent that net
investment income and gains in the General Account exceed or are lower than the
Assumed Investment Return selected.
Because Annuity payments for the year are set at the beginning of the year,
the Annuitant will not benefit from increases in Annuity Unit values during the
year and likewise will not be at risk for decreases during the year. However,
such increases and decreases will be reflected in the calculation of Annuity
payments for the subsequent year.
ANNUITY UNIT VALUES
The value of an Annuity Unit at a Valuation Date is determined by
multiplying the value of the Annuity Unit at the preceding Valuation Date by an
"Annuity Change Factor." The Annuity Change Factor is an adjusted measurement of
the investment performance of the Fund since the end of the preceding Valuation
Period. The Annuity Change Factor is determined by dividing the value of the
Accumulation Unit at the Valuation Date by the value of the Accumulation Unit at
the preceding Valuation Date and multiplying the result by a neutralization
factor.
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 transfers 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.
If the owner (or the oldest of the joint owners) is age 75 or younger on the
Contract Date, 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. If the owner (or the oldest of the
joint owners) is age 76 or older on the Contract Date, the death benefit will
equal the Contract Value at 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
15
<PAGE> 19
Owner would have attained age 70 1/2); (b) the guaranteed period under Option
Two or the designated period under Option Five may not be longer than the
Beneficiary's life expectancy under applicable tables specified by the Internal
Revenue Service; and (c) the Contract Value as of the date of the first Annuity
Income payment will be used to determine the amount of the death benefit to be
applied; or (ii) a lump sum payout, provided that this payout shall be made
within five (5) years of the date of death of the Owner.
If the sole Beneficiary is the spouse of the Owner, the spouse may elect to
succeed to all rights of the Owner under this Contract. If there is more than
one Beneficiary living at the time of the Owner's death, each will share in the
proceeds of the death benefit equally, unless the Owner has elected otherwise.
If the Owner outlives all Beneficiaries, the death benefit will be paid to the
Owner's estate in a lump sum. No Beneficiary shall have the right to assign,
anticipate or commute any future payments under any of the options, except as
provided in the election or by law.
Rights to the death benefit will pass as if the Owner outlived the
Beneficiary if: (i) the Beneficiary dies at the same time as the Owner; or (ii)
the Beneficiary dies within 15 days of the Owner's death and prior to the date
due proof of the Owner's death is received by Security First Life. Due proof of
death will be a certified death certificate, an attending physician's statement,
a decree of a court of competent jurisdiction as to the finding of death, or
such other documents as Security First Life may, at its option, accept.
DEATH AFTER THE ANNUITY DATE
If the Annuitant under a Contract dies on or after the Annuity Date, the
remaining portion of his or her interest will be distributed at least as rapidly
as under the method of distribution being used at the date of the Annuitant's
death. If no designated Beneficiary survives the Annuitant, the present value of
any remaining payments certain on the date of death of the Annuitant, calculated
on the basis of the assumed investment return previously elected, may be paid in
one sum to the estate of the Annuitant unless other provisions have been made
and approved by Security First Life. This value is calculated as of the date of
payment following receipt of due proof of death.
Unless otherwise restricted, a Beneficiary receiving variable payments under
Option 2 or 3 after the death of an Annuitant may elect at any time to receive
the present value of the remaining number of Annuity payments certain in a
single payment, calculated on the basis of the assumed investment return
previously selected. However, such election is not available to a Beneficiary
receiving Fixed Annuity payments.
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.
Withdrawals from an IRA can be made when the Owner attains age 59 1/2, dies or
becomes disabled without an additional 10% tax.
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 403(b) 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 later of the
calendar year in which the employee attains age 70 1/2 or retires. If the
Participant is the Owner of an IRA, then the required distributions described
above must be
16
<PAGE> 20
made or commenced no later than the following April 1. If the owner owns a Roth
IRA, the required distributions described above do not apply.
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 or, if certain conditions are met, to a
Roth 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 or 403(b) plan or IRA are included in
gross income. In the case of section 401 or 403(b) plans Roth IRAs and IRAs, a
distribution is includible in the year in which it is paid. 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 or 403(b) plans and IRAs must meet minimum incidental death benefit
requirements under the Code. This requirement does not apply in the case of 401
plan Participants when the Participant's spouse is the designated beneficiary.
Employers may deduct their contributions to self-employed and corporate
pension and profit-sharing plans described in section 401 of the Code and tax-
sheltered Annuities described in section 403(b) in the year when made, up to the
limits specified in the Code. In addition these plans may permit nondeductible
employee contributions. Any nondeductible employee contribution will be received
tax free as a portion of each annuity payment.
NON-QUALIFIED CONTRACTS
Distributions before the Annuity Date are treated as coming first from
earnings, rather than purchase payments, until the entire amount of earnings has
been distributed. For federal tax purposes, distributions include the receipt of
proceeds from loans and the assignment or pledge of any portion of the Contract
Value, as well as withdrawals, income payments, or death benefits. 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.
17
<PAGE> 21
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.
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 , 1998, 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
18
<PAGE> 22
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
Net Investment Factor....................................... 4
Annuity Payments............................................ 4
Withholding on Annuity Payments and Other Distributions..... 6
Underwriters, Distribution of the Contracts................. 7
Calculation of Performance Data............................. 7
Voting Rights............................................... 8
Safekeeping of the Securities............................... 8
Servicing Agent............................................. 8
Independent Auditors........................................ 8
Legal Matters............................................... 9
State Regulation of Security First Life..................... 9
Financial Statements........................................ 9
</TABLE>
19
<PAGE> 23
'33 Act File No. 33-7094
STATEMENT OF
ADDITIONAL INFORMATION
SECURITY FIRST LIFE SEPARATE ACCOUNT A
-----------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACTS
------------------------------------------------------------------------
SECURITY FIRST LIFE INSURANCE COMPANY
_______, 1998
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus. A copy of the prospectus, dated _______,
1998 may be obtained without charge by writing to Security First Life Insurance
Company, P.O. Box 92193, Los Angeles, California 90009 or by telephoning 1
(800)284-4536.
SF 135 - R2V/PP
<PAGE> 24
TABLE OF CONTENTS
PAGE
----
The Insurance Company 3
The Separate Account 3
Net Investment Factor 3
Annuity Payments 3
Withholding on Annuity Payments and Other Distributions 5
Underwriters, Distribution of the Contracts 6
Calculation of Performance Data 6
Voting Rights 7
Safekeeping of Securities 7
Servicing Agent 8
Independent Auditors 8
Legal Matters 8
State Regulation of Security First Life 8
Financial Statements 9
2
<PAGE> 25
THE INSURANCE COMPANY
Security First Life Insurance Company ("Security First Life") is a wholly owned
subsidiary of Security First Group, Inc. ("SFG"). Security First Group, Inc.
("SFG"), the parent of Security First Life, is a wholly-owned subsidiary of
Metropolitan Life Insurance Company ("MetLife"), a New York mutual life
insurance company. MetLife, with assets of $202 billion at December 31, 1997, is
the second largest life insurance company in the United States in terms of total
assets. As a mutual life insurance company, MetLife has no shareholders.
THE SEPARATE ACCOUNT
The Security First Life Separate Account A ("Separate Account") presently funds
the Contracts described in this Prospectus and group variable annuity contracts
on Forms SF 224FL, SF 226R1, SF 230, SF 234 and SF 236. These group variable
annuity contracts are described in other prospectuses. The individual variable
annuity contracts ("Contracts") described in this Statement of Additional
Information and related prospectuses are distinct contracts from the above
described group variable annuity contacts.
Amounts allocated to the Separate Account under the Contracts are invested in
the securities of three Funds: (i) the Bond Series and T. Rowe Price Growth and
Income Series of Security First Trust; and (ii) the Money Market Portfolio of
the Variable Insurance Products Fund. The Separate Account is divided into a
number of Series of Accumulation and Annuity Units, three of which are offered
under the Contracts: Series B (Bond Series), Series G (T. Rowe Price Growth and
Income Series), and Series FM (Money Market Portfolio).
NET INVESTMENT FACTOR
The Separate Account net investment factor is an index of the percentage change
(adjusted for distributions by the Fund and the deduction of the actuarial risk
fee) in the net asset value of each Fund in which the Series in invested, since
the preceding Business Day. The Separate Account net investment factor for each
Series of Accumulation Units is determined for any Business Day by dividing (i)
the net asset value of a share of the Fund which is represented by such Series
at the close of business on such day, plus the per share amount of any
distributions made by such Fund on such day by (ii) the net asset value of a
share of such Fund determined as of the close of business on the preceding
Business Day and then subtracting from the result the daily factors for
administration fees, mortality risks and administrative expense risks (.003836%)
for each calendar day between the preceding Business Day and the end of the
current Business Day.
ANNUITY PAYMENTS
BASIS OF VARIABLE BENEFITS
The Variable Annuity benefits rates used in determining Annuity Payments under
the Contracts are based on actuarial assumptions, reflected in tables in the
Contracts, as to the expected mortality and adjusted age and the form of Annuity
selected. The mortality basis for these tables is Security First Life's Modified
Select Annuity Mortality Table, projected to the year 2000 on Projection Scale
C, with interest at 4.25% for all functions involving life contingencies and the
portion of any period certain beyond 10 years, and 3.25% for the first 10 years
of any certain period.
3
<PAGE> 26
Adjusted age in those tables means actual age to the
nearest birthday at the time the first payment is due, adjusted according to the
following table:
Calendar Year Adjusted
OF BIRTH AGE IS
------------- --------
Before 1916 Actual Age
1916 - 1935 Actual Age Minus 1
1936 - 1955 Actual Age Minus 2
1956 - 1975 Actual Age Minus 3
1976 - 1995 Actual Age Minus 4
DETERMINATION OF AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS FOR FIRST YEAR
The Separate Account value used to establish the monthly Variable Annuity
Payment for the first year consists of the value of Accumulation Units of each
Series of the Separate Account credited to a Contract Owner on the last day of
the second calendar week before the Annuity Date. The Contracts contain tables
showing monthly payment factors and Annuity premium rates per $1,000 of Separate
Account value to be applied under Options 1 through 4.
At the beginning of the first payment year an amount is transferred from the
Separate Account to the General Account and level monthly Annuity Payments for
the year are made out of the General Account for that year. That amount to be
transferred is determined by multiplying the Annuity premium rate per $1,000 set
forth in Contract tables by the number of thousands of dollars of Separate
Account value credited to a Contract Owner. The level monthly payment for the
first payment year is then determined by multiplying the amount transferred (the
Annuity premium) by the monthly payment factor in the same table. In the event
the Contract involved has Separate Account Accumulation Units in more than one
Series, the total monthly Annuity Payment for the first year is the sum of the
monthly Annuity Payments, determined in the same manner as above, for each
Series.
At the time the first year's monthly payments are determined, a number of
Annuity Units for each Separate Account Series is also established for the
Annuitant by dividing the monthly payment derived from that Series for the first
year by the Separate Account Annuity Unit values for the Series on the last
Business Day of the second calendar week before the first Annuity Payment is
due. The number of Annuity Units remains fixed during the Annuity period unless
Annuity Units are converted to another Series.
DETERMINATION OF AMOUNT OF MONTHLY VARIABLE ANNUITY PAYMENTS FOR SECOND AND
SUBSEQUENT YEARS
As of each anniversary of the Annuity Date, Security First Life will determine
the amount of the monthly Variable Annuity Payments for the year then beginning.
Separate determinations will be made for each Separate Account Payments for the
year then beginning. Separate determinations will be made for each Separate
Account Series in which the Annuitant has Annuity Units, with the total Annuity
Payment being the sum of the payments derived from the Series. The amount of
monthly payments for any Separate Account Series for any year after the first
will be determined by multiplying the number of Annuity Units for that Series by
the Annuity Unit value for that Series for the Valuation Period in which the
first payment for the year is due. It will be Security First Life's practice to
mail Variable Annuity Payments no later than
4
<PAGE> 27
seven days after the last day of the Valuation Period upon which they are based
or the monthly anniversary thereof.
The objective of a Variable Annuity contract is to provide level payments during
periods when the economy is relatively stable and to reflect as increased
payments only the excess of investment results flowing from inflation or an
increase in productivity. The achievement of this objective will depend in part
upon the validity of the assumption that the net investment return of the
Separate Account equals the Assumed Investment Return during periods of stable
prices. Subsequent years' payments will be smaller than, equal to or greater
than the first year's payments depending on whether the actual net investment
return for the Separate Account is smaller than equal to or greater than the
Assumed Investment Return.
ANNUITY UNIT VALUE
The initial value of an Annuity Unit is $5 for each Series for the first
Valuation Period as of which the first Variable Annuity Payment from such Series
is made. The value of an Annuity Unit for each Series on any later date is
determined by multiplying the value of an Annuity Unit at the end of the
preceding Valuation Period by the "Annuity change factor" for the second
preceding Valuation Period. The Annuity change factor is an adjusted measurement
of the investment performance of the Fund since the end of the preceding
Valuation Period. The Annuity change factor is determined by dividing the value
of an Accumulation Unit at the end of the Valuation Period by the value of an
Accumulation Unit at the end of the preceding Valuation Period and multiplying
the result by a neutralization factor.
Variable Annuity Payments for each year after the first reflect variations in
the investment performance of the Separate Account above and below an Assumed
Investment Return. This assumed investment rate is included for purposes of
actuarial computations and does not relate to the actual investment performance
of the underlying Fund. Therefore, the Assumed Investment Return must be
"neutralized" in computing the Annuity change factor. For weekly Valuation
Periods and a 4.25% Assumed Investment Return, the neutralization factor is
0.9991999.
WITHHOLDING ON ANNUITY PAYMENTS AND OTHER DISTRIBUTIONS
Security First Life is required to withhold federal income tax on Contract
distributions (such as Annuity Payments, lump sum distributions or partial
surrenders). However, recipients of Contract distributions are allowed to make
an election not to have federal income tax withheld. After such election is made
with respect to Annuity Payments, an Annuitant may revoke the election at any
time, and thereafter commence withholding. In such a case, Security First Life
will notify the payee at least annually of his or her right to change such
election.
The withholding rate followed by Security First Life will be applied only
against the taxable portion of Contract distributions. Federal tax will be
withheld from Annuity Payments pursuant to the recipient's withholding
certificate. If no withholding certificate is filed with Security First Life,
federal tax will be withheld from Annuity Payments on the basis that the payee
is married with three withholding exemptions. Federal tax on the taxable portion
of a partial or total surrender (i.e., non-periodic distribution) generally will
be withheld at a flat 10% rate. In the case of a plan qualified under Sections
401(a) or 403(a) of the Code, if the balance to the credit of a participant in a
plan is distributed within one taxable year to the recipient ("total
distribution"), the amount of withholding will approximate the federal income
tax on a
5
<PAGE> 28
lump sum distribution. If a total distribution is made from such a plan or a
tax-sheltered annuity on account of the participant's death, the amount of
withholding will reflect the exclusion from federal income tax for
employer-provided death benefits.
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 the case of a 401 plan or to another eligible contract
in the case of a 403(b) plan in a direct trustee-to-trustee transfer, no
withholding will be required.
Payees are required by law to provide Security First Life (as payor) with their
correct taxpayer identification number ("TIN"). If the payee is an individual,
the TIN is the same as his or her social security number. If the payee elects
not to have federal income tax withheld on an Annuity Payment or a nonperiodic
distribution and a correct TIN has not been provided, such election is
ineffective, and such payment will be subject to withholding as noted above.
UNDERWRITERS, DISTRIBUTION OF THE CONTRACTS
The Contracts will be sold as a continuous offering by individuals who are
appropriately licensed as insurance agents of Security First Life for the sale
of life insurance and Variable Annuity Contracts in the state where the sale is
made. In addition, these individuals will be registered representatives of the
principal underwriter, Security First Financial, Inc., or of other
broker-dealers registered under the Securities Exchange Act of 1934 whose
registered representatives are authorized by applicable law to sell Variable
Annuity Contracts issued by Security First Life. Commissions on sales of
contracts range from 0% to 8.5%. Agents are paid from the General Account of
Security First Life. Such commissions bear no direct relationship to any of the
charges under the Contracts. It is expected that the Contracts will be sold in
49 states and the District of Columbia.
No direct underwriting commissions are paid to Security First Financial, Inc.
CALCULATION OF PERFORMANCE DATA
a. MONEY MARKET PORTFOLIO. The yield of the Money Market Portfolio of the
Separate Account has not been determined since there are no units of the Series
outstanding as of the date of this Statement of Additional Information. This
yield is computed by determining the net change, exclusive of capital changes,
in the value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Series at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from account values, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting yield figure carried to a least the nearest hundredth of one
percent.
6
<PAGE> 29
The effective yield of the Money Market Portfolio of the Separate Account has
not been determined since there are no units of the Series outstanding as of the
date of this Statement of Additional Information. This effective yield is
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Series at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from account values, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula:
365/7
EFFECTIVE YIELD = (BASE PERIOD RETURN + 1) - 1.
b. OTHER FUNDS. The average annual total return of the other Funds in the
Separate Account has not been determined since there are no units of the Series
outstanding as of the date of this Statement of Additional Information.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods (or fractional portion
thereof).
The computation of average annual total returns 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.
VOTING RIGHTS
Unless otherwise restricted by the plan under which a Contract is issued each
Owner will have the right to instruct Security First Life with respect to voting
the Fund Shares which are the assets underlying the Owner's interest in the
Separate Account, at all regular and special shareholders meetings. An
Annuitant's voting power with respect to Fund shares held by the Separate
Account declines during the time the Annuitant is receiving a Variable Annuity
based on the investment performance of the Separate Account, because amounts
attributable to the Annuitant's interest are being transferred annually to the
General Account to provide the variable payments.
SAFEKEEPING OF SECURITIES
Custody of all assets of the Separate Account are held by Security First Life.
The assets of each Separate Account Series will be kept physically segregated by
Security First Life and held separate from the assets of any other firm, person,
or corporation. Additional protection for the assets of the Separate Account is
afforded by fidelity bonds covering all of Security First Life's officers and
employees.
7
<PAGE> 30
SERVICING AGENT
An administrative services agreement has been entered into between Security
First Life and SFG under which the latter has agreed to perform certain of the
administrative services relating to the Contracts and for the Separate Account.
SFG performs substantially all of the recordkeeping and administrative services
for the Separate Account. Security First Life has not paid fees to SFG for these
services.
INDEPENDENT AUDITORS
The consolidated financial statements of Security First Life Insurance Company
at December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997 and the financial statements of Security First Life
Separate Account A at December 31, 1997 and for each of the two years in the
period ended December 31, 1997 appearing in this prospectus and Registration
Statement have been audited by Ernst & Young LLP, Independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given on their authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
Legal matters concerning federal securities laws applicable to the issue and
sale of the Contracts have been passed upon by Routier and Johnson, P.C., 1700 K
Street, N.W., Suite 1003, Washington, D.C. 20006 prior to January 31, 1998.
Subsequently such matters were passed on to Sullivan & Worcester, LLP, 1025
Connecticut Avenue, N.W., Washington D.C. 20036.
STATE REGULATION OF SECURITY FIRST LIFE
Security First Life is subject to the laws of the state of Delaware governing
insurance companies and to regulation by the Delaware Commissioner of Insurance.
An annual statement, in a prescribed form, is filed with the Commissioner on or
before March 1 each year covering the operations of Security First Life for the
preceding year and its financial condition on December 31 of such year. Security
First Life's books and assets are subject to review or examination by the
Commissioner or his agents at all times, and a full examination of its
operations is usually conducted by the National Association of Insurance
Commissioners at least once in every three years. Security First Life was last
examined as of December 31, 1996. While Delaware insurance law prescribes
permissible investments for Security First Life, it does not prescribe
permissible investments for the Separate Account, nor does it involve
supervision of the investment management or policy of Security First Life.
In addition, Security First Life is subject to the insurance laws and
regulations of other jurisdictions in which it is licensed to operate. State
insurance laws generally provide regulations for the licensing of insurers and
their agents, govern the financial affairs of insurers, require approval of
policy forms, impose reserve requirements and require filing of an annual
statement. Generally, the insurance departments of these other jurisdictions
apply the laws of Delaware in determining permissible investments for Security
First Life.
FINANCIAL STATEMENTS
The financial statements of Security First Life contained herein should be
considered only for the purposes the of informing investors as to its ability to
carry out the contractual obligations as depositor under the Annuity contracts
and as custodian as described elsewhere herein and in the prospectus. The
financial statements of the Separate Account are also included in this Statement
of Additional Information.
8
<PAGE> 31
Report of Independent Auditors
Board of Directors
Security First Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security First
Life Insurance Company and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security First
Life Insurance Company and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young, LLP
February 11, 1998
9
<PAGE> 32
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1997 1996
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed maturities $2,353,087 $2,251,951
Policy and mortgage loans 24,209 22,378
Short-term investments 22,385 24,607
Other investments 1,089 2,754
---------- ----------
2,400,770 2,301,690
CASH AND CASH EQUIVALENTS 11,044 11,472
ACCRUED INVESTMENT INCOME 33,730 32,797
DEFERRED POLICY ACQUISITION COSTS 96,297 103,950
OTHER ASSETS
Assets held in separate accounts 1,022,850 594,249
Property under capital lease 9,496 10,100
Receivable from sale of subsidiary 22,295
Other 1,329 4,063
---------- ----------
1,033,675 630,707
---------- ----------
$3,575,516 $3,080,616
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<PAGE> 33
<TABLE>
<CAPTION>
December 31
1997 1996
---------- ----------
(In thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
LIABILITIES
Policyholder liabilities $2,243,441 $2,222,128
Liabilities related to separate accounts 1,022,850 594,249
Obligation under capital lease 15,443 15,720
Notes payable to parent 35,000 35,000
Federal income taxes 44,998 31,296
Other 60 7,687
---------- ----------
3,361,792 2,906,080
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Preferred stock, $1 par value
Authorized, issued and outstanding -- 200,000 shares 200 200
Common stock, $200 par value
Authorized -- 15,000 shares
Issued and outstanding -- 11,000 shares 2,200 2,200
Additional paid-in capital 48,147 48,147
Net unrealized investment gains 34,830 16,949
Retained earnings 128,347 107,040
---------- ----------
213,724 174,536
---------- ----------
$3,575,516 $3,080,616
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
11
<PAGE> 34
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
REVENUES
Net investment income $ 171,066 $ 164,115 $ 158,174
Annuity product income 19,533 10,006 14,815
Net realized investment gains (losses) 2,708 (2,179) 1,347
Gain on sale of subsidiary 3,879
Other 187 709 701
--------- --------- ---------
TOTAL REVENUES 193,494 176,530 175,037
BENEFITS AND EXPENSES
Interest credited to policyholders 112,832 106,347 103,959
Benefits in excess of policyholder liabilities 1,953 4,960 5,738
Amortization of deferred policy acquisition
costs 20,080 13,542 15,505
Operating expenses 26,434 25,721 28,201
--------- --------- ---------
TOTAL BENEFITS AND EXPENSES 161,299 150,570 153,403
--------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE 32,195 25,960 21,634
Income tax expense
Current 7,580 3,596 3,044
Deferred 3,308 5,885 3,105
--------- --------- ---------
10,888 9,481 6,149
--------- --------- ---------
NET INCOME $ 21,307 $ 16,479 $ 15,485
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
12
<PAGE> 35
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Net
Additional Unrealized Total
Preferred Common Paid-in Investment Retained Stockholder's
Stock Stock Capital Gains (Losses) Earnings Equity
-------- -------- -------- -------------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 200 $ 2,200 $ 48,147 $(21,561) $ 75,076 $104,062
Net income 15,485 15,485
Net unrealized investment gains 60,533 60,533
-------- -------- -------- -------- -------- --------
Balance at December 31, 1995 200 2,200 48,147 38,972 90,561 180,080
Net income 16,479 16,479
Net unrealized investment losses (22,023) (22,023)
-------- -------- -------- -------- -------- --------
Balance at December 31, 1996 200 2,200 48,147 16,949 107,040 174,536
Net income 21,307 21,307
Net unrealized investment gains 17,881 17,881
-------- -------- -------- -------- -------- --------
Balance at December 31, 1997 $ 200 $ 2,200 $ 48,147 $ 34,830 $128,347 $213,724
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE> 36
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 21,307 $ 16,479 $ 15,485
Adjustments to reconcile net income to net
cash provided by operations:
Net realized investment losses (gains) (2,708) 2,179 (1,347)
Depreciation and amortization 876 1,772 1,391
Accretion of discount and amortization of
premium on investments 906 1,988 1,059
Gain on sale of subsidiary (3,879)
Changes in operating assets and liabilities:
Accrued investment income (933) (2,338) (3,441)
Deferred policy acquisition costs (21,891) (24,655) (15,676)
Other assets 25,156 (19,008) 2,194
Other liabilities (3,718) 9,889 673
----------- ----------- -----------
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES 18,995 (17,573) 338
INVESTING ACTIVITIES
Fixed maturity securities
Purchases (695,092) (1,065,166) (636,371)
Sales and maturities 652,723 934,171 439,897
Net sale (purchase) of other investments 1,959 (314) 801
Net sale (purchase) of short-term investments 2,222 (17,583) 19,191
Issuance of loans, net (1,831) (3,580) (2,558)
Purchase of equipment (440) (320) (388)
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (40,459) (152,792) (179,428)
FINANCING ACTIVITIES
Receipts credited to policyholder accounts 729,696 693,095 565,698
Amounts returned to policyholders (708,383) (518,002) (390,760)
Repayment of note payable (1,000) (1,000)
Reduction of capital lease obligation (277) (246) (217)
----------- ----------- -----------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 21,036 173,847 173,721
----------- ----------- -----------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (428) 3,482 (5,369)
Cash and cash equivalents at beginning of year 11,472 7,990 13,359
----------- ----------- -----------
CASH AND CASH
EQUIVALENTS AT END OF YEAR $ 11,044 $ 11,472 $ 7,990
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE> 37
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- Security First Life Insurance Company (Security First
Life) and subsidiaries (collectively, the Company) is a wholly-owned subsidiary
of Security First Group, Inc. (SFG). Effective October 30, 1997, SFG became a
wholly-owned subsidiary of Metropolitan Life Insurance Company. Prior to that
date, SFG was a wholly-owned subsidiary of London Insurance Group, Inc. The
Company sells a broad range of fixed and variable annuity contracts.
The Company's consolidated financial statements are prepared in conformity with
generally accepted accounting principles (GAAP) which differ in some respects
from statutory accounting practices prescribed or permitted by regulatory
authorities (statutory basis) and include the accounts of its wholly-owned
subsidiary, Security First Life Insurance Company of Arizona (SFL-Arizona).
Prior to December 31, 1996, the financial statements also included the accounts
of Fidelity Standard Life Insurance Company (Fidelity Standard Life), which was
sold as of that date. (See Note 8.) All significant intercompany transactions
and accounts are eliminated in consolidation.
INVESTMENTS -- Investments are reported on the following bases:
Fixed Maturities -- at fair value, which differs from the amortized cost of
such investments. Unrealized gains and losses on these investments (net of
related adjustments for deferred policy acquisition costs and applicable
deferred income taxes) are credited or charged to stockholder's equity and,
accordingly, have no effect on net income.
For those fixed maturities which are mortgage-backed, the Company recognizes
income using a constant effective yield based on anticipated prepayments and
the estimated economic life of the securities. When actual prepayments
differ significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the security. Such adjustment is included in net investment
income.
The Company classifies its fixed maturities as available-for-sale. The
Company does not maintain a trading portfolio.
Policy and mortgage loans -- at unpaid balances.
Short-term investments -- at cost, which approximates fair value.
Other investments -- at fair value.
Realized gains and losses on disposal of investments are determined on a
specific identification basis.
7
<PAGE> 38
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH AND CASH EQUIVALENTS -- Cash equivalents consist of investments in money
market funds. The carrying amount of cash equivalents approximates fair value.
DEFERRED POLICY ACQUISITION COSTS -- Deferred policy acquisition costs consist
of commissions and other costs of acquiring annuities that vary with and are
primarily related to the acquisition of such business. Deferred policy
acquisition costs are being amortized in proportion to the present value of
estimated future gross margins which includes the impact of realized investment
gains and losses.
POLICYHOLDER LIABILITIES -- Policyholder liabilities for two-tier annuities are
the lower tier account values. Policyholder liabilities for the Company's
single-tier fixed annuity products are the account values. The fair value of
policyholder liabilities is estimated assuming all policyholders surrender their
policies. The carrying amounts and estimated fair values are as follows (in
thousands):
<TABLE>
<CAPTION>
Carrying Amount Estimated Fair Value
--------------- --------------------
<S> <C> <C>
December 31, 1997 $2,243,441 $2,172,159
December 31, 1996 2,222,128 2,147,777
</TABLE>
NOTES PAYABLE -- Notes payable are carried at their unpaid balances which
approximate fair value because the interest rates on these notes approximate
market rates.
INCOME TAXES -- Through October 30, 1997, the Company filed consolidated federal
income tax returns with SFG. After that date, the Company's return is not
consolidated with SFG. Income taxes are provided on the basis as if the
companies filed separately.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Such differences are related principally to the deferral of policy
acquisition costs, the valuation of fixed maturities and the provision for
policyholder liabilities. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
SEPARATE ACCOUNTS -- The assets held in separate accounts represent funds that
are separately administered by the Company pursuant to variable annuity
contracts. The liabilities related to separate accounts consist of policyholder
liabilities for variable annuities. The separate account assets and liabilities
are reported at fair value. The Company receives a fee for administrative
services provided to the separate accounts. Investment risks associated with
fair value changes are borne by the contract holders.
16
<PAGE> 39
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ANNUITY REVENUES AND BENEFITS -- Annuity product income represents fees earned
from policyholders of annuity contracts, including surrender charges,
annuitization charges and administration fees. Benefits in excess of
policyholder liabilities consists of the difference between the policyholder
account values annuitized during the period and the related policyholder
liability balances.
ESTIMATES -- Certain amounts reported in the accompanying consolidated financial
statements are based on management's best estimates and judgments. Actual
results could differ from those estimates.
NEW ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting Standards
Board issued Statement No. 130, "Reporting Comprehensive Income" (FASB 130).
FASB 130 establishes new rules for the reporting and display of comprehensive
income and its components. FASB 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which are currently reported in
stockholder's equity, to be included in other comprehensive income and also
requires the disclosure of total comprehensive income. The Company plans to
adopt FASB 130 in 1998 with no impact on net income or stockholder's equity.
NOTE 2 -- STATUTORY CAPITAL AND RESTRICTIONS
Security First Life and its subsidiaries are required to file annual statements
with various state insurance regulatory authorities on a statutory basis.
The statutory-basis capital and surplus at December 31, 1997, 1996 and 1995, and
statutory-basis net income for those years are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Net
and Surplus Income
----------- ------
<S> <C> <C>
December 31, 1997
Security First Life Insurance Company $117,623 $ 12,917
Security First Life Insurance Company of Arizona 14,107 257
December 31, 1996
Security First Life Insurance Company $107,501 $ 13,449
Security First Life Insurance Company of Arizona 13,823 1,187
December 31, 1995
Security First Life Insurance Company $100,027 $ 3,161
Fidelity Standard Life Insurance Company 15,573 831
Security First Life Insurance Company of Arizona 12,715 612
</TABLE>
17
<PAGE> 40
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 -- STATUTORY CAPITAL AND RESTRICTIONS (continued)
Security First Life and Fidelity Standard Life are incorporated and domiciled in
Delaware. SFL-Arizona is incorporated and domiciled in Arizona. The payment of
dividends is subject to statutory limitations which are based on each company's
statutory-basis net income and surplus levels. At December 31, 1997, the maximum
amount of dividends Security First Life could pay SFG without prior approval
from state insurance regulatory authorities is $12,844,000.
NOTE 3 -- INVESTMENTS
Unrealized investment gains reported in the accompanying financial statements
are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1997 1996
-------- --------
<S> <C> <C>
Unrealized investment gains $105,251 $ 48,552
Less: Adjustment for deferred policy acquisition costs 52,500 22,942
Deferred income taxes 17,921 8,661
-------- --------
Net unrealized investment gains $ 34,830 $ 16,949
======== ========
</TABLE>
Net realized investment gains (losses) reported in the accompanying financial
statements are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Fixed maturities
Gross gains $ 8,338 $ 8,923 $ 6,181
Gross losses (5,691) (8,075) (4,621)
------- ------- -------
2,647 848 1,560
Other investments
Gross gains 197
Gross losses (136) (3,027) (213)
------- ------- -------
61 (3,027) (213)
------- ------- -------
Net realized investment gains (losses) $ 2,708 $(2,179) $ 1,347
======= ======= =======
</TABLE>
Proceeds from sales of fixed maturities are $648,338,000, $911,529,000 and
$441,790,000 in 1997, 1996 and 1995, respectively.
18
<PAGE> 41
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 -- INVESTMENTS (continued)
The amortized cost and fair value of fixed maturities as of December 31, 1997
and 1996 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 93,546 $ 9,275 $ (22) $ 102,799
Debt securities issued by foreign
governments 31,110 2,997 34,107
Corporate securities 1,297,937 67,350 (564) 1,364,723
Mortgage-backed securities 825,284 27,484 (1,310) 851,458
----------- ----------- ----------- -----------
$ 2,247,877 $ 107,106 $ (1,896) $ 2,353,087
=========== =========== =========== ===========
December 31, 1996
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 115,250 $ 7,165 $ (494) $ 121,921
Debt securities issued by foreign
governments 35,960 1,335 (308) 36,987
Corporate securities 1,106,617 38,203 (10,094) 1,134,726
Mortgage-backed securities 945,534 20,188 (7,405) 958,317
----------- ----------- ----------- -----------
$ 2,203,361 $ 66,891 $ (18,301) $ 2,251,951
=========== =========== =========== ===========
</TABLE>
The amortized cost and fair value of fixed maturities by contractual maturity at
December 31, 1997, are summarized below. Actual maturities will differ from
contractual maturities because certain borrowers have the right to call or
prepay obligations.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
(In thousands)
<S> <C> <C>
Due in one year or less $ 32,313 $ 32,696
Due after one year through five years 301,888 313,186
Due after five years through ten years 643,496 671,953
Due after ten years 444,896 483,794
Mortgage-backed securities 825,284 851,458
---------- ----------
$2,247,877 $2,353,087
========== ==========
</TABLE>
The Company has recorded valuation reserves for other-than-temporary impairment
in the value of investments of $5,000,000 and $6,900,000 at December 31, 1997
and 1996, respectively.
19
<PAGE> 42
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 -- INVESTMENTS (continued)
Concentrations of credit risk with respect to fixed maturities are limited due
to the large number of issues owned and their dispersion across many different
industries and geographic areas. Accordingly, at December 31, 1997, the Company
had no significant concentration of credit risk.
The fair values for fixed maturities are primarily based on values obtained from
independent pricing services. Such independent values are not available for
private placement securities. The carrying amount of the Company's private
placement securities was $174,000,000 and $82,000,000 at December 31, 1997 and
1996, respectively.
The carrying amount of mortgage loans ($945,000 at December 31, 1996) and policy
loans ($24,209,000 and $21,433,000 at December 31, 1997 and 1996, respectively)
approximates fair value because the interest rates on these loans approximate
market rates.
The Company places its temporary cash investments with high-credit quality
financial institutions and, by corporate policy, limits the amount of credit
exposure to any one financial institution.
At December 31, 1997, investment securities having an amortized cost of
$6,185,000 were on deposit with various states in accordance with state
insurance department requirements.
Investment income by major category of investment is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Fixed maturities $ 173,015 $ 165,997 $ 159,266
Policy and mortgage loans 1,325 1,283 1,229
Short-term investments 1,897 1,718 1,943
Other investments 858 553 894
Cash and cash equivalents 269 486 388
--------- --------- ---------
177,364 170,037 163,720
Investment expenses (6,298) (5,922) (5,546)
--------- --------- ---------
Net investment income $ 171,066 $ 164,115 $ 158,174
========= ========= =========
</TABLE>
The Company has no significant amounts of non-income producing investments.
20
<PAGE> 43
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 -- NOTES PAYABLE
Notes payable consist of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
5% Surplus note due to SFG, interest payable monthly,
principal payable upon regulatory approval $25,000 $25,000
8% Surplus note due to SFG, interest payable monthly,
principal payable upon regulatory approval 10,000 10,000
------- -------
$35,000 $35,000
======= =======
</TABLE>
Security First Life has a $15,000,000 bank revolving credit line which bears
interest at a floating rate based on London Interbank Offered Rates. There were
no borrowings outstanding under this revolving credit line at December 31, 1997
and 1996. The $25,000,000 and $10,000,000 surplus notes payable to SFG are
pledged, along with the common and preferred stock of Security First Life, as
collateral for SFG's bank revolving credit line.
There are no principal payments due on the notes payable during the next five
years.
Interest paid by the Company totaled $2,083,000 in 1997, $2,133,000 in 1996 and
$2,225,000 in 1995.
NOTE 5 -- INCOME TAXES
The liability for federal income taxes includes deferred taxes of $43,154,000
and $30,496,000 at December 31, 1997 and 1996, respectively. Significant
components of these deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $30,459 $41,153
Fixed maturities 37,922 7,124
Other assets 3,532 5,563
Other, net 1,360
------- -------
Total deferred tax liabilities 71,913 55,200
Deferred tax assets:
Policyholder liabilities 11,787 12,856
Liabilities for separate accounts 11,445 6,503
Other liabilities 5,251 5,345
Other, net 276
------- -------
Total deferred tax assets 28,759 24,704
------- -------
Net deferred tax liabilities $43,154 $30,496
======= =======
</TABLE>
21
<PAGE> 44
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 -- INCOME TAXES (continued)
Income taxes paid by the Company were $6,480,000 in 1997, $1,972,000 in 1996 and
$3,248,000 in 1995.
The following is a reconciliation of the federal income tax at statutory rates
of 34% with the income tax provision as shown in the accompanying financial
statements (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Federal income tax at 34% $ 10,946 $ 8,826
Dividends received deduction (356) (259)
True up of prior year taxes 298 924
Other (10)
-------- --------
Provision for income tax expense $ 10,888 $ 9,481
======== ========
</TABLE>
NOTE 6 -- CAPITAL LEASE
Security First Life has a lease for office space that expires in 2014. This
lease is treated as a capital lease for financial reporting purposes.
The Company subleases space on an annual basis to SFG to use as its home office.
Related income offset against the lease costs was $1,650,115, $1,656,000 and
$1,663,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Future payments under the lease are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 2,166
1999 2,166
2000 2,166
2001 2,166
2002 2,166
Thereafter 24,719
--------
Total minimum rental payments 35,549
Amount representing interest 20,106
--------
Present value of minimum rental payments $ 15,443
========
</TABLE>
The property under capital lease is net of accumulated amortization of
$7,901,000 in 1997 and $7,297,000 in 1996. Lease amortization expense was
$580,000 in 1997, 1996 and 1995.
22
<PAGE> 45
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company has marketing and administrative agreements with SFG under which SFG
provides all of the Company's marketing and policyholder administration
services. Amounts incurred under these agreements were $58,199,000, $52,102,000,
and $38,954,000 for 1997, 1996 and 1995, respectively. A substantial portion of
these amounts are commissions and are deferred as policy acquisition costs.
The Company has management agreements with SFG under which the latter provides
certain personnel, administrative services and office space. Amounts incurred
under these agreements were $3,883,000 in 1997 and $4,308,000 in 1996 and 1995.
The Company has investment advisory agreements with Security First Investment
Management Corporation, a subsidiary of SFG. Fees of $5,711,000, $5,360,000 and
$4,756,000 were paid in 1997, 1996 and 1995, respectively, pursuant to these
agreements.
NOTE 8 -- OTHER SIGNIFICANT EVENTS
Effective December 31, 1996, the Company sold all of the common stock of its
former subsidiary, Fidelity Standard Life. As a result of this transaction, the
Company recognized a gain in 1996 of $3,879,000. As of December 31, 1996, the
accompanying balance sheet includes receivables of $22,295,000 related to this
sale. These receivables were settled in January 1997.
Prior to the sale of Fidelity Standard Life, the Company assumed all of the
policyholder liabilities through several reinsurance agreements. No gain or loss
was recognized on this transaction.
NOTE 9 -- IMPACT OF YEAR 2000 (unaudited)
Based on assessments during the past year, the Company has determined that it
will require modification or replacement of significant portions of its software
and hardware so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company presently believes that with
modifications to existing software and conversions to new software and hardware,
the Year 2000 issue will not pose any significant operational problems for its
computer systems.
The Company has initiated formal communications with its significant suppliers
to determine the extent to which the Company's interface systems are vulnerable
to those third parties failure to remediate their own Year 2000 issues. However,
there can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and would not have an adverse
effect on the Company's systems.
23
<PAGE> 46
SECURITY FIRST LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 -- IMPACT OF YEAR 2000 (unaudited) (continued)
The Company will utilize external resources to renovate or replace the software
for Year 2000 modifications and internal resources to test this software. The
Company anticipates completing the Line of Business applications by December 31,
1998, which is prior to any anticipated impact on operations. The client/server
operating systems and applications, covering mostly internal financial and
administrative functions, will be completed by June 30, 1999. The total cost of
the Year 2000 project is estimated at $1.5 million and is being funded through
operating cash flows.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated.
24
<PAGE> 47
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
To the Board of Directors
Security First Life Insurance Company
and Contract Owners
Security First Life Separate Account A
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Security First Life Separate Account A
(comprised of Series B, G, T, P, I, FA, FG, FI, FO, FM, SU, SV, AS, SI, FC and
FE) as of December 31, 1997, and the related statements of operations for the
year then ended and changes in net assets for each of the two years in the
period then ended. These financial statements are the responsibility of the
Separate Account's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence
with the respective mutual fund managers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security First Life Separate
Account A (comprised of the above referenced Series) at December 31, 1997, the
results of their operations for the year then ended, and the changes in their
net assets for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG, LLP
Los Angeles, California
April 17, 1998
25
<PAGE> 48
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments
Security First Trust - Bond Series
(3,220,084 shares at
net asset value of $3.95 per share;
cost $12,589,166) $ 12,725,070
Security First Trust - Growth and Income Series
(15,168,545 shares at net asset value
of $15.52 per share; cost $197,793,491) $235,478,870
T. Rowe Price Growth Stock Fund, Inc.
(2,740,133 shares at net asset value of $28.99
per share; cost $65,529,823) $ 79,436,465
T. Rowe Price Prime Reserve Fund, Inc.
(1,158,226 shares at net asset value of $1.00
per share; cost $1,158,226) $ 1,158,226
T. Rowe Price International Fund, Inc.
(1,185,607 shares at net asset value of $13.42
per share; cost $15,403,836) $ 15,910,839
Receivable from Security First Life Insurance
Company for purchases 35,680 286,496 72,681 30,802
Receivable from mutual funds 44,474
Other assets 1,684 600,665 1,574 64
------------ ------------ ------------ ------------ -------------
TOTAL ASSETS 12,762,434 236,410,505 79,510,720 1,158,290 15,941,641
</TABLE>
26
<PAGE> 49
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES Series B Series G Series T Series P Series I
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Payable to Security First Life Insurance Company
for mortality and expense risk $ 13,662 $ 249,454 $ 66,238 $ 1,998 $ 13,556
Payable to Security First Life Insurance Company
for redemptions 562 21,670 4,003 24 2,120
Payable to Mutual Funds 35,680 320,473 102
Other liabilities 258
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 49,904 591,597 70,343 2,022 15,934
NET ASSETS
Cost to Investors
Series B Accumulation Units 12,576,626
Series G Accumulation Units 198,133,529
Series T Accumulation Units 65,533,735
Series P Accumulation Units 1,156,268
Series I Accumulation Units 15,418,704
Accumulated undistributed income
Net unrealized appreciation 135,904 37,685,379 13,906,642 507,003
------------ ------------ ------------ ------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING
UNITS OF CAPITAL $ 12,712,530 $235,818,908 $ 79,440,377 $ 1,156,268 $ 15,925,707
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 50
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
------------ ------------ ------------ ------------ ------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Dividends $ 641,352 $ 17,405,166 $ 9,756,754 $ 122,734 $ 843,658
Other investment income 8,240 699,802 13,487 569 4,868
------------ ------------ ------------ ------------ ------------
649,592 18,104,968 9,770,241 123,303 848,526
EXPENSES
Charges for mortality and expense risk 116,771 2,061,073 612,657 22,237 139,767
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME 532,821 16,043,895 9,157,584 101,066 708,759
INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) (124,988) 8,889,548 1,815,089 268,968
Unrealized appreciation (depreciation)
of investments 410,594 16,749,933 4,506,669 (809,176)
------------ ------------ ------------ ------------
NET INVESTMENT GAINS (LOSSES) 285,606 25,639,481 6,321,758 (540,208)
------------ ------------ ------------ ------------ ------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 818,427 $ 41,683,376 $ 15,479,342 $ 101,066 $ 168,551
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 51
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income $ 532,821 $ 16,043,895 $ 9,157,584 $ 101,066 $ 708,759
Net realized investment gains (losses) (124,988) 8,889,548 1,815,089 268,968
Net unrealized investment appreciation
(depreciation) during the year 410,594 16,749,933 4,506,669 (809,176)
------------ ------------ ------------ ------------ ------------
Increase in net assets resulting
from operations 818,427 41,683,376 15,479,342 101,066 168,551
Increase (decrease) in net assets resulting
from capital unit transactions 2,280,710 56,560,484 5,877,267 (1,463,226) 2,309,033
------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,099,137 98,243,860 21,356,609 (1,362,160) 2,477,584
NET ASSETS AT BEGINNING OF YEAR 9,613,393 137,575,048 58,083,768 2,518,428 13,448,123
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 12,712,530 $235,818,908 $ 79,440,377 $ 1,156,268 $ 15,925,707
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 52
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income $ 486,838 $ 7,322,600 $ 4,167,376 $ 99,635 $ 262,347
Net realized investment gains (losses) (53,594) 2,094,280 1,100,192 99,160
Net unrealized investment appreciation
(depreciation) during the year (280,479) 8,500,561 4,324,599 1,142,988
------------ ------------ ------------ ------------ ------------
Increase in net assets resulting from
operations 152,765 17,917,441 9,592,167 99,635 1,504,495
Increase (decrease) in net assets resulting
from capital unit transactions 2,936,243 49,078,301 4,958,300 (204,492) 3,609,567
------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,089,008 66,995,742 14,550,467 (104,857) 5,114,062
NET ASSETS AT BEGINNING OF YEAR 6,524,385 70,579,306 43,533,301 2,623,285 8,334,061
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 9,613,393 $137,575,048 $ 58,083,768 $ 2,518,428 $ 13,448,123
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 53
SECURITY FIRST LIFE SEPARATE ACCOUNT A
INVESTMENTS
DECEMBER 31, 1997
SCHEDULE I
<TABLE>
<CAPTION>
Carrying
Value Unrealized Cost
Name of Issue Shares (Note A) Appreciation (Note B)
- ------------------------------------------------------------- ------ -------- ------------ --------
<S> <C> <C> <C> <C>
Security First Trust Bond Series - capital shares 3,220,084 $ 12,725,070 $ 135,904 $ 12,589,166
Security First Trust Growth and Income Series - capital
shares 15,168,545 $235,478,870 $ 37,685,379 $197,793,491
T. Rowe Price Growth Stock Fund, Inc. - capital shares 2,740,133 $ 79,436,465 $ 13,906,642 $ 65,529,823
T. Rowe Price Prime Reserve Fund, Inc. - capital shares 1,158,226 $ 1,158,226 $ 1,158,226
T. Rowe Price International Stock Fund, Inc. - capital shares 1,185,607 $ 15,910,839 $ 507,003 $ 15,403,836
</TABLE>
Note A The carrying value of the investments is the reported net asset value
of the investment company's capital shares.
Note B Cost is determined by using the first-in, first-out cost method.
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 54
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS Series FA Series FG Series FI Series FO Series FM
------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investments
Fidelity Investments - VIP Asset Manager (7,455,253 shares
at net asset value of $18.01 per share; cost $117,124,560) $134,269,107
Fidelity Investments - VIP Growth Portfolio (4,877,290
shares at net asset value of $37.10 per share; cost $180,947,469
$150,117,057)
Fidelity Investments - VIP Index 500 (822,282 shares at
net asset value of $114.39 per share; cost $78,222,594) $ 94,060,879
Fidelity Investments - VIP Overseas Portfolio (794,774
shares at net asset value of $19.20 per share; cost
$ 14,036,468) $ 15,259,668
Fidelity Investments - VIP Money Market Fund (22,711,508
shares at net asset value of $1.00 per share; cost
$ 22,711,508) $ 22,711,508
Receivable from Security First Life Insurance Company
for purchases 108,478 177,708 208,347 2,603 232,895
Receivable from mutual funds 30,508 33,806 79,027 3,196
Other assets 2,524 1,004 11,143 873
------------ ----------- ---------- ---------- ----------
TOTAL ASSETS 134,410,617 181,159,987 94,359,396 15,266,340 22,944,403
</TABLE>
32
<PAGE> 55
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIABILITIES Series FA Series FG Series FI Series FO Series FM
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Payable to Security First Life Insurance
Company for mortality and expense risk $ 163,032 $ 213,973 $ 109,868 $ 17,800 $ 27,076
Payable to Security First Life Insurance
Company for redemptions 47,705 36,895 7,452 6,341 8,641
Payable to Mutual Funds 109,334 199,509 286,459 5,207 226,019
Other liabilities 3,298
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES 320,071 450,377 403,779 29,348 265,034
NET ASSETS
Cost to Investors
Series FA Accumulation Units 116,945,999
Series FG Accumulation Units 149,879,198
Series FI Accumulation Units 78,117,332
Series FO Accumulation Units 14,013,792
Series FM Accumulation Units 22,679,369
Accumulated undistributed income
Net unrealized appreciation 17,144,547 30,830,412 15,838,285 1,223,200
------------ ------------ ------------ ------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING
UNITS OF CAPITAL $134,090,546 $180,709,610 $ 93,955,617 $ 15,236,992 $ 22,679,369
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 56
SECURITY FIRST LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Dividends $11,378,838 $ 4,261,797 $ 1,220,405 $ 943,935 $ 1,154,167
Other investment income 21,951 152,987 176,564 13,953 6,561
----------- ----------- ----------- ----------- -----------
11,400,789 4,414,784 1,396,969 957,888 1,160,728
EXPENSES
Charges for mortality and expense risk 1,431,442 1,838,829 762,267 163,548 277,456
----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME 9,969,347 2,575,955 634,702 794,340 883,272
INVESTMENT GAINS
Realized investment gains 1,354,839 6,816,420 2,142,914 183,119
Unrealized investment appreciation
during the year 8,000,602 19,046,439 12,199,875 153,795
----------- ----------- ----------- -----------
NET INVESTMENT GAINS 9,355,441 25,862,859 14,342,789 336,914
----------- ----------- ----------- ----------- -----------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $19,324,788 $28,438,814 $14,977,491 $ 1,131,254 $ 883,272
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 57
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income $ 9,969,347 $ 2,575,955 $ 634,702 $ 794,340 $ 883,272
Net realized investment gains 1,354,839 6,816,420 2,142,914 183,119
Net unrealized investment appreciation
during the year 8,000,602 19,046,439 12,199,875 153,795
------------ ------------ ------------ ------------ ------------
Increase in net assets resulting
from operations 19,324,788 28,438,814 14,977,491 1,131,254 883,272
Increase in net assets resulting from
capital unit transactions 23,348,022 39,688,474 47,598,152 3,587,791 4,463,628
------------ ------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 42,672,810 68,127,288 62,575,643 4,719,045 5,346,900
NET ASSETS AT BEGINNING OF YEAR 91,417,736 112,582,322 31,379,974 10,517,947 17,332,469
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $134,090,546 $180,709,610 $ 93,955,617 $ 15,236,992 $ 22,679,369
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 58
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Series FA Series FG Series FI Series FO Series FM
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income $ 2,292,810 $ 2,666,686 $ 219,013 $ 44,644 $ 475,162
Net realized investment gains 320,767 814,080 280,197 26,876
Net unrealized investment appreciation
during the year 5,114,840 5,048,213 2,889,708 819,437
------------ ------------ ------------ ------------ ------------
Increase in net assets resulting from
operations 7,728,417 8,528,979 3,388,918 890,957 475,162
Increase in net assets resulting from
capital unit transactions 39,808,589 59,753,701 21,470,058 4,778,724 8,469,934
------------ ------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 47,537,006 68,282,680 24,858,976 5,669,681 8,945,096
NET ASSETS AT BEGINNING OF YEAR 43,880,730 44,299,642 6,520,998 4,848,266 8,387,373
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 91,417,736 $112,582,322 $ 31,379,974 $ 10,517,947 $ 17,332,469
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 59
SECURITY FIRST LIFE SEPARATE ACCOUNT A
INVESTMENTS
DECEMBER 31, 1997
SCHEDULE I
<TABLE>
<CAPTION>
Carrying
Value Unrealized Cost
Name of Issue Shares (Note A) Appreciation (Note B)
- --------------------------------------------------------- ------ -------- ------------ --------
<S> <C> <C> <C> <C>
Fidelity Investments VIP Asset Manager - capital shares 7,455,253 $134,269,107 $ 17,144,547 $117,124,560
Fidelity Investments VIP Growth Portfolio - capital shares 4,877,290 $180,947,469 $ 30,830,412 $150,117,057
Fidelity Investments VIP Index 500 - capital shares 822,282 $ 94,060,879 $ 15,838,285 $ 78,222,594
Fidelity Investments Overseas Portfolio - capital shares 794,774 $ 15,259,668 $ 1,223,200 $ 14,036,468
Fidelity Investments VIP Money Market Fund - capital shares 22,711,508 $ 22,711,508 $ 22,711,508
</TABLE>
Note A The carrying value of the investments is the reported net asset value
of the investment company's capital shares.
Note B Cost is determined by using the first-in, first-out cost method.
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 60
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series SU Series SV Series AS Series SI Series FC Series FE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments
Security First Trust - U.S. Government Income
Series (6,578,529 shares at net asset value of
$5.26 per share; cost $34,171,356) $34,611,350
Security First Trust - Equity Series (6,984,622
shares at net asset value of $7.63 per share;
cost $45,919,942) $53,277,540
Alger American Small Capitalization Portfolio
(943,637 shares at net asset value of $43.75 per
share; cost $37,354,356) $41,284,140
Scudder International Fund (449,900 shares at net
asset value of $14.11 per share; cost $6,142,013) $ 6,348,087
Fidelity Investments - VIP Contra Fund (3,763,450
shares at net asset value of $19.94 per share;
cost $63,042,774) $75,043,202
Fidelity Investments - VIP Equity Income Portfolio
(720,269 shares at net asset value of $24.28 per
share; cost $15,191,468) $17,488,141
Receivable from Security First Life
Insurance Company for purchases 1,584 4,140 74,373 24,943 177,728 902
Receivable from mutual funds 17,251 11,002 388 60 10,250 699
Other assets 1,088 1,044 9,270 11,364
----------- ----------- ----------- ----------- ----------- -----------
TOTAL ASSETS 34,630,185 53,292,682 41,359,989 6,374,134 75,240,450 17,501,106
</TABLE>
38
<PAGE> 61
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (continued)
DECEMBER 31, 1997
LIABILITIES
<TABLE>
<CAPTION>
Series SU Series SV Series AS Series SI Series FC Series FE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Payable to Security First Life Insurance
Company for mortality and expense risk $41,939 $ 62,425 $ 52,141 $ 8,046 $ 94,058 $ 22,678
Payable to Security First Life Insurance
Company for redemptions 8,048 14,612 6,036 224 8,033 4,531
Payable to Mutual Funds 16,440 11,871 75,360 25,003 187,533 1,398
Other liabilities 894 1,825
----------- ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES 67,321 90,733 133,537 33,273 289,624 28,607
NET ASSETS
Cost to investors
Series SU Accumulation Units 34,122,871
Series SV Accumulation Units 45,844,351
Series AS Accumulation Units 37,296,668
Series SI Accumulation Units 6,134,787
Series FC Accumulation Units 62,950,398
Series FE Accumulation Units 15,175,826
Accumulated undistributed income
Net unrealized appreciation 439,993 7,357,598 3,929,784 206,074 12,000,428 2,296,673
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS APPLICABLE TO OUTSTANDING
UNITS OF CAPITAL $34,562,864 $53,201,949 $41,226,452 $ 6,340,861 $74,950,826 $17,472,499
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE> 62
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series SU Series SV Series AS Series SI Series FC Series FE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,507,408 $ 4,569,512 $ 1,075,765 $ 59,991 $ 1,012,048 $ 659,887
Other investment income (loss) (6,392) 33,126 37,269 8,198 129,605 35,018
----------- ----------- ----------- ----------- ----------- -----------
1,501,016 4,602,638 1,113,034 68,189 1,141,653 694,905
EXPENSES
Charges for mortality and expense risk 331,048 504,191 410,910 58,139 693,095 152,789
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME 1,169,968 4,098,447 702,124 10,050 448,558 542,116
INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) 68,543 866,363 (1,107,270) 73,324 1,353,917 80,187
Unrealized investment appreciation 346,517 4,977,323 3,933,637 74,470 8,445,340 1,848,038
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT GAINS 415,060 5,843,686 2,826,367 147,794 9,799,257 1,928,225
----------- ----------- ----------- ----------- ----------- -----------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,585,028 $ 9,942,133 $ 3,528,491 $ 157,844 $10,247,815 $ 2,470,341
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE> 63
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Series SU Series SV Series AS Series SI Series FC Series FE
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income $ 1,169,968 $ 4,098,447 $ 702,124 $ 10,050 $ 448,558 $ 542,116
Net realized investment gains (losses) 68,543 866,363 (1,107,270) 73,324 1,353,917 80,187
Net unrealized investment appreciation
during the year 346,517 4,977,323 3,933,637 74,470 8,445,340 1,848,038
------------ ------------ ------------ ------------ ------------ ------------
Increase in net assets resulting
from operations 1,585,028 9,942,133 3,528,491 157,844 10,247,815 2,470,341
Increase in net assets resulting from
capital unit transactions 14,141,455 14,984,359 17,346,956 4,143,499 34,652,276 9,173,378
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 15,726,483 24,926,492 20,875,447 4,301,343 44,900,091 11,643,719
NET ASSETS AT BEGINNING OF YEAR 18,836,381 28,275,457 20,351,005 2,039,518 30,050,735 5,828,780
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 34,562,864 $ 53,201,949 $ 41,226,452 $ 6,340,861 $ 74,950,826 $ 17,472,499
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 64
SECURITY FIRST LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Series SU Series SV Series AS Series SI Series FC Series FE
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 626,839 $ 2,031,476 $ (123,234) $ (357) $ (87,943) $ 24,457
Net realized investment gains 4,734 136,458 31,846 12,881 20,969 28,195
Net unrealized investment appreciation
(depreciation) during the year (154,056) 1,247,963 88,899 121,032 3,462,652 402,870
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets
resulting from operations 477,517 3,415,897 (2,489) 133,556 3,395,678 455,522
Increase in net assets resulting from
capital unit transactions 9,107,385 11,774,074 15,547,005 1,523,514 20,780,230 4,568,738
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 9,584,902 15,189,971 15,544,516 1,657,070 24,175,908 5,024,260
NET ASSETS AT BEGINNING OF YEAR 9,251,479 13,085,486 4,806,489 382,448 5,874,827 804,520
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF YEAR $ 18,836,381 $ 28,275,457 $ 20,351,005 $ 2,039,518 $ 30,050,735 $ 5,828,780
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE> 65
SECURITY FIRST LIFE SEPARATE ACCOUNT A
INVESTMENTS
DECEMBER 31, 1997
SCHEDULE I
<TABLE>
<CAPTION>
Carrying
Value Unrealized Cost
Name of Issue Shares (Note A) Appreciation (Note B)
- ----------------------------------------------------- ------ -------- ------------ --------
<S> <C> <C> <C> <C>
Security First Trust U. S. Government
Income Series - capital shares 6,578,529 $34,611,350 $ 439,993 $34,171,357
Security First Trust Equity Series - capital shares 6,984,622 $53,277,540 $ 7,357,598 $45,919,942
Alger American Small Capitalization Portfolio
- capital shares 943,637 $41,284,140 $ 3,929,784 $37,354,356
Scudder International Fund - capital shares 449,900 $ 6,348,087 $ 206,074 $ 6,142,013
Fidelity Investments VIP Contra Fund - capital shares 3,763,450 $75,043,202 $12,000,428 $63,042,774
Fidelity Investments VIP Equity Income Portfolio
- capital shares 720,269 $17,488,141 $ 2,296,673 $15,191,468
</TABLE>
Note A The carrying value of the investments is the reported net asset value of
the investment company's capital shares.
Note B Cost is determined by using the first-in, first-out cost method.
The accompanying notes are an integral part of these financial statements.
43
<PAGE> 66
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- BASIS OF PRESENTATION
Security First Life Separate Account A (the Separate Account) was established on
May 29, 1980, as a separate account of Security First Life Insurance Company
(Security Life), the sponsor company, and is registered under the Investment
Company Act of 1940 as a unit investment trust. The Separate Account is designed
to provide annuity benefits pursuant to certain variable annuity contracts (the
Contracts) issued by Security Life.
In accordance with the terms of the Contracts, all payments allocated to the
Separate Account by the contract owners must be allocated to purchase shares of
any or all of four series of Security First Trust (the Trust), a Massachusetts
business trust, and twelve mutual funds (the investment companies). The series
of the Trust are Bond Series, Growth and Income Series, Equity Series, and U.S.
Government Income Series and the mutual funds are T. Rowe Price Growth Stock
Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price International
Stock Fund, Inc., Alger American Small Capitalization Portfolio, Scudder
International Fund, and Fidelity Investments: VIP Asset Manager, VIP Growth
Portfolio, VIP Index 500, VIP Overseas Portfolio, VIP Contra Fund, VIP Equity
Income Portfolio and VIP Money Market Fund. The Trust and the investment
companies are registered as diversified, open-end management investment
companies under the Investment Company Act of 1940. The Separate Account is
correspondingly divided into sixteen series of Accumulation Units, Series B, G,
SU, SV, T, P, I, AS, SI, FA, FG, FI, FO, FC, FE and FM, relating to investments
in each of the investment companies, respectively.
All series of the Trust receive administrative services for a fee from Security
First Investment Management Corporation (Security Management). Security First
Financial, Inc. (Security Financial) is the principal underwriter for the
Contracts. Security Life, Security Management, and Security Financial are
wholly-owned subsidiaries of Security First Group, Inc. which became a
wholly-owned subsidiary of Metropolitan Life Insurance Company on October 30,
1997. Investment advice is provided to the Security First Trust Growth and
Income Series by T. Rowe Price Associates, Inc., by Neuberger and Berman to the
Security First Trust Bond Series, and to the Security First Trust Equity and
U.S. Government Income Series by Virtus Capital Management.
44
<PAGE> 67
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 1 -- BASIS OF PRESENTATION (continued)
The Separate Account and each series therein are administered and accounted for
as part of the business of Security Life. The investment income and capital
gains and losses of each Separate Account series are identified with the assets
held for that series in accordance with the terms of the Contracts, without
regard to investment income and capital gains and losses arising out of any
other business Security Life may conduct.
The Separate Account incurs no liability for remuneration to directors, advisory
boards, officers or such other persons who may from time to time perform
services for the Separate Account.
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from these estimates.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS -- Investments are carried at fair value, which is
determined by multiplying the investment companies' shares owned by the Separate
Account by the reported net asset value per share of each respective investment
company. Realized investment gains and losses are determined on the first-in,
first-out cost basis.
EXPENSES AND CHARGES -- The Separate Account accrues charges incurred for the
mortality and expense risk assumed by Security Life. The charges are calculated
daily by multiplying the value of the assets of the Separate Account by the
daily mortality and expense risk rate. Security Life has the option of calling
for payment of such charges at any time. The following table illustrates the
rates for the respective contracts:
<TABLE>
<CAPTION>
Contract Type Annual Rate Daily Rate
------------- ----------- ----------
<S> <C> <C>
SF 135R; SF 234; SF 89; SF 224FL;
SF 236FL; SF 1700 Contracts .89% .0000244
SF 228DC Contracts 1.25% .0000342
SF 135R2S Contracts 1.15% .0000315
SF 230; SF 224R1; SF 226R1 Contracts 1.35% .0000370
SF 135R2 Contracts 1.40% .0000384
</TABLE>
45
<PAGE> 68
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (continued)
The following charges are deducted from a contract holder's account by Security
Life as a capital transaction by reducing the separate account units held, and
such charges are not an expense of the Separate Account. An administration
charge (contract charge) is deducted from each contract and paid to Security
Life at the end of each contract year prior to the annuity date, and when the
entire contract value is withdrawn on any date other than a contract
anniversary. In the event that a participant withdraws all or a portion of the
participant's account, a contingent deferred sales charge (CDSC) may be applied
to the amount of the contract value withdrawn to cover certain expenses relating
to the sale of contracts. The following table illustrates contract charges and
CDSC with respect to the various types of contracts:
<TABLE>
<CAPTION>
Maximum Contract
Contract Type Charge Per Year CDSC
------------- --------------- ----
<S> <C> <C>
SF 236FL $12.00 Based on elapsed time since premium received.
Disappears on or before 6th anniversary.
SF 224FL $40.00 Based on elapsed time since premium received.
Disappears on or before 6th anniversary.
SF 1700 $42.50 Based on elapsed time since premium received.
Disappears on or before 6th anniversary.
SF 224R1, SF 230 * Based on elapsed time since premium received.
Disappears on or before 5th anniversary.
Group Form
226R1 $41.50 Seven percent of premium received.
Disappears on or before 6th anniversary.
All other group $19.50 Five percent of premium received.
Disappears on or before 6th anniversary.
SF 135R2V ** None
SF 135R2S, SF 135R2C ** Based on elapsed time since premium received.
Disappears after 7th year.
</TABLE>
* $55 (Currently being waived).
** .15% annually of average account value (currently being waived).
46
<PAGE> 69
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (continued)
In addition, transaction charges of $10 are incurred for each surrender or
annuitization. Upon conversion of either accumulation or annuity units from one
series to another, a $10 conversion charge is incurred. The amount deducted for
contract charges and CDSC was $1,061,306 for the year ended December 31, 1997,
and $513,405 for the year ended December 31, 1996.
INCOME RECOGNITION AND REINVESTMENT -- Income is recognized as declared payable
by the investment companies. All distributions received are reinvested in the
investment companies.
NOTE 3 -- FEDERAL INCOME TAXES
The operations of the Separate Account form a part of, and are taxed with, the
operations of Security Life, which is taxed as a "life insurance company" under
the Internal Revenue Code, and as such, Security Life is liable for income
taxes, if any, which become payable with respect to the Separate Account's
operations.
Separate accounts are generally required to meet certain diversification
requirements for their assets. However, separate accounts which solely provide
benefits for "pension plan contracts" are exempt from the diversification
requirements. Pension plan contracts include: (i) tax qualified plans; (ii)
employee annuities; (iii) plans for employees of life insurance companies; (iv)
tax sheltered annuities of exempt organizations; (v) individual retirement
accounts or annuities, and (vi) deferred compensation plans of certain
governmental or tax-exempt organizations. The Contracts issued by Security Life
are offered in connection with both pension plan contracts and non-qualified
contracts, therefore the Separate Account is subject to the diversification
requirements. Management believes that the Separate Account has met the
diversification requirements.
47
<PAGE> 70
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4 -- CAPITAL TRANSACTIONS
Additions and deductions to units of capital consisting of the effect of capital
unit transactions were as follows:
<TABLE>
<CAPTION>
Additions to Capital Deductions From Capital
$ Units $ Units
---------- ---------- ---------- ----------
Year ended December 31, 1997:
<S> <C> <C> <C> <C>
SF 226R1; SF 228DC Contracts
Series B Accumulation Units 1,454,857 161,968 2,222,593 255,587
Series G Accumulation Units 31,042,330 2,023,469 18,299,082 1,273,695
Series FA Accumulation Units 16,861,300 2,260,447 20,550,274 2,914,536
Series FG Accumulation Units 24,047,220 2,718,139 23,181,360 2,836,909
Series FI Accumulation Units 25,839,798 2,590,459 11,992,236 1,323,107
Series FO Accumulation Units 676,805 96,009 3,024,539 431,009
Series FM Accumulation Units 34,039,726 6,010,978 41,104,341 7,257,641
Series SU Accumulation Units 4,217,960 757,368 6,638,272 1,191,234
Series AS Accumulation Units 15,197,790 2,242,386 11,790,183 1,911,329
Series SI Accumulation Units 3,350,813 472,812 880,405 127,900
Series FC Accumulation Units 29,023,362 3,457,635 11,801,326 1,548,439
SF 135R2 Contracts
Series B Accumulation Units 3,489,097 391,482 208,955 23,190
Series G Accumulation Units 27,974,005 1,827,071 1,007,953 61,587
Series FA Accumulation Units 22,037,238 3,083,772 1,118,816 145,718
Series FG Accumulation Units 29,266,279 3,456,848 2,096,800 221,099
Series FI Accumulation Units 21,704,130 2,243,395 880,069 84,619
Series FO Accumulation Units 5,206,390 713,113 321,230 41,040
Series FM Accumulation Units 91,417,945 15,908,209 80,431,227 13,960,948
Series SU Accumulation Units 16,459,936 2,907,217 1,379,636 241,387
Series AS Accumulation Units 14,561,015 2,303,839 1,072,603 152,394
Series SI Accumulation Units 1,406,153 199,513 59,297 8,138
Series FC Accumulation Units 16,309,026 2,064,971 617,179 70,030
Series FE Accumulation Units 9,709,051 1,220,079 535,673 66,368
Series SV Accumulation Units 14,910,993 2,340,582 1,268,768 189,923
SF 135R; SF 234; SF 224FL;
SF 236FL; SF 1700 Contracts
Series B Accumulation Units 1,251,814 66,317 1,258,763 66,260
Series G Accumulation Units 22,168,547 464,927 10,162,988 208,324
Series T Accumulation Units 13,912,418 337,577 8,035,151 194,789
Series P Accumulation Units 1,356,696 98,277 2,819,922 202,716
Series I Accumulation Units 5,494,020 613,377 3,184,987 356,665
Series FA Accumulation Units 5,261,860 725,367 2,416,199 336,103
Series FG Accumulation Units 10,795,331 1,233,017 5,486,217 645,857
Series FI Accumulation Units 9,999,482 1,019,149 1,804,657 183,675
</TABLE>
48
<PAGE> 71
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<S> <C> <C> <C> <C>
Series FM Accumulation Units 3,155,789 540,467 1,884,995 325,446
</TABLE>
NOTE 4 -- CAPITAL TRANSACTIONS (continued)
<TABLE>
<CAPTION>
Additions to Capital Deductions From Capital
$ Units $ Units
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SF 135R2S
Series SU Accumulation Units 2,886,460 512,287 1,432,766 253,595
Series SV Accumulation Units 4,591,111 589,309 3,248,977 402,282
Series FM Accumulation Units 7,288,893 1,266,880 7,902,058 1,372,807
Series FG Accumulation Units 3,427,275 399,201 1,490,263 165,593
Series FO Accumulation Units 1,726,903 274,657 676,538 105,526
SF 224R1; SF 230
Series B Accumulation Units 509,920 59,735 734,667 85,140
Series G Accumulation Units 8,895,697 547,437 4,050,072 249,469
Series FA Accumulation Units 6,970,487 948,458 3,697,574 504,142
Series FG Accumulation Units 7,792,635 871,059 3,385,626 379,160
Series FI Accumulation Units 5,441,074 544,189 709,370 68,289
Series FM Accumulation Units 455,713 79,801 571,817 71,385
Series SU Accumulation Units 27,773 4,830 -- --
Series AS Accumulation Units 453,797 64,797 2,860 423
Series SI Accumulation Units 369,791 51,424 43,556 5,917
Series FC Accumulation Units 1,768,831 226,463 30,420 3,385
Year ended December 31, 1996:
SF 135R; SF 226R1;
SF 228DC Contracts
Series B Accumulation Units 1,457,968 173,008 288,184 34,370
Series G Accumulation Units 14,597,742 1,163,010 1,544,237 124,761
Series FA Accumulation Units 15,083,889 2,386,263 4,817,387 761,858
Series FG Accumulation Units 25,437,990 3,316,801 3,090,860 403,159
Series FI Accumulation Units 14,245,149 1,834,275 1,074,884 134,904
Series FO Accumulation Units 1,140,778 176,902 169,596 26,298
Series FM Accumulation Units 26,932,483 4,853,215 20,523,960 3,697,741
Series SU Accumulation Units 2,374,207 434,190 109,775 20,040
Series AS Accumulation Units 16,999,648 2,501,793 1,452,643 213,708
Series SI Accumulation Units 1,670,305 266,302 146,791 23,697
Series FC Accumulation Units 21,801,795 3,201,615 1,021,565 149,159
Series FE Accumulation Units 4,806,768 746,267 2,380,030 36,019
Series SV Accumulation Units 1,544,460 285,804 20,817 3,618
SF 234; SF 224FL; SF 236FL;
SF 1700 Contracts
Series B Accumulation Units 931,484 51,367 1,065,392 59,149
Series G Accumulation Units 13,106,032 341,108 7,100,392 185,366
Series T Accumulation Units 11,430,218 348,446 6,471,918 196,812
Series P Accumulation Units 653,049 49,155 857,541 64,727
Series I Accumulation Units 5,543,290 691,905 1,933,723 240,937
Series FA Accumulation Units 4,879,721 801,224 2,064,517 336,514
Series FG Accumulation Units 11,230,260 1,527,712 2,716,606 362,785
Series FI Accumulation Units 4,604,737 613,367 791,378 103,660
</TABLE>
49
<PAGE> 72
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<S> <C> <C> <C> <C>
Series FM Accumulation Units 1,759,008 317,763 1,732,158 312,636
</TABLE>
<TABLE>
<CAPTION>
Additions to Capital Deductions From Capital
$ Units $ Units
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SF 135R2S
Series SU Accumulation Units 7,593,093 1,416,303 750,140 139,104
Series SV Accumulation Units 11,598,037 1,831,596 1,347,606 210,583
Series FM Accumulation Units 10,241,054 1,826,561 9,046,976 1,610,850
Series FG Accumulation Units 8,059,593 1,075,155 808,401 107,079
Series FO Accumulation Units 4,116,962 747,815 309,420 56,136
SF 224R1: SF 230
Series B Accumulation Units 1,957,058 257,080 56,691 28,429
Series G Accumulation Units 30,537,423 2,308,139 518,267 127,912
Series FA Accumulation Units 27,219,472 4,255,909 492,589 165,276
Series FG Accumulation Units 22,127,890 2,858,154 486,165 114,979
Series FI Accumulation Units 4,650,004 583,863 163,570 35,543
Series FM Accumulation Units 862,152 131,031 21,669 9,661
</TABLE>
NOTE 5 -- UNITS OF CAPITAL
The following are the units outstanding and corresponding unit values as of
December 31, 1997:
<TABLE>
<CAPTION>
Units
Description Outstanding Unit Value
----------- ----------- ----------
<S> <C> <C>
SF 226R1; SF 228DC Contracts
Series B Accumulation Units 215,747 $ 9.35
Series G Accumulation Units 2,893,417 17.29
Series FA Accumulation Units 6,838,501 8.12
Series FG Accumulation Units 6,614,665 9.85
Series FI Accumulation Units 3,577,094 11.19
Series FO Accumulation Units 35,006 7.56
Series FM Accumulation Units 652,200 5.85
Series AS Accumulation Units 3,353,442 7.40
Series SI Accumulation Units 653,022 7.13
Series FC Accumulation Units 5,895,334 9.24
</TABLE>
50
<PAGE> 73
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Units
Description Outstanding Unit Value
----------- ----------- ----------
<S> <C> <C>
SF 135R2 Contracts
Series B Accumulation Units 368,292 $ 9.35
Series G Accumulation Units 1,765,484 17.28
Series FA Accumulation Units 2,938,054 8.12
Series FG Accumulation Units 3,235,749 9.84
Series FI Accumulation Units 2,158,776 11.19
Series FO Accumulation Units 672,073 7.56
Series FM Accumulation Units 1,947,261 5.84
Series SU Accumulation Units 2,665,830 5.87
Series AS Accumulation Units 2,151,445 7.40
Series SI Accumulation Units 191,375 7.12
Series FC Accumulation Units 1,994,941 9.24
Series FE Accumulation Units 1,995,080 8.76
Series SV Accumulation Units 2,432,845 7.14
SF 135R; SF 234; SF 224FL;
SF 236FL; SF 1700 Contracts
Series B Accumulation Units 269,783 20.11
Series G Accumulation Units 2,052,536 53.68
Series T Accumulation Units 1,724,685 46.06
Series P Accumulation Units 82,240 14.05
Series I Accumulation Units 1,825,908 8.72
Series FA Accumulation Units 2,329,571 7.87
Series FG Accumulation Units 3,138,529 9.51
Series FI Accumulation Units 1,670,379 10.95
Series FM Accumulation Units 886,537 5.92
SF 135R2S Contracts
Series SU Accumulation Units 3,228,563 5.85
Series SV Accumulation Units 3,994,635 8.97
Series FM Accumulation Units 250,149 5.91
Series FG Accumulation Units 2,286,120 9.69
Series FO Accumulation Units 1,528,760 6.47
SF 224R1; SF 230
Series B Accumulation Units 203,246 8.99
Series G Accumulation Units 2,478,195 18.20
Series FA Accumulation Units 4,534,949 8.03
Series FG Accumulation Units 3,235,074 9.81
Series FI Accumulation Units 1,024,220 11.23
Series FM Accumulation Units 129,786 5.86
Series SU Accumulation Units 4,830 5.87
Series AS Accumulation Units 64,374 7.40
Series SI Accumulation Units 45,507 7.13
Series FC Accumulation Units 223,078 9.24
</TABLE>
51
<PAGE> 74
SECURITY FIRST LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 6 -- IMPACT OF YEAR 2000 (unaudited)
Security First Group will utilize external resources to renovate or replace the
software for Year 2000 modifications and internal resources to test this
software. Security First Group anticipates completing the Line of Business
applications by December 31, 1998, which is prior to any anticipated impact on
operations. The client/server operating systems and applications, covering most
internal financial and administrative functions, will be completed by June 30,
1999. The total cost of the Year 2000 project is estimated at $1.5 million and
is being funded through operating cash flows of Security First Group (Security
First Life Separate Account A will incur no costs as a result of this project).
The cost of the project and the date on which Security First Group believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated.
52
<PAGE> 75
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements contained herein
(1) Security First Life Insurance Company
(2) Security First Life Separate Account A
Part A - Condensed Financial Information
Part B - Statement of Assets and Liabilities, Statement of
Operations, Statement of Changes in Net Assets,
Statement of Investments
Part B - Depositor's financial statements with notes
(b) Exhibits
(10) Consent of Independent Auditors - herewith
(13) Organizational Chart
All previously filed Exhibits to Security First Life Separate Account A
registration statement and all post-effective amendments thereto are
specifically incorporated herein by reference.
Item 25. Directors and Officers of the Depositor
The officers and directors of Security First Life Insurance Company are listed
below. Their principal business address is 11365 West Olympic Boulevard, Los
Angeles, California 90064.
<TABLE>
<CAPTION>
Name Position and Offices with Depositor
- ---- -----------------------------------
<S> <C>
David A. Levene Chairman of the Board and Director
John K. Bruins Director
Steven T. Cates Director
Terence Lennon Director
Gail A. Praslick Director
Joseph A. Reali Director
Anthony J. Williamson Director
Richard C. Pearson Director, President and General Counsel
Howard H. Kayton Executive Vice President and Chief
Actuary
Brian J. Finneran Senior Vice President
Jane F. Eagle Senior Vice President
Peter R. Jones Senior Vice President
Cheryl M. MacGregor Senior Vice President
Alex H. Masson Senior Vice President
Anthony J. Williamson Senior Vice President, Chief Investment
Officer
George R. Bateman Vice President
James C. Turner Vice President
</TABLE>
<PAGE> 76
<TABLE>
<S> <C>
Leo Brown Assistant Vice President
Steven J. Brash Assistant Vice President
Ronald Mare Assistant Vice President
Cheryl J. Finney Associate General Counsel and Assistant
Secretary
Patrizia DiMolfetta Controller
James Bossert Assistant Controller
George J. Olah Treasurer
Louis Ragusa Secretary
Richard G. Mandel Assistant Secretary
</TABLE>
Item 26. Persons Controlled by or under Common Control with
Depositor of Registrant
The Registrant is a Separate Account of Security First Life Insurance Company
("depositor"). For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the depositor, see Exhibit
13.
Item 27. Number of Contract Owners
As of March 31, 1998 there were 9,739 owners of the Contracts which are the
subject of this post-effective amendment.
Item 28. Indemnification
None
Item 29. Principal Underwriters
Security First Financial, Inc. is the principal underwriter for Security First
Life Separate Account A.
The following are the directors and officers of Security First Financial, Inc.
Their principal business address is 11365 West Olympic Boulevard, Los Angeles,
California 90064.
<TABLE>
<CAPTION>
Name Position with Underwriter
- ---- -------------------------
<S> <C>
Richard C. Pearson Director, President, General Counsel and
Secretary
Jane Frances Eagle Director, Senior Vice President and
Treasurer
Peter R. Jones Senior Vice President
Howard H. Kayton Senior Vice President and Chief Actuary
James Cyrus Turner Vice President and Assistant Secretary
Alan G. Arthurs Assistant Vice President
*Barbara J. Ellner Supervisor of Compliance
</TABLE>
* not an officer
<PAGE> 77
<TABLE>
<CAPTION>
Net
Name of Underwriting Compensation on
Principal Discount and Redemption or Brokerage
Underwriter Commissions* Annuitization Commission Compensation
- ----------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
Security First None None None None
Financial, Inc.
</TABLE>
*Fee paid by Security First Life Insurance Company for serving as underwriter.
Item 30. Location of Accounts and Records
Security First Financial, Inc., underwriter for the registrant, is located at
11365 West Olympic Boulevard, Los Angeles, California 90064. It maintains those
accounts and records required to be maintained by it pursuant to Section 31(a)
of the Investment Company Act of 1940 and the rules promulgated thereunder.
Security First Life Insurance Company, the depositor for the registrant, is
located at 11365 West Olympic Boulevard, Los Angeles, California 90064. It
maintains those accounts and records required to be maintained by it pursuant to
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder and as custodian for the Registrant.
Security First Group, Inc. is located at 11365 West Olympic Boulevard, Los
Angeles, California 90064. It performs substantially all of the recordkeeping
and administrative services in connection with the Registrant.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant makes the following undertakings:
Security First Life represents that the charges deducted under the Contracts
described herein this registration statement are, in the aggregate, reasonable
in relation to the services rendered, the expenses expected to be incurred and
the risks assumed by Security First
<PAGE> 78
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of the Securities
Act Rule 485(b) for effectiveness of this Registration Statement and has duly
caused this amended Registration Statement to be signed on its behalf in the
City of Los Angeles and State of California on this 30th day of April 1997.
SECURITY FIRST LIFE SEPARATE ACCOUNT A
(Registrant)
By SECURITY FIRST LIFE INSURANCE COMPANY
(Sponsor)
By /s/ Robert G. Mepham
--------------------------------------
Robert G. Mepham, President
As required by the Securities Act of 1933, this Post-Effective amendment to its
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert G. Mepham President, Director April 30, 1997
- ----------------------
Robert G. Mepham
/s/ Jane F. Eagle Principal Financial and April 30, 1997
- ---------------------- Accounting Officer
Jane F. Eagle
Melvin M. Hawkrigg* Chairman, Director April 30, 1997
- ----------------------
Melvin M. Hawkrigg
- ---------------------- Director April 30, 1997
Frederic J. Tomczyk
Paul X. Kelley* Director April 30, 1997
- ----------------------
Paul X. Kelley
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Frank E. Farella* Director April 30, 1997
- ----------------------
Frank E. Farella
/s/ Richard C. Pearson Director April 30, 1997
- ----------------------
Richard C. Pearson
/s/ Richard C. Pearson April 30, 1997
- ----------------------
*(Richard C. Pearson as
Attorney-in-Fact for each
of the persons indicated)
</TABLE>
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports on Security First Life Insurance Company and
Subsidiaries dated February 11, 1998 and Security First Life Separate Account A
dated April 17, 1998 in the Registration Statement (Form N-4, amendment number
28 under the Securities Act of 1933, and amendment number 98 under the
Investment Company Act of 1940) and related Prospectus and Statement of
Additional Information of Security First Life Separate Account A.
Ernst & Young LLP
Los Angeles, California
July 24, 1998
<PAGE> 1
EXHIBIT 13
ORGANIZATIONAL STRUCTURE OF METROPOLITAN AND SUBSIDIARIES
AS OF DECEMBER 31, 1997
The following is a list of subsidiaries of Metropolitan Life Insurance Company
("Metropolitan") as of December 31, 1997. Those entities which are listed at
the left margin (labelled with capital letters) are direct subsidiaries of
Metropolitan. Unless otherwise indicated, each entity which is indented under
another entity is a subsidiary of such indented entity and, therefore, an
indirect subsidiary of Metropolitan. Certain inactive subsidiaries have been
omitted from the Metropolitan Organizational listing. The voting securities
(excluding directors' qualifying shares, if any) of the subsidiaries listed are
100% owned by their respective parent corporations, unless otherwise indicated.
The jurisdiction of domicile of each subsidiary listed is set forth in the
parenthetical following such subsidiary.
A. Metropolitan Tower Corp. (Delaware)
1. Metropolitan Property and Casualty Insurance Company (Rhode Island)
a. Metropolitan Group Property and Casualty Insurance Company
(Rhode Island)
i. Metropolitan Reinsurance Company (U.K.) Limited (Great
Britain)
b. Metropolitan Casualty Insurance Company (Rhode Island)
c. Metropolitan General Insurance Company (Rhode Island)
d. First General Insurance Company (Georgia)
e. Metropolitan P&C Insurance Services, Inc. (California)
f. Metropolitan Lloyds, Inc. (Texas)
g. Met P&C Managing General Agency, Inc. (Texas)
2. Metropolitan Insurance and Annuity Company (Delaware)
a. MetLife Europe I, Inc. (Delaware)
b. MetLife Europe II, Inc. (Delaware)
c. MetLife Europe III, Inc. (Delaware)
d. MetLife Europe IV, Inc. (Delaware)
e. MetLife Europe V, Inc. (Delaware)
f. MetLife Healthcare Holdings, Inc. (Delaware)
3. MetLife General Insurance Agency, Inc. (Delaware)
a. MetLife General Insurance Agency of Alabama, Inc. (Alabama)
b. MetLife General Insurance Agency of Kentucky, Inc. (Kentucky)
c. MetLife General Insurance Agency of Mississippi, Inc.
(Mississippi)
d. MetLife General Insurance Agency of Texas, Inc. (Texas)
e. MetLife General Insurance Agency of North Carolina, Inc. (North
Carolina)
f. MetLife General Insurance Agency of Massachusetts, Inc.
(Massachusetts)
1
<PAGE> 2
4. Metropolitan Asset Management Corporation (Delaware)
a. MetLife Capital Holdings, Inc. (Delaware)
i. MetLife Capital Corporation (Delaware)
(1) Searles Cogeneration, Inc. (Delaware)
(2) MLYC Cogen, Inc. (Delaware)
(3) MCC Yerkes Inc. (Washington)
(4) MetLife Capital, Limited Partnership (Delaware).
Partnership interests in MetLife Capital, Limited
Partnership are held by Metropolitan (90%) and MetLife
Capital Corporation (10%).
(5) CLJFinco, Inc. (Delaware)
(a) MetLife Capital Credit L.P. (Delaware).
Partnership interests in MetLife Capital Credit
L.P. are held by Metropolitan (90%) and CLJ
Finco, Inc. (10%).
(i) MetLife Capital CFLI Holdings, LLC (DE)
(1) MetLife Capital CFLI Leasing, LLC
(DE)
(6) MetLife Capital Portfolio Investments, Inc. (Nevada)
(a) MetLife Capital Funding Corp. (Delaware)
(7) MetLife Capital Funding Corp. II (Delaware)
(8) MetLife Capital Funding Corp. III (Delaware)
ii. MetLife Capital Financial Corporation (Delaware)
90% of outstanding equity interest in Metlife
Capital Financial Corporation held directly
by Metropolitan Life Insurance Company.
2
<PAGE> 3
iii. MetLife Financial Acceptance Corporation (Delaware).
MetLife Capital Holdings, Inc. holds 100% of the voting
preferred stock of MetLife Financial Acceptance Corporation.
Metropolitan Property and Casualty Insurance Company holds
100% of the common stock of MetLife Financial Acceptance
Corporation.
iv. MetLife Capital International Ltd. (Delaware).
b. MetLife Investments Limited (United Kingdom). 23rd Street
Investments, Inc. holds one share of MetLife Investments
Limited.
c. MetLife Investments Asia Limited (Hong Kong). One share of
MetLife Investments Asia Limited is held by W&C Services, Inc., a
nominee of Metropolitan Asset Management Corporation.
5. SSRM Holdings, Inc. (Delaware)
a. GFM International Investors Ltd. (United Kingdom).
b. GFM International Investors, Inc. (United Kingdom).
i. GFM Investments Limited (United Kingdom)
c. State Street Research & Management Company (Delaware). Is a sub-
investment manager for the Growth, Income, Diversified and
Aggressive Growth Portfolios of Metropolitan Series Fund, Inc.
i. State Street Research Investment Services, Inc.
(Massachusetts)
d. SSR Realty Advisors, Inc. (Delaware)
i. Metric Management Inc. (Delaware)
ii. Metric Property Management, Inc. (Delaware)
(1) Metric Realty (Delaware). SSR Realty Advisors, Inc.
and Metric Property Management, Inc. each hold 50% of
the common stock of Metric Realty.
(a) Metric Institutional Apartment Fund II, L.P.
(California). Metric Realty holds a 1% interest
as general partner and Metropolitan holds an
approximately 14.6% limited partnership interest
in Metric Institutional Apartment Fund II, L.P.
(2) Metric Colorado, Inc. (Colorado). Metric Property
Management, Inc. holds 80% of the common stock of
Metric Colorado, Inc.
iii. Metric Capital Corporation (California)
iv. Metric Assignor, Inc. (California)
v. SSR AV, Inc. (Delaware)
3
<PAGE> 4
6. MetLife Holdings, Inc. (Delaware)
a. MetLife Funding, Inc. (Delaware)
b. MetLife Credit Corp. (Delaware)
7. Metropolitan Tower Realty Company, Inc. (Delaware)
8. Met Life Real Estate Advisors, Inc. (California)
9. Security First Group, Inc. (DE)
a. Security First Life Insurance Company (DE)
(i) Security First Life Insurance Company of Arizona (AZ)
b. Security First Insurance Agency, Inc. (MA)
c. Security First Financial Insurance Agency, Inc. (NV)
d. Security First Group of Ohio, Inc. (OH)
e. Security First Financial, Inc. (DE)
f. Security First Investment Management Corporation (DE)
g. Security First Management Corporation (DE)
h. Security First Real Estate, Inc. (DE)
10. Natiloportem Holdings, Inc. (Delaware)
B. Metropolitan Tower Life Insurance Company (Delaware)
C. MetLife Security Insurance Company of Louisiana (Louisiana)
D. MetLife Texas Holdings, Inc. (Delaware)
1. Texas Life Insurance Company (Texas)
a. Texas Life Agency Services, Inc. (Texas)
b. Texas Life Agency Services of Kansas, Inc. (Kansas)
E. MetLife Securities, Inc. (Delaware)
F. 23rd Street Investments, Inc. (Delaware)
G. Metropolitan Life Holdings Limited (Ontario, Canada)
1. Metropolitan Life Financial Services Limited (Ontario, Canada)
2. Metropolitan Life Financial Management Limited (Ontario, Canada)
a. Metropolitan Life Insurance Company of Canada (Canada)
4
<PAGE> 5
3. Morguard Investments Limited (Ontario, Canada)
Shares of Morguard Investments Limited ("Morguard") are held by
Metropolitan Life Holdings Limited (72%) and by employees of Morguard
(28%).
4. Services La Metropolitaine Quebec, Inc. (Quebec, Canada)
H. Santander Met, S.A. (Spain). Shares of Santander Met, S.A. are held by
Metropolitan (50%) and by an entity (50%) unaffiliated with Metropolitan.
1. Seguros Genesis, S.A. (Spain)
2. Genesis Seguros Generales, Sociedad Anomina de Seguros y Reaseguros
(Spain)
I. Kolon-Met Life Insurance Company (Korea). Shares of Kolon-MetLife Insurance
Company are held by Metropolitan (51%) and by an entity (49%) unaffiliated
with Metropolitan.
5
<PAGE> 6
J. Metropolitan Life Seguros de Vida S.A. (Argentina)
K. Metropolitan Life Seguros de Retiro S.A. (Argentina).
L. Met Life Holdings Luxembourg (Luxembourg)
M. Metropolitan Life Holdings, Netherlands BV (Netherlands)
N. MetLife International Holdings, Inc. (Delaware)
O. Metropolitan Life Insurance Company of Hong Kong Limited (Hong Kong)
P. Metropolitan Marine Way Investments Limited (Canada)
Q. P.T. MetLife Sejahtera (Indonesia)
R. Seguros Genesis S.A. (Mexico) Metropolitan holds 85.49%, Metropolitan Tower
Corp. holds 7.31% and Metropolitan Asset Management Corporation holds 7.20%
of the common stock of Seguros Genesis S.A.
S. AFORE Genesis Metropolitan S.A. de C.V. (Mexico)
T. Metropolitan Life Seguros E Previdencia Privada S.A. (Brazil)
U. Hyatt Legal Plans, Inc. (Delaware)
V. One Madison Merchandising L.L.C. (Connecticut) Ownership of membership
interests in One Madison Merchandising L.L.C. is as follows: Metropolitan
owns 99% and Metropolitan Tower Corp. owns 1%.
6
<PAGE> 7
W. Metropolitan Realty Management, Inc. (Delaware)
1. Edison Supply and Distribution, Inc. (Delaware)
2. Cross & Brown Company (New York)
a. Cross & Brown Associates of New York, Inc. (New York)
b. Cross & Brown Construction Corp. (New York)
c. CBNJ, Inc. (New Jersey)
d. Subrown Corp. (New York)
X. MetPark Funding, Inc. (Delaware)
Y. 2154 Trading Corporation (New York)
Z. Transmountain Land & Livestock Company (Montana)
AA. Farmers National Company (Nebraska)
1. Farmers National Commodities, Inc. (Nebraska)
7
<PAGE> 8
A.B. MetLife Trust Company, National Association. (United States)
A.C. PESCO Plus, L.C. (Florida). Metropolitan holds a 50% interest in
PESCO Plus, L.C. and an unaffiliated party holds a 50% interest.
1. Public Employees Equities Services Company (Florida)
A.D. Benefit Services Corporation (Georgia)
A.E. G.A. Holding Corporation (MA)
A.F. TNE-Y, Inc. (DE)
A.G. CRH., Inc. (MA)
A.H. NELRECO Troy, Inc. (MA)
A.I. TNE Funding Corporation (DE)
A.J. L/C Development Corporation (CA)
A.K. Boylston Capital Advisors, Inc. (MA)
1. New England Portfolio Advisors, Inc. (MA)
A.L. CRB Co., Inc. (MA) AEW Real Estate Advisors, Inc. holds 49,000 preferred
non-voting shares of CRB Co., Inc. AEW Advisors, Inc. holds 1,000
preferred non-voting shares of CRB Co., Inc.
A.M. DPA Holding Corp. (MA)
A.N. Lyon/Copley Development Corporation (CA)
A.O. NEL Partnership Investments I, Inc. (MA)
A.P. New England Life Mortgage Funding Corporation (MA)
A.Q. Mercadian Capital L.P. (DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian Capital
L.P.
A.R. Mercadian Funding L.P. ( DE). Metropolitan holds a 95% limited partner
interest and an unaffiliated third party holds 5% of Mercadian
Funding L.P.
A.S. MetLife New England Holdings, Inc. (DE)
1. New England Life Insurance Company (MA)
a. New England Life Holdings, Inc. (DE)
i. New England Securities Corporation (MA)
1. Hereford Insurance Agency, Inc. (MA)
2. Hereford Insurance Agency of Alabama, Inc. (AL)
3. Hereford Insurance Agency of Minnesota, Inc. (MN)
4. Hereford Insurance Agency of Ohio, Inc. (OH)
5. Hereford Insurance Agency of New Mexico, Inc. (NM)
ii. TNE Advisers, Inc. (MA)
iii. TNE Information Services, Inc. (MA)
b. Exeter Reassurance Company, Ltd. (MA)
c. Omega Reinsurance Corporation (AZ)
d. New England Pension and Annuity Company (DE)
e. Newbury Insurance Company, Limited (Bermuda)
2. New England Investment Companies, Inc. (MA)
a. New England Investment companies, L.P. (DE) New England Investment
Companies, Inc. holds a 1.7% general partnership interest in New
England Investment Companies, L.P. MetLife New England Holdings,
Inc. holds a 3.3% general partnership interest in New England
Investment Companies, L.P.
3. NEIC Operating Partnership, L.P.
New England Investment Companies, L.P. holds a 14.2% general
partnership Interest and New England Investment Companies, Inc.
holds a 0.00002% general Partnership Interest in NEIC operating
Partnership, L.P. Metropolitan holds a 46.3% Limited Partnership
Interest in NEIC Operating Partnership, L.P.
a. NEIC Holdings, Inc. (MA)
i. Back Bay Advisors, Inc. (MA)
(1) Back Bay Advisors, L.P. (DE)
Back Bay Advisors, Inc.
holds a 1% general partner
interest and NEIC
Holdings, Inc. holds a 99%
limited partner interest
in Back Bay Advisors, L.P.
ii. R & T Asset Management, Inc. (MA)
(1) Reich & Tang Distributors, L.P. (DE)
R & T Asset Management Inc.
holds a 1% general interest and
R & T Asset Management, L.P.
holds a 99.5% limited partner
interest in Reich Tang Distributors, L.P.
(2) R & T Asset Management L.P.
R & T Asset Management, Inc.
holds a 0.5% general partner interest and
NEIC Holdings, Inc. hold a 99.5% limited
partner interest in &
Asset Management, L.P.
(3) Reich & Tang Services, L.P. (DE)
R & T Asset Management, Inc.
holds a 1% general partner interest and
R & T Asset Management, L.P.
holds a 99% limited partner interest
in Reich & Tang Services, L.P.
iii. Loomis, Sayles & Company, Inc. (MA)
(1) Loomis Sayles & Company, L.P. (DE)
Loomis Sayles & Company, Inc.
holds a 1% general partner interest and
R & T Asset Management, Inc. holds a 99%
limited partner interest in Loomis Sayles &
Company, L.P.
iv. Westpeak Investment Advisors, Inc. (MA)
(1) Westpeak Investment Advisors, L.P. (DE)
Westpeak Investment Advisors, Inc.
holds a 1% general partner interest and
Reich & Tang holds a 99% limited
partner interest in Westpeak Investment
Advisors, L.P.
v. VNSM, Inc. (DE)
(1) Vaughan, Nelson Scarborough & McConnell, L.P. (DE)
VNSM, Inc. holds a 1% general partner interest and
Reich & Tang Asset Management, Inc. holds a 99%
limited partner interest in Vaughan, Nelson
Scarborough & McConnell, L.P.
a. Breen Trust Company
vi. MC Management, Inc. (MA)
(1) MC Management, L.P. (DE)
MC Management, Inc. holds a 1% general partner
interest and R & T Asset Management, Inc.
holds a 99% limited partner interest in MC
Management, L.P.
vii. Harris Associates, Inc. (DE)
(1) Harris Associates Securities L.P. (DE)
Harris Associates, Inc. holds a 1% general partner
interest and Harris Associates L.P. holds a
99% limited partner interest in Harris Associates
Securities, L.P.
(2) Harris Associates L.P. (DE)
Harris Associates, Inc. holds a 0.33% general
partner interest and NEIC Operating Partnership,
L.P. holds a 99.67% limited partner interest in
Harris Associates L.P.
(a) Harris Partners, Inc. (DE)
(b) Harris Partners L.L.C. (DE)
Harris Partners, Inc. holds a 1%
membership interest and
Harris Associates L.P. holds a 99%
membership interest in Harris Partners L.L.C.
(i) Aurora Limited Partnership (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(ii) Perseus Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
(iii) Pleiades Partners L.P. (DE) Harris
Partners L.L.C. holds a 1% general partner
interest
(iv) Stellar Partners L.P. (DE)
Harris Partners L.L.C. holds a 1% general
partner interest
(v) SPA Partners L.P. (DE) Harris Partners
L.L.C. holds a 1% general partner interest
viii. Graystone Partners, Inc. (MA)
(1) Graystone Partners, L.P. (DE)
Graystone Partners, Inc. holds a 1%
general partner interest and New England
NEIC Operating Partnership, L.P.
holds a 99% limited partner interest in
Graystone Partners, L.P.
ix. NEF Corporation (MA)
(1) New England Funds, L.P. (DE) NEF Corporation holds a
1% general partner interest and NEIC Operating
Partnership, L.P. holds a 99% limited
partner interest in New England Funds, L.P.
(2) New England Funds Management, L.P. (DE) NEF
Corporation holds a 1% general partner interest and
NEIC Operating Partnership, L.P. holds a 99%
limited partner interest in New England Funds
Management, L.P.
x. New England Investment Associates, Inc.
xi. Snyder Capital Management, Inc.
(1) Snyder Capital Management, L.P. NEIC Operating
Partnership holds a 99.5% limited partnership
interest and Snyder Capital Management Inc. holds a
0.5% general partnership interest.
xii. Jurika & Voyles, Inc.
(1) Jurika & Voyles, L.P NEIC Operating Partnership,
L.P. holds a 99% limited partnership interest and
Jurika & Voyles, Inc. holds a 1% general partnership
interest.
b. Capital Growth Management, L.P. (DE)
NEIC Operating Partnership, L.P. holds a 50% limited partner
interest in Capital Growth Management, L.P.
c. AEW Capital Management, Inc. (DE)
i. AEW Securities, L.P. (DE) AEW Capital Management, Inc. holds
a 1% general partnership and AEW Capital Management, L.P.
holds a 99% limited partnership interest in AEW Securities,
L.P.
d. AEW Capital Management L.P. (DE)
New England Investment Companies, L.P. holds a 99% limited partner
interest and AEW Capital Management, Inc. holds a 1% general partner
interest in AEW Capital Management, L.P.
1. AEW Investment Group, Inc. (MA)
a. Copley Public Partnership Holding, L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75%
limited partnership interest in Copley Public Partnership
Holding, L.P.
b. AEW Management and Advisors L.P. (MA)
AEW Investment Group, Inc. holds a 25% general partnership
interest and AEW Capital Management, L.P. holds a 75% limited
partnership interest in AEW Management and Advisors L.P.
i. BBC Investment Advisors, Inc. (MA)
AEW Investment Group, Inc. holds 60% of the voting securities
and Back Bay Advisors, L.P. holds 40% of the voting securities
of BBC Investment Advisors, Inc.
1. BBC Investment Advisors, L.P. (MA)
BBC Investment Advisors, Inc. holds a 1% general partnership interest
and AEW Management and Advisors, L.P. holds a 59.4% limited
partnership interest and Back Bay Advisors, L.P. holds a 39.6% limited
partnership interest in BBC Investment Advisors, L.P.
ii. AEW Real Estate Advisors, Inc. (MA)
1. AEW Advisors, Inc. (MA)
2. Copley Properties Company, Inc. (MA)
3. Copley Properties Company II, Inc. (MA)
4. Copley Properties Company III, Inc. (MA)
5. Fourth Copley Corp. (MA)
6. Fifth Copley Corp. (MA)
7. Sixth Copley Corp. (MA)
8. Seventh Copley Corp. (MA).
9. Eighth Copley Corp. (MA).
10. First Income Corp. (MA).
11. Second Income Corp. (MA).
12. Third Income Corp. (MA).
13. Fourth Income Corp. (MA).
14. Third Singleton Corp. (MA).
15. Fourth Singleton Corp. (MA)
16. Fifth Singleton Corp. (MA)
17. Sixth Singleton Corp. (MA).
18. BCOP Associates L.P. (MA)
AEW Real Estate Advisors, Inc. holds a 1% general
partner interest in BCOP Associates L.P.
iii. CREA Western Investors I, Inc. (MA)
1. CREA Western Investors I, L.P. (DE)
CREA Western Investors I, Inc. holds a 24.28% general
partnership interest and Copley Public Partnership Holding,
L.P. holds a 57.62% limited partnership interest in CREA
Western Investors I, L.P.
iv. CREA Investors Santa Fe Springs, Inc. (MA)
2. Copley Public Partnership Holding, L.P. (DE)
AEW Capital Management, L.P. holds a 75% limited partner interest and
AEW Investment Group, Inc. holds a 25% general partner interest and
CREA Western Investors I, L.P holds a 57.62% Limited Partnership
interest.
3. AEW Real Estate Advisors, Limited Partnership (MA)
AEW Real Estate Advisors, Inc. holds a 25% general partnership interest
and AEW Capital Management, L.P. holds a 75% limited partnership
interest in AEW Real Estate Advisors, Limited Partnership.
4. AEW Hotel Investment Corporation (MA)
a. AEW Hotel Investment, Limited Partnership (MA)
AEW Hotel Investment Corporation holds a 1% general
partnership interest and AEW Capital Management, L.P. holds a
99% limited partnership interest in AEW Hotel Investment,
Limited Partnership.
5. Aldrich Eastman Global Investment Strategies, LLC (DE)
AEW Capital Management, L.P. holds a 25% membership interest and an
unaffiliated third party holds a 75% membership interest in Aldrich
Eastman Global Investment Strategies, LLC.
8
<PAGE> 9
In addition to the entities listed above, Metropolitan (or where indicated an
affiliate) also owns an interest in the following entities, among others:
1) CP&S Communications, Inc., a New York corporation, holds federal radio
communications licenses for equipment used in Metropolitan owned facilities and
airplanes. It is not engaged in any business.
2) Quadreal Corp., a New York corporation, is the fee holder of a parcel of
real property subject to a 999 year prepaid lease. It is wholly owned by
Metropolitan, having been acquired by a wholly owned subsidiary of Metropolitan
in 1973 in connection with a real estate investment and transferred to
Metropolitan in 1988.
3) Met Life International Real Estate Equity Shares, Inc., a Delaware
corporation, is a real estate investment trust. Metropolitan owns approximately
18.4% of the outstanding common stock of this company and has the right to
designate 2 of the 5 members of its Board of Directors.
4) Metropolitan Structures is a general partnership in which Metropolitan owns
a 50% interest.
5) Interbroker, Correduria de Reaseguros, S.A., is a Spanish insurance
brokerage company in which Santander Met, S. A., a subsidiary of Metropolitan in
which Metropolitan owns a 50% mt ST, owns a 50% interest and has the right to
designate 2 of the 4 members of the Board of Directors.
9
<PAGE> 10
6) Metropolitan owns varying interests in certain mutual funds distributed by
its affiliates. These ownership interests are generally expected to decrease as
shares of the funds are purchased by unaffiliated investors.
7) Metropolitan Lloyds Insurance Company of Texas, an affiliated association,
provides homeowner and related insurance for the Texas market. It is an
association of individuals designated as underwriters. Metropolitan Lloyds,
Inc., a subsidiary of Metropolitan Property and Casualty Insurance Company ("MET
P&C"), serves as the attorney-in-fact and manages the association.
8) Mezzanine Investment Limited Partnerships ("MILPs"), Delaware limited
partnerships, are investment vehicles through which investments in certain
entities are held. A wholly owned subsidiary of Metropolitan serves as the
general partner of the limited partnerships and Metropolitan directly owns a 99%
limited partnership interest in each MILP. The MILPs have various's ownership
interests in certain companies. The various MILPs own, directly or indirectly,
more than 50% of the voting stock of the following company: Coating
Technologies International, Inc.
NOTE: THE METROPOLITAN LIFE ORGANIZATIONAL CHART
DOES NOT INCLUDE REAL ESTATE
- - ----
JOINT VENTURES AND PARTNERSHIPS OF WHICH METROPOLITAN LIFE AND/OR ITS
SUBSIDIARIES IS AN INVESTMENT PARTNER. IN ADDITION, CERTAIN INACTIVE
SUBSIDIARIES HAVE ALSO BEEN OMITTED.
10
