Registration Statement for a Separate Account (Unit Investment Trust) — Form N-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N-4 Security First Life Separate Account A N-4 70± 291K
2: EX-99.B4(I) Variable Annuity Contract 22 96K
3: EX-99.B4(II) Enhanced Dollar Cost Averaging Rider 2 10K
4: EX-99.B4(III) Three Month Market Entry Rider 2 10K
5: EX-99.B4(IV) Death Benefit Rider - Purchase Payments 2 12K
10: EX-99.B4(IX) Nursing Home Rider 3 12K
6: EX-99.B4(V) Death Benefit Rider - Annual 3 14K
7: EX-99.B4(VI) Death Benefit Rider - Annual Step-Up 2 13K
8: EX-99.B4(VII) Guaranteed Minimum Income Benefit Rider 3 17K
9: EX-99.B4(VIII) Additional Death Benefit Rider 2 12K
11: EX-99.B4(X) Terminal Illness Rider 2 8K
12: EX-99.B4(XI) Individual Retirement Annuity Endorsement 5 20K
13: EX-99.B4(XII) Roth Ira Endorsement 4 19K
14: EX-99.B4(XIII) 401 Plan Endorsement 1 10K
15: EX-99.B4(XIV) Tax Sheltered Annuity Endorsement 5 25K
16: EX-99.B4(XV) Unisex Annuity Rates Rider 1 8K
17: EX-99.B5 Variable Annuity Application 5 16K
File Nos. 333-_____
811-3365
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 125 [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
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (310) 312-6100
Name and Address of Agent for Service
Richard C. Pearson, President
Security First Life Insurance Company
11365 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-6100
Copies to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O Box 5108
Westport, CT 06881
(203) 226-7866
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Title of Securities Registered:
Individual Flexible Premium Variable Annuity Contracts
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
-------- -----------------------------
PART A
Item 1. Cover Page . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . Index of Special Terms
Item 3. Synopsis . . . . . . . . . . . . . . . Highlights
Item 4. Condensed Financial Information . . . Not Applicable
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . Other Information - Security
First; The Separate Account;
Investment Options; Appendix A
Item 6. Deductions and Expenses. . . . . . . . Expenses
Item 7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Annuity Contract
Item 8. Annuity Period . . . . . . . . . . . . Income Phase
Item 9. Death Benefit. . . . . . . . . . . . . Death Benefit
Item 10. Purchases and Contract Value . . . . . Purchase
Item 11. Redemptions. . . . . . . . . . . . . . Access to Your Money
Item 12. Taxes. . . . . . . . . . . . . . . . . Taxes
Item 13. Legal Proceedings. . . . . . . . . . . None
Item 14. Table of Contents of the Statement of
Additional Information . . . . . . . . Table of Contents of the
Statement of Additional
Information
[Download Table]
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
-------- -----------------------
PART B
Item 15. Cover Page . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents. . . . . . . . . . . Table of Contents
Item 17. General Information and History. . . . Company
Item 18. Services . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . Distribution
Item 21. Calculation of Performance Data. . . . Calculation of Performance
Information
Item 22. Annuity Payments . . . . . . . . . . . Annuity Provisions
Item 23. Financial Statements . . . . . . . . . Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
PART A
The Variable Annuity Contract
issued by
SECURITY FIRST LIFE SEPARATE ACCOUNT A
and
SECURITY FIRST LIFE INSURANCE COMPANY
This prospectus describes the Fixed and Variable Annuity Contracts offered by
Security First Life Insurance Company (Security First or we or us).
The annuity contract has 13 investment choices -- a fixed account which offers
an interest rate which is guaranteed by us, and 12 investment portfolios listed
below. You can put your money in the fixed account and/or any of these
investment portfolios.
MET INVESTORS SERIES TRUST:
Managed by Janus Capital Corporation
Janus Aggressive Growth Portfolio
Managed by Lord, Abbett & Co.
Lord Abbett Bond Debenture Portfolio
Lord Abbett Growth and Income Portfolio
Managed by OppenheimerFunds, Inc.
Oppenheimer Capital Appreciation Portfolio
Managed by Putnam Investment Management, LLC
Putnam Research Portfolio
Managed by Pacific Investment Management Company LLC
PIMCO Total Return Portfolio
PIMCO Money Market Portfolio
Managed by PIMCO Equity Advisors
PIMCO Innovation Portfolio
Managed by Massachusetts Financial Services Company
MFS Mid Cap Growth Portfolio
MFS Research International Portfolio
NEW ENGLAND ZENITH FUND:
Managed by Harris Associates L.P.
Harris Oakmark Mid Cap Value Series
Managed by Davis Selected Advisers, L.P.
Davis Venture Value Series
Please read this prospectus before investing and keep it on file for future
reference. It contains important information about the Security First Variable
Annuity Contract.
To learn more about the Security First Variable Annuity Contract, you can obtain
a copy of the Statement of Additional Information (SAI) dated _________. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is legally
a part of the prospectus. The SEC maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by reference, and other information
regarding companies that file electronically with the SEC. The Table of Contents
of the SAI is on Page __ of this prospectus. For a free copy of the SAI, call us
at (310) 312-6100 or write us at: 11365 West Olympic Boulevard, Los Angeles,
California 90064.
The Contracts:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed and may be subject to loss of principal
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
_________, 2001
TABLE OF CONTENTS
INDEX OF SPECIAL TERMS
HIGHLIGHTS
FEE TABLE
1. THE ANNUITY CONTRACT
2. PURCHASE
Purchase Payments
Allocation of Purchase Payments
Free Look
Accumulation Units
Account Value
3. INVESTMENT OPTIONS
Transfers
Dollar Cost Averaging Programs
Automatic Rebalancing Program
Approved Asset Allocation Programs
Voting Rights
Substitution
4. EXPENSES
Product Charges
Account Fee
Withdrawal Charge
Reduction or Elimination of the Withdrawal Charge
Premium Taxes
Transfer Fee
Income Taxes
Investment Portfolio Expenses
5. ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity Date
Annuity Payments
Annuity Options
Guaranteed Minimum Income Benefit - Living Benefit
6. TAXES
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Death Benefits
Diversification
7. ACCESS TO YOUR MONEY
Systematic Withdrawal Program
Suspension of Payments or Transfers
8. PERFORMANCE
9. DEATH BENEFIT
Upon Your Death
General Death Benefit Provisions
Death of Annuitant
10. OTHER INFORMATION
Security First
The Separate Account
Distributor
Ownership
Beneficiary
Assignment
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
APPENDIX A
Participating Investment Portfolios
APPENDIX B
Performance Information
APPENDIX C
EDCA Example with Multiple Purchase Payments
INDEX OF SPECIAL TERMS
Because of the complex nature of the contract, we have used certain words or
terms in this prospectus which may need an explanation. We have identified the
following as some of these words or terms. The page that is indicated here is
where we believe you will find the best explanation for the word or term. These
words and terms are in italics on the indicated page.
Account Value
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Fixed Account
Income Base
Income Phase
Investment Portfolios
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
HIGHLIGHTS
The variable annuity contract that we are offering is a contract between you,
the owner, and us, the insurance company. The contract provides a means for
investing on a tax-deferred basis in our fixed account and the investment
portfolios. The contract is intended for retirement savings or other long-term
investment purposes. When you purchase the contract you have a choice of death
benefits and guaranteed income options. You can also select the guaranteed
minimum income benefit ("Living Benefit").
The contract, as in all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation period,
earnings accumulate on a tax-deferred basis and are taxed as income when you
make a withdrawal. If you make a withdrawal during the accumulation phase, we
may assess a withdrawal charge of up to 7%. The income phase occurs when you
begin receiving regular annuity payments from your contract.
You can choose to receive annuity payments on a variable basis, a fixed basis,
or a combination of both. If you choose variable payments, the amount of the
variable annuity payments will depend upon the investment performance of the
investment portfolios you select for the annuity period. If you choose fixed
payments, the amount of the fixed annuity payments are level for the income
phase.
Free Look. If you cancel the contract within 10 days after receiving it (or
whatever period is required in your state), we will cancel the contract without
deducting a withdrawal charge. You will receive whatever your contract is worth
on the day that we receive your request. This amount may be more or less than
your payment. We will return your payment if required by law.
Tax Penalty. The earnings in your contract are not taxed until you take money
out of your contract. If you take money out during the accumulation phase, for
tax purposes any earnings are deemed to come out first. If you are younger than
59 1/2 when you take money out, you may be charged a 10% federal tax penalty on
those earnings. Payments during the income phase are considered partly a return
of your original investment.
Inquiries. If you need more information, please contact us at:
Security First Life Insurance Company
11365 West Olympic Boulevard
Los Angeles, California 90064
(310) 312-6100
SECURITY FIRST LIFE SEPARATE ACCOUNT A FEE TABLE
The purpose of the Fee Table is to show you the various expenses you will incur
directly or indirectly with the contract. The Fee Table reflects expenses of the
Separate Account as well as of the investment portfolios. Expenses of the
investment portfolios are not fixed or specified under the terms of the contract
and actual expenses may vary.
Owner Transaction Expenses
Withdrawal Charge (see Note 1 on page ____)
Number of Complete Years
from Receipt of Purchase Payment % Charge
-------------------------------- --------
0 7
1 6
2 6
3 5
4 4
5 3
6 2
7 and thereafter 0
Transfer Fee
No charge for first 12 transfers in a contract year; thereafter, the
fee is $25 per transfer. (Security First is currently waiving the
transfer fee but reserves the right to charge it in the future.)
Account Fee (see Note 2 on page __)
$30 per contract per year if account value is less than $50,000
Living Benefit Rider Charge (If you select the Living Benefit rider):
(See Note 3 on page __)
.35% of Income Base
Separate Account Annual Expenses (referred to as Separate Account Product
Charges) (as a percentage of average account value in separate account)
Mortality and Expense Charge 1.00%
Administration Charge .25%
------
Total Separate Account Annual Expenses 1.25%
Death Benefit Rider Charge (If you select a death benefit rider):
(as a percentage of average account value in separate account)
Return of Purchase Payments Death Benefit .05%
Annual Step-Up Death Benefit .15%
Greater of Annual Step-Up or 5% Annual Increase Death Benefit .30%
Additional Death Benefit-Earnings Preservation Benefit .25%
Investment Portfolio Expenses
(as a percentage of the average daily net assets of an investment portfolio)
[Enlarge/Download Table]
Other
Expenses
(after
expense
reimburse-
ment for Total Annual
Management Service certain Portfolio
Fees Fee Portfolios) Expenses
---------------------------------------------------- ---------------- -------------- --------------- ---------------
MET INVESTORS SERIES TRUST
Managed by Janus Capital Corporation
Janus Aggressive Growth Portfolio
Managed by Lord, Abbett & Co.
Lord Abbett Bond Debenture Portfolio
Lord Abbett Growth and Income Portfolio
Managed by OppenheimerFunds, Inc.
Oppenheimer Capital Appreciation Portfolio
Managed by Putnam Investment Management, LLC
Putnam Research Portfolio
Managed by Pacific Investment Management Company LLC
PIMCO Total Return Portfolio
PIMCO Money Market Portfolio
Managed by PIMCO Equity Advisors
PIMCO Innovation Portfolio
Managed by Massachusetts Financial Services Company
MFS Mid Cap Growth Portfolio
MFS Research International Portfolio
NEW ENGLAND ZENITH FUND
Managed by Harris Associates L.P.
Harris Oakmark Mid Cap Value Series
Managed by Davis Selected Advisers, L.P.
Davis Venture Value Series
Examples
o The examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those
shown.
o For purposes of the examples, the assumed average contract size is
_______.
o Chart 1 below assumes that you do not select an enhanced death benefit
or the Living Benefit rider, which is the least expensive way to
purchase the contract.
o Chart 2 assumes you select the Greater of Annual Step-Up or 5% Annual
Increase Death Benefit, the Additional Death Benefit - Earnings
Preservation Benefit, plus the Living Benefit rider, which is the most
expensive way to purchase the contract.
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets: (a) if you surrender the contract at the end of each
time period; (b) if you do not surrender the contract or if you apply the
account value to an annuity option.
CHART 1
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Time Periods
1 Year 3 years 5 years 10 years
------------------------------------------------------- ------------- ------------------- -------------- ---------------
Met Investors Series Trust
Janus Aggressive Growth
Lord Abbett Bond Debenture
Lord Abbett Growth and Income
Oppenheimer Capital Appreciation
Putnam Research
PIMCO Total Return
PIMCO Money Market
PIMCO Innovation
MFS Mid Cap Growth
MFS Research International
New England Zenith Fund:
Harris Oakmark Mid Cap Value
Davis Venture Value
[Enlarge/Download Table]
CHART 2
Time Periods
1 Year 3 years 5 years 10 years
------------------------------------------------------- ------------- ------------------- -------------- ---------------
Met Investors Series Trust
Janus Aggressive Growth
Lord Abbett Bond Debenture
Lord Abbett Growth and Income
Oppenheimer Capital Appreciation
Putnam Research
PIMCO Total Return
PIMCO Money Market
PIMCO Innovation
MFS Mid Cap Growth
MFS Research International
New England Zenith Fund
Harris Oakmark Mid Cap Value
Davis Venture Value
Explanation of Fee Table
1. After we have had a purchase payment for 7 years, there is no charge by us
for a withdrawal of that purchase payment. You may also have to pay income tax
and a tax penalty on any money you take out. After the first year, each year you
can take up to 10% of your total purchase payments, less the total free
withdrawal amount you previously took out in the same contract year without a
charge by us. Earnings may be withdrawn at any time without the imposition of
the charge.
2. During the accumulation phase, we will not charge the account fee if the
value of your contract is $50,000 or more, although, if you make a complete
withdrawal, we will charge the account fee.
3. The income base is the amount used to determine the Living Benefit. See
"Annuity Payments (The Income Phase) - Guaranteed Minimum Income Benefit -
Living Benefit" for a discussion of how the income base is determined.
4. Premium taxes are not reflected. Premium taxes may apply depending on the
state where you live.
1. THE ANNUITY CONTRACT
This prospectus describes the Variable Annuity Contract offered by us.
An annuity is a contract between you, the owner, and an insurance company (in
this case us), where the insurance company promises to pay an income to you, in
the form of annuity payments, beginning on a designated date that you select.
Until you decide to begin receiving annuity payments, your annuity is in the
accumulation phase. Once you begin receiving annuity payments, your contract
switches to the income phase.
The contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation on the assets in your contract until you take
money out of your contract.
The contract is called a variable annuity because you can choose among the
investment portfolios and, depending upon market conditions, you can make or
lose money in any of these portfolios. If you select the variable annuity
portion of the contract, the amount of money you are able to accumulate in your
contract during the accumulation phase depends upon the investment performance
of the investment portfolio(s) you select. The amount of the annuity payments
you receive during the income phase from the variable annuity portion of the
contract also depends, in part, upon the investment performance of the
investment portfolios you select for the income phase.
In most states, the contract also contains a fixed account (contact your
registered representative regarding your state). The fixed account offers an
interest rate that is guaranteed by us. We guarantee that the interest rate
credited to the fixed account will not be less than 3% per year. If you select
the fixed account, your money will be placed with our other general assets. If
you select the fixed account, the amount of money you are able to accumulate in
your contract during the accumulation phase depends upon the total interest
credited to your contract. The amount of the annuity payments you receive during
the income phase from the fixed account portion of the contract will remain
level for the entire income phase, unless you make a transfer from the Separate
Account to the General Account. The Fixed Account provisions are provided by a
rider to your contract and such rider is not intended to be offered by the
Prospectus. Please see the terms of your actual contract for more information.
As owner of the contract, you exercise all interest and rights under the
contract. You can change the owner at any time by notifying us in writing. The
contract may be owned by joint owners (limited to two natural persons). We have
described more information on this under "Other Information."
2. PURCHASE
Purchase Payments
A purchase payment is the money you give us to invest in the contract. The
initial purchase payment is due on the date the contract is issued. Subject to
the minimum and maximum payment requirements (see below), you may make
additional purchase payments.
o The minimum initial purchase payment we will accept is $5,000 when the
contract is purchased as a non-qualified contract.
o If you are purchasing the contract as part of an IRA (Individual
Retirement Annuity), 401(k) or other qualified plan, the minimum we
will accept is $2,000.
o The maximum we accept is a total of $1 million without our prior
approval.
o You can make additional purchase payments of $500 or more to either
type of contract (qualified and non-qualified).
We may terminate your contract by paying you the account value, in one sum if
prior to the annuity date, you do not make purchase payments for two consecutive
contract years, the total amount of purchase payments made, less any partial
withdrawals, is less than $2,000, and the account value on or after the end of
such two year period is less than $2,000.
Allocation of Purchase Payments
When you purchase a contract, we will allocate your purchase payment to the
fixed account and/or any of the investment portfolios you have selected. Each
allocation must be at least $500 and must be in whole numbers. We have reserved
the right to restrict payments to the fixed account if either of the following
conditions exist:
o the credited interest rate on the fixed account is equal to the
guaranteed minimum (currently, 3%); or
o your contract value in the fixed account equals or exceeds our
published maximum for fixed account allocation (currently, there is no
limit).
If you make additional purchase payments, we will allocate them in the same way
as your first purchase payment unless you tell us otherwise. If there are joint
owners, unless we are instructed to the contrary, we will accept allocation
instructions from either joint owner. Once we receive your purchase payment and
the necessary information, we will issue your contract and allocate your first
purchase payment within 2 business days. If you do not give us all of the
information we need, we will contact you to get it before we make any
allocation. If for some reason we are unable to complete this process within 5
business days, we will either send back your money or get your permission to
keep it until we get all of the necessary information. If you add more money to
your contract by making additional purchase payments, we will credit these
amounts to your contract within one business day. Our business day closes at the
close of normal trading on the New York Stock Exchange closes, usually 4:00 p.m.
Eastern time.
Free Look
If you change your mind about owning this contract, you can cancel it within 10
days after receiving it (or, the period required in your state). When you cancel
the contract within this time period, we will not assess a withdrawal charge.
You will receive back whatever your contract is worth on the day we receive your
request. If you have purchased the contract as an IRA, or in certain states, we
are required to give you back your purchase payment (or such other required
amount) if you decide to cancel your contract within 10 days after receiving it
(or whatever period is required).
Accumulation Units
The value of the variable annuity portion of your contract will go up or down
depending upon the investment performance of the investment portfolio(s) you
choose. In order to keep track of the value of your contract, we use a unit of
measure we call an accumulation unit. (An accumulation unit works like a share
of a mutual fund.) During the income phase of the contract we call the unit an
annuity unit.
Every business day we determine the value of an accumulation unit for each of
the investment portfolios by multiplying the accumulation unit value for the
immediately preceding business day by a factor for the current business day. The
factor is determined by:
1) dividing the value of a portfolio at the end of the current business
day by the value of a portfolio for the previous business day, and
2) multiplying it by one minus the daily amount of the separate account
product charges (including any death benefit rider charges), and any
charges for taxes.
The value of an accumulation unit may go up or down from day to day.
When you make a purchase payment, we credit your contract with accumulation
units. The number of accumulation units credited is determined by dividing the
amount of the purchase payment allocated to an investment portfolio by the value
of the accumulation unit for that investment portfolio.
We calculate the value of an accumulation unit for each investment portfolio
after the New York Stock Exchange closes each day and then credit your contract.
Example: On Monday we receive an additional purchase payment of $5,000 from you.
You have told us you want this to go to the Lord Abbett Bond Debenture
Portfolio. When the New York Stock Exchange closes on that Monday, we determine
that the value of an accumulation unit for the Lord Abbett Bond Debenture
Portfolio is $13.90. We then divide $5,000 by $13.90 and credit your contract on
Monday night with 359.71 accumulation units for the Lord Abbett Bond Debenture
Portfolio.
Account Value
Account value is equal to the sum of your interests in the investment portfolios
and the fixed account.
3. INVESTMENT OPTIONS
The contract offers 12 investment portfolios which are listed below. Additional
investment portfolios may be available in the future.
You should read the prospectuses for these funds carefully. Copies of these
prospectuses will be sent to you with your contract. Certain portfolios
contained in the fund prospectuses may not be available with your contract. (See
Appendix A which contains a summary of investment objectives and strategies for
each investment portfolio.)
The investment objectives and policies of certain of the investment portfolios
are similar to the investment objectives and policies of other mutual funds that
certain of the same investment advisers manage. Although the objectives and
policies may be similar, the investment results of the investment portfolios may
be higher or lower than the results of such other mutual funds. The investment
advisers cannot guarantee, and make no representation, that the investment
results of similar funds will be comparable even though the funds have the same
investment advisers.
A fund's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a fund with a small asset base. A
fund may not experience similar performance as its assets grow.
Shares of the investment portfolios may be offered in connection with certain
variable annuity contracts and variable life insurance policies of various life
insurance companies which may or may not be affiliated with us. Certain
investment portfolios may also be sold directly to qualified plans. The funds
believe that offering their shares in this manner will not be disadvantageous to
you.
Security First may enter into certain arrangements under which it is reimbursed
by the investment portfolios' advisers, distributors and/or affiliates for the
administrative services which it provides to the portfolios.
MET INVESTORS SERIES TRUST
Met Investors Series Trust is an open-end management investment company that
offers a selection of managed investment portfolios or mutual funds
(Portfolios), ten of which are available herein. Each of these Portfolios has
its own investment objective designed to meet different investment goals. The
Portfolios are managed by advisors as follows:
Janus Capital Corporation is the advisor to the following portfolio:
Janus Aggressive Growth Portfolio
Lord, Abbett & Co. is the advisor to the following portfolios:
Lord Abbett Bond Debenture Portfolio
Lord Abbett Growth and Income Portfolio
OppenheimerFunds, Inc. is the advisor to the following portfolio:
Oppenheimer Capital Appreciation Portfolio
Putnam Investment Management, LLC is the advisor to the following portfolio:
Putnam Research Portfolio (seeks capital appreciation)
Pacific Investment Management Company LLC is the advisor to the following
portfolios:
PIMCO Total Return Portfolio
PIMCO Money Market Portfolio
PIMCO Equity Advisors is the advisor to the following portfolio:
PIMCO Innovation Portfolio (seeks capital appreciation)
Massachusetts Financial Services Company is the advisor to the following
portfolios:
MFS Mid Cap Growth Portfolio
MFS Research International Portfolio (seeks capital appreciation)
NEW ENGLAND ZENITH FUND:
New England Zenith Fund is an open-end management investment company that offers
a selection of managed investment portfolios or mutual funds (Series), two of
which are available herein. Each of these has its own investment objective
designed to meet different investment goals. The Series have the following
sub-advisors:
Harris Associates L.P. is the sub-advisor to the following portfolio:
Harris Oakmark Mid Cap Value Series
Davis Selected Advisors, L.P. is the sub-advisor to the following portfolio:
Davis Venture Value Series
Transfers
You can transfer money among the fixed account and the investment portfolios.
The contract provides that you can make 12 transfers every year. We measure a
year from the anniversary of the day we issued your contract. We currently allow
unlimited transfers during the accumulation phase but reserve the right to limit
this in the future. The contract also provides that you can make 12 transfers
each year without charge. We are not currently charging a transfer fee but we
reserve the right to charge such a fee in the future. If such a charge were to
be imposed it would be $25 for each transfer over 12. You can make a transfer to
or from the fixed account and to or from any investment portfolio, subject to
the limitations below. All transfers made on the same business day will be
treated as one transfer. The following apply to any transfer:
o Your request for transfer must clearly state which investment
portfolio(s) or the fixed account are involved in the transfer.
o Your request for transfer must clearly state how much the transfer is
for.
o The minimum amount you can transfer is $500 from an investment
portfolio, or your entire interest in the investment portfolio, if
less (this does not apply to pre- scheduled transfer programs).
o The minimum amount that may be transferred from the fixed account is
$500, or your entire interest in the fixed account. Transfers out of
the fixed account during the accumulation phase are limited to the
greater of (a) 25% of the fixed account value at the beginning of the
contract year, or (b) the amount transferred out of the fixed account
in the prior contract year.
o During the accumulation phase, your right to make transfers is subject
to limitations or modification by us if we determine, in our sole
opinion, that the exercise of the right by one or more owners with
interests in the investment portfolio is, or would be to the
disadvantage of other owners. Restrictions may be applied in any
manner reasonably designed to prevent any use of the transfer right
that is considered by us to be to the disadvantage of other owners. A
limitation or modification could be applied to transfers to, or from,
one or more of the investment portfolios and could include, but is not
limited to:
> the requirement of a minimum time period between each transfer;
> not accepting a transfer request from an agent acting under a power of
attorney on behalf of more than one owner;
> limiting the dollar amount that may be transferred between the
investment portfolios by an owner at any one time;
> requiring that a written transfer request be provided to us, signed by
an owner;
o During the accumulation phase, to the extent permitted by applicable
law, during times of drastic economic or market conditions, we may
suspend the transfer privilege temporarily without notice and treat
transfer requests based on their separate components (a redemption
order with simultaneous request for purchase of another investment
portfolio). In such a case, the redemption order would be processed at
the source investment portfolio's next determined accumulation unit
value. However, the purchase of the new investment portfolio would be
effective at the next determined accumulation unit value for the new
investment portfolio only after we receive the proceeds from the
source investment portfolio, or we otherwise receive cash on behalf of
the source investment portfolio.
o For transfers during the accumulation phase, we have reserved the
right to restrict transfers to the fixed account if either of the
following conditions exist:
> the credited interest rate is equal to the guaranteed minimum
(currently 3%); or
> your contract value in the fixed account equals or exceeds our
published maximum for fixed account contract values (currently, there
is no limit).
o During the accumulation phase, no transfers to the fixed account are
allowed for 180 days after the date of a transfer out of the fixed
account.
o During the income phase, you cannot make transfers from the fixed
account to the investment portfolios. You can, however, make transfers
during the income phase from the investment portfolios to the fixed
account and among the investment portfolios.
Telephone Transfers. You and/or your registered representative on your behalf,
can make transfers by telephone. Telephone transfers will be automatically
permitted unless you tell us otherwise. If you own the contract with a joint
owner, unless we are instructed otherwise, we will accept instructions from
either you or the other owner. We will use reasonable procedures to confirm that
instructions given us by telephone are genuine. If we fail to use such
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. We tape records all telephone instructions.
Pre-Scheduled Transfer Program. There are certain programs that involve
transfers that we have pre-scheduled. When a transfer is made as a result of
such a program, we do not count the transfer in determining the applicability of
any transfer fee and certain minimums do not apply. The current pre-scheduled
transfers are made in conjunction with the following: Dollar Cost Averaging,
Three Months Market Entry, Automatic Rebalancing and Recognized Asset Allocation
Programs.
Dollar Cost Averaging Programs
We offer two dollar cost averaging programs described below. By allocating
amounts on a regular schedule as opposed to allocating the total amount at one
particular time, you may be less susceptible to the impact of market
fluctuations. You can elect only one Dollar Cost Averaging program at a time.
The dollar cost averaging programs are available only during the accumulation
phase.
We reserve the right to modify, terminate or suspend any of the dollar cost
averaging programs. There is no additional charge for participating in any of
the dollar cost averaging programs. If you participate in any of the dollar cost
averaging programs, the transfers made under the program are not taken into
account in determining any transfer fee. We may, from time to time, offer other
dollar cost averaging programs which have terms different from those described
in this prospectus.
The two dollar cost averaging programs are:
1. Standard Dollar Cost Averaging (DCA)
This program is for new purchase payments only and allows you to
systematically transfer a set amount each month from the fixed account
or from any investment portfolio to any of the other investment
portfolio(s). These transfers are made on a date you select or, if you
do not select a date, on the date that purchase payments are allocated
to the dollar cost averaging program. You can terminate the program at
any time, at which point transfers under the program will stop.
2. Enhanced Dollar Cost Averaging Program (EDCA)
The Enhanced Dollar Cost Averaging (EDCA) Program allows you to
systematically transfer amounts from the EDCA account to any investment
portfolio(s). The transfer amount will be equal to the amount allocated
in the EDCA account divided by the number of DCA months. For example, a
$12,000 allocation to a 6-month DCA will consist of six $2,000
transfers, and a final transfer of the interest processed separately as
a seventh transfer.
You can make subsequent purchase payments while you have an active EDCA
account in effect. When such subsequent purchase payments are made,
they are allocated to your existing EDCA account. When this happens we
create "buckets" within your EDCA account. The EDCA transfer amount
will be increased by the subsequent purchase payment divided by the
number of EDCA months (6 or 12 months as you selected) and thereby
accelerates the time period over which transfers are made. Each
allocation (bucket) resulting from a subsequent purchase payment will
earn interest at the then- current interest rate applied to new
allocations to an EDCA account of the same monthly term. Allocations
(buckets) resulting from each purchase payment, along with the interest
credited, will be transferred on a first-in-first out basis. Using the
example above, a subsequent $6,000 allocation to a 6 month EDCA will
increase the EDCA transfer amount from $2,000 to $3,000 ($2,000 to
$6,000/6). This increase will have the effect of accelerating the rate
at which the 1st payment bucket is exhausted. (See Appendix C for
further examples of EDCA with multiple purchase payments.)
The interest rate earned in an EDCA account will be the 3%, plus any
additional interest which we may declare from time to time.
The first transfer we make under the EDCA program is the date your
purchase payment is allocated to your EDCA account. Subsequent
transfers will be made each month thereafter on the same day. However,
transfers will be made on the 1st day of the following month for
purchase payment allocated in the 29th, 30th, or 31st day of a month.
If such a day is not a business day, the transfer will take place on
the next business day. Transfers will continue on a monthly basis until
all amounts are transferred from your EDCA account. Your EDCA account
will be terminated as of the last transfer.
If you decide you no longer want to participate in the program, all
money remaining in your Enhanced DCA account will be transferred to the
PIMCO Money Market Portfolio, unless you specify otherwise.
Three Month Market Entry Program
Alternatively, you can participate in the Three Month Market Entry Program which
operates in the same manner as the Enhanced Dollar Cost Averaging Program,
except it is of 3 months duration.
Automatic Rebalancing Program
Once your money has been allocated to the investment portfolios, the performance
of each portfolio may cause your allocation to shift. You can direct us to
automatically rebalance your contract to return to your original percentage
allocations by selecting our Automatic Rebalancing Program. You can tell us
whether to rebalance monthly, quarterly, semi-annually or annually. We will
measure these periods from the anniversary of the date we issued your contract.
If a Dollar Cost Averaging (either DCA or EDCA) program is in effect,
rebalancing allocations will be based on your current EDCA or DCA allocations.
If you are not participating in a Dollar Cost Averaging program, we will make
allocations based upon your current purchase payment allocations, unless you
tell us otherwise.
The Automatic Rebalancing Program is available only during the accumulation
phase. There is no additional charge for participating in the Automatic
Rebalancing Program. If you participate in the Automatic Rebalancing Program,
the transfers made under the program are not taken into account in determining
any transfer fee.
Example:
Assume that you want your initial purchase payment split between 2
investment portfolios. You want 40% to be in the Lord Abbett Bond
Debenture Portfolio and 60% to be in the Oppenheimer Capital
Appreciation Portfolio. Over the next 2-1/2 months the bond market does
very well while the stock market performs poorly. At the end of the
first quarter, the Lord Abbett Bond Debenture Portfolio now represents
50% of your holdings because of its increase in value. If you have
chosen to have your holdings rebalanced quarterly, on the first day of
the next quarter, we will sell some of your units in the Lord Abbett
Bond Debenture Portfolio to bring its value back to 40% and use the
money to buy more units in the Oppenheimer Capital Appreciation
Portfolio to increase those holdings to 60%.
Recognized Asset Allocation Programs
We recognize the value to certain owners of having available, on a continuous
basis, advice for the allocation of your money among the investment options
available under the contracts. Certain providers of these types of services have
agreed to provide such services to owners in accordance with our administrative
rules regarding such programs.
We have made no independent investigation of these programs. We have only
established that these programs are compatible with our administrative systems
and rules. Recognized asset allocation programs are only available during the
accumulation phase. Currently, we do not charge for participating in a
recognized asset allocation program.
Even though we permit the use of recognizing asset allocation programs, the
contract was not designed for professional market timing organizations. Repeated
patterns of frequent transfers are disruptive to the operations of the
investment portfolios, and when we become aware of such disruptive practices, we
may impose restrictions on transfers pursuant to the terms of the contract.
If you participate in an Recognized Asset Allocation Program, the transfers made
under the program are not taken into account in determining any transfer fee.
Voting Rights
We are the legal owner of the investment portfolio shares. However, we believe
that when an investment portfolio solicits proxies in conjunction with a vote of
shareholders, we are required to obtain from you and other affected owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions. This
will also include any shares that we own on our own behalf. Should we determine
that we are no longer required to comply with the above, we will vote the shares
in our own right.
Substitution
We may be required to substitute one or more of the investment portfolios you
have selected with another portfolio. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give you notice of
our intent to do this.
4. EXPENSES
There are charges and other expenses associated with the contracts that reduce
the return on your investment in the contract. These charges and expenses are:
Product Charges
Separate Account Product Charges
Each day, we make a deduction for our separate account product charges (which
consist of the mortality and expense charge, the administration charge and the
charges related to any optional death benefit riders). We do this as part of our
calculation of the value of the accumulation units and the annuity units.
Mortality and Expense Charge. We assess a daily mortality and expense charge
which is equal, on an annual basis, to 1.00% of the average daily net asset
value of each investment portfolio, after fund expenses have been deducted. This
charge is for all the insurance benefits e.g., guarantee of annuity rates, the
base contract death benefits, for certain expenses of the contract, and for
assuming the risk (expense risk) that the current charges will be insufficient
in the future to cover the cost of administering the contract. If the charges
under the contract are not sufficient, then we will bear the loss. We do,
however, expect to profit from this charge. The mortality and expense charge
cannot be increased. We may use any profits we make from this charge to pay for
the costs of distributing the contract.
Administration Charge. This charge is equal, on an annual basis, to .25% of the
daily value of the contract invested in an investment portfolio, after fund
expenses have been deducted. This charge, together with the account fee (see
below), is for the expenses associated with the administration of the contract.
Some of these expenses are: preparation of the contract, confirmations, annual
reports and statements, maintenance of contract records, personnel costs, legal
and accounting fees, filing fees, and computer and systems costs.
Account Fee
During the accumulation phase, every contract year on your contract anniversary
which is the date when your contract was issued, we will deduct $30 from your
contract as an account fee. During the accumulation phase, the account fee is
deducted pro-rata from the investment portfolios. This charge is for
administrative expenses (see above). This charge cannot be increased.
If you make a complete withdrawal from your contract, the full account fee will
be deducted from the account value. A pro rata portion of the charge will be
deducted from the account value if the annuity date is other than a contract
anniversary. After the annuity date, the charge will be collected monthly out of
the annuity payment, regardless of the size of your contract. If your account
value on the last day of the contract year or on the annuity date is at least
$50,000, then we will not deduct the account fee.
Rider Charges
We offer certain optional death benefit riders and a Guaranteed Minimum Income
Benefit - Living Benefit rider which you can select when you purchase the
contract. If you select one of these death benefit riders and/or the Living
Benefit rider, we will assess a charge during the accumulation phase. The
charges for these benefits are as follows:
Death Benefit Rider Charge: We assess a daily charge equal, on an annual basis,
to the percentages below of the average daily net asset value of each investment
portfolio:
Return of Purchase Payment Death Benefit .05%
Annual Step-Up Death Benefit .15%
Greater of Annual Step-Up or 5% Annual Increase Death Benefit .30%
Additional Death Benefit - Earnings Preservation Benefit .25%
Living Benefit Rider Charge: We assess a rider charge equal to .35% of the
income base (see Annuity Payments (The Income Phase) - Guaranteed Minimum Income
Benefit - Living Benefit Rider for a discussion of how the income base is
determined) at the time the rider charge is assessed. The charge is first
assessed at the first contract anniversary and then at each subsequent contract
anniversary, up to and including the anniversary on or immediately before the
date the rider is exercised. If you make a full withdrawal (surrender) or if you
begin to receive annuity payments at the annuity date, a pro-rata portion of the
rider charge will be assessed. The Living Benefit rider charge is deducted
pro-rata from each investment portfolio and the fixed account in the ratio each
account bears to your total account value.
Withdrawal Charge
During the accumulation phase, you can make withdrawals from your contract. Once
a contract year after the first contract year, you can withdraw up to 10% of
your total purchase payments, less the total free withdrawal amount previously
withdrawn in the same contract year, and no withdrawal charge will be assessed
(free withdrawal amount).
A withdrawal charge is assessed against purchase payments withdrawn in excess of
the free withdrawal amount. The withdrawal charge is assessed against purchase
payments withdrawn. After we have had a purchase payment for 7 years, there is
no charge when you withdraw that purchase payment. We do not assess a withdrawal
charge on earnings withdrawn from the contract. Earnings are defined as the
value in your contract minus remaining purchase payments. The withdrawal charge
is calculated at the time of each withdrawal. We keep track of each purchase
payment from the date of its receipt. Amounts will be withdrawn from your
contract in the following order:
o Earnings in the contract (earnings are equal to your account value,
less purchase payments not withdrawn); and then
o The free withdrawal amount described above, if any; then
o Purchase payments not previously withdrawn, in the order such purchase
payments were made: the oldest purchase payment first, the next
purchase payment second, etc. until all purchase payments have been
withdrawn.
Withdrawal charges are determined in accordance with the following:
Number of Complete Years
from Receipt of Purchase Payment % Charge
-------------------------------- --------
0 7
1 6
2 6
3 5
4 4
5 3
6 2
7 and thereafter 0
When the withdrawal is for only part of the value of your contract, the
withdrawal charge is deducted from the remaining account value, if sufficient,
or from the amount withdrawn.
We do not assess the withdrawal charge on any payments paid out as annuity
payments or as death benefits. In addition, we will not assess the withdrawal
charge on required minimum distributions from qualified contracts but only as to
amounts required to be distributed from this contract.
NOTE: For tax purposes, earnings are considered to come out first.
Reduction or Elimination of the Withdrawal Charge
General
We will reduce or eliminate the amount of the withdrawal charge when the
contract is sold under circumstances which reduce our sales expense. Some
examples are: if there is a large group of individuals that will be purchasing
the contract or a prospective purchaser already had a relationship with us. We
will not deduct a withdrawal charge under a contract issued to an officer,
director, employee, or a family member of our officer, director, or employee of
ours or any of our affiliates nor will we deduct a withdrawal charge under a
contract issued to an officer, director or employee or family member of an
officer, director or employee of a broker-dealer which is participating in the
offering of the contract.
Nursing Home or Hospital Confinement Waiver
We will not impose a withdrawal charge if, after you have owned the contract for
one year, you, or your joint owner, becomes confined to a nursing home and/or
hospital for at least 90 consecutive days or confined for a total of at least 90
days if there is no more than a 6 month break in confinement and the
confinements are for related causes under a doctor's care. The confinement must
begin after the first contract anniversary and you must have been the owner
continuously since the contract was issued (or have become the owner as the
spousal beneficiary who continues the contract). This waiver terminates on the
annuity date. This is called the Nursing Home or Hospital Confinement Waiver.
Terminal Illness Waiver
After the first contract anniversary, we will waive the withdrawal charge if
you, or your joint owner, are terminally ill and not expected to live more than
12 months; you were not diagnosed with the terminal illness on the date we
issued your contract; and you have been the owner continuously since the
contract was issued (or have become the owner as the spousal beneficiary who
continues the contract). This waiver terminates on the annuity date.
Premium Taxes
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for the payment of these
taxes and will make a deduction from the value of the contract for them. Some of
these taxes are due when the contract is issued, others are due when annuity
payments begin. It is our current practice to not charge anyone for these taxes
until annuity payments begin. We may some time in the future discontinue this
practice and assess the charge when the tax is due. Premium taxes generally
range from 0% to 4%, depending on the state.
Transfer Fee
We currently allow unlimited transfers without charge during the accumulation
period. However, we have reserved the right to limit the number of transfers to
12 free transfers per year and to charge a transfer fee of $25 for transfers
greater than 12 in any year. The transfer fee is deducted from the investment
portfolio or fixed account from which the transfer is made. However, if the
entire interest in an account is being transferred, the transfer fee will be
deducted from the amount which is transferred.
If the transfer is part of a pre-scheduled transfer program, it will not count
in determining the transfer fee.
Income Taxes
We will deduct from the contract for any income taxes which it incurs because of
the contract. At the present time, we are not making any such deductions.
Investment Portfolio Expenses
There are deductions from and expenses paid out of the assets of the various
investment portfolios, which are described in the fee table in this prospectus
and the fund prospectuses. These deductions and expenses are not charges under
the terms of the contract but are represented in the share values of the
investment options.
5. ANNUITY PAYMENTS (THE INCOME PHASE)
Annuity Date
Under the contract you can receive regular income payments (referred to as
annuity payments). You can choose the month and year in which those payments
begin. We call that date the annuity date. Your annuity date must be the first
day of a calendar month.
We ask you to choose your annuity date when you purchase the contract. You can
change it at any time before the annuity date with 30 days notice to us. Unless
you choose an annuity date, it will be the later of the first day of the
calendar month after the annuitant's 90th birthday or ten (10) years from the
date your contract was issued.
Annuity Payments
You (unless another payee is named) will receive the annuity payments during the
income phase. The annuitant is the natural person(s) whose life we look to in
the determination of annuity payments.
During the income phase, you have the same investment choices you had just
before the start of the income phase. At the annuity date, you can choose
whether payments will come from the:
o fixed account,
o the available investment portfolio(s), or
o a combination of both.
If you don't tell us otherwise, your annuity payments will be based on the
investment allocations that were in place on the annuity date. You may elect to
receive annuity payments monthly, quarterly, semi-annually or annually.
If you choose to have any portion of your annuity payments come from the
investment portfolio(s), the dollar amount of your payment will depend upon 3
things:
1) the value of your contract in the investment portfolio(s) on the annuity
date,
2) the assumed investment rate (you select) used in the annuity table for the
contract, and
3) the performance of the investment portfolios you selected.
At the time you purchase the contract, you select the assumed investment return
(AIR), which must be acceptable to us. You can change the AIR with 30 days
notice to us prior to annuity date. If you do not select an AIR, we will use 3%.
If the actual performance exceeds the AIR, your annuity payments will increase.
Similarly, if the actual investment performance is less than the AIR, your
annuity payments will decrease.
Annuity payments are made monthly (or at any frequency permitted under the
contract) unless you have less than $5,000 to apply toward an Annuity Option. In
that case, we may provide your annuity payment in a single lump sum instead of
annuity payments. Likewise, if your annuity payments would be or become less
than $100 a month, we have the right to change the frequency of payments so that
your annuity payments are at least $100.
Annuity Options
You can choose among income plans. We call those annuity options. We ask you to
choose an annuity option when you purchase the contract. You can change it at
any time before the annuity date with 30 days notice to us. If you do not choose
an annuity option at the time you purchase the contract, Option 2 which provides
a life annuity with 10 years of guaranteed annuity payments will automatically
be applied.
You can choose one of the following annuity options or any other annuity option
acceptable to us. After annuity payments begin, you cannot change the annuity
option.
Option 1. Life Annuity. Under this option, we will make annuity payments so long
as the annuitant is alive. We stop making annuity payments after to the
annuitant's death.
Option 2. Life Annuity With 10 Years of Annuity Payments Guaranteed. Under this
option, we will make annuity payments so long as the annuitant is alive.
However, if, when the annuitant dies, we have made annuity payments for less
than ten years, we will then continue to make annuity payments for the rest of
the 10 year period. If you do not want to continue receiving annuity payments,
you may elect to have the present value of the guaranteed variable annuity
payments remaining (as of the date due proof of the annuitant's death is
received at our annuity service office) commuted at the AIR selected. We will
require return of your contract and proof of death before we pay the commuted
values.
Option 3. Joint and Last Survivor Annuity. Under this option, we will make
annuity payments so long as the annuitant and a second person (joint annuitant)
are both alive. When either annuitant dies, we will continue to make annuity
payments, so long as the survivor continues to live. We will stop making annuity
payments after the last survivor's death.
Option 4. Joint and Last Survivor Annuity with 10 Years of Annuity Payments
Guaranteed. Under this option, we will make annuity payments so long as the
annuitant and a second person (joint annuitant) are both alive. When either
annuitant dies, we will continue to make annuity payments, so long as the
survivor continues to live. However, if, at the last death of the annuitant and
the joint annuitant, we have made annuity payments for less than ten years, we
will then continue to make annuity payments for the rest of the 10 year period.
If you do not want to continue receiving annuity payments, you may elect to have
the present value of the guaranteed variable annuity payments remaining (as of
the date due proof of the annuitant's death is received at our annuity service
office) commuted at the AIR selected. We will require return of your contract
and proof of death before we pay the commuted values.
Guaranteed Minimum Income Benefit - Living Benefit
At the time you buy the contract, you can elect the guaranteed minimum income
benefit (Living Benefit) rider.
The Living Benefit guarantees you a minimum (floor) of fixed income once you
begin to receive annuity payments. This floor of fixed income results from
annuitizing the Living Income Base (described below) at the Living Benefit
annuity purchase rates. You always retain the right to receive annuity payments
at any time under the terms of the base annuity contract at the current rates.
Upon the exercise of the Living Benefit, your annuity payments will be the
greater of:
o the annuity payment provided by using the Income Base at the Living
Benefit purchase rates; or
o the annuity payment provided using the adjusted account values at the
then current annuity purchase rate (for the same annuity option).
When you elect to receive annuity payments under the Living Benefit, you have
your choice of two annuity options:
o a life annuity with a ten year period certain (certain period shortens
for ages 80 and above); or
o a joint survivor life annuity with a 10 year period certain.
You can only elect the Living Benefit when you purchase the contract and you are
under age 75.
Example of Living Benefit:
For a male age 55 with an initial purchase payment of
$100,000 and no subsequent purchase payments or
partial withdrawals, the following minimum (floor) of
fixed income is guaranteed under the Living Benefit
for various ages at which annuity payments begin:
Issue Age: Age when payments begin Minimum Monthly Annuity
Payments
55 65 $785
70 $1,187
75 $1,812
The example does not show the impact of the Highest
Anniversary Value (see below) and it also does not
reflect the impact of any applicable premium taxes.
Exercising the Living Benefit:
o You may only elect an annuity date that is within 30 days after any
contract anniversary beginning with the 10th contract anniversary.
o We will deduct any applicable withdrawal charges from the income base
on the date you exercise the Living Benefit rider. We may also deduct
premium taxes from the income base.
o You must elect an annuity date on or before the 30th day following the
contract anniversary immediately after your 85th birthday.
Terminating the Living Benefit Rider:
The Living Benefit rider will terminate upon the earliest of:
o The date you elect to receive annuity payments either under the Living
Benefit rider or the contract;
o The 30th day following the contract anniversary immediately after your
85th birthday;
o The date you make a complete withdrawal of your account value;
o Death of the owner, or death of the annuitant if a non-natural person
owns the contract; or
o Change of the owner, for any reason.
Income Base
The income base is the greater of (a) or (b) below:
(a) Highest Anniversary Value: On the issue date, the highest anniversary
value is equal to your initial purchase payment. Thereafter, the
highest anniversary value will be increased by subsequent purchase
payments and reduced proportionately by the percentage reduction in
account value attributable to each subsequent partial withdrawal. On
each contract anniversary prior to your 81st birthday, the highest
anniversary value will be recalculated and set equal to the greater of
the highest anniversary value before the recalculation or the account
value on the date of the recalculation.
(b) Annual Increase Amount: On the issue date, the annual increase amount
is equal to your initial purchase payment. Thereafter, the annual
increase amount is equal to (i) less (ii), where:
(i) is purchase payments accumulated at the annual increase rate.
The annual increase rate is 6% per year through the contract
anniversary immediately prior to your 81st birthday, and 0%
per year thereafter;
(ii) is withdrawal adjustments accumulated at the annual increase
rate. Withdrawal adjustments in a contract year are determined
according to (1) or (2) as defined below:
(1) The withdrawal adjustment for each partial
withdrawal in a contract year is the value
of the annual increase amount immediately
prior to the withdrawal multiplied by the
percentage reduction in account value
attributable to that partial withdrawal; or
(2) If total partial withdrawals in a contract
year are 6% or less of the annual increase
amount on the previous contract anniversary,
the total withdrawal adjustments for that
contract year will be set equal to the
dollar amount of total partial withdrawals
in that contract year. These withdrawal
adjustments will replace the withdrawal
adjustments defined in (1) above and will be
treated as though the corresponding partial
withdrawals occurred at the end of that
contract year.
It is possible that the income base can be greater than your account value. The
income base is not available for withdrawals and is only used for purposes of
calculating the Living Benefit Payment and charges for the Living Benefit rider.
While the Living Benefit rider is in effect, the owner (or joint owners) and
annuitant (or joint annuitants) must be the same. If a non-natural person owns
the contract, then annuitant will mean owner in determining the income base and
Living Benefit payment. If joint owners are named, the age of the oldest will be
used to determine the income base.
The election of the Living Benefit may or may or may not satisfy the minimum
distribution requirements. You should contact your own tax advisor about your
circumstances.
6. TAXES
NOTE: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. We have
included an additional discussion regarding taxes in the Statement of Additional
Information.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code of 1986 (Code) for
annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you will be
taxed depending on how you take the money out and the type of
contract--qualified or non-qualified (see the following sections).
You, as the owner, will not be taxed on increases in the value of your contract
until a distribution occurs either as a withdrawal or as annuity payments. When
you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For annuity payments, different rules apply. A portion of each annuity
payment is treated as a partial return of your purchase payments and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your purchase
payments are fully includable in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the contract will generally not be treated as an
annuity for tax purposes.
Qualified and Non-Qualified Contracts
If you purchase the contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your contract
is referred to as a non-qualified contract.
If you purchase the contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your contract is referred to as a qualified
contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 plans.
A qualified contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax deferred. However, the
contract has features and benefits other than tax deferral that may make it an
appropriate investment for a qualified plan. Loans will not be available under
the contract. You should consult your tax adviser regarding these features and
benefits prior to purchasing a qualified contract.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your non-qualified contract, the Code treats such
a withdrawal as first coming from earnings and then from your purchase payments.
Such withdrawn earnings are included in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includable in income. Certain withdrawals are
not subject to the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 591/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is
defined in the Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life
expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
Withdrawals - Qualified Contracts
If you make a withdrawal from your qualified contract, a portion of the
withdrawal is treated as taxable income. This portion depends on the ratio of
pre-tax purchase payments to the after-tax purchase payments in your contract.
If all of your purchase payments were made with pre-tax money then the full
amount of any withdrawal is includable in taxable income. Special rules may
apply to withdrawals from certain types of qualified contracts.
The Code also provides that any amount received under a qualified contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includable in income. Certain withdrawals are
not subject to the penalty. They include any amounts:
(1) paid on or after you reach age 59 1/2;
(2) paid after you die;
(3) paid if you become totally disabled (as that term is defined in the Code);
(4) paid to you after leaving your employment in a series of substantially
equal periodic payments made annually (or more frequently) under a lifetime
annuity;
(5) paid to you after you have attained age 55 and you have left your
employment;
(6) paid for certain allowable medical expenses (as defined in the Code);
(7) paid pursuant to a qualified domestic relations order;
(8) paid on account of an IRS levy upon the qualified contract;
(9) paid from an IRA for medical insurance (as defined in the Code);
(10) paid from an IRA for qualified higher education expenses; or
(11) paid from an IRA for up to $10,000 for qualified first-time home buyer
expenses (as defined in the Code).
The exceptions in (5) and (7) above do not apply to IRAs. The exception in (4)
above applies to IRAs but without the requirement of leaving employment.
We have provided a more complete discussion in the Statement of Additional
Information.
Withdrawals - Tax-Sheltered Annuities
The Code limits the withdrawal of amounts attributable to purchase payments made
under a salary reduction agreement by owners from Tax-Sheltered Annuities.
Withdrawals can only be made when an owner:
(1) reaches age 591/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw an amount equal to
the purchase payments and not any earnings.
Death Benefits
Any death benefits paid under the contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or annuity payments. Estate taxes may
also apply.
If the death benefit riders are to be used with a qualified contract, such death
benefits may be considered by the Internal Revenue Service as "incidental death
benefits." The Code imposes limits on the amount of incidental death benefits
allowable for qualified contracts, and if the death benefits selected by you are
considered to exceed such limits, the provisions of such benefits could result
in currently taxable income to the owners of the qualified contracts.
Furthermore, the Code provides that the assets of an IRA may not be invested in
life insurance, but may provide in the case of death during the accumulation
phase for a death benefit payment equal to the greater of purchase payments or
account value. The contract offers death benefits which may exceed the greater
of purchase payments or account value. If these death benefits are determined by
the Internal Revenue Service as providing life insurance, the contract may not
qualify as an IRA (including Roth IRAs). You should consult your tax adviser
regarding these features and benefits prior to purchasing a contract.
Diversification
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. We believe that the investment portfolios are being managed so
as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not us would be
considered the owner of the shares of the investment portfolios. If you are
considered the owner of the shares, it will result in the loss of the favorable
tax treatment for the contract. It is unknown to what extent owners are
permitted to select investment portfolios, to make transfers among the
investment portfolios or the number and type of investment portfolios owners may
select from without being considered the owner of the shares. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that you, as the
owner of the contract, could be treated as the owner of the shares of the
investment portfolios.
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
You (or in the case of (3) below, your beneficiary) can have access to the money
in your contract:
(1) by making a withdrawal (either a partial or a complete withdrawal);
(2) by electing to receive annuity payments; or
(3) when a death benefit is paid to your beneficiary.
Under most circumstances, withdrawals can only be made during the accumulation
phase.
When you make a complete withdrawal you will receive the withdrawal value of the
contract. The withdrawal value of the contract is the account value of the
contract at the end of the business day when we receive a written request for a
withdrawal:
o less any applicable withdrawal charge,
o less any premium tax,
o less any account fee, and
o less any applicable pro-rata Living Benefit rider charge.
Unless you instruct us otherwise, any partial withdrawal will be made pro-rata
from all the investment portfolios and the fixed account you selected. Under
most circumstances the amount of any partial withdrawal must be for at least
$500, or your entire interest in the investment portfolio or fixed account. We
require that after a partial withdrawal is made you keep at least $2,000 in the
contract. If the withdrawal would result in the account value being less than
$2,000 after a partial withdrawal, we will treat the withdrawal request as a
request for a full withdrawal.
We will pay the amount of any withdrawal from the Separate Account within seven
(7) days of when we receive the request in good order unless the suspension of
payments or transfers provision is in effect.
There are limits to the amount you can withdraw from a qualified plan referred
to as a 403(b) plan. For a more complete explanation see "Taxes" and the
discussion in the Statement of Additional Information.
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make.
Systematic Withdrawal Program
You may elect the Systematic Withdrawal Program at any time. This program
provides an automatic payment to you of up to 10% of your total purchase
payments each year. You can receive payments monthly or quarterly. We do not
have any charge for this program, but reserve the right to charge in the future.
While the Systematic Withdrawal Program is in effect you can make additional
withdrawals. However, such withdrawals plus the systematic withdrawals will be
considered when determining the applicability of any withdrawal charge. (For a
discussion of withdrawal charge see "Expenses" above.)
Income taxes, tax penalties and certain restrictions may apply to Systematic
Withdrawals.
Suspension of Payments or Transfers
We may be required to suspend or postpone payments for withdrawals or transfers
for any period when:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
(2) trading on the New York Stock Exchange is restricted;
(3) an emergency exists as a result of which disposal of shares of the
investment portfolios is not reasonably practicable or we cannot
reasonably value the shares of the investment portfolios;
(4) during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of owners.
We have reserved the right to defer payment for a withdrawal or transfer from
the fixed account for the period permitted by law but not for more than six
months.
8. PERFORMANCE
We periodically advertise performance of the various investment portfolios. We
will calculate performance by determining the percentage change in the value of
an accumulation unit by dividing the increase (decrease) for that unit by the
value of the accumulation unit at the beginning of the period. This performance
number reflects the deduction of the separate account product charges (including
death benefit rider charges) and the investment portfolio expenses. It does not
reflect the deduction of any applicable account fee, withdrawal charge and
Living Benefit rider charge. The deduction of these charges would reduce the
percentage increase or make greater any percentage decrease. Any advertisement
will also include total return figures which reflect the deduction of the
separate account product charges (including death benefit rider charges),
account fee, withdrawal charges, Living Benefit rider charge and the investment
portfolio expenses.
For certain investment portfolios performance may be shown for the period
commencing from the inception date of the investment portfolio. These figures
should not be interpreted to reflect actual historical performance of the
Separate Account.
We may, from time to time, include in its advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets. Appendix B contains performance information that
you may find informative. It is divided into various parts, depending upon the
type of performance information shown. Future performance will vary and results
shown are not necessarily representative of future results.
9. DEATH BENEFIT
Upon Your Death
If you die during the accumulation phase, we will pay a death benefit to your
beneficiary(ies). If you have a joint owner, the death benefit will be paid when
the first owner dies. Upon the death of either owner, the surviving joint owner
will be the primary beneficiary. Any other beneficiary designation will be
treated as a contingent beneficiary, unless instructed otherwise.
The death benefit is the account value determined as of the end of the business
day on which we receive both due proof of death and an election for the payment
method. At the time you purchase the contract, you can select one of the
following death benefit riders instead:
o Return of Purchase Payments Death Benefit
o Annual Step-Up Death Benefit
o Greater of Annual Step-Up or 5% Annual Increase Death Benefit
You can also select the Additional Death Benefit - Earnings Preservation Benefit
(not available in connection with a qualified contract).
If you select one of these death benefits, we will issue a rider to your
contract. The death benefits are described below. Check your contract and rider
for the specific provisions applicable. One or more riders may not be available
in your state (check with your registered representative regarding
availability).
If a non-natural person owns the contract, then annuitant will be deemed to be
the owner in determining the death benefit. If there are joint owners, the age
of the oldest owner will be used to determine the death benefit amount.
Return of Purchase Payment Death Benefit
The death benefit will be the greater of:
(1) the account value; or
(2) total purchase payments, reduced proportionately by the
percentage reduction in account value attributable to each
partial withdrawal.
If the owner is a natural person and the owner is changed to someone other than
a spouse, the death benefit amount will be determined as defined above; however,
subsection (2) will be changed to provide as follows: "the account value as of
the effective date of the change of owner, increased by purchase payments
received after the date of the change of owner, reduced proportionately by the
percentage reduction in account value attributable to each partial withdrawal
made after such date."
In the event that a beneficiary who is the spouse of the owner elects to
continue the contract in his or her name after the owner dies, the death benefit
amount will be determined in accordance with (1) or (2) above.
Example of Return of Purchase Payments Death Benefit
The following graph demonstrates how the Return of Purchase Payments Death
Benefit works given various hypothetical account values. The graph assumes that
the owner was 69 when the contract was purchased and provides hypothetical
account values up to age 82. The example assumes that the contract was purchased
with $100,000 and no additional purchase payments were made nor were any partial
withdrawals made.
[THE FOLLOWING TABLE WILL BE REPRESENTED AS A LINE CHART IN THE PRINTED
MATERIAL.]
Return of Purchase Account
Payment Value
------- -----
69 $100,000 $100,000
70 100,000 80,000
71 100,000 100,000
72 100,000 120,000
73 100,000 100,000
74 100,000 80,000
75 100,000 120,000
76 100,000 140,000
77 100,000 120,000
78 100,000 140,000
79 100,000 160,000
80 100,000 140,000
81 100,000 170,000
82 100,000 140,000
Annual Step-Up Death Benefit
The death benefit will be the greatest of:
(1) the account value; or
(2) total purchase payments, reduced proportionately by the percentage
reduction in account value attributable to each partial withdrawal; or
(3) the highest anniversary value, as defined below.
On the date we issue your contract, the highest anniversary value is
equal to your initial purchase payment. Thereafter, the highest
anniversary value (as recalculated) will be increased by subsequent
purchase payments and reduced proportionately by the percentage
reduction in account value attributable to each subsequent partial
withdrawal. On each contract anniversary prior to your 81st birthday,
the highest anniversary value will be recalculated and set equal to the
greater of the highest anniversary value before the recalculation or
the account value on the date of the recalculation.
If the owner is a natural person and the owner is changed to someone other than
a spouse, the death benefit is equal to the greatest of (1), (2) or (3);
however, for purposes of calculating (2) and (3) above:
o Subsection (2) is changed to provide: "The account value as of
the effective date of the change of owner, increased by
purchase payments received after the date of change of owner,
and reduced proportionately by the percentage reduction in
account value attributable to each partial withdrawal made
after such date"; and
o for subsection (3), the highest anniversary value will be
recalculated to equal your account value as of the effective
date of the change of owner.
In the event that a beneficiary who is the spouse of the owner elects to
continue the contract in his or her name after the owner dies, the death benefit
is equal to the greatest of (1), (2) or (3).
Example of Annual Step-up Death Benefit
The following graph demonstrates how the Annual Step-up Death Benefit works
given various hypothetical account values. The graph assumes that the owner was
69 when the contract was purchased and provide hypothetical account values up to
age 82. The example assumes that the contract was purchased with $100,000 and no
additional purchase payments were made nor were any partial withdrawals made.
[THE FOLLOWING TABLE WILL BE REPRESENTED AS A LINE CHART IN THE PRINTED
MATERIAL.]
Account
Annual Step-Up Value
-------------- -----
69 $100,000 $100,000
70 100,000 80,000
71 100,000 100,000
72 120,000 120,000
73 120,000 100,000
74 120,000 80,000
75 120,000 120,000
76 140,000 140,000
77 140,000 120,000
78 160,000 140,000
79 160,000 160,000
80 160,000 140,000
81 160,000 170,000
82 160,000 140,000
Greater of Annual Step-Up or 5% Annual Increase Death Benefit
The death benefit will be the greater of:
(1) the account value; or
(2) the enhanced death benefit.
The enhanced death benefit is the greater of (a) or (b) below:
(a) Highest Anniversary Value: On the date we issue your contract, the
highest anniversary value is equal to your initial purchase payment.
Thereafter, the highest anniversary value (as recalculated) will be
increased by subsequent purchase payments and reduced proportionately
by the percentage reduction in account value attributable to each
subsequent partial withdrawal. On each contract anniversary prior to
your 81st birthday, the highest anniversary value will be recalculated
and set equal to the greater of the highest anniversary value before
the recalculation or the account value on the date of the
recalculation.
(b) Annual Increase Amount: On the date we issue your contract, the annual
increase amount is equal to your initial purchase payment. Thereafter,
the annual increase amount is equal to (i) less (ii), where:
(i) is purchase payments accumulated at the annual increase rate. The
annual increase rate is 5% per year through the contract anniversary
immediately prior to your 81st birthday, and 0% per year thereafter;
and
(ii) is withdrawal adjustments accumulated at the annual increase rate. A
withdrawal adjustment is equal to the value of the annual increase
amount immediately prior to a withdrawal multiplied by the percentage
reduction in account value attributable to that partial withdrawal.
If the owner is a natural person and the owner is changed to someone other than
a spouse, the death benefit is equal to the greatest of (1) or (2); however, for
purposes of calculating the enhanced death benefit under (2) above:
(a) for the highest anniversary value, the highest anniversary value will
be recalculated to equal your account value as of the effective date
of the owner change; and
(b) for the annual increase amount, the current annual increase amount
will be reset to equal your account value as of the effective date of
the owner change. For purposes of the calculation of the annual
increase amount thereafter, the account value on the effective date of
the owner change will be treated as the initial purchase payment and
purchase payments received and partial withdrawals taken prior to the
change of owner will not be taken into account.
In the event that a beneficiary who is the spouse of the owner elects to
continue the contract in his or her name after the owner dies, the death benefit
amount is equal to the greater of (1) or (2).
Example of Greater of Annual Step-up or 5% Annual Increases Benefit
The following graph demonstrates how the Greater of Annual Step-up or 5% Annual
Increase Death Benefit works given various hypothetical account values. The
graph assumes that the owner was 69 when the contract was purchased and provides
the hypothetical account values up to age 82. The example assumes that the
contract was purchased with $100,000 and no additional purchase payments were
made nor were any partial withdrawals made. The annual percentage increase is
5%.
[THE FOLLOWING TABLE WILL BE PRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
5% Annual Annual Account
Increase Step-up Value
-------- ------- -----
69 $100,000 $100,000 $100,000
70 100,000 100,000 80,000
71 100,000 100,000 100,000
72 120,000 120,000 120,000
73 120,000 120,000 100,000
74 120,000 120,000 80,000
75 120,000 120,000 120,000
76 140,000 140,000 140,000
77 140,000 140,000 120,000
78 140,000 140,000 140,000
79 162,889.5 160,000 160,000
80 171,033.9 160,000 140,000
81 171,033,9 160,000 170,000
82 171,033,9 160,000 140,000
Additional Death Benefit - Earnings Preservation Benefit
The Additional Death Benefit - Earnings Preservation Benefit pays an additional
death benefit that is intended to help pay part of the income taxes due at the
time of death of the owner or joint owner.
Before the contract anniversary immediately prior to your 81st birthday, the
additional death benefit is equal to the "benefit percentage" (determined in
accordance with the table below) times the result of (a) - (b), where:
(a) is the death benefit under your contract; and
(b) is total purchase payments not withdrawn. For purposes of calculating
this value, partial withdrawals are first applied against earnings in
the contract (earnings are equal to your account value less purchase
payments not withdrawn), and then against purchase payments not
withdrawn.
On or after the contract anniversary immediately prior to your 81st birthday,
the additional death benefit is equal to the "benefit percentage" (determined in
accordance with table below) times the result of (a) - (b), where:
(a) is the death benefit on the contract anniversary immediately
prior to your 81st birthday, increased by subsequent purchase
payments and reduced proportionately by the percentage
reduction in account value attributable to each subsequent
partial withdrawal; and
(b) is total purchase payments not withdrawn. For purposes of
calculating this value partial withdrawals are first applied
against earnings in the contract (earnings are equal to your
account value less purchase payments not withdrawn) and then
against purchase payments not withdrawn.
Benefit Percentage
Issue Age Percentage
Ages 69 or younger 40%
Ages 70-79 25%
Ages 80 and above 0%
If the owner is a natural person and the owner is changed to someone other than
a spouse, the additional death benefit is as defined above; however, for the
purposes of calculating subsection (b) above "total purchase payments not
withdrawn" will be reset to equal the account value as of the effective date of
the owner change, and purchase payments received and partial withdrawals taken
prior to the change of owner will not be taken into account.
In the event that a beneficiary who is the spouse of the owner elects to
continue the contract in his or her name after the owner dies, the additional
death benefit will be determined and payable upon receipt of due proof of death
of the first spousal beneficiary. Alternatively, the spousal beneficiary may
elect to have the additional death benefit determined and added to the account
value upon the election, in which case the additional death benefit rider will
terminate.
If you own a qualified contract, you may not elect the Additional Death Benefit
- Earnings Preservation Benefit.
Example of Additional Death Benefit-Earnings Preservation Benefit
The following graph demonstrates how the Additional Death Benefit Earning
Preservation works given various hypothetical account values. The graph assumes
that the owner was 69 when the contract was purchased and provides hypothetical
account values up to 82. The example assumes that the contract was purchased
with $100,000 and no additional purchase payments were made or were any partial
withdrawals made.
[THE FOLLOWING TABLE WILL BE PRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
5% Annual Account Additional
Increase Value Earnings Death Benefit
-------- ----- ------- -------------
69 $100,000 $100,000 -- --
70 100,000 80,000 -- --
71 100,000 100,000 -- --
72 100,000 120,000 20,000 8,000
73 100,000 100,000 -- --
74 100,000 120,000 -- --
75 100,000 120,000 20,000 8,000
76 100,000 140,000 40,000 16,000
77 100,000 120,000 20,000 8,000
78 100,000 140,000 40,000 16,000
79 100,000 160,000 60,000 24,000
80 100,000 140,000 40,000 16,000
81 100,000 170,000 70,000 28.000
82 100,000 140,000 40,000 16.000
General Death Benefit Provisions
The death benefit amount remains in the Separate Account until distribution
begins. From the time the death benefit is determined until complete
distribution is made, any amount in the Separate Account will continue to be
subject to the investment risk. This risk is borne by the beneficiary.
A beneficiary must elect the death benefit to be paid under one of the payment
options (unless the owner has previously made the election). The entire death
benefit must be paid within 5 years of the date of death unless the beneficiary
elects to have the death benefit payable under an annuity option. The death
benefit payable under an annuity option must be paid over the beneficiary's
lifetime or for a period not extending beyond the beneficiary's life expectancy.
Payment must begin within one year of the date of death. If the beneficiary is
the spouse of the owner, he/she can continue the contract in his/her own name.
If continued, the account value will be adjusted to equal the death benefit.
(See the provisions above for the specifics on spousal continuation of a
contract.)
If a lump sum payment is elected and all the necessary requirements are met, the
payment will be made within 7 days. Payment to the beneficiary under an annuity
option may only be elected during the 60 day period beginning with the date
Security First receives proof of death. If Security First does not receive an
election during such time, it will make a single sum payment to the beneficiary
at the end of the 60 day period.
If the owner or a joint owner, who is not the annuitant, dies during the income
phase, any remaining payments under the annuity option elected will continue at
least as rapidly as under the method of distribution in effect at the time of
the owner's death. Upon the death of the owner or a joint owner during the
income phase, the beneficiary becomes the owner.
Death of Annuitant
If the annuitant, not an owner or joint owner, dies during the accumulation
phase, you automatically become the annuitant. You can select a new annuitant if
you do not want to be the annuitant. However, if the owner is a non-natural
person (for example, a corporation), then the death of the primary annuitant
will be treated as the death of the owner, and a new annuitant may not be named.
Upon the death of the annuitant after annuity payments begin, the death benefit,
if any, will be as provided for in the annuity option selected. Death benefits
will be paid at least as rapidly as under the method of distribution in effect
at the annuitant's death.
10. OTHER INFORMATION
Security First
Security First Life 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 authorized to transact the business
of life insurance, including annuities, and is currently licensed to do business
in all states except New York and in the District of Columbia. Security First is
a wholly-owned subsidiary of Security First Group, Inc. ("SFG"). SFG in turn is
a wholly-owned subsidiary of Metropolitan Life Insurance Company ("MetLife"), a
New York life insurance company.
MetLife, a wholly-owned subsidiary of MetLife, Inc., a publicly traded company,
is a leading provider of insurance and financial services to a broad spectrum of
individual and group customers. With approximately $____ billion worth of assets
under management as of December 31, 2000, MetLife provides individual insurance
and investment products to approximately 9 million households in the United
States.
The Separate Account
We have established a separate account, Security First Life Separate Account A
(Separate Account), to hold the assets that underlie the contracts. Our Board of
Directors adopted a resolution to establish the Separate Account under Delaware
insurance law on May 29, 1980. We have registered the Separate Account with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Separate Account is divided into
sub-accounts.
The assets of the Separate Account are held in our name on behalf of the
Separate Account and legally belong to us. However, those assets that underlie
the contracts, are not chargeable with liabilities arising out of any other
business we may conduct. All the income, gains and losses (realized or
unrealized) resulting from these assets are credited to or charged against the
contracts and not against any other contracts we may issue.
We reserve the right to transfer assets of the Separate Account to another
account, and to modify the structure or operation of the Separate Account,
subject to necessary regulatory approvals. If we do so, we guarantee that the
modification will not affect your account value.
Distributor
MetLife Investors Distribution Company, 610 Newport Center Drive, Suite 1350,
Newport Beach, California 92660 acts as the distributor of the contracts.
MetLife Investors Distribution Company is an affiliate of Security First.
Commissions will be paid to broker-dealers who sell the contracts.
Broker-dealers will be paid commissions up to____% of purchase payments but,
under certain circumstances, may be ____%. Sometimes, we enter into an agreement
with the broker-dealer to pay the broker- dealer persistency bonuses, in
addition to the standard commissions.
Ownership
Owner
You, as the owner of the contract, have all the interest and rights under the
contract. The owner is as designated at the time the contract is issued, unless
changed.
Joint Owner
The contract can be owned by joint owners, limited to two natural persons. Upon
the death of either owner, the surviving owner will be the primary beneficiary.
Any other beneficiary designation will be treated as a contingent beneficiary
unless otherwise indicated.
Beneficiary
The beneficiary is the person(s) or entity you name to receive any death
benefit. The beneficiary is named at the time the contract is issued unless
changed at a later date. Unless an irrevocable beneficiary has been named, you
can change the beneficiary at any time before you die. If joint owners are
named, unless you tell us otherwise, the surviving joint owner will be the
primary beneficiary. Any other beneficiary designation will be treated as a
contingent beneficiary (unless you tell us otherwise).
Annuitant
The annuitant is the natural person(s) on whose life we base annuity payments.
You can change the annuitant at any time prior to the annuity date, unless an
owner is not a natural person. Any reference to annuitant includes any joint
annuitant under an annuity option. The annuitant and the owner do not have to be
the same person.
Assignment
You can assign the contract at any time during your lifetime. We will not be
bound by the assignment until the written notice of the assignment is recorded
by it. We will not be liable for any payment or other action it takes in
accordance with the contract before it records the assignment. An assignment may
be a taxable event.
If the contract is issued pursuant to a qualified plan, there may be limitations
on your ability to assign the contract.
Financial Statements
Our consolidated financial statements and those of the Separate Account have
been included in the Statement of Additional Information.
Table of Contents of the Statement of Additional Information
Company
Experts
Legal Opinions
Distribution
Calculation of Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
APPENDIX A
PARTICIPATING INVESTMENT PORTFOLIOS
Below are the investment objectives of each investment portfolio available under
the Contract. The fund prospectuses contain more complete information, including
a description of the investment objectives, policies, restrictions and risks.
THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE ACHIEVED.
MET INVESTORS SERIES TRUST
Met Investors Series Trust is an open-end management investment company that
offers a selection of managed investment portfolios or mutual funds
(Portfolios), ten of which are available herein. Each of these Portfolios has
its own investment objective designed to meet different investment goals.
Janus Aggressive Growth Portfolio
Investment Objective: The Portfolio seeks long-term growth of capital. The
Portfolio invests primarily in common stocks selected for their growth
potential. The Portfolio may also invest in other equity securities including
preferred stock. The Portfolio may invest in companies of any size, from larger,
well-established companies to smaller, emerging growth companies. The Portfolio
is non-diversified, which means that it can invest a greater portion of its
assets in a small number of issuers.
Lord Abbett Bond Debenture Portfolio
Investment Objective: The Portfolio seeks to provide high current income and the
opportunity for capital appreciation to produce a high total return. Under
normal circumstances, the Portfolio invests substantially all of its total
assets in fixed income securities of various types. To pursue its goal, the
Portfolio normally invests in high yield and investment grade debt securities,
convertible securities and preferred stocks. The Portfolio may invest
substantially all of its total assets in high yield/high risk debt securities
(junk bonds).
Lord Abbett Growth and Income Portfolio
Investment Objective: The Portfolio seeks to achieve long-term growth of capital
and income without excessive fluctuation in market value. The Portfolio will
normally invest substantially all of its assets in common stocks of large,
seasoned U.S. companies which the Adviser believes are undervalued.
Oppenheimer Capital Appreciation Portfolio
Investment Objective: The Portfolio seeks capital appreciation. The Portfolio
invests mainly in common stocks of "growth companies." These may be newer
companies or established companies of any capitalization range that the adviser
believes may appreciate in value over the long term. The Portfolio currently
focuses mainly on mid-cap and large-cap domestic companies. The Portfolio may
also purchase the securities of foreign issuers.
Putnam Research Portfolio
Investment Objective: The Portfolio seeks capital appreciation. The Portfolio
invests mainly in common stocks of large U.S. companies that the adviser thinks
have the greatest potential for capital appreciation, with stock prices that
reflect a value lower than that which the adviser places on the company, or
whose earnings the adviser believes are likely to grow over time. The adviser
also looks for the presence of factors that it believes will cause the stock
price to rise.
PIMCO Total Return Portfolio
Investment Objective: The Portfolio seeks maximum total return, consistent with
the preservation of capital and prudent investment management. The Portfolio
seeks to achieve its investment objective by investing under normal
circumstances at least 65% of its assets in a diversified portfolio of fixed
income instruments of varying maturities. The average portfolio duration of the
Portfolio normally varies within a three-to-six-year time frame based on the
adviser's forecast for interest rates. The Portfolio invests primarily in
investment grade debt securities, U.S. Government securities and commercial
paper and other short-term obligations.
PIMCO Money Market Portfolio
Investment Objective: The Portfolio seeks maximum current income, consistent
with preservation of capital and daily liquidity. The Portfolio seeks to achieve
its investment objective by investing at least 95% of its total assets in a
diversified portfolio of money market securities that are in the highest rating
category for short-term obligations.
PIMCO Innovation Portfolio
Investment Objective: The Portfolio seeks capital appreciation; no consideration
is given to income. The Portfolio seeks to achieve its investment objective by
normally investing at least 65% of its assets in common stocks of companies
which utilize new, creative or different, or "innovative," technologies to gain
a strategic competitive advantage in their industry, as well as companies that
provide and service those technologies. The Portfolio identifies its investment
universe of technology-related companies primarily by reference to
classifications made by independent firms, such as Standard & Poor's (for
example, companies classified as "Information Technology" companies) and by
identifying companies that derive a substantial portion of their revenues from
the manufacture, sale and/or service of technological products. Although the
Portfolio emphasizes companies which utilize technologies, it is not required to
invest exclusively in companies in a particular business sector or industry.
MFS Mid Cap Growth Portfolio
Investment Objective: The Portfolio seeks long-term growth of capital. The
Portfolio invests, under normal market conditions, at least 65% of its total
assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts for those securities, of
companies with medium market capitalization which the adviser believes have
above-average growth potential.
MFS Research International Portfolio
Investment Objective: The Portfolio seeks capital appreciation. The Portfolio
invests, under normal market conditions, at least 65% of its total assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts of foreign companies. The Portfolio focuses
on foreign companies (including up to 20% of its total assets in emerging market
issues) that the Portfolio's Adviser believes have favorable growth prospects
and attractive valuations based on current and expected earnings or cash flow.
The Portfolio may invest in companies of any size. The Portfolio does not
emphasize any particular country, and under normal market conditions, will be
invested in at least five countries. Equity securities may be listed on a
securities exchange or traded in the over-the-counter markets.
NEW ENGLAND ZENITH FUND
New England Zenith Fund is an open-end management investment company that offers
a selection of managed investment portfolios or mutual funds (Series), two of
which are available herein. Each of these has its own investment objective
designed to meet different investment goals.
Harris Oakmark Mid Cap Value Series
Investment Objective: The Series seeks long-term capital appreciation. The
Series' adviser invests the Series' assets primarily in common stocks of U.S.
companies. The Series is a "non-diversified fund," which means that it may hold
at any one time securities of fewer issuers compared to a "diversified fund."
The Series could own as few as 12 securities, but generally will have 15-20
securities in its portfolio. The Series' adviser will normally invest at least
65% of the Series' total assets in equity securities of companies with public
stock market capitalizations within the range of the market capitalization of
companies considered to be midcap stocks by Morningstar, Inc. The Series may
invest up to 25% of its total assets in fixed-income securities, including
investment grade securities and high-yield debt.
Davis Venture Value Series
Investment Objective: The Series seeks growth of capital. The Series invests its
assets primarily in U.S. common stocks of companies that have a market
capitalization of at least $5 billion and that it believes are of high quality
and are selling at attractive prices. The Series' adviser generally selects
stocks with the intention of holding them for the long term. The Series' adviser
believes that managing risk is the key to delivering superior long-term
investment results; therefore, it considers how much could potentially be lost
on an investment before considering how much might be gained.
APPENDIX B
PERFORMANCE INFORMATION
Future performance will vary and the results shown are not necessarily
representative of future results.
[TO BE ADDED]
Please send me, at no charge, the Statement of Additional Information dated
____________, for the annuity contract issued by Security First.
(Please print or type and fill in all information)
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Name
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Address
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City State Zip Code
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Security First Life Insurance Company
Attn: Variable Products
11365 West Olympic Boulevard
Los Angeles, California 90064
APPENDIX C
EDCA Example with Multiple Purchase Payments
EDCA Period (in months) 6
EDCA Interest Rate 12%
First Purchase Payment $12,000 1st Payment
Subsequent Purchase Payment $ 6,000 2nd Payment
[Enlarge/Download Table]
-----------Account Values---------
Beg of Amount Allocated Actual EDCA EDCA 1st Payment 2nd Payment
Month to EDCA Transfer Account Value Bucket Bucket
----- ------- -------- ------------- ------ ------
1 12000 2000 10000 10000
2 2000 8095 8095
3 2000 6172 6172
4 6000 3000 9230 3230 6000
5 3000 6309 261 6048
6 3000 3359 0 3359
7 3000 386 0 386
8 389 0 0 0
9 0 0 0 0
10 0 0 0 0
11 0 0 0 0
12 0 0 0 0
13 0 0 0 0
14 0 0 0 0
15 0 0 0 0
Notes:
1. Subsequent purchase payment is made at start of month 4. This results in an increase in the
Actual EDCA transfer of $1,000 ($6,000/6).
2. The first Payment Bucket is exhausted in the 5th month of the program and the last EDCA
transfer is made in the 8th month.
EDCA Example with Multiple Purchase Payments
EDCA Period (in months) 12
EDCA Interest Rate 12%
10%
First Purchase Payment $24,000 1st Payment
Subsequent Purchase Payment $12,000 2nd Payment
[Enlarge/Download Table]
-----------Account Values---------
Beg of Amount Allocated Actual EDCA EDCA 1st Payment 2nd Payment
Month to EDCA Transfer Account Value Bucket Bucket
----- ------- -------- ------------- ------ ------
1 24000 2000 22000 22000
2 2000 20209 20209
3 2000 18401 18401
4 2000 16575 16575
5 2000 14732 14732
6 12000 3000 23872 11872 12000
7 3000 21801 8985 12096
8 3000 18262 6070 12192
9 3000 15417 3128 12289
10 3000 12545 157 12387
11 3000 9645 0 9645
12 3000 6722 0 6722
13 3000 3776 0 3776
14 3000 806 0 806
15 812 0 0 0
Notes:
1. Subsequent purchase payment is made at start of month 6. This results in an increase in the
actual EDCA transfer of $1000 ($12,00/12).
2. The first payment Bucket is exhausted in the 10th month and the last EDCA transfer is made in
the 15th month.
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
issued by
SECURITY FIRST LIFE SEPARATE ACCOUNT A
AND
SECURITY FIRST LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED___________ FOR THE INDIVIDUAL
FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT WHICH IS DESCRIBED HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: 11365 West Olympic Boulevard, Los Angeles, California 90064, (310)
312-6100.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED _____________.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
Reduction or Elimination of the Withdrawal Charge
CALCULATION OF PERFORMANCE INFORMATION
Total Return
Historical Unit Values
Reporting Agencies
FEDERAL TAX STATUS
General
Diversification
Multiple Contracts
Partial 1035 Exchanges
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments or Transfer of Ownership
Death Benefits
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
ANNUITY PROVISIONS
Variable Annuity
Fixed Annuity
Annuity Unit Value
Net Investment Factor
Mortality and Expense Guarantee
FINANCIAL STATEMENTS
COMPANY
Security First Life Insurance Company ("Security First Life") is a wholly owned
subsidiary of Security First Group, Inc. ("SFG"). SFG, the parent of Security
First Life, is a wholly owned subsidiary of Metropolitan Life Insurance Company
("MetLife"), a New York life insurance company. MetLife is a wholly owned
subsidiary of MetLife, Inc., a publicly traded company, with assets under
management of $____ billion at December 31, 2000.
EXPERTS
The balance sheets of the Company as of __________________, and the related
statements of income, shareholder's equity, and cash flows for each of the years
in the three-year period ended __________________, and the statement of assets
and liabilities of the Separate Account as of __________________, and the
related statement of operations for the year then ended and the statements of
changes in net assets for the two years then ended, have been included herein in
reliance upon the reports of ________________, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P. C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTION
MetLife Investors Distribution Company acts as the distributor of the contracts.
The offering is on a continuous basis.
Reduction or Elimination of the Withdrawal Charge
The amount of the Withdrawal Charge on the Contracts may be reduced or
eliminated when sales of the Contracts are made to individuals or to a group of
individuals in a manner that results in savings of sales expenses. The
entitlement to reduction of the Withdrawal Charge will be determined by the
Company after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than
for a smaller group because of the ability to implement large numbers of
Contracts with fewer sales contacts.
2. The total amount of purchase payments to be received will be considered.
Per Contract sales expenses are likely to be less on larger purchase
payments than on smaller ones.
3. Any prior or existing relationship with the Company will be considered. Per
Contract sales expenses are likely to be less when there is a prior
existing relationship because of the likelihood of implementing the
Contract with fewer sales contacts.
4. There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction or elimination of the Withdrawal Charge.
The Withdrawal Charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will any reduction or elimination of the Withdrawal Charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
CALCULATION OF PERFORMANCE INFORMATION
Total Return
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an Accumulation Unit based on the
performance of an investment portfolio over a period of time, usually a calendar
year, determined by dividing the increase (decrease) in value for that unit by
the Accumulation Unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of the separate account product charges (including death benefit rider
charges), the expenses for the underlying investment portfolio being advertised
and any applicable account fee, withdrawal charges, and Living Benefit rider
charge.
The hypothetical value of a contract purchased for the time periods described in
the advertisement will be determined by using the actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
account fee and any applicable withdrawal charges to arrive at the ending
hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described. The formula used in these calculations is:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used
(or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1,5 or 10 year periods
used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
account fee, withdrawal charge, and Living Benefit rider charge. The deduction
of such charges would reduce any percentage increase or make greater any
percentage decrease.
Owners should note that the investment results of each investment portfolio will
fluctuate over time, and any presentation of the investment portfolio's total
return for any period should not be considered as a representation of what an
investment may earn or what the total return may be in any future period.
The contracts are new and therefore have no performance history. However,
certain portfolios have been in existence for sometime and consequently have an
investment performance history. In order to show how the historical investment
performance of the portfolios affect accumulation unit values, performance
information was developed. The information is based upon the historical
experience of the portfolios and is for the periods shown. The prospectus
(Appendix B) contains performance information.
Future performance of the portfolios will vary and the results shown are not
necessarily representative of future results. Performance for periods ending
after those shown may vary substantially from the examples shown. The
performance for a Portfolio is calculated for a specified period of time by
assuming an initial purchase payment of $1,000 allocated to the Portfolio. There
are performance figures for the Accumulation Units which reflect the separate
account product charges (including death benefit rider charges) as well as the
portfolio expenses. There are also performance figures for the Accumulation
Units which reflect the separate account product charges (including death
benefit rider charges), the account fee, Living Benefit rider charge, the
portfolio expenses, and assume that you make a withdrawal at the end of the
period and therefore the withdrawal charge is reflected. The percentage
increases (decreases) are determined by subtracting the initial purchase payment
from the ending value and dividing the remainder by the beginning value. The
performance may also show figures when no withdrawal is assumed.
Historical Unit Values
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the investment
portfolios against established market indices such as the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average or other
management investment companies which have investment objectives similar to the
investment portfolio being compared. The Standard & Poor's 500 Composite Stock
Price Index is an unmanaged, unweighted average of 500 stocks, the majority of
which are listed on the New York Stock Exchange. The Dow Jones Industrial
Average is an unmanaged, weighted average of thirty blue chip industrial
corporations listed on the New York Stock Exchange. Both the Standard & Poor's
500 Composite Stock Price Index and the Dow Jones Industrial Average assume
quarterly reinvestment of dividends.
Reporting Agencies
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts with the unit values of
variable annuities issued by other insurance companies. Such information will be
derived from the Lipper Variable Insurance Products Performance Analysis
Service, the VARDS Report or from Morningstar.
The Lipper Variable Insurance Products Performance Analysis Service is published
by Lipper Analytical Services, Inc., a publisher of statistical data which
currently tracks the performance of almost 4,000 investment companies. The
rankings compiled by Lipper may or may not reflect the deduction of asset-based
insurance charges. The Company's sales literature utilizing these rankings will
indicate whether or not such charges have been deducted. Where the charges have
not been deducted, the sales literature will indicate that if the charges had
been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking may address the question as to which funds
provide the highest total return with the least amount of risk. Other ranking
services may be used as sources of performance comparison, such as
CDA/Weisenberger.
Morningstar rates a variable annuity against its peers with similar investment
objectives. Morningstar does not rate any variable annuity that has less than
three years of performance data.
FEDERAL TAX STATUS
General
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described herein may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") governs
taxation of annuities in general. An Owner is not taxed on increases in the
value of a Contract until distribution occurs, either in the form of a lump sum
payment or as annuity payments under the Annuity Option selected. For a lump sum
payment received as a total withdrawal (total surrender), the recipient is taxed
on the portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the purchase payments,
while for Qualified Contracts there may be no cost basis. The taxable portion of
the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludible amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, annuitants and beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contract. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all investment portfolios underlying the Contracts will
be managed in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the owner to be considered as the owner of the assets of the separate
account resulting in the imposition of federal income tax to the owner with
respect to earnings allocable to the contract prior to receipt of payments under
the contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. For purposes of this rule, contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity contract in any calendar year.
Partial 1035 Exchanges
Section 1035 of the Code provides that an annuity contract may be exchanged in a
tax-free transaction for another annuity contract. Historically, it was presumed
that only the exchange of an entire contract, as opposed to a partial exchange,
would be accorded tax-free status. In 1998 in Conway vs. Commissioner, the Tax
Court held that the direct transfer of a portion of an annuity contract into
another annuity contract qualified as a non-taxable exchange. On November 22,
1999, the Internal Revenue Service filed an Action on Decision which indicated
that it acquiesced in the Tax Court decision in Conway. However, in its
acquiescence with the decision of the Tax Court, the Internal Revenue Service
stated that it will challenge transactions where taxpayers enter into a series
of partial exchanges and annuitizations as part of a design to avoid application
of the 10% premature distribution penalty or other limitations imposed on
annuity contracts under the Code. In the absence of further guidance from the
Internal Revenue Service it is unclear what specific types of partial exchange
designs and transactions will be challenged by the Internal Revenue Service. Due
to the uncertainty in this area owners should consult their own tax advisers
prior to entering into a partial exchange of an annuity contract.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non- natural person.
Tax Treatment of Assignments or Transfer of Ownership
An assignment, pledge or transfer of ownership of a Contract may be a taxable
event. Owners should therefore consult competent tax advisers should they wish
to assign, pledge or transfer ownership of their Contracts.
Death Benefits
Any death benefits paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
If the death benefit riders are to be used with a qualified contract, such death
benefits may be considered by the Internal Revenue Service as "incidental death
benefits". The Code imposes limits on the amount of incidental death benefits
allowable for qualified contracts, and if the death benefits selected by you are
considered to exceed such limits, the provisions of such benefits could result
in currently taxable income to the owners of the qualified contracts.
Furthermore, the Code provides that the assets of an IRA may not be invested in
life insurance, but may provide in the case of death during the accumulation
phase for a death benefit payment equal to the greater of purchase payments or
account value. The contract offers death benefits which may exceed the greater
of purchase payments or account value. If these death benefits are determined by
the Internal Revenue Service as providing life insurance, the contract may not
qualify as an IRA (including Roth IRAs). You should consult your tax adviser
regarding these features and benefits prior to purchasing a contract.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Certain distributions from retirement plans qualified under Section 401 or
Section 403(b) of the Code, which are not directly rolled over to another
eligible retirement plan or individual retirement account or individual
retirement annuity, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement generally does not apply to: a) a
series of substantially equal payments made at least annually for the life or
life expectancy of the participant or joint and last survivor expectancy of the
participant and a designated beneficiary, or for a specified period of 10 years
or more; or b) distributions which are required minimum distributions; or c) the
portion of the distributions not includible in gross income (i.e. returns of
after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Qualified Plans
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
annuitants and beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. The Company is not
bound by the terms and conditions of such plans to the extent such terms
conflict with the terms of a contract, unless the Company specifically consents
to be bound. Owners, participants and Beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. A Qualified Contract will
not provide any necessary or additional tax deferral if it is used to fund a
Qualified Plan that is tax deferred. However, the Contract has features and
benefits other than tax deferral that may make it an appropriate investment for
a Qualified Plan. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax- sheltered annuity is limited to certain maximums imposed by the
Code. Furthermore, the Code sets forth additional restrictions governing such
items as transferability, distributions, nondiscrimination and withdrawals. (See
"Tax Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered
Annuities - Withdrawal Limitations" below.) Employee loans are not allowable
under the Contracts. Any employee should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's taxable income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year period beginning
with tax year 1998.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of Contracts for use with Pension or Profit Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
Tax Treatment of Withdrawals - Qualified Contracts
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b) Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been rolled over to an IRA or to another eligible Qualified Plan, 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
Owner or Annuitant (as applicable) reaches age 59 1/2; (b) distributions
following the death or disability of the Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the Owner or Annuitant (as applicable) or the joint lives
(or joint life expectancies) of such Owner or Annuitant (as applicable) and his
or her designated Beneficiary; (d) distributions to an Owner or Annuitant (as
applicable) who separated from service after he has attained age 55;
(e)distributions made to the Owner or Annuitant (as applicable) to the extent
such distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (f) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (g) distributions made on
account of an IRS levy upon the Qualified Contract; (h) distributions from an
Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the Owner or Annuitant (as applicable) has
been re-employed for at least 60 days); (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the Owner or Annuitant (as
applicable) for the taxable year; and (j) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8) of
the Code). The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
Generally, distributions from a qualified plan must commence no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities - Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, 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 and transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
ANNUITY PROVISIONS
Variable Annuity
A variable annuity is an annuity with payments which: (1) are not predetermined
as to dollar amount; and (2) will vary in amount in proportion to the amount
that the net investment factor exceeds the assumed investment return selected.
The Adjusted Contract Value (contract value, less any applicable premium taxes,
account fee, and pro-rata Living Benefit rider charge) will be applied to the
applicable Annuity Table to determine the first annuity payment. The Adjusted
Contract Value is determined on the annuity calculation date, which is a
business day no more than five (5) business days before the annuity date. The
dollar amount of the first annuity payment is determined as follows:
The dollar amount of the first variable annuity payment is determined as
follows. The first variable annuity payment will be based upon the annuity
option elected, the annuitant's age and sex, and the appropriate variable
annuity option table. If, as of the annuity calculation date, the then current
variable annuity option rates applicable to this class of Contracts provide a
first annuity payment greater than that which is guaranteed under the same
annuity option under this Contract, the greater payment will be made.
The dollar amount of variable annuity payments after the first payment is
determined as follows:
1. the dollar amount of the first variable annuity payment is divided by the
value of an annuity unit for each applicable investment portfolio as of the
annuity calculation date. This establishes the number of annuity units for
each monthly payment. The number of annuity units for each applicable
investment portfolio remains fixed during the annuity period, unless you
transfer values from the investment portfolio to another investment
portfolio;
2. the fixed number of annuity units per payment in each investment portfolio
is multiplied by the annuity unit value for that investment portfolio for
the business day for which the annuity payment is being calculated. This
result is the dollar amount of the payment for each applicable investment
portfolio, less any account fee.
The total dollar amount of each variable annuity payment is the sum of all
investment portfolio variable annuity payments.
ANNUITY UNIT - The initial annuity unit value for each investment portfolio of
the Separate Account was set by us.
The subsequent annuity unit value for each investment portfolio is determined by
multiplying the annuity unit value for the immediately preceding business day by
the net investment factor for the investment portfolio for the current business
day and multiplying the result by a factor for each day since the last business
day which offsets the assumed investment return used to develop the variable
annuity tables.
(1) the dollar amount of the first Annuity Payment is divided by the value of an
Annuity Unit as of the Annuity Date. This establishes the number of Annuity
Units for each monthly payment. The number of Annuity Units remains fixed during
the Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity Unit value
for the last Valuation Period of the month preceding the month for which the
payment is due. This result is the dollar amount of the payment.
NET INVESTMENT FACTOR - The net investment factor for each investment portfolio
is determined by dividing A by B and multiplying by (1-C) where:
A is (i) the net asset value per share of the portfolio at the
end of the current business day; plus
(ii) any dividend or capital gains per share declared on
behalf of such portfolio that has an ex-dividend date
as of the current business day.
B is the net asset value per share of the portfolio for
the immediately preceding business day.
C is (i) the separate account product charges and for
each day since the last business day. The daily
charge is equal to the annual separate account
product charges divided by 365; plus
(ii) a charge factor, if any, for any taxes or any tax
reserve we have established as a result of the
operation of the Separate Account.
Transfers During the Annuity Phase:
o You may not make a transfer from the general account to the Separate Account;
o Transfers among the subaccounts will be made by converting the number of
annuity units being transferred to the number of annuity units of the subaccount
to which the transfer is made, so that the next annuity payment if it were made
at that time would be the same amount that it would have been without the
transfer. Thereafter, annuity payments will reflect changes in the value of the
new annuity units; and
o You may make a transfer from the Separate Account to the general account. The
amount transferred to the general account from a subaccount of the Separate
Account will be equal to the product of "(a)" multiplied by "(b)" multiplied by
"(c)", where (a) is the number of annuity units representing your interest in
the subaccount per annuity payment; (b) is the annuity unit value for the
subaccount; and (c) is the present value of $1.00 per payment period for the
remaining annuity benefit period based on the attained age of the annuitant at
the time of transfer, calculated using the same actuarial basis as the variable
annuity rates applied on the annuity date for the annuity option elected.
Amounts transferred to the general account will be applied under the annuity
option elected at the attained age of the annuitant at the time of the transfer
using the fixed annuity option table. If at the time of transfer, the then
current fixed annuity option rates applicable to this class of contracts provide
a greater payment, the greater payment will be made. All amounts and annuity
unit values will be determined as of the end of the business day on which the
Company receives a notice.
Fixed Annuity
A fixed annuity is a series of payments made during the annuity phase which are
guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Separate Account. The general account value on the
day immediately preceding the annuity date will be used to determine the fixed
annuity monthly payment. The first monthly annuity payment will be based upon
the annuity option elected and the appropriate annuity option table.
Mortality and Expense Guarantee
The Company guarantees that the dollar amount of each Annuity Payment after the
first Annuity Payment will not be affected by variations in mortality or expense
experience.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
---------------------------------------------------------------
The financial statements of the Separate Account and the Company will be filed
by amendment.
b. Exhibits
---------------------------------------------------------------
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Separate Account*
2. Not Applicable.
3. Principal Underwriter's Agreement (to be filed by amendment)
4. (i) Individual Flexible Purchase Payment Deferred Variable Annuity
Contract.
(ii) Enhanced Dollar Cost Averaging Rider
(iii) Three Month Market Entry Rider
(iv) Death Benefit Rider - (Return of Purchase Payments)
(v) Death Benefit Rider - (Greater of Annual Step Up or 5% Annual
Increase)
(vi) Death Benefit Rider - (Annual Step-Up)
(vii) Guaranteed Minimum Income Benefit Rider - (Living Benefit)
(viii)Additional Death Benefit Rider - (Earnings Preservation Benefit)
(ix) Waiver of Withdrawal Charge for Nursing Home or Hospital
Confinement Rider
(x) Terminal Illness Rider
(xi) Individual Retirement Annuity Endorsement
(xii) Roth Individual Retirement Annuity Endorsement
(xiii)401 Plan Endorsement
(xiv) Tax Sheltered Annuity Endorsement
(xv) Unisex Annuity Rates Rider
5. Variable Annuity Application.
6. (i) Copy of Articles of Incorporation of the Company *
(ii) Copy of the Bylaws of the Company *
7. Not Applicable.
8. [Fund Participation Agreements]
9. Opinion and Consent of Counsel (to be filed by amendment)
10. Consent of Independent Auditors (to be filed by amendment)
11. Not Applicable.
12. Not Applicable.
13. Not Applicable.
14. Company Organizational Chart **
27. Not Applicable
* 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.
** incorporated by reference to Registrant's Post-Effective Amendment
No. 15 to Form N-4 (File Nos. 33-47984 and 811-3365) electronically
filed on April 28, 2000.
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.
Name Position and Offices with Depositor
---- -----------------------------------
Mary Ann Brown Chairman of the Board and Director
John K. Bruins Director
Daniel J. Cavanagh Director
David Y. Rogers Director
Anthony J. Williamson Director
Joseph W. Jordan Director
Richard C. Pearson Director and President
Brian J. Finneran Senior Vice President
Jane F. Eagle Senior Vice President and Chief
Financial Officer
Anthony J. Williamson Senior Vice President, Chief
Investment Officer
George R. Bateman Vice President
Roberta G. Isaeff Vice President
Ronald Plafkin Vice President
William G. Spangler Vice President
James C. Turner Vice President, Assistant Secretary
Leo Brown Assistant Vice President
Cheryl J. Finney Associate General Counsel, Vice
President, and Assistant Secretary
Patrizia DiMolfetta Controller
George J. Olah Treasurer
Louis Ragusa Secretary
Thomas V. Reedy Vice President and Actuary
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
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
Not Applicable.
ITEM 28. INDEMNIFICATION
None.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) 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.
Name Position with Underwriter
---- -------------------------
Richard C. Pearson Director, Chairman, and President
Jane F. Eagle Director, Senior Vice President,
Treasurer, and Chief Financial Officer
Brian J. Finneran Senior Vice President
James C. Turner Vice President and Assistant Secretary
Cheryl J. Finney Vice President and Assistant Secretary
*Gary A. Virnick Vice President and Supervisor of
Compliance
* not an officer
(c) Not Applicable.
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 record
keeping and administrative services in connection with the Registrant.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. Security First hereby represents that the fees and charges deducted
under the Contracts described in the Prospectus, in the aggregate, are
reasonable in relation to the services rendered, the expenses to be incurred and
the risks assumed by Security First.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Los Angeles, and State of California on this 26th day of
January, 2001.
SECURITY FIRST LIFE SEPARATE ACCOUNT A
(Registrant)
By: SECURITY FIRST LIFE INSURANCE COMPANY
By: /s/RICHARD C. PEARSON
-----------------------------------------
Richard C. Pearson
President
SECURITY FIRST LIFE INSURANCE COMPANY
Depositor
By: /s/RICHARD C. PEARSON
-----------------------------------------
Richard C. Pearson
President
As required by the Securities Act of 1933, this 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 1-26-01
------------------------------ Officer, & Director -----------
Richard C. Pearson
/s/JANE F. EAGLE Senior Vice President & 1-26-01
- ---------------------------- Chief Financial Officer ------------
Jane F. Eagle
Chairman of the Board & --------------
- ---------------------------- Director
Mary Ann Brown
/s/JOHN K. BRUINS Director 1-26-01
---------------------------- ------------
John K. Bruins
/s/DANIEL J. CAVANAGH Director 1-26-01
---------------------------- ------------
Daniel J. Cavanagh
Director --------------
----------------------------
Joseph W. Jordan
/s/DAVID Y. ROGERS Director 1-26-01
---------------------------- --------------
David Y. Rogers
Director --------------
----------------------------
Anthony J. Williamson
INDEX TO EXHIBITS
EX-99.B4. (i) Individual Flexible Purchase Payment Deferred Variable
Annuity Contract.
EX-99.B4. (ii) Enhanced Dollar Cost Averaging Rider
EX-99.B4. (iii) Three Month Market Entry Rider
EX-99.B4. (iv) Death Benefit Rider - (Return of Purchase Payments)
EX-99.B4. (v) Death Benefit Rider - (Greater of Annual Step Up or 5% Annual
Increase)
EX-99.B4. (vi) Death Benefit Rider - (Annual Step-Up)
EX-99.B4. (vii) Guaranteed Minimum Income Benefit Rider - (Living Benefit)
EX-99.B4. (viii) Additional Death Benefit Rider - (Earnings Preservation
Benefit)
EX-99.B4. (ix) Waiver of Withdrawal Charge for Nursing Home or Hospital
Confinement Rider
EX-99.B4. (x) Terminal Illness Rider
EX-99.B4. (xi) Individual Retirement Annuity Endorsement
EX-99.B4. (xii) Roth Individual Retirement Annuity Endorsement
EX-99.B4. (xiii) 401 Plan Endorsement
EX-99.B4. (xiv) Tax Sheltered Annuity Endorsement
EX-99.B4. (xv) Unisex Annuity Rates Rider
EX-99.B5 Variable Annuity Application
Dates Referenced Herein and Documents Incorporated by Reference
55 Subsequent Filings that Reference this Filing
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