<PAGE> 1
'33 ACT FILE NO. 33-28623
'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. 15 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
AMENDMENT NO. 95 [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)
[ ] MEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485
[X] ON MAY 1, 1998 PURSUANT TO PARAGRAPH (b) OF RULE 485
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485
[ ] ON [DATE] PURSUANT TO PARAGRAPH (a) OF RULE 485
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 - PROSPECTUS
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption in Prospectus
- ----------------------- ---------------------
<S> <C>
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis or Highlights Synopsis of the Contracts
4. Condensed Financial Information Condensed Financial Information; Financial
Information
5. General Description of Registrant, Description of Security First Life Insurance
Depositor, and Portfolio Companies Company, The Separate Account and The Funds;
Voting Rights; Servicing Agent
6. Deductions and Expenses Contract Charges
7. General Description of Variable Description of the Contracts
Annuity Contracts
8. Annuity Period Annuity Period
9. Death Benefit Death Benefits
10. Purchases and Contract Value Description of the Contracts; Accumulation
Period Principal Underwriter
11. Redemptions Accumulation Period
12. Taxees Federal Income Tax Status
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Statement of Table of Contents of the Statement of
Additional Information Additional Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <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
19. Purchase of Securities Being Offered Purchase of Securities Being Offered
20. Underwriters Distribution of the Contracts
21. Calculation of Yield Quotations of Not Applicable
Money Market Subaccounts
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
- --------------------------------------------------------------------------------
GROUP FLEXIBLE PAYMENT
VARIABLE ANNUITY CONTRACTS
Security First Life Insurance Company
11365 West Olympic Boulevard
Los Angeles, California 90064
- --------------------------------------------------------------------------------
The group flexible payment variable annuity contracts ("Contracts") described in
this prospectus are issued by Security First Life Insurance Company ("Security
First"). These Contracts are offered in connection with retirement plans that
receive favorable tax treatment under Section 401 of the Internal Revenue Code
(the "Code") to employees of public school systems, churches and certain
tax-exempt organizations as tax sheltered annuity Contracts described in Section
403(b) of the Code, to public employers maintaining deferred compensation plans
described in Section 457 of the Code, to retirement plans that qualify under
Section 401 of the Code and to individuals as individual retirement annuities.
The Contracts are funded by the T. Rowe Price Growth and Income Series and the
Bond Series of Security First Trust; T. Rowe Price Growth Stock Fund, Inc.; T.
Rowe Price Prime Reserve Fund, Inc.; and T. Rowe Price International Stock Fund,
Inc.
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 in a Statement of Additional Information,
dated May 1, 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 telephone (310)
312-6100.
The table of contents of the Statement of Additional Information appears on page
21 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 PARTICIPANT RECEIVES SUCH A PROSPECTUS. IN THE
CASE OF A SECTION 403(b) PLAN OR AN IRA, PURCHASE PAYMENTS MAY NOT BE INVESTED
IN T. ROWE PRICE GROWTH STOCK FUND, INC. OR T. ROWE PRICE PRIME RESERVE FUND,
INC.
- --------------------------------------------------------------------------------
THIS PROSPECTUS AND THE PROSPECTUS FOR THE UNDERLYING FUND(S) SHOULD BE READ
CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Prospectus dated May 1, 1998
SF 89-12-04 (5/98)
SF 224 FL
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................. 3
Introduction................................................ 4
Synopsis of the Contracts................................... 4
Fee Tables.................................................. 6
Condensed Financial Information............................. 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 General Account..................................... 9
The Separate Account.................................... 9
The Funds............................................... 10
Principal Underwriter....................................... 10
Servicing Agent............................................. 10
Safekeeping of Securities................................... 11
Contract Charges............................................ 11
Premium Taxes........................................... 11
Refundable Sales Charge................................. 11
Administrative Charges.................................. 12
Mortality and Expense Risk Charge....................... 12
Description of the Contracts................................ 12
Annuity Certificates.................................... 12
Assignment.............................................. 12
Purchase Payments....................................... 13
Transfers from the General Account to the Separate
Account................................................ 13
Transfer Among Series................................... 13
Modification of the Contract............................ 13
Accumulation Period......................................... 14
Crediting Accumulation Units............................ 14
Valuation of an Account................................. 14
Separate Account Accumulation Unit Current Values....... 14
Net Investment Factor................................... 14
Termination (Redemption)................................ 14
Limitations on Redemptions.............................. 15
Statement of Account.................................... 15
Annuity Period.............................................. 15
Annuity Payments........................................ 15
Election of Annuity Date and Form of Annuity............ 16
Frequency of Payment.................................... 17
Level Payments Varying Annually......................... 17
Alternate Assumed Investment Rates...................... 17
Annuity Unit Values..................................... 17
Death Benefits.............................................. 18
Death Before the Annuity Date........................... 17
Death After the Annuity Date............................ 18
Withdrawal.............................................. 18
Federal Income Tax Status................................... 18
Withholding............................................. 20
Multiple Contracts...................................... 20
Obtaining Tax Advice.................................... 20
Voting Rights............................................... 20
Legal Proceedings........................................... 20
Additional Information...................................... 21
Table of Contents of Statement of Additional Information.... 22
</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
DEFINITIONS
As used in this prospectus, these terms have the following meanings:
ACCUMULATION UNIT -- A measuring unit used to determine the value of a
Participant's interest in a General Account or Separate Account series under a
Contract at any time before Annuity Payments commence.
ANNUITANT -- The individual on whose life Annuity payments under a Contract are
based.
ANNUITY -- A series of periodic payments made to an Annuitant for life, for life
with a minimum number of payments certain, for the joint lifetime of two
Annuitants and thereafter during the lifetime of the survivor, or for a
designated period.
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.
BUSINESS DAY -- Each Monday through Friday except for days the New York Stock
Exchange is not open for trading.
CERTIFICATE -- The form given to each Participant describing that participant's
rights under a Contract.
CERTIFICATE DATE -- The date a Participant's Certificate is issued.
CERTIFICATE YEAR-- A period of 12 consecutive months beginning on the date a
Participant's Certificate is issued and on each subsequent anniversary thereof.
CONTRACT -- The agreement between Security First and the group contractholder
covering the rights of the whole group.
FIXED ANNUITY -- An Annuity providing guaranteed level payments. Such payments
are not based upon the investment experience of the Separate Account.
FUND -- A registered management investment company, or an investment series of a
registered management investment company (mutual fund), which serves as the
underlying investment medium for the Separate Account.
GENERAL ACCOUNT -- All assets of Security First other than those in the Separate
Account or any of its other segregated asset account established by Security
First.
OWNER -- The person who has title to the Contract.
PARTICIPANT -- The individual by or for whom Purchase Payments are made under a
Contract.
PARTICIPANT'S ACCOUNT -- The sum of all accumulation units credited for a
Participant under a Contract.
PURCHASE PAYMENTS -- The amounts paid to Security First in order to provide
Annuity benefits under the Contracts.
SEPARATE ACCOUNT -- The segregated asset account entitled "Security First Life
Separate Account A" which has been established by Security First pursuant to
Delaware law to receive and invest amounts allocable to provide Variable Annuity
benefits under the Contracts. The Separate Account is registered as an
investment company under the Investment Company Act of 1940.
SERIES -- A division of the Separate Account, the assets of which consist of
shares of a specified Fund, or an accounting series, maintained for Security
First's General Account to determine values used to provide Fixed Annuity
benefits under the Contracts.
TRANSFER PAYMENT -- Any amount received by Security First for a Participant and
which amount (i) is transferred from another tax-deferred annuity contract or
(ii) is not in accordance with the schedule of payments elected by the
Participant.
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 Contracts. Security First will establish Valuation
Dates at its discretion but until notice to the contrary is given there will be
one Valuation Date in each calendar week for annuity unit values, such date
being the last business day in a week. Accumulation unit values will be
determined each business day.
VALUATION PERIOD -- The period of time from one Valuation Date through the next
Valuation Date.
3
<PAGE> 7
VARIABLE ANNUITY -- An Annuity providing payments which will vary in accordance
with the investment experience of the applicable Separate Account series.
INTRODUCTION
This prospectus relates to Contracts issued by Security First which are
group fixed and variable annuity contracts previously issued by Capitol Life
Separate Account A and The Capitol Life Insurance Company and assumed by
Security First. Because the Variable Annuity benefits provided under these
Contracts are based upon the changing values of mutual funds, where the
investment risk is borne by the Owner or Participant, they are securities under
federal law and are accordingly registered under the Securities Act of 1933.
SYNOPSIS OF THE CONTRACTS
Under the Contracts Purchase Payments will be made to Security First until a
specific date, after which Annuity benefits become payable. The minimum monthly
Purchase Payment is $20, with an annual minimum of $240. State and municipal
premium taxes, if applicable, may be deducted from each Purchase Payment as
received, from the Participant's General Account values at the time that a
transfer of amounts to the Separate Account is elected, or from the
Participant's Account at the time Annuity payments commence. However, no such
premium taxes are presently being deducted and, until further notice, such
premium taxes, which range from 0% to 3.5%, will be absorbed by Security First.
(See "Premium Taxes," page 11.)
Purchase Payments made under the Contracts are allocated initially to
Security First's General Account to provide Fixed Annuity benefits. Thereafter,
the Participant may elect to transfer a portion of the resulting General Account
values to the Separate Account to provide the Variable Annuity benefits
described herein subject to certain limitations. (See "The Separate Account,"
page 9.) All or a portion of payments received by Security First, together with
or following a valid written election by the Participant subject to certain
limitations, may be immediately transferred from the General Account to the
Separate Account. The minimum amount of any such immediate transfer is $20.
Except in the case of Contracts issued to certain state and local governmental
units pursuant to section 457 of the Code, up to 48% of the value of
Accumulation Units provided by payments received prior to the receipt by
Security First of a Participant's written election, subject to certain
limitations, may be transferred to the Separate Account in equal monthly
installments of not less than $50 each over a period of at least 48 months from
the date of election. However, no such installment transfers are permitted with
respect to General Account values acquired by a particular payment where any
part of such values has already been transferred to the Separate Account as the
result of a prior election. In all cases, amounts which have been transferred
from the General Account to the Separate Account may not be transferred back to
the General Account except to provide immediate Fixed Annuity benefits.
Each transfer from the General Account to the Separate Account is treated as
a surrender from the General Account and is subject to a refundable sales charge
which varies in amount from 0% to 7%, depending on the length of time the
amounts to be transferred have remained in the General Account. This charge will
be restored, in whole or in part, as an Annuity Bonus when Annuity payments
begin under the Contract.
Pursuant to the Participant's designation, amounts transferred to the
Separate Account are invested at a net asset value in Accumulation Units of one
or more of five Series of the Separate Account, each of which consists of the
shares of a different Fund. The five Funds which constitute the underlying
investment media for the Contracts offered by this prospectus are the Bond
Series of Security First Trust ("Bond Series"), the T. Rowe Price Growth and
Income Series of Security First Trust ("T. Rowe Price Growth and Income
Series"), T. Rowe Price Growth Stock Fund, Inc. ("Growth Stock Fund"), T. Rowe
Price Prime Reserve Fund, Inc. ("Prime Reserve Fund"), and the T. Rowe Price
International Stock Fund, Inc. ("International Stock Fund") corresponding
respectively to the aforementioned Series. (See "The Funds," page 9.)
If a Certificate is issued in connection with a plan qualifying under Code
section 403(b) or in connection with the purchase of an IRA under section
408(b), amounts transferred to the Separate Account may be invested only in two
Series: the Bond Series and the T. Rowe Price Growth and Income Series of
Security First Trust. If a Certificate has been issued pursuant to a plan
qualifying under Code section 457, any amounts transferred to the Separate
Account may be invested in all five Series.
T. Rowe Price Associates, Inc. ("Price Associates") provides investment
advisory and administrative services to Growth Stock Fund, Prime Reserve Fund
and International Stock Fund ("T. Rowe Price Funds"). Security First Investment
Management Corporation ("Security Management") is investment adviser and manager
to Security First
4
<PAGE> 8
Trust. Under a subadvisory agreement with Security Management, Price Associates
provides investment advisory services with respect to the T. Rowe Price Growth
and Income Series of Security First Trust and Neuberger & Berman, LLC ("N&B") is
subadvisor to Security Management with respect to the Bond Service of Security
First Trust.
During the accumulation period, a Participant may elect to have all or part
of the amounts allocated to any one Separate Account Series transferred to
another Separate Account Series, subject to certain limitations. (See "Transfer
Among Series," page 13.) Each such transfer is subject to a $10 transfer charge
and to a $1,000 minimum amount. Such transfers are also permitted after the
Annuity Date, subject to the same $10 charge. Except in the case of Contracts
issued to certain state and local governmental units pursuant to section 457 of
the Code, an administrative charge ranging from $30 to $40 will be assessed
against a Participant's Account on each anniversary of the date such account was
established and on the date such account is cancelled as the result of a
complete surrender. A daily deduction for mortality and expense risks under the
Contracts, at the rate of .0000244 (equivalent to .89% annually) is assessed
against and deducted from the assets of each Series in the Separate Account.
(See "Contract Charges," page 11.)
The Internal Revenue Code limits withdrawals from 403(b) Annuity Contracts
to circumstances only: when the Participant attains age 59 1/2, separates from
service, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code), or in the case of hardship. Withdrawals for hardship are restricted to
the portion of the Participant's Account Value which represents contributions
made by the Participant and does not include any investment results. The
limitations on withdrawals apply only to: (1) salary reduction contributions
made after December 31, 1988; (2) income attributable to such contributions; and
(3) income attributable to amounts held as of December 31, 1988. The limitations
on withdrawals do not affect rollovers or exchanges between retirement plans
which receive favorable tax treatment under the Code. Tax penalties may also
apply.
Participants should consult their own tax counsel or other tax adviser
regarding any distributions.
Subject to the foregoing, a Participant may at any time before the Annuity
Date surrender all or part of his interest under the Contract, provided that no
partial surrender is permitted if it would reduce the Participant's interest in
any Series to less than $200 unless his entire interest in that Series is being
surrendered. Surrenders from any Separate Account Series are subject to a $10
charge and are effected on the basis of the current value of Accumulation Units
in such Series. (See "Termination (Redemption)," page 14.) In the event of the
Annuitant's death prior to attaining age 65 and before the Annuity Date,
Security First will pay as a death benefit the accumulated value of the
Participant's Account or, if greater, the total of the Participant's Purchase
Payments reduced by any amounts previously applied to provide Annuity income or
withdrawn as partial surrenders. (See "Death Benefits," page 17.)
Since the contracts are designed to fulfill long-term financial needs,
purchasers should not consider them as short-term or temporary investments. The
Code provides for various taxes which may be assessed upon amounts that are
withdrawn prematurely under the Contracts. (See "Federal Income Tax Status,"
page 18.)
5
<PAGE> 9
FEE TABLES
PARTICIPANT TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Applicable Charge as a
Calendar Percentage of Purchase
Year Payment
-------- ----------------------
<S> <C> <C>
(a) Refundable Sales Charges (Applies to 1 7%
transfers from the General Account to 2 6%
the Separate Account) 3 5%
4 4%
5 3%
6 and after 0%
(b) Withdrawal Charge $10 for each Series from which
withdrawal is made.
(c) Transfer Charge (Applies to election $10 per transfer
to transfer Accumulation or Annuity
Units from any one Series to another)
</TABLE>
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
(d) Annual Administrative Charges $30 $40 per year
</TABLE>
-----------------------------------
(1) An investment in the Separate Account may only be
obtained through transfers from the General Account.
(2) Security First reserves the right to reduce the minimum
administrative charge for particular contracts.
SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE.
DEDUCTED DAILY FROM THE SEPARATE ACCOUNT.)
Mortality and Expense Risk Fees 0.89% annually
SECURITY FIRST TRUST (SERIES B AND G)(1)
T. ROWE PRICE GROWTH STOCK FUND, INC. (SERIES T)
T. ROWE PRICE PRIME RESERVE FUND, INC. (SERIES P)
T. ROWE PRICE INTERNATIONAL STOCK FUND (SERIES I)
ANNUAL EXPENSES
<TABLE>
<CAPTION>
Series B Series G Series T Series P Series I
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(a) Management Fee
(as a percentage of average net
assets)........................ 0.50% 0.50% 0.57% 0.37% 0.67%
(b) Other Expenses
(as a percentage of average net
assets)........................ 0.25% 0.07% 0.18% 0.26% 0.18%
(c) Total Annual Expenses
of Underlying Funds............ 0.75% 0.57% 0.75% 0.63% 0.85%
</TABLE>
- ---------------
(1) Series B (Bond Series); Series G (T. Rowe Price Growth and Income Series).
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>
B (a) upon surrender at the end of the stated time (a) $ 95 $127 $162 $258
period
(b) if the Certificate WAS NOT surrendered (b) $ 85 $117 $152 $248
- -------- --------------------------------------------------- ---- ---- ---- ----
G SAME (a) $ 94 $122 $153 $240
(b) $ 84 $112 $143 $230
- -------- --------------------------------------------------- ---- ---- ---- ----
T SAME (a) $ 95 $127 $162 $258
(b) $ 85 $117 $152 $248
- -------- --------------------------------------------------- ---- ---- ---- ----
P SAME (a) $ 94 $124 $156 $246
(b) $ 84 $114 $146 $236
- -------- --------------------------------------------------- ---- ---- ---- ----
I SAME (a) $ 96 $130 $166 $268
(b) $ 86 $120 $156 $258
- -------- --------------------------------------------------- ---- ---- ---- ----
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the foregoing table and examples is to assist the Participant
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 11 of this prospectus. The examples do not
illustrate the tax consequences of surrendering a Contract.
2. The examples assume that the initial transfer from the General Account to the
Separate Account occurred during the first certificate year and that,
therefore, the maximum sales charge of 7% is applied against the initial
$1,000 investment. The 7% charge, however, should not be considered an
expense if the Certificate is not surrendered, since that amount is placed in
the Participant's fixed account to be refunded upon annuitization and payable
in the form of a fixed annuity. Thus, for example, if the Participant began
an annuity payout at any of the time periods indicated in the examples, he or
she would receive an additional value (based upon the $1,000 hypothetical
investment) of: 1 year $74, 3 years $81, 5 years $89 and 10 years $114 to be
applied to a fixed annuity. In the case of an annuitization, the examples of
expense incurred would be as follows:
<TABLE>
<CAPTION>
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
B 17 52 89 193
G 14 44 76 167
T 15 48 83 180
P 14 45 77 169
I 16 51 88 191
</TABLE>
3. For purposes of the amounts reported in the examples, annual Administrative
Charges are estimated by dividing the total amount of contract fees collected
during the year by the total average net assets.
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
The following table which sets forth condensed financial information on
accumulation units respecting Contracts issued under this prospectus through the
Separate Account, is derived from the financial statements of the Separate
Account and has been audited by Ernst & Young LLP, the Separate Account's
independent auditors. The information should be read in conjunction with the
financial statements, related notes and other financial information in the
Statement of Additional Information.
<TABLE>
<CAPTION>
Twelve Twelve Twelve Twelve Five Twelve Twelve Twelve
Months Months Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended Ended Ended
Separate Account Series 7/31/90 7/31/91 7/31/92 7/31/93 12/31/93 12/31/94 12/31/95 12/31/96
----------------------- --------- --------- --------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series B (Bond Series)
Beg. AUV $ (11/9/89)... 12.20 12.36 13.18 14.91 16.20 16.48 15.77 18.25
End. AUV $............. 12.36 13.18 14.91 16.20 16.48 15.77 18.25 18.60
End. No. Qualified
AUs.................. 57,610 67,327 71,494 66,784 66,252 43,585 44,229 32,205
Series G (T. Rowe Price
Growth and Income
Series)
Beg. AUV $ (11/9/89)... 19.48 19.00 20.79 23.45 25.27 26.64 27.17 35.31
End. AUV $............. 19.00 20.79 23.45 25.27 26.64 27.17 35.31 42.57
End. No. Qualified
AUs.................. 233,796 273,141 321,363 288,163 292,425 246,935 221,870 211,335
Series P (T. Rowe Price
Prime Reserve Fund)
Beg. AUV $ (11/9/89)... 10.26 10.77 11.39 11.77 11.98 12.07 12.40 12.97
End. AUV $............. 10.77 11.39 11.77 11.98 12.07 12.40 12.97 13.49
End. No. Qualified
AUs.................. 180,074 222,041 199,653 116,446 95,082 81,944 80,686 79,691
Yield.................. 6.44% 4.45% 2.09% 1.60% 1.75% 4.50% 4.11% 4.01%
Series T (T. Rowe Price
Growth Stock Fund)
Beg. AUV $ (Nov.
9/89)................ 14.87 16.21 17.27 19.30 20.98 23.45 23.44 30.44
End. AUV $............. 16.21 17.27 19.30 20.98 23.45 23.44 30.44 36.72
End. No. Qualified
AUs.................. 376,458 392,242 428,924 385,459 381,785 324,281 313,902 298,850
Series I (T Rowe Price
International Stock
Fund)
Beg. AUV $ (7/24/92)... 5.00 5.09 5.73 6.85 6.74 7.45
End. AUV $............. 5.09 5.73 6.85 6.74 7.45 8.57
End. No. Qualified
AUs.................. 139 90,120 129,581 151,651 131,277 135,635
- --------------------------------------------------------------------------------------------------------------------------------
AUV -- Accumulation Unit
Value
AUs -- Accumulation Units
<CAPTION>
Twelve
Months
Ended
Separate Account Series 12/31/97
----------------------- -----------
<S> <C>
Series B (Bond Series)
Beg. AUV $ (11/9/89)... 18.60
End. AUV $............. 20.11
End. No. Qualified
AUs.................. 39,681
Series G (T. Rowe Price
Growth and Income
Series)
Beg. AUV $ (11/9/89)... 42.57
End. AUV $............. 53.68
End. No. Qualified
AUs.................. 504,233
Series P (T. Rowe Price
Prime Reserve Fund)
Beg. AUV $ (11/9/89)... 13.49
End. AUV $............. 14.05
End. No. Qualified
AUs.................. 6,866
Yield.................. 4.07%
Series T (T. Rowe Price
Growth Stock Fund)
Beg. AUV $ (Nov.
9/89)................ 36.72
End. AUV $............. 46.06
End. No. Qualified
AUs.................. 1,033,735
Series I (T Rowe Price
International Stock
Fund)
Beg. AUV $ (7/24/92)... 8.57
End. AUV $............. 8.72
End. No. Qualified
AUs.................. 865,412
- ----------------------------------------------------
AUV -- Accumulation Unit
Value
AUs -- Accumulation Units
</TABLE>
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 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 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
8
<PAGE> 12
New York mutual life insurance company. MetLife, with assets of $167 billion at
June 30, 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 GENERAL ACCOUNT
The General Account is made up of all of the assets of Security First, other
than those in the Separate Account and any other segregated asset account. The
Owner may allocate amounts to the General Account at the time of purchase or by
subsequent transfers from the Separate Account. Amounts allocated to the General
Account will be credited with interest on the basis of interest rates guaranteed
or declared by Security First under the terms of the Contract. Instead of the
Owner bearing the risk of fluctuations in the value of the assets as is the case
for amounts invested in the Separate Account, Security First bears the full
investment risk for amounts in the General Account. Security First has sole
discretion to invest the assets of the General Account, subject to applicable
law. The General Account provisions of the Contract are not intended to be
offered by this Prospectus. Contract Owners are referred to the terms of the
Contract itself for more information concerning those provisions.
THE SEPARATE ACCOUNT
The Separate Account was established by Security First on May 29, 1980, in
accordance with the provisions of the Delaware Insurance Code. It is registered
as a unit investment trust under the Investment Company Act of 1940 ("1940
Act"). Registration with the Securities and Exchange Commission ("SEC") does not
involve supervision by the SEC of the management or investment practices or
policies of the Separate Account or Security First.
The Separate Account and each Series therein are administered and accounted
for as part of the general business of Security First, 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 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 may conduct.
All obligations arising under the Contracts, including the guarantee to make
Annuity payments, are general corporate obligations of Security First, and all
of Security First's assets are available to meet its expenses and obligations
under the Contracts. However, while Security First is obligated to make the
Variable Annuity payments under the Contracts, the amount of such payments is
guaranteed only to the extent of the level amount calculated at the beginning of
each Annuity year. (See "Level Payments Varying Annually," page 17.)
The Separate Account is divided into a number of Series of Accumulation and
Annuity Units, five of which are available under the Contracts and each Series
invests in the shares of only one of the Funds (for this purpose, the term
"Fund" shall include each investment series of a multiple series management
investment company.) Series B, G, T, P and I, respectively, invest solely in the
shares of the Bond Series, the T. Rowe Price Growth and Income Series, Growth
Stock Fund, Prime Reserve Fund and the International Stock Fund. The shares of
each Fund are purchased for the corresponding Separate Account Series at the net
asset value per share next determined by each Fund following its receipt of the
applicable payment, without sales charge. Any dividend or capital gain
distributions received from a Fund are reinvested in Fund shares which are
retained as assets of the applicable Separate Account Series. Fund shares will
be redeemed without fee to the Separate Account to the extent necessary for
Security First to make Annuity or other payments under the Contracts.
If a Certificate is issued in connection with a tax sheltered annuity under
section 403(b) of the Code or an IRA, amounts transferred to the Separate
Account may be invested only in two Series: Series B and Series G. If a
Certificate has been issued in connection with a deferred compensation plan
described in section 457 of the Code, any amounts transferred to the Separate
Account may be invested in five Series: Series B, Series G, Series T, Series P
and Series I. These restrictions also apply to conversion between Series.
If shares of any Fund should no longer be available for investment by a
Series or if in the judgment of Security First's management further investment
in the shares of any fund should become inappropriate in view of the purposes of
the Contracts issued, Security First 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.
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<PAGE> 13
THE FUNDS
Each Fund in which a Separate Account Series is invested is a diversified,
open-end, management investment company, or a separate investment series
thereof, registered under the Investment Company Act of 1940. Such registration
does not involve supervision by the Securities and Exchange Commission of the
investments or investment policies of the Funds. The investment objectives of
the Funds are set forth below. There can be no assurance that the investment
objectives of any of the Funds will be achieved.
The principal investment objective of the Bond Series is to achieve the
highest investment income over the long-term of Security First Trust consistent
with the preservation of principal through investment primarily in marketable
debt instruments. A secondary objective is growth of principal and income with
respect to those Fund assets that are invested in common and preferred stocks.
The principal investment objectives of the T. Rowe Price Growth and Income
Series are capital growth and production of income. Conservation of principal is
a secondary objective. While this Fund will generally invest in common stocks
and other equities, it may, depending on economic conditions, reduce such
investments and substitute fixed income instruments.
The principal investment objective of Growth Stock Fund is long-term growth
of capital through investments, primarily in common stocks of growth companies.
The investment objectives of Prime Reserve Fund are to seek the highest
possible levels of current income while preserving capital and maintaining
liquidity by investing primarily in money market (short-term debt) instruments.
The investment objectives of the International Stock Fund are total return
on its assets from long-term growth of capital and income, principally through
investments in common stocks of established non-U.S. companies. Investments may
be made solely for capital appreciation or solely for income or any combination
of both for the purpose of achieving a higher overall return.
Price Associates provides investment advisory services and administrative
services for the T. Rowe Price Funds. Security Management is the investment
advisor and manager to the Security First Trust. Under a subadvisory agreement
with Security Management, N&B is subadvisor to Security Management with respect
to the Bond Series and Price Associates is subadvisor with respect to the T.
Rowe Price Growth and Income Series of Security First Trust. Security First
Trust, a Massachusetts business trust, intends to offer its shares to separate
accounts funding variable annuity issued by both affiliated and unaffiliated
insurance companies. This practice, referred to as shared funding, presents the
potential for certain conflicts of interest which are discussed in the
prospectus for Security First Trust.
The rights of Contract Owners, Annuitants, Participants or beneficiaries to
instruct the Separate Account on the voting of portfolio company securities
underlying their interest in the Separate Account can be found under the heading
"Voting Rights" page 20.
Detailed information about each Fund, the investment objectives, the
investment portfolio and the charges may be found in the Prospectus of each
Fund. An investor should carefully read a Fund's Prospectus before investing in
it. Prospectuses for each of the underlying Funds may be obtained without charge
by written request to Security First Life Insurance Company, P.O. Box 92193, Los
Angeles, California 90009.
PRINCIPAL UNDERWRITER
Security First Financial, Inc., 11365 West Olympic Boulevard, Los Angeles,
California 90064, a broker-dealer registered under the Securities Exchange Act
of 1934 and a member of the National Association of Securities Dealers, Inc., is
the principal underwriter for the Contracts. Security First Financial, Inc., is
a Delaware corporation and a subsidiary of SFG.
SERVICING AGENT
Security First receives certain administrative services such as office
space, supplies, utilities, office equipment, travel expenses and periodic
reports pursuant to an agreement with SFG.
SAFEKEEPING OF SECURITIES
All assets of the Separate Account are held in the custody of 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.
10
<PAGE> 14
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 in the following ways: (i) as charges on
transfers from the General Account to the Separate Account, which may be deemed
to be in the nature of sales charges, (ii) as charges against each Participant's
Account for the administration of such account and (iii) as charges against the
value of the assets of the Separate Account Series for the assumption of
mortality and expense risks. These charges may not be changed under the
Contract.
A Participant should note that there are deductions from and expenses paid
out of the assets of the underlying Funds that are described in their respective
prospectuses.
PREMIUM TAXES
The Contracts permit Security First to deduct any applicable state premium
taxes, from each payment as received, from the Participant's General Account
values at the time that a transfer of amounts to the Separate Account is
elected, or from the Participant's Account at the time Annuity payments
commence. However, until further notice, such premium taxes, which range from 0%
to 2.35% (3.50% in Nevada), will be absorbed by Security First and will not be
charged against any Participant's Account.
REFUNDABLE SALES CHARGE
Whenever a Participant elects to make a transfer from the General Account to
the Separate Account, such transfer is treated as a surrender from the General
Account and is subject to a percentage charge that varies according to the
length of time that payment amounts received by Security First have remained in
the General Account before being transferred. Such charge is never imposed on
earnings of the Separate Account. This charge amounts to:
7% for amounts received in the calendar year of the transfer;
6% for amounts received in the calendar year before the transfer;
5% for amounts received in the 2nd calendar year before the transfer;
4% for amounts received in the 3rd calendar year before the transfer;
3% for amounts received in the 4th calendar year before the transfer;
0% for all amounts received prior to the 4th calendar year before the
transfer;
These charges are applied by reducing the Participant's interest in the
General Account Series by an amount determined by dividing the amount elected to
be transferred to the Separate Account by a factor derived from the above
percentage charges. This factor is equivalent to (a) -- (b) where (a) is 1 and
(b) is the percentage charge expressed as a decimal. The General Account units
are cancelled on a first-in, first-out basis. The effect of this varying
schedule of percentage charges is that amounts left in the General Account for
longer periods of time are subject to a lower charge than amounts immediately
transferred. Thus, for example, if a Participant makes a written election to
transfer $500 of a Purchase Payment to Series B of the Separate Account
simultaneous with or prior to making the periodic payment, the General Account
Series would be reduced by $537.63 ($500 divided by a factor of 0.93). On the
other hand, if such transfer was a part of an election pertaining to a payment
that had been deposited in the second calendar year prior to the election to
transfer, the General Account Series would be reduced by only $526.32 ($500
divided by a factor of 0.95). (See "Transfers from the General Account to the
Separate Account," page 13.)
While there is no direct correlation between the percentage charge and the
sales commissions that Security First pays to agents who sell the Contracts
described in this prospectus, such charge may nevertheless be deemed to be in
the nature of a sales charge for purposes of the 1940 Act. If, however, a
Participant's Account is applied to provide Annuity income, all percentage
charges (other than premium taxes, if any) previously imposed on that
Participant's transfers from the General Account to the Separate Account will be
restored in full or in part, as an Annuity bonus. (See "Annuity Payments," page
15.)
ADMINISTRATIVE CHARGES
At the end of each Certificate Year, and on the date a Participant's Account
is cancelled as a result of a complete redemption, Security First will deduct an
administrative charge equal to $27.50 plus $2.50 for each General Account and
Separate Account Series for which there are Accumulation Units included in the
value of such account. These charges will thus range from a minimum of $30 to a
maximum of $40 on an annual basis. With respect to certain
11
<PAGE> 15
Contracts issued to fund deferred compensation plans for state and local
government employees described in section 457 of the Code, Security First has
agreed to waive a portion of this annual administrative charge. As a result, the
charge will be equal to $12 for a single Series, plus $2.50 for each additional
Series and the administrative charges will therefore range from $12 to $22. The
administrative charge is designed to cover the costs of administering the
contracts.
Administrative expenses include the cost of policy issuance, salaries, rent,
postage, telephone, travel expenses, legal, administrative, actuarial and
accounting fees, periodic reports, office equipment, stationery, office space
and custodial expenses.
A $10 transfer charge is deducted from a Participant's Account for each
allowable election to transfer Accumulation Units or Annuity Units from any one
Series to another. (See "Transfer Among Series," page 13.) A $10 surrender
charge is deducted from a Participant's Account for each partial surrender to
cover the costs of redemption. (See "Termination (Redemption)," page 14.)
All of the various types of charges described above are effected by
cancelling Accumulation Units equal in value to the charges, and are allocated
(i) to the Series from which a surrender or transfer is being made or (ii) in
the case of periodic administrative charges, among the General Account and
Separate Account Series on the basis of their relative values at the time the
deduction is made.
MORTALITY AND EXPENSE RISK CHARGE
The minimum death benefit provided for by the Contracts requires Security
First to assume a mortality risk that the accumulated Contract value credited to
a Participant will be less than the Participant's adjusted Purchase Payments.
(See "Death Before the Annuity Date," page 17.) In addition, because the
Contracts provide life Annuity options, Security First 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. Security
First also assumes the risk that the amounts collected as "Administrative
Charges" may be insufficient to cover its actual costs. A fee will be charged by
Security First to compensate it for assuming these mortality and expense risks
in connection with amounts allocated to the Separate Account. In valuing the
Separate Account, Security First will make a daily deduction from the Separate
Account determined by multiplying the value of the assets of the Separate
Account by .0000244 (.89% on an annual basis).
In the event Security First has gains from the receipt of this fee over its
costs of assuming actuarial risks under the Contracts, some portion of the gains
may be allocated to Participants' Accounts under such Contracts as experience
credits if permitted by the plan under which the Contract is issued.
To the extent there is a profit from the mortality and expense risk charges,
Security First may use such profit in its discretion, including the use of such
profit to offset expenses incurred in the distribution of the Contracts.
DESCRIPTION OF THE CONTRACTS
ANNUITY CERTIFICATES
A group Contract is issued to a Contract Owner who is typically an employer,
a trustee, or a government organization establishing a retirement plan.
Employees who become Participants in the retirement plan are covered by a group
Contract and may be issued a Certificate which evidences their participation and
summarizes their rights under the Contract. No Certificates are issued to
Participants under a deferred compensation or qualified retirement plan since
all ownership rights in the Contract are held by the employer or the plan trust.
Since the Contracts are designed to fulfill long-term financial needs,
purchasers should not consider them as short-term or temporary investments.
ASSIGNMENT
The rights of Participants under the Contract may be restricted or augmented
by the terms of the particular retirement plan or by the Code. For example, the
Code provides rules as to the amount of contributions, the time when
distributions must be commenced, and the Annuity options which are available. In
particular, the Code provides that Certificates issued in connection with
section 401 and 403 plans and IRAs must be nontransferable and nonassignable.
12
<PAGE> 16
PURCHASE PAYMENTS
Purchase Payments may be made on an annual, semi-annual, quarterly, or
monthly basis, or at such intervals as may be agreed to by Security First. The
frequency of Purchase Payments may be changed if permitted by the applicable
plan. The minimum annual Purchase Payment is $240; with each monthly purchase
payment subject to a $20 minimum. Purchase Payments will be invested in the
General Account Series to purchase Accumulation Units at their value on the date
the payment is received by Security First. Security First may also accept
Transfer Payments from other annuity contracts. Confirmation of each Purchase or
Transfer Payment received will be sent to the Owner or Participant as
appropriate.
TRANSFERS FROM THE GENERAL ACCOUNT TO THE SEPARATE ACCOUNT
The entire Purchase Payment, minus a 7% sales charge, may be transferred
immediately to the Separate Account if written instructions are received prior
to or simultaneous with the receipt of the payments affected. The minimum amount
that may be transferred with respect to any payment is $20.
With the exception of certain deferred compensation plans described in
section 457 of the Code, if Purchase Payments are not transferred immediately,
subsequent elections to transfer are restricted to 48% of such payments and are
transferred in equal monthly installments over a period of at least 48 months.
Each monthly installment is subject to a $50 minimum. Transfers from the General
Account to the Separate Account are not permitted after Annuity payments have
commenced. No monthly transfers may be made from General Account Accumulation
Units which have been subject to any prior transfer election.
All amounts transferred represent the current surrender value of the General
Account Accumulation Units which are cancelled. Pursuant to the Participant's
designation, and certain limitations described in "The Separate Account," page
9, amounts transferred to the Separate Account are invested at net asset value
in Accumulation Units of one or more of five Series, each of which consists of
the shares of a different Fund. The investment performance of the Fund and
deductions of certain changes affect the Accumulation Unit value. Amounts may
also be transferred back from the Separate Account to the General Account, but
only in connection with an election to apply the resulting General Account
values to provide Fixed Annuity benefits. In addition, all or part of the
percentage transfer charge may be restored as an Annuity bonus upon
annuitization. (See "Annuity Payments," page 15.)
TRANSFER AMONG SERIES
A Participant may by written direction to Security First transfer either
Accumulation Units or Annuity Units from any Separate Account Series to any one
or more other Separate Account Series. If a Certificate has been issued to fund
a tax sheltered annuity described in Section 403(b) of the Code, an IRA or a
deferred compensation plan for state or local employees described in Section 457
of the Code, transfers are subject to certain limitations. (See "The Separate
Account," page 9.) The minimum amount to be transferred is $1,000 and is based
upon the value of the affected Series at the close of trading on the New York
Stock Exchange (currently 4:00 P.M. Eastern Time) on the Business Day such
transfer of a unit occurs, subject to a transfer charge of $10.
MODIFICATION OF THE CONTRACT
The Contracts include Security First'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
with respect to these Annuity purchase rates and such other matters as death
benefits, deductions from Purchase Payments, deductions from individual accounts
for actuarial risk and other fees, and guaranteed rates with respect to fixed
benefits. Security First may unilaterally change such provisions to the extent
permitted by the Contract, but only: (i) with respect to Participants who become
covered under a Contract 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
Certificate Year exceed the first year's Purchase Payments; (iii) with respect
to benefits and values provided by any Transfer Payment from another tax
deferred annuity contract which is accepted by Security First after the
effective date of the change; or (iv) to the extent necessary to make the
Contract conform to any federal or state law, regulations or ruling.
A contract may also be modified by agreement between Security First and the
Contract Owner, provided that no such modification will affect a Participant's
Account without that Participant's written consent.
13
<PAGE> 17
Inquiries as to Contract provisions should be made in writing to Security
First Life Insurance Company, P.O. Box 92193, Los Angeles, California 90009 or
by calling (310) 312-6100.
ACCUMULATION PERIOD
CREDITING ACCUMULATION UNITS
Accumulation Units are credited to a Participant's Account upon receipt of
each payment, transfer or conversion, as the case may be. The number of
Accumulation Units to be credited is determined by dividing the net amount
allocated to the Series in question by the value of an Accumulation Unit in that
Series next computed following receipt of the payment, transfer or conversion.
VALUATION OF AN ACCOUNT
The value of a Participant's Account prior to the Annuity Date is determined
each business day as of the close of trading on the New York Stock Exchange
(currently 4:00 P.M. Eastern Time) by multiplying the total number of
Accumulation Units credited to the account for each Series by the current value
of an Accumulation Unit in that Series. Prior to the Annuity Date, each
Participant will be provided with a written statement of account for each
calendar quarter in which a transaction occurred, but in no event less than once
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 Participant's Account, the current Accumulation Unit value for
each such Series, and the total value of the Participant's Account as of the end
of the reporting period.
SEPARATE ACCOUNT ACCUMULATION UNIT CURRENT VALUES
The current value of Separate Account Accumulation Units for a Series varies
with the investment experience of the Fund in which assets of that Series are
invested. Such value is determined by multiplying the value of an Accumulation
Unit in the Series on the immediately preceding Business Day by the net
investment factor for the period since that day (see below). The Participant
bears the investment risk that the aggregate value of that portion of the
Participant's Account which is allocated to the Separate Account may at any time
be less than, equal to, or more than the amounts transferred to the Separate
Account.
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 the Fund in which the Series is
invested, since the preceding Business Day. The net investment factor may be
either positive or negative, depending upon the Fund's investment performance.
TERMINATION (REDEMPTION)
To the extent permitted by the Code and the plan under the terms of which
the Contract is purchased, a Participant's Account may be terminated fully or
partially at any time prior to the Annuity Date. As terminations may be
restricted or result in adverse federal income tax consequences, Participants
should consult their tax advisers before terminating their accounts. (See
"Accumulation Period -- Limitations on Redemptions," page 15.)
The termination value (redemption value) of a Participant'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
Participant's Account by the value of an Accumulation Unit in such Separate
Account Series at that time. Upon receipt of an application for a full or
partial termination of a Participant's Account, Security First will determine
the value of the number of Accumulation Units terminated at the Accumulation
Unit value next computed following receipt of such written request by Security
First.
A request for a partial termination (partial surrender) of a Participant's
Account containing more than one Series of Accumulation Units must specify the
allocation of the partial termination among the Series of Accumulation Units. In
the case of partial surrenders, a charge of the lesser of $10 or 2% of the
amount of the surrender is assessed against the value of each Series from which
a surrender is being made. No partial termination may be made that would cause a
Participant's interest in any Series in the Separate Account or the General
Account to have a value after the termination of less than $200, unless the
entire amount allocated to such Series is being withdrawn. Any termination in
the Separate Account will result in full or partial forfeiture of the right to
have charges previously imposed on transfers from the
14
<PAGE> 18
General Account to the Separate Account restored in the form of an Annuity
bonus. (See "Annuity Payments," page 15.)
Payment of any amount surrendered from the Separate Account will be made
within seven days of the date the request is received by Security First.
Payments of termination values 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.
Repayment of the amount received from the Separate Account upon such a
termination may be made if such repayment is received by Security First within
30 days of the date such amount was mailed to the Participant by Security First,
provided that this reinstatement right may be exercised one time only. An amount
repaid under this provision will be applied to purchase Separate Account
Accumulation Units at the unit values prevailing at the time the repayment is
received by Security First. Failure to exercise such repayment privilege after a
full termination will result in cancellation of a Participant's Account under
the Contract.
LIMITATIONS ON REDEMPTIONS
Participant account values attributable to contributions made pursuant to a
salary reduction agreement, as defined in section 403(b)(11) of the Code, may be
redeemed only: when the Participant attains age 59 1/2, separates from service,
dies, becomes disabled (within the meaning of Section 72(m)(7) of the Code) or
in the case of hardship.
Redemptions in the case of hardship may not include any income attributable
to salary reduction contributions.
Redeemed amounts may be taxable and may be subject to a penalty tax. If a
withdrawal is taxable, Security First will process required tax withholding
against a Participant's Account. A Participant should first consult with a tax
adviser before terminating any portion of his or her Account. If these
limitations are violated, the Participant's Certificate may be disqualified
under section 403(b) of the Code, resulting in immediate taxation.
The above limitations affect contributions made pursuant to a salary
reduction agreement after December 31, 1988 and to income attributable to such
contributions and to income attributable to amounts held as of December 31,
1988. The limitations generally do not apply to rollovers or exchanges between
retirement plans which receive favorable tax treatment under the Code.
Participants should consult their own tax counsel or other tax adviser.
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.
Allocations and transfers reflected in the statements will be considered final
at the end of 60 days from the date of the statement.
ANNUITY PERIOD
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of a Participant's Account is
determined by multiplying the number of Accumulation Units of each Series in his
account by the value of an Accumulation Unit in the account in that Series on
the last Business Day of the second calendar week immediately preceding the date
on which the first Annuity payment is to be made. Immediately prior to this
valuation, Separate Account values may be transferred among the Separate Account
and General Account Series in order to allocate benefits during the Annuity
period between Fixed and Variable Annuity payments as desired by the
Participant, subject to a $10 conversion charge. (This is the only circumstance
under which amounts may be transferred from the Separate Account back to the
General Account.)
In the absence of such allocation, General Account Accumulation Units will
be applied to provide a Fixed Annuity, and Separate Account Accumulation Units
will be applied to provide a Variable Annuity. The dollar amount of Variable
Annuity payments will reflect investment gains and losses and investment income
in the Separate Account both before
15
<PAGE> 19
and after the Annuity Date (assuming variable accumulation) but will not be
affected by adverse mortality experience or by an increase in Security First's
expenses which may exceed the various administrative charges provided for under
the Contracts.
When a Participant's interest in the Separate Account is applied to provide
Annuity income then, if such Participant has made no terminations (redemptions)
from the Separate Account, Security First will add an Annuity bonus to the
amount available to provide Fixed Annuity benefits under the Contract. The
Annuity bonus will be equal to the sales charges previously imposed upon the
Participant's Account with respect to transfers from the General Account to one
or more Separate Account Series, together with interest on such amount. If the
Participant has made partial terminations (redemptions) from the Separate
Account, an Annuity bonus will still be credited but will be reduced
proportionately to reflect those terminations. The Annuity bonus will be reduced
by the same proportion which the amount of the termination then bears to the
Participant's entire interest in the Separate Account.
ELECTION OF ANNUITY DATE AND FORM OF ANNUITY
The date on which Annuity payments are to begin and the form of option are
elected by the Participant or Owner, as the case may be. The normal Annuity Date
is the Certificate anniversary nearest to the Annuitant's 75th birthday, or the
10th anniversary of the Certificate Date, whichever is later, except as the Code
may otherwise require. However, to the extent not prohibited by any applicable
plan restrictions, 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.
The normal form of Annuity under the Contracts is Option 2, a life Annuity
with 120 monthly payments certain. Unless indicated otherwise, Option 2 will be
automatically applied. Changes in the optional form of Annuity payment may be
made at any time up to 31 days prior to the date on which Annuity payments are
to begin. Options 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 Annuity payments described in Options 1 through 4 are determined on the
basis of (i) the mortality table specified in the Contracts, (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 rate 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.
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 of 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.
OPTION 4 -- JOINT AND LAST SURVIVOR ANNUITY
An Annuity payable monthly during the joint lifetime of an individual 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, which will not be less than 4% per annum for designated
periods of 10 to 30 years, and 3% per annum for designated periods of 5 to 9
years. Participants who are age 60 or older on the Annuity Date, or who have
submitted evidence of their election to begin payments under their employer's
16
<PAGE> 20
retirement program, may elect a designated period of 3 years for the Fixed
Annuity payments under this option. Fixed Annuity payments under this option may
not be commuted to a lump sum, except as provided under "Death Benefits," page
17.
FREQUENCY OF PAYMENT
Payments under all options will be made on a monthly basis, unless a
different arrangement has been requested by the Participant and agreed to by
Security First. If at any time any payments to be made to any individual under
any Series are or become less than $50 each, Security First shall have the right
to decrease the frequency of payments to such interval as will result in a
payment of at least $50.
LEVEL PAYMENTS VARYING ANNUALLY
Under the Contracts, 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 Separate Account 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 Separate Account
from year to year rather than from month to month. An amount is removed from the
Separate Account at the beginning of each year during which Annuity income
payments are to be made. The monthly Annuity payments for the year are made from
the General Account and are determined using an assumed investment rate of 4.25%
unless an alternate assumed investment rate has been selected by the individual.
(See "Alternate Assumed Investment Rates," page 17.) Security First will profit
on the amounts placed in the General Account to provide level monthly payments
during that year to the extent that net investment income and gains in the
General Account exceed the assumed investment rate selected.
ALTERNATE ASSUMED INVESTMENT RATES
Variable Annuity payments will vary to reflect the investment experience of
the Separate Account and the assumed investment return is the fulcrum rate
around which Variable Annuity payments will fluctuate to reflect whether the
investment experience of the Separate Account is better or worse than the
assumed rate. A higher assumed investment rate will result in a higher initial
payment, but more slowly rising or more rapidly falling subsequent payments than
a lower assumed investment rate.
Unless otherwise provided, the assumed investment rate will be 4.25% per
annum. To the extent permitted by state law and regulations, Security First will
permit election of an assumed investment rate of 3.50%, 5% or 6%. It should not
be inferred, however, that such rates will bear any relationship to the actual
net investment experience of the Separate Account.
ANNUITY UNIT VALUES
The value of an Annuity Unit for each Series on any 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 Separate Account 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.
DEATH BENEFITS
DEATH BEFORE THE ANNUITY DATE
For certificates issued other than in connection with a section 401 plan, a
section 403(b) plan, a section 457 plan or an IRA, the following provisions
apply:
1. If the beneficiary is the Participant's spouse, the spouse shall be
deemed to be the Participant and succeeds to all the Contract rights that
relate to the Contract.
2. If the beneficiary is not the Participant's spouse, the beneficiary may
elect to receive a lump sum settlement, or to receive annuity income
under Annuity Income Options One, Two, or Five. (See "Annuity Payments,"
page 15). The lump sum settlement must be made within five years of the
death of the participant. Payments
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<PAGE> 21
under the Annuity Income Options must begin within one year of the
Participant's death and the period of payments may not be longer than the
beneficiary's life expectancy as specified by the Internal Revenue
Service tables.
For certificates issued in connection with a section 401 plan, a section
403(b) plan, a section 457 plan or an IRA, and except as otherwise provided in
the plan under the terms of which the Contract was purchased, the following
provisions apply:
1. If the beneficiary is the Participant's spouse, the spouse may elect to
receive annuity income under Annuity Income Options One, Two, or Five, or
to treat the Contract as his or her own. Payments under the Annuity
Income Options must begin prior to the date on which the deceased
Participant would have attained age 70 1/2, and in the case of a section
457 plan the payout period must be less than the spouse's life
expectancy.
2. If the beneficiary is not the Participant's spouse, the beneficiary may
elect to receive a lump sum settlement or to receive annuity income under
Annuity Income Options One, Two, or Five. The lump sum settlement must be
made within five years of the death of the participant. Payments under
the Annuity Income Options must begin within one year of the
participant's death and the period of payments may not be longer than the
beneficiary's life expectancy as specified by the Internal Revenue
Service tables.
The death benefit under the Contracts will be calculated as of the date of
payment after receipt of due proof of death.
DEATH AFTER THE ANNUITY DATE
Unless otherwise provided in the Plan, with respect to section 401 and
403(b) plans and IRA certificates, whenever issued, and all other certificates
issued after January 18, 1985, if the Annuitant 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 may be paid in one sum, calculated on the basis of the assumed
investment rate previously elected, to the estate of the Annuitant unless
another provision has been made and approved by Security First. This value is
calculated as of the date of payment following receipt of due proof of death.
WITHDRAWAL
Unless otherwise restricted, a beneficiary receiving variable payments under
Annuity Income Options 2 or 3 after the death of the 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
rate previously elected. 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. Under the Code as it is now written no federal income tax is
payable by Security First on the investment income and capital gains of the
Separate Account. Moreover, as long as the Separate Account meets the
diversification requirements of section 817(h) of the Code, or the requirements
of section 457 of the Code in the case of a deferred compensation plan no
federal income tax is payable by the Participant on the investment income and
capital gains under a Certificate until Annuity payments commence or a full or
partial withdrawal is made. It is intended that the Separate Account will
continue to meet the requirements of section 817(h) of the Code.
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, some employer plans may permit
nondeductible employee contributions.
All distributions, with the exception of a return of permitted nondeductible
employee contributions, are included in gross income. In the case of section 401
and 403(b) plans and IRAs, a distribution is includible in the year in which it
is paid. In the case of a 457 plan, a distribution is includible in the year it
is paid or made available. Under certain limited circumstances, a lump sum
distribution from a section 401 plan may qualify for special 5-year or 10-year
forward income averaging or long-term capital gains treatment.
18
<PAGE> 22
In the case of section 401, section 403(b), section 457 plans and IRAs,
Annuity payments for life or a period not exceeding the life expectancy of the
Participant or the Participant and a designated beneficiary must commence by
April 1 of the calendar year following the calendar year in which the employee
attains age 70 1/2 or retires (excluding account values in a 403(b) plan at
December 31, 1986). Distributions under sections 401, 403(b) and 457 plans must
also meet the minimum incidental death benefit requirements of the Code.
Except as described below, the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including both 401
and 403(b) plans. To the extent amounts are not includable in gross income
because they have been rolled over to an IRA or to another 403(b) annuity, no
tax penalty will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Participant reaches age 59 1/2; (b) distributions following the death or
disability of the Participant (for this purpose disability is defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments, not less frequently than
annually, made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of such Participant and his designated
beneficiary; (d) distributions to a Participant who has separated from service
after attaining age 55; (e) distributions made to the Participant to the extent
such distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Participant for amounts paid during the taxable year for
medical care; and (f) distributions made to an alternate payee pursuant to a
qualified domestic relations order.
Similar rules apply to IRAs, but there are fewer exceptions to the 10%
penalty tax. The taxable portion of an IRA distribution will not be subject to
the tax penalty if: (a) it is made on or after the date on which the Participant
reaches age 59 1/2; (b) it is made following the death or disability of the
Participant; or (c) it is part of substantially equal periodic payments, not
less frequently than annually, made for the life (or life expectancy) of the
Participant or the joint lives (or joint life expectancies) of such Participant
and his or her designated beneficiary. The 10% penalty tax does not apply to
section 457 plans.
The Code prohibits the withdrawal of amounts contributed or earned under a
403(b) annuity on or after January 1, 1989, except in these circumstances: (a)
the Participant attains age 59 1/2 years, separates from service, dies, becomes
disabled (within the meaning of Section 72(m)(7) of the Code), or (b) in the
case of hardship as determined in accordance with applicable regulations,
including with respect to the existence of a Participant's hardship
circumstances. Withdrawals for hardship are restricted to the portion of the
Participant's Account which represents contributions by the Participant and does
not include any investment results. These limitations on withdrawals apply only
to salary reduction contributions made after December 31, 1988 and to income
attributable to such contributions and to income attributable to amounts held as
of December 31, 1988. The limitations on withdrawals do not affect rollovers or
exchanges between section 403(b) annuities.
Providing certain requirements of the Code are met, distributions from a
plan may be rolled over tax free to another plan. Distributions from a section
401 plan may be rolled over to a section 401 defined contribution plan, a 403(a)
annuity or an IRA. Distributions from a tax sheltered annuity may be rolled over
to another tax sheltered annuity or an IRA. Distributions from an IRA may be
rolled over to another IRA and, if the IRA contains only permissible rollover
amounts, to a section 401 plan or a tax sheltered annuity.
Taxable distributions from a non-qualified retirement plan prior to age
59 1/2 will be subject to an additional tax of 10%, unless otherwise exempt or
the distribution is made from a section 457 plan.
The discussion contained in the Prospectus regarding withdrawals and other
distributions from a Participant's Account should be considered in light of the
above.
WITHHOLDING
Security First is required to withhold federal income tax on Annuity
payments, distributions, partial and full 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. Security First will notify the payee at least annually of
his or her right to change such election.
Security First Life is required to withhold 20% of certain taxable amounts
constituting "eligible rollover distributions" to participants (including lump
sum distributions) in retirement plans under Code Section 401 and tax deferred
annuities under Code Section 403(b). This withholding requirement does not apply
to distributions from such plans and annuities in the form of a life and life
expectancy annuity (individual or joint), an annuity with a designated period of
10 years or more, or any distribution required by the minimum distribution
requirements of Code Section 401(a)(9). Withholding on these latter types of
distribution will continue to be made under the rules described in the prior
paragraph. A participant cannot
19
<PAGE> 23
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 (as payor) with their
correct taxpayer identification number ("TIN"). If the payee is an individual,
the TIN is the same as such person's social security number.
MULTIPLE CONTRACTS
Code Section 72(e)(11) provides that multiple deferred annuity contracts
which are issued within a 12-month period 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.
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
Unless otherwise restricted by the plan under which a Contract is issued,
each Participant will have the right to instruct Security First with respect to
voting the Fund shares which are the assets underlying his interest in the
Separate Account, at all shareholders' meetings. Security First will mail to
each person having voting rights under the Contracts, 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 in proportion
according to the instructions received from all persons giving timely
instructions. Security First 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 has actual knowledge to the contrary, the instructions
given it will be valid as they affect Security First or the Funds.
To the extent that a Participant has vested rights in the Contract pursuant
to sections 403(b) or 408(b) of the Code, such Participant will have the right
to instruct Security First as to how Fund shares attributable to such
Participant are to be voted on his or her behalf. In all other cases, the Owner
shall have the right to instruct Security First as to the casting of votes under
the Contract. Once Annuity payments with respect to a Participant's Account have
begun, the Annuitant shall have any voting rights exercisable with respect to
such account.
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
Participant or Annuitant must have been such on the record date. The number of
Fund shares as to which voting instructions may be given to Security First is
determined by dividing the value, on such record date, of that portion of the
Participant's Account then allocated to the Series for that Fund by the net
asset value of a Fund share as of the same date.
LEGAL PROCEEDINGS
Security First, 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 at the address and phone
number on the cover of this Prospectus. A copy of the Statement of Additional
Information, dated May 1, 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 and the Contracts offered hereby. Statements contained
in this Prospectus as to the contents of the Contracts and other legal
instruments are summaries. For a complete statement of the terms thereof
reference is made to such instruments as filed.
20
<PAGE> 24
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
Additional Federal Income Tax Information................... 6
Underwriters, Distribution of the Contracts................. 9
Voting Rights............................................... 9
Safekeeping of Securities................................... 10
Servicing Agent............................................. 10
Independent Auditors........................................ 10
Legal Matters............................................... 10
State Regulation of Security First.......................... 10
Financial Statements........................................ 11
</TABLE>
21
<PAGE> 25
'33 Act File No. 33-28623
STATEMENT OF
ADDITIONAL INFORMATION
SECURITY FIRST LIFE SEPARATE ACCOUNT A
----------------------------------------------------------------
GROUP FLEXIBLE PAYMENT VARIABLE ANNUITY CONTRACTS
----------------------------------------------------------------
SECURITY FIRST LIFE INSURANCE COMPANY
MAY 1, 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 May 1, 1998,
may be obtained without charge by writing Security First Life Insurance Company
Servicing Agent, P.O. Box 92193, Los Angeles, California 90009 or by telephoning
1(800)992-9785.
SF 224FL
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Insurance Company 3
The Separate Account 3
Net Investment Factor 3
Annuity Payments 3
Additional Federal Income Tax Information 5
Underwriters, Distribution of the Contracts 9
Voting Rights 9
Safekeeping of Securities 9
Servicing Agent 9
Independent Auditors 9
Legal Matters 10
State Regulation of Security First Life 10
Financial Statements 10
</TABLE>
2
<PAGE> 27
THE INSURANCE COMPANY
Security First Life Insurance Company ("Security First Life") is a wholly owned
subsidiary of Security First Group, Inc. ("SFG"). The common shares of SFG are
held by a subsidiary of Metropolitan Life Insurance Company, a New York mutual
life insurance company.
THE SEPARATE ACCOUNT
The Security First Life Separate Account A ("Separate Account") presently funds
group variable annuity Contracts offered by Security First Life on Forms 226 R1,
230, 234, 236 and an individual variable annuity Contract on Form 135. These
group and individual annuity contracts are described in other prospectuses. The
group variable annuity contracts ("Contracts") described in this Statement of
Additional Information and related prospectus is a distinct contract from the
above described group and individual annuity contracts.
Amounts allocated to the Separate Account are invested in the securities of five
Funds. (For purposes of this Statement of Additional Information, the term
"Fund" includes each investment series of a multiple series management
investment company.) These Funds are: the Bond Series and T. Rowe Price Growth
and Income Series of Security First Trust; the T. Rowe Price Growth Stock Fund,
Inc.; the T. Rowe Price Prime Reserve Fund Inc.; and the T. Rowe Price
International Stock Fund, Inc. The Separate Account is divided into multiple
Series of Accumulation and Annuity Units; including Series B, Series G, Series
T, Series P and Series I, corresponding respectively to these five Funds.
3
<PAGE> 28
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 the Fund in which the Series is 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 this result the actuarial risk fee factor
of 0.0000244 for each calendar day between the preceding Business Day and the
end of the current Business Day.
ANNUITY PAYMENTS
Basis of Variable Annuity Benefits
The Variable Annuity benefit 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 of a large group of Annuitants of the
same sex, where permitted, and adjusted age and the form of Annuity selected.
The mortality basis for these tables is Security First Life's Modified Select
Annuity Mortality Table, projected to the year 2000 on Projection Scale C, with
interest at 4.25% for all functions involving life contingencies and the portion
of any period certain beyond 10 years, and 3.25% for the first 10 years of any
certain period.
Adjusted age in those tables means actual age to the nearest birthday at the
time the first payment is due, adjusted according to the following table:
<TABLE>
<CAPTION>
Calendar Year Adjusted
of Birth Age Is
-------- ------
<S> <C>
Before 1916 Actual Age
1916-1935 Actual Age Minus 1
1936-1955 Actual Age Minus 2
1956-1975 Actual Age Minus 3
1976-1995 Actual Age Minus 4
</TABLE>
Determination of Amount of Monthly Variable Annuity Payments for First Year
The Separate Account value used to establish the monthly payment for the first
payment year consists of the value of Accumulation Units of each Series of the
Separate Account held in the Participant's Account 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. The amount
transferred is determined by multiplying the Annuity premium rate per $1,000 set
forth in Contract tables by the number of thousands of
4
<PAGE> 29
dollars of Separate Account value in the individual's account. 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 account involved has Separate Account Accumulation Units
in more than one Series of the Separate Account, 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 Separate Account 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 Series in which
the Annuitant has Annuity Units, with the total Annuity payment being the sum of
the payments derived from the Series. The amount of monthly payments for any
Separate Account Series for any year after the first will be determined by
multiplying the number of Annuity Units for that Series by the Annuity Unit
value for that Series for the Valuation Period in which the first payment for
the year is due. It will be Security First Life's practice to mail Variable
Annuity payments no later than seven days after the last day of the Valuation
Period upon which they are based or the monthly anniversary thereof.
Annuity Unit Values
The value of an Annuity Unit was, or will be, set at $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 rate (see below). 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 rate must
be "neutralized" in computing the Annuity change factor. For weekly Valuation
Periods and a 4.25% assumed investment rate, the neutralization factor is
0.9991999.
Alternate Assumed Investment Rates
The choice of the assumed investment rate 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 rate 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
5
<PAGE> 30
achieved a net investment result greater than the assumed investment rate, the
Annuity Unit would increase in value and the amount of the Annuity payments
would increase each year. Similarly, if the Separate Account achieved a net
investment result smaller than the assumed investment rate, 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 rate, there is a point in time after which payments under a
lower assumed investment rate would be greater, assuming payments continue
through that point in time. The effect of a higher or lower assumed investment
rate can be summarized as follows: a higher assumed investment rate will result
in a larger initial payment but more slowly rising or more rapidly falling
subsequent payments than a lower assumed investment rate.
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 rate of the Separate
Account equals the assumed investment rate 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 rate for
the Separate Account is smaller than, equal to or greater than the assumed
investment rate.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
Qualified Plans
Certain tax advantages are available when the Contract is issued under a
retirement plan which meets the qualification requirements of sections 401, 403,
or 408 of the Code ("qualified plan"). Further information regarding federal
income tax aspects of the various types of qualified plans is set forth below.
Public School Systems, Churches and Certain Tax-Exempt Organizations
Under section 403(b) of the Code, purchase payments made to purchase annuities
by public school systems, churches, or certain tax-exempt organizations for
their employees are excludable from the gross income of the employee to the
extent that aggregate purchase payments for the employee do not exceed certain
limitations imposed by the Code.
Pension, Profit-Sharing, and Annuity Plans for Corporations and Unincorporated
Businesses
If a Participant dies after distributions have commenced, the remaining portion
of his or her interest must continue to be distributed at least as rapidly as
under the schedule used prior to death. If distributions have not commenced
before death, the entire interest must be distributed within five years of the
Participant's death except the interest may be distributed for the life or a
period not exceeding the life expectancy of a designated beneficiary in
substantially equal payments commencing no later than one year after the
Participant's death. If the designated beneficiary is the surviving spouse,
distributions may be postponed until the date the Participant would have been 70
1/2. If the surviving spouse dies before distributions commence, the
distribution rules will apply as if he or she were the Participant.
A pension or profit sharing plan established by any kind of organization which
primarily benefits "key employees" (known as a "top-heavy" plan) will be subject
to special rules on: vesting; minimum contributions and benefits for non-key
employees; compensation which may be taken into account to determine
contributions or benefits for key employees; the aggregate limit on
contributions and benefits; and rollovers.
6
<PAGE> 31
The tax treatment of pension and profit sharing plans established by
self-employed individuals (known as "Keogh" or "H.R. 10" plans) is essentially
the same as corporate plans. Some special restrictions apply to self-employed
individuals who are "owner-employees." An owner employee is a sole proprietor or
a partner who owns more than a 10% capital or profits interest in the
partnership.
Additionally, the definition of a lump sum distribution for a self-employed
individual does not include a distribution on account of separation from
service, but does include a distribution on account of total disability.
Eligible Deferred Compensation (section 457) Plans
The Code permits employees and independent contractors of state and local
government units and tax-exempt organizations under "eligible deferred
compensation plans" to defer compensation up to certain amounts.
In the case of a section 457 plan, the employer is the owner of the Contract and
has all of the rights and powers attributable to such ownership. These include
the exclusive right to partially or fully terminate any Participant's Account
under such a Contract and to receive all payments under the Contract, including
Annuity payments. Employees participating in such plans are referred to as
Participants in such Contracts and in this prospectus solely for the purpose of
establishing a method of recording allocations applicable to such employees'
accounts. Such employees have no elective rights under the Contracts.
Employees receiving amounts under such section 457 plans from their employers
include such amounts in income in the year they are received or made available
and pay ordinary income taxes thereon. Amounts may not be made available to any
employee except upon separation from service or for an unforeseeable emergency.
In the case of a section 457 plan for a tax-exempt organization, the following
provisions apply: (a) the Contract value must be distributed or annuity payments
commenced by April 1 of the calendar year following the later of the calendar
year in which the employee retires or attains age 70 1/2, (b) annuity payments
are limited to a period not exceeding the life (lives) or life expectancy
(expectancies) of the employee (and a designated beneficiary), (c) the benefits
will be subject to minimum incidental benefit distribution requirements and (d)
if the employee dies before his or her entire interest has been distributed, any
amount remaining will be distributed to the designated beneficiary at least as
rapidly as during the employee's life. In the case of section 457 plans of state
and local governments where joint and survivor benefits commence before death,
the amount payable to the employee must exceed one-half of the maximum that
could have been payable to the employee if there were no joint annuitant.
Individual Retirement Annuities ("IRAs")
Any individual is permitted to establish an individual retirement arrangement
described in section 408 of the Code. Of these, only the individual retirement
Annuity described in section 408(b) is available in connection with the
Contract.
Purchase payments for an IRA may be made by an individual, under the age of 70
1/2, up to the lesser of $2,000 or 100% of gross annual compensation. If the
individual (or spouse filing a joint return) is an active participant in a
qualified plan, the full amount of the IRA contribution may be deducted only if
adjusted gross income does not exceed (a) $25,000 for an individual return, (b)
$40,000 for a joint return and (c) $0 for a married person filing a separate
return. As adjusted gross income increases over these amounts, the deductible
amount decreases. An
7
<PAGE> 32
individual filing a joint return with a spouse under the age of 70 1/2, who has
no compensation during the year or elects to be treated as having no
compensation, can purchase an IRA contract for his or her spouse ("spousal
IRA"). The total annual contribution is limited to $4,000 or 100% of the working
spouse's compensation for the year. A divorced or legally separated spouse may
continue annual contributions to his or her spousal IRA up to $2,000 or 100% of
his or her annual compensation.
The annual limits on purchase payments do not apply to tax-free rollovers to an
IRA from another qualified retirement plan. An individual can roll over: all or
a portion of a termination or lump sum, or partial distribution from a section
401(a) plan, excluding nondeductible employee contributions; all or a portion of
a lump sum or partial distribution from a section 403(b) Annuity plan; or all or
a portion of a distribution received from another IRA or from an individual
retirement account or bond, but only once a year. An individual must make a
tax-free rollover to the IRA within 60 days after receiving the distribution
from the other plan.
The IRA contracts will be nontransferable and nonforfeitable. Distributions must
commence no later than April 1 of the year following the year in which the
individual attains age 70 1/2; otherwise each year a 50% nondeductible excise
tax will apply to the difference between what was actually paid out and the
minimum amount required to be distributed each year. The entire interest in the
Contract must be distributed within the first year, or over the life of the
individual or the joint lives of the individual and a designated beneficiary or
over a period certain not extending beyond the individual's life expectancy or
the joint life expectancy of the individual and a designated beneficiary. All
distributions will be taxed as ordinary income when received, except for the
portion of each distribution which bears the same ratio to the distribution as
the total nondeductible IRA contributions bears to the total IRA contributions.
Any distribution made before the individual reaches age 59 1/2 will be penalized
by a 10% additional income tax on the amount of the distribution, unless made by
reason of death or disability. Borrowing under the Contract or pledging the
Contract as security for a loan will be deemed to be a distribution of the full
market value of the Contract as of that day. The distribution-at-death rules for
an IRA are the same as for a section 401(a) plan except that the individual's
beneficiary or estate is not allowed the normal exclusion of up to $5,000.
Withholding on Annuity Payments and Other Distributions
Security First Life is required to withhold federal income tax on Contract
distributions (such as Annuity payments, lump sum distributions or partial
surrenders). However, recipients of Contract distributions are allowed to make
an election not to have federal income tax withheld. After such election is made
with respect to Annuity payments, an Annuitant may revoke the election at any
time, and thereafter commence withholding. In such a case, Security First Life
will notify the payee at least annually of his or her right to change such
election.
The withholding rate followed by Security First Life will be applied only
against the taxable portion of Contract distributions. Federal tax will be
withheld from Annuity payments pursuant to the recipient's withholding
certificate. If no withholding certificate is filed with Security First Life,
federal tax will be withheld from Annuity payments on the basis that the payee
is married with three withholding exemptions. Federal tax on the taxable portion
of a partial or total surrender (i.e., non-periodic distribution) generally will
be withheld at a flat 10% rate. In the case of a plan qualified under Sections
401(a) or 403(a) of the Code, if the balance to the credit of a participant in a
plan is distributed within one taxable year to the recipient ("total
distribution") the amount of withholding will approximate the federal income tax
on a lump sum distribution. If a total distribution is made from such a plan or
a tax-
8
<PAGE> 33
sheltered annuity contract 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 402(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 distributions
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 his or her social security number. If the payee elects not to have
federal income tax withheld on an Annuity payment or a non-periodic distribution
and a correct TIN has not been provided, such election is ineffective, and such
payment will be subject to withholding as noted above.
Obtaining Tax Advice
It should be recognized that the federal income tax information in this
Statement of Additional Information is not exhaustive and is for information
purposes only. The description 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.
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
30 states. No direct underwriting commissions are paid to Security First
Financial, Inc.
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 his 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 he is receiving a Variable Annuity based on the investment performance
of the Separate Account, because amounts attributable to his interest are being
transferred annually to the General Account to provide the variable payments.
9
<PAGE> 34
SAFEKEEPING OF SECURITIES
All assets of the Separate Account are held in custody of Security First Life.
The assets of each Separate Account Series will be kept physically segregated by
Security First Life and held separate from the assets of any other firm, person,
or corporation. Additional protection for the assets of the Separate Account is
afforded by fidelity bonds covering all of Security First Life's officers and
employees.
SERVICING AGENT
An administrative services agreement has been entered into between Security
First Life and 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.
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 variable annuity contracts have been passed upon by Routier and
Johnson, P.C., 1700 K Street, N.W., Ste. 1003, Washington, D.C. 20006 prior to
January 31, 1995. Subsequently such matters were passed on to Sullivan &
Worcester, 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, 1995. 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.
10
<PAGE> 35
FINANCIAL STATEMENTS
The financial statements of Security First Life and subsidiaries contained
herein should be considered only for the purposes of informing investors as to
its ability to carry out the contractual obligations as depositor under the
Annuity contracts and 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.
11
<PAGE> 36
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> 37
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> 38
<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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
[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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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
Leo Brown Assistant Vice President
Steven J. Brash Assistant Vice President
</TABLE>
<PAGE> 81
<TABLE>
<S> <C>
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 1,008 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> 82
<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> 83
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 29th day of April 1998.
SECURITY FIRST LIFE SEPARATE ACCOUNT A
(Registrant)
By SECURITY FIRST LIFE INSURANCE COMPANY
(Sponsor)
By /s/ Richard C. Pearson
-----------------------------
Richard C. Pearson, 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:
Signature Title Date
- --------- ----- ----
/s/ Richard C. Pearson President, Chief Executive April 29, 1998
- -------------------------- Officer and Director
Richard C. Pearson
/s/ Jane F. Eagle Senior Vice President,
- -------------------------- and Chief Financial Officer April 29, 1998
Jane F. Eagle
/s/ David A. Levene* Chairman, Director April 29, 1998
- --------------------------
David A. Levene
/s/ John K. Bruins* Director April 29, 1998
- --------------------------
John K. Bruins
/s/ Steven T. Cates* Director April 29, 1998
- --------------------------
Steven T. Cates
/s/ Terence Lennon* Director April 29, 1998
- --------------------------
Terence Lennon
/s/ Gail A. Praslick* Director April 29, 1998
- --------------------------
Gail A. Praslick
/s/ Joseph A. Reali* Director April 29, 1998
- --------------------------
Joseph A. Reali
/s/ Anthony J. Williamson* Director April 29, 1998
- --------------------------
Anthony J. Williamson
/s/ Richard C. Pearson
- --------------------------
*(Richard C. Pearson as April 29, 1998
Attorney-in-Fact for each
of the persons indicated)
<PAGE> 84
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned as directors
and/or officers of SECURITY FIRST LIFE INSURANCE COMPANY, a Delaware
corporation, which has filed or will file with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, a registration statement and
amendments thereto for the registration under said Acts of the sale of certain
Group Flexible premium Variable Annuity Contracts designated SF224-FL in
connection with Security First Life Separate Account A (Registration No. IC
811-3365), hereby constitute and appoint Richard C. Pearson, Howard H. Kayton
and Jane F. Eagle, his attorney, with full power of substitution and
resubstitution, for and in his name, office and stead, in any and all
capacities, to approve and sign such Registration Statement and any and all
amendments thereto, with power where appropriate to affix the corporate seal of
said corporation thereto and to attest said seal and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorneys, each
of them, full power and authority to do and perform all and every act and thing
requisite to all intents and purposes as he might or could do in person, hereby
ratifying and confirming that which said attorneys, or any of them, may
lawfully do or cause to be done by virtue hereof. This instrument may be
executed in one or more counterparts.
IN WITNESS WHEREOF, the undersigned have herewith set their names as of
the dates set forth below.
/s/ David A. Levene 3/15/98
- --------------------------------------- ------------------
David A. Levene, Director Date
/s/ John K. Bruins 3/20/98
- --------------------------------------- ------------------
John K. Bruins, Director Date
/s/ Steven T. Cates 4/13/98
- --------------------------------------- ------------------
Steven T. Cates, Director Date
/s/ Terence Lennon 3/19/98
- --------------------------------------- ------------------
Terence Lennon, Director Date
/s/ Gail A. Praslick 3/17/98
- --------------------------------------- ------------------
Gail A. Praslick, Director Date
/s/ Joseph A. Reali 3/26/98
- --------------------------------------- ------------------
Joseph A. Reali, Director Date
/s/ Anthony J. Williamson 3/26/98
- --------------------------------------- ------------------
Anthony J. Williamson, Director Date
/s/ Richard C. Pearson 3/26/98
- --------------------------------------- ------------------
Richard C. Pearson, Director and Date
Attorney-in-fact
/s/ Howard Kayton 3/26/98
- --------------------------------------- ------------------
Howard Kayton, Attorney-in-fact Date
/s/ Jane F. Eagle 3/26/98
- --------------------------------------- ------------------
Jane F. Eagle, Attorney-in-fact Date
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Condensed Financial
Information" and "Independent Auditors" and to the use of our 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 15 under the Securities Act
of 1933, and amendment number 95 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
May 1, 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
