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File Nos. 333-05053
811-07647
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-6
Registration Statement
Under
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 1
--------------------------------
SEPARATE ACCOUNT VL
(Exact name of trust)
FIRST VARIABLE LIFE INSURANCE COMPANY
(Name of depositor)
10 POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(Complete address of depositor's principal executive offices)
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ARNOLD R. BERGMAN
Vice President - Legal & Administration
First Variable Life Insurance Company
10 Post Office Square
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
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Copy to:
DIANE E. AMBLER, ESQ.
Mayer, Brown & Platt
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
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It is proposed that this filing will become effective
___ immediately upon filing pursuant to paragraph (b)
X on May 1, 1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(i)
___ on _________ pursuant to paragraph (a)(i) of rule (485)
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title and amount of securities being registered: interests under variable
universal life insurance policies.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed a Rule 24f-2 Notice for its fiscal year ended December
31, 1996 on February 26, 1997.
Approximate date of proposed public offering:
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____ Check box if it is proposed that this filing will become effective on
____________ at ___________ pursuant to Rule 487.
2
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CROSS-REFERENCE TABLE
Item No. in
Form N-8 B-2 Location
- ------------ --------
1, 2 Caption in Prospectus Cover, The Company, The
Separate Account
3 Inapplicable
4 Distribution and Other Agreements
5, 6 The Separate Account
7 Inapplicable
8 Financial Statements
9 Legal Proceedings
10 (a), (b), (c), (d), (e) Highlights, Surrenders and Partial
Withdrawals, Withdrawal Charges, Transfers
Among Contract Options, Lapse and
Reinstatement, Determination of Account
Value, Other Provisions of the Contract, The
Contract, Contract Options
10 (f) Voting Rights, Other Provisions of the
Contract
10 (g), (h) Changes in Contract Options
10 (i) Mixed and Shared Funding, Contract Values and
Benefits, Other Provisions of the Contract
11, 12 Variable Investors Series Trust, Federated
Insurance Series
13 Highlights, Charges and Expenses, Elimination
and Reduction of Charges and Expenses
14, 15 Application and Issuance of a Policy, Free
Look Right, Delayed Investment Start Date
16 Premiums, Allocation of Premiums,
Determination of Account Value
17 Surrenders and Partial Withdrawals, Payment
of Proceeds
18 Taxation of the Company and the Separate
Account, Determination of Account Value, The
Separate Account, Contract Options, The
Contract, Charges and Expenses
19 Reports and Records, Advertising Practices,
Other Provisions of the Contract
20 See 10 (g) & 10 (h)
21 Preferred and Non-Preferred Loans, The
Contract
22, 23, 24 Inapplicable
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25 The Company
26 Inapplicable
27 The Company
28 Management of the Company
29 The Company
30, 31, 32, 33, 34 Inapplicable
35 State Regulation
36 Inapplicable
37 Inapplicable
38, 39, 40, 41 (a) Distribution and Other Agreements, The
Company
41 (b), 41 (c), 42, 43 Inapplicable
44 Determination of Account Value
45 Inapplicable
46 Surrenders and Partial Withdrawals
47, 48, 49, 50 Inapplicable
51 Contract Benefits and Values
52 Changes in Contract Options
53 (a) Federal Tax Status
53 (b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
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Prospectus Dated: May 1, ______
CAPITAL ONE PAY VUL
A MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
Funded in
SEPARATE ACCOUNT VL
by
FIRST VARIABLE LIFE INSURANCE COMPANY
Marketing and Executive Office: Variable Service Center:
10 Post Office Square P.O.Box 1317
Boston, MA 02109 Des Moines, IA 50305-1317
Automated Information Line: (800) 59-FUNDS (800) 845-0089
This prospectus describes the Capital One Pay VUL contract (the "Contract"), a
modified single premium variable life insurance contract offered by First
Variable Life Insurance Company ("the Company"). The Contracts provide for life
insurance coverage and for the accumulation of an Account Value. The Contract
requires the Owner to make an initial premium payment of at least $10,000 and,
subject to certain restrictions, permits additional premium payments.
After a Contract is approved for issue by the Company, the premium for a
Contract may be allocated to the Company's segregated investment account called
Separate Account VL (the "Separate Account") or to the Company's Fixed Account,
which guarantees a minimum fixed rate of interest. The Separate Account invests
in selected portfolios of two mutual funds: Variable Investors Series Trust
("VIST") and Federated Insurance Series ("FIS"). The portfolios currently
available under a Contract are: VIST Growth, VIST Growth & Income, VIST High
Income Bond, VIST Matrix Equity, VIST Multiple Strategies, VIST Small Cap
Growth, VIST U.S. Government Bond, VIST World Equity and FIS Prime Money Fund
(the "Portfolios"). (See "Contract Options.") The Company reserves the right,
under certain circumstances, to delay the investment of the initial premium
payment in VIST Portfolios, but does not currently do so. (See "Allocation of
Premiums.")
There is no guaranteed minimum Account Value for a Contract which is funded
through the Separate Account. The Death Benefit may, and the Account Value will,
vary up or down to reflect the investment experience of the Portfolios to which
premiums have been allocated. The Death Benefit, however, will never be less
than the Face Amount of the Contract. The Owner bears the investment risk for
all amounts allocated to the Portfolios.
An investment in a Contract is not a deposit or obligation of, or federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency. An investment in the Contract is subject to risk that may
cause the value of the Owner's investment to fluctuate, and when the Contract is
surrendered, the value may be higher or lower than the premium payment.
Each Contract is a "modified endowment contract" for federal income tax
purposes, except in certain cases. A loan, distribution or other amount received
under a modified endowment contract during the life of the Insured will be taxed
in a manner similar to an annuity. Death benefits under a modified endowment
contract, however, are generally not subject to federal income tax, except in
certain cases. (See "Federal Tax Status.")
It may not be advantageous to replace existing insurance with the Contracts
described in this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE VARIABLE
INVESTORS SERIES TRUST AND FEDERATED INSURANCE SERIES. ALL PROSPECTUSES SHOULD
BE READ AND RETAINED FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
DEFINITIONS...................................................................
HIGHLIGHTS....................................................................
THE COMPANY...................................................................
THE SEPARATE ACCOUNT..........................................................
CONTRACT OPTIONS..............................................................
Variable Investors Series Trust............................................
Federated Insurance Series.................................................
Fixed Account Option.......................................................
Transfers Among Contract Options...........................................
General Requirements....................................................
Systematic Transfers - Dollar Cost Averaging............................
Asset Rebalancing Program...............................................
Restrictions on Transfers...............................................
Automatic Transfers of Small Accounts...................................
Changes in Contract Options.................................................
Mixed and Shared Funding....................................................
CHARGES AND EXPENSES..........................................................
Monthly Deductions........................................................
Administrative Charge.....................................................
Maintenance Fee...........................................................
Distribution Charge.......................................................
Premium Tax Charge........................................................
Federal Tax Charge........................................................
Cost of Insurance.........................................................
Daily Deductions..........................................................
Mortality and Expense Risk Charge.........................................
Transfer Fee..............................................................
Withdrawal Charges........................................................
Application of the Withdrawal Charges..................................
Waiver of Withdrawal Charges...........................................
Sales Charge..............................................................
Unreimbursed Premium Tax..................................................
Other Charges and Expenses................................................
Fund Expenses.........................................................
Income Taxes..........................................................
Special Service Fees..................................................
Elimination or Reduction of Charges and Expenses......................
Group and Sponsored Arrangements......................................
THE CONTRACT..................................................................
Application and Issuance of a Contract.....................................
Free Look Right........................................................
Premiums...................................................................
Allocation of Premiums.....................................................
Delayed Investment Start Date..........................................
Telephone Transactions.....................................................
CONTRACT VALUES AND BENEFITS..................................................
Death Benefit..............................................................
Adjustments to the Death Benefit Proceeds..............................
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Additional Benefits By Rider...............................................
Acceleration of Death Benefit Rider........................................
Determination of Account Value.............................................
Account Value and Cash Surrender Value.................................
Net Investment Experience..............................................
Preferred and Non-Preferred Loans..........................................
Preferred Loan Amounts.................................................
Surrenders and Partial Withdrawals.........................................
Maturity Proceeds..........................................................
Lapse and Reinstatement....................................................
Payment of Proceeds........................................................
Tax Withholding............................................................
Optional Annuity Payment Options...........................................
Annuitization Bonus....................................................
Right to Exchange for a Fixed Benefit Contract.............................
OTHER PROVISIONS OF THE CONTRACT..............................................
Suicide Exclusion..........................................................
Representations and Contestability.........................................
Misstatement of Age or Sex.................................................
Owner and Beneficiary......................................................
Assignments................................................................
Reports and Records........................................................
Voting Rights..............................................................
Suspension of Payments and Transfers.......................................
Nonparticipation in Company Dividends......................................
DISTRIBUTION AND OTHER AGREEMENTS.............................................
SAFEKEEPING OF ASSETS.........................................................
MANAGEMENT OF THE COMPANY.....................................................
FEDERAL TAX STATUS............................................................
General....................................................................
Taxation of the Company and the Separate Account...........................
Life Insurance and Modified Endowment Contract Definitions.................
Income Tax Treatment of Contract Benefits..................................
Diversification Requirements...............................................
ADVERTISING PRACTICES.........................................................
LEGAL MATTERS.................................................................
State Regulation...........................................................
Legal Proceedings..........................................................
EXPERTS.......................................................................
REGISTRATION STATEMENT........................................................
APPENDICES
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER
VALUES AND ACCUMULATED VALUE OF THE PREMIUM
APPENDIX B: FINANCIAL STATEMENTS
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DEFINITIONS
Account - The Fixed Account and/or one or more of the Sub-Accounts of the
Separate Account.
Account Value - The sum of the amounts attributable to a Contract that are: (a)
in the Separate Account; (b) in the Fixed Account; and, if there is an
outstanding Contract loan, (c) in the Loan Account.
Accumulation Unit - A unit of measure used to calculate the Account Value of a
Sub-Account of the Separate Account.
Accumulation Unit Value or AUV - The value of an Accumulation Unit on a Business
Day.
Age - The attained age of the Insured on the date for which age is being
determined.
Beneficiary - The person(s) or entity who will receive the Death Benefit.
Business Day - Each day the New York Stock Exchange is open for trading, which
is Monday through Friday, except for the following holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, July Fourth, Labor Day, Thanksgiving
Day, Christmas Day.
Cash Surrender Value - The amount available upon surrender of the Contract,
which is equal to the Contract's Account Value reduced by any outstanding
Contract loan and accrued interest; and reduced by any applicable Withdrawal
Charges.
Code - The Internal Revenue Code of 1986, as amended.
Company - First Variable Life Insurance Company.
Contract Anniversary - An anniversary of the Contract Date.
Contract Date - The date the provisions of the Contract take effect, as shown on
the Owner's Contract data page. Contract Months and Contract Years are measured
from this date.
Contract Option - The Fixed Account or any of the Sub-Accounts of the Separate
Account which can be selected by the owner of a Contract.
Contract Year - Each 12-month period beginning on the Contract Date.
Death Benefit - The Death Benefit is the amount of insurance provided under a
Contract on the life of an Insured.
Death Benefit Proceeds - The amount payable on the death of the Insured. This
amount is the Death Benefit less Indebtedness.
Distributor - First Variable Capital Services, Inc., 10 Post Office Square,
Boston, MA 02109.
Fixed Account - The Fixed Account is the non-loaned portion of the Contract's
Account Value that is part of the Company's general account. The Fixed Account
provides guarantees of principal and interest and is not part of the Separate
Account.
Funds - Variable Investment Series Trust and Federated Insurance Series, each of
which is an open-end management investment company in which the Separate Account
invests.
Guideline Premium - A hypothetical amount used to determine the Death Benefit
under a Contract. The Guideline Premium for the Contract under the guideline
premium test is the maximum amount permitted to be paid for insurance coverage
with respect to the single guideline premium selected by the Owner multiplied by
the applicable death benefit percentage under the guideline premium test in
section 7702 of the Code.
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Indebtedness - All amounts owed to the Company by an Owner for loans on the
Contract plus interest due or accrued on the loans.
Insured - The person on whose life the Contract is issued.
Loan Account - An account which is established in the Company's general account
for any amounts requested for loans. Account Value equal to the amounts loaned
are transferred to the Loan Account from the Fixed Account and the Separate
Account when the loans are made by the Company. Amounts in the Loan Account are
credited with interest.
Maturity Date - The Contract Anniversary on or following the Insured's 100th
birthday.
Net Investment Experience - For any period, the Net Investment Experience of a
Sub-Account of the Separate Account is the investment experience of the
underlying Portfolio for the same period, reduced by the amount of charges
against the Sub-Account for that period.
Owner - The person entitled to all the ownership rights under a Contract. The
initial owner is stated on the application for a Contract, and may be later
changed as the Contract provides.
Portfolio - A Fund's separate and distinct class of shares that is available as
an underlying investment under a Contract.
Separate Account - A separate investment account of the Company, designated as
Separate Account VL.
Sub-Account - A segment of the Separate Account which invests in a specified
Portfolio of the Funds.
Valuation Period - The period of time between the close of one Business Day and
the close of business for the next succeeding Business Day.
Variable Service Center - The Company's administrative service center for the
Contracts is located at 1206 Mulberry Street, Des Moines, IA 50309.
HIGHLIGHTS
This prospectus describes Contracts issued by the Company that provide modified
single premium life insurance. Death Benefits and Account Value under these
Contracts are "variable" and will reflect the Net Investment Experience of the
Contract Option and Portfolios chosen by the Owner. If the Fixed Account is
available in the Owner's state, it may be used to fund all or part of a
Contract's Account Value. The Fixed Account, which is part of the Company's
general account, provides guarantees of principal and interest. For a
description of the Fixed Account, see "Fixed Account Option" which appears later
in this prospectus.
The following is a brief listing of the basic features of the Contract. These
and other features of the Contract are explained in detail throughout the
prospectus. The Owner should be sure to read the prospectus and the prospectuses
of the Funds for more complete information.
The Contract requires payment of a single premium on or before the Contract
Date. Additional amounts may be paid thereafter, subject to certain
restrictions, as long as the Contract meets the definition of a life insurance
contract under the Code.
The Contracts are designed to be "modified endowment contracts" under section
7702A of the Code. Under current federal income tax law, pre-death distributions
under the Contracts, including loans and assignments, will be included in income
on an income first basis, and a 10% penalty tax will be imposed on income
distributed before the Owner attains age 59 1/2 with certain exceptions. (See
"Federal Tax Status.")
Death Benefit Proceeds paid to the beneficiary under the Contract are generally
not subject to federal income tax. Under current law, undistributed increases in
Account Value are not taxable to the Owner. (See "Federal Tax Status.")
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Generally, a Contract may be issued to cover an Insured from the age of one to
80 and, if the Company consents, to an Insured from the age of 81 to 85. All
persons must meet the Company's underwriting and other criteria for issuance.
The Contracts are not available to employee benefit plans qualified under
Section 401 of the Code, except with the Company's consent.
In many respects the Contracts are similar to traditional fixed-benefit whole
life insurance. Like fixed-benefit whole life insurance, the Contracts provide
for a Death Benefit, an Account Value, and loan privileges. However, the
Contracts differ from fixed-benefit whole life insurance in that the Death
Benefit and Account Value may increase or decrease to reflect the investment
performance of the Contract Options to which the Account Value is allocated.
Owners have the right to return the Contract according to the terms of its
"free-look" right. The Company reserves the right to delay the initial
investment of the premium payment in the selected Contract Options in certain
instances, but it does not currently do so. (See "Delayed Investment Start
Date.")
Within 24 months after the Contract Date, the Owner has a right to transfer all
of the Account Value in the Sub-Accounts to the Fixed Account. (See "Right to
Exchange for a Fixed Benefit Contract.")
The Contracts provide for a Death Benefit determined by treating the initial
premium as equal to 100% of the "guideline single premium" on the Contract Date.
After the Contract Date, the Death Benefit is determined monthly based upon the
Account Value at that time multiplied by a specified percentage. Upon the death
of the Insured, the Company will pay the Death Benefit Proceeds to the
beneficiary. (See "Death Benefit Proceeds.")
After the free look period, the Account Value may be transferred among the
Sub-Accounts. The Company currently allows 12 transfers per Contract Year
without the imposition of a Transfer Fee, with certain exceptions. Transfers and
allocations involving the Fixed Account are subject to certain limits. (See
"Transfers Among Contract Options" and "Fixed Account Option.")
Under certain circumstances, a $10 Transfer Fee may be assessed when an Owner
transfers Account Value from one Sub-Account to another Sub-Account or to or
from the Fixed Account. (See "Charges and Deductions.")
A loan privilege is available under the Contract. Surrenders and partial
withdrawal features are also available and may be subject to withdrawal charges,
discussed below. (See "Preferred and Non-Preferred Loans" and "Surrenders and
Partial Withdrawal.")
The Account Value of the Contract will vary daily based on, among other things,
the Net Investment Experience of the Sub-Accounts to which amounts have been
allocated and the amount of interest credited to any of the Contract's Account
Value in the Fixed Account. (See "Account Value", "Charges and Expenses",
"Premiums", "Preferred and Non-Preferred Loans", "Surrenders and Partial
Withdrawal" and "Fixed Account Option.")
The portion of the Account Value invested in the Sub-Accounts is not guaranteed
and Owners bear the investment risk on this portion of the Account Value. (See
"Account Value.")
A Sales Charge of up to 7.5% of premium(s) and an Unreimbursed Premium Tax
Charge of up to 2.25% of premium(s) may be deducted for a surrender or
withdrawal of all or a portion of the Account Value. These Withdrawal Charges
will also apply if the Account Value is applied to an optional annuity payment
option within five years of the Contract Date. (See "Payment Options.") No
Withdrawal Charges will be taken on a partial withdrawal in any Contract Year
unless the amount withdrawn exceeds the annual Free Withdrawal Amount. The
annual Free Withdrawal Amount is equal to 15% of the premium payment(s). (These
15% withdrawals do not reduce premium payments for purposes of computing the
Withdrawal Charges.) The Withdrawal Charges decrease each Contract Year to 0 at
the end of Contract Year 9. (See "Withdrawal Charges.")
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The following monthly charges are deducted from the Contract's Account Value:
.40% on an annual basis for administrative expenses (See "Administrative
Charge");
a $2.50 Maintenance Fee during the Accumulation Period from Contracts with
an Account Value of less than $100,000 (See "Maintenance Fee.");
.40% on an annual basis for the first 10 Contract Years and then .55% on an
annual basis for the Cost of Insurance, based on the current scale that is
not guaranteed (See "Cost of Insurance."); and
for the first ten Contract Years:
.20% on an annual basis for distribution expenses (See "Distribution
Charge.");
.25% on an annual basis for premium tax expenses (See "Premium Tax
Charge."); and
.20% on an annual basis for federal tax expense (See "Federal Tax Charge.")
A daily charge is deducted from the Separate Account assets equal to:
.90% on an annual basis for the mortality and expense risk charge (See
"Mortality and Expense Risk Charge.")
Underlying shares of the Portfolios of Variable Investors Series Trust ("VIST")
and Federated Insurance Series ("Federated") are purchased at net asset value,
which reflects investment management fees, other operating expenses and any
expense reimbursement paid by an investment adviser to the applicable Portfolio.
The total annual expenses of the Portfolios as a percentage of average net
assets for the year ended December 31, 1996 were:
<TABLE>
<CAPTION>
VIST Federated
VIST VIST VIST VIST Small VIST VIST Prime
VIST Growth Hi. Inc. Matrix Multiple Cap US Gov. World Money
Growth & Income Bond Equity Strat. Growth Bond Equity Fund II
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mgmt. Fees .... .70% .75% .70% .65% .70% .85% .60% .70% .55%
Other Operating
Expenses -
After Expense
Reimbursement . .47% .50% .50% .50% .50% .50% .25% .50% .25%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Annual
Expenses ...... 1.17% 1.25% 1.20% 1.15% 1.20% 1.35% .85% 1.20% .80%
</TABLE>
First Variable Advisory Services Corp. ( "Investment Adviser" ) has agreed
through April 1, 1998 to reimburse Variable Investors Series Trust for all
operating expenses (exclusive of management fees) in excess of .50% of a
Portfolio's average net assets (.25% in the case of the U.S. Government Bond
Portfolio). Had the Investment Adviser not reimbursed expenses of the
Portfolios, for the year ended December 31, 1996, the VIST Annual Expenses would
have been 1.17% for the Growth Portfolio; 2.63% for the Growth & Income
Portfolio; 1.99% for the High Income Bond Portfolio; 1.48% for the Matrix Equity
Portfolio; 1.32% for the Multiple Strategies Portfolio; 2.38% for the Small Cap
Growth Portfolio; 1.66% for the U.S. Government Bond Portfolio; and 1.50% for
the World Equity Portfolio. Federated Advisors, the investment adviser for
Federated, has voluntarily agreed to waive any portion of its fee and/or
reimburse certain operating expenses of Federated in excess of .80% of the
Federated Prime Money Fund II Portfolio's average net assets, but can modify or
terminate this voluntary agreement at any time at its sole discretion. Had this
investment adviser not waived expenses and/or reimbursed expenses of the
Federated Prime Money Fund II Portfolio for the year ended December 31, 1996,
the annual expenses, as a percentage of the Portfolio's average assets, would
have been 1.37%.
The managment fees and other expenses are more fully described in the
prospectuses for each of the underlying Funds.
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THE COMPANY
First Variable Life Insurance Company ("the Company") is a stock life insurance
company which was organized under the laws of the State of Arkansas in 1968. The
Company is principally engaged in the annuity business. The Company is licensed
in 49 states, the District of Columbia and the U.S. Virgin Islands. The Company
is a wholly-owned subsidiary of Irish Life of North America, Inc., ("ILoNA")
which in turn is beneficially owned by Irish Life plc ("Irish Life"). ILoNA also
owns Interstate Assurance Company ("Interstate") of Des Moines, Iowa. Irish Life
was formed in 1939 through a consolidation of a number of Irish and British Life
offices transacting business in Ireland. In terms of assets, Irish Life controls
over 50% of the Irish domestic life insurance market. As Ireland's leading
institutional investor, it owns in excess of 10% of the leading Irish publicly
traded stocks. Irish Life, through its international subsidiaries, conducts
business in Ireland, the United Kingdom, the United States, and France. As of
the end of 1996, the Irish Life consolidated group had in excess of $11 billion
in assets. ILoNA is a Delaware corporation, incorporated as Carrig
International, Inc. in 1986, which is the holding company of Interstate and the
Company.
The Company has an A- (Excellent) rating from A.M. Best, an independent firm
that analyzes insurance carriers. This rating is assigned to companies that have
a strong ability to meet obligations to policy holders over a long period of
time. The Company also has an AA- rating from Standard and Poor's and an AA
rating from Duff & Phelps Credit Rating Co. on claims paying ability. The
financial strength of the Company may be relevant with respect of the Company's
ability to satisfy its Fixed Account obligations under the Contracts.
THE SEPARATE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to Arkansas insurance law on March 6, 1987.
This account has been designated Separate Account VL (the "Separate Account").
The Company has registered the Separate Account with the Securities and Exchange
Commission ("SEC") as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. Such registration does not involve supervision
by the SEC of the management of the Separate Account or the Company.
The assets of the Separate Account are the property of the Company. However, the
assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Separate Account without regard to
other income, gains or losses of the Company.
The Company's obligations arising under the Contracts are general obligations.
The Separate Account meets the definition of a "separate account" under the
federal securities laws.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one Portfolio of a selected Fund. Owners bear the
complete investment risk for premium payments and Account Value allocated or
transferred to a Sub-Account. Account Values fluctuate in accordance with the
investment performance of the Sub-Account(s) and reflect the imposition of the
fees and charges assessed under a Contract.
CONTRACT OPTIONS
Owners of a Contract may allocate premium payments and Account Value to one or
more Sub-Accounts of the Separate Account and to the Fixed Account.
Each Sub-Account invests exclusively in a Portfolio of a selected Fund. A brief
summary of the Funds and the investment objectives of the currently available
Portfolios is set forth below. More comprehensive information, including a
discussion of potential risks, is found in the current prospectuses for the
Funds, which are included with this prospectus. The prospectuses for the Funds
may describe other portfolios that are not available under a Contract. THERE IS
NO ASSURANCE THAT THE AVAILABLE PORTFOLIOS WILL ACHIEVE THEIR STATED OBJECTIVES.
Investors should read this prospectus and the prospectuses for the Funds
carefully before investing.
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Variable Investors Series Trust
Variable Investors Series Trust ("VIST") is an open-end management investment
company that was formed as a series trust to provide funding options for
variable life insurance and variable annuity contracts. Effective April 1, 1994,
VIST retained First Variable Advisory Services Corp. ("FVAS") to manage its
assets. FVAS is a wholly-owned subsidiary of the Company and retains the
services of sub-advisers under agreements to manage the assets of the VIST
Portfolios. The sub-advisers for the VIST Portfolios currently available under a
Contract are: Value Line, Inc. with respect to VIST Growth and VIST Multiple
Strategies Portfolios; Warburg, Pincus Counsellors, Inc. with respect to VIST
Growth & Income Portfolio; Federated Investment Counseling with respect to VIST
High Income Bond Portfolio; Pilgrim Baxter & Associates, Ltd. with respect to
VIST Small Cap Growth Portfolio; State Street Bank and Trust Company with
respect to VIST Matrix Equity Portfolio; Strong Capital Management, Inc. with
respect to VIST U.S. Government Bond Portfolio; and Keystone Investment
Management Company with respect to VIST World Equity Portfolio.
Each Portfolio has a distinct investment objective and policy. The investment
objectives of the Portfolios available under a Contract are:
VIST Growth. The investment objective of this Portfolio is capital growth, which
it seeks to achieve through a policy of investing primarily in a diversified
portfolio of common stocks and securities convertible into or exchangeable for
common stock. The secondary objective is current income, when consistent with
its primary objective. Prior to May 1, 1997, this Portfolio was known as the
"VIST Common Stock Portfolio."
VIST Growth & Income. The investment objectives of this Portfolio are to provide
current income and growth of capital. The Portfolio seeks to achieve its
objectives by investing in equity securities, fixed income securities and money
market instruments. The portion of the Portfolio invested at any given time in
each of these asset classes will vary depending on market conditions, and there
may be extended periods when the Portfolio is primarily invested in one of them.
In addition, the amount of income derived from the Portfolio will fluctuate
depending on the composition of the Portfolio's holdings and will tend to be
lower when a higher portion of the Portfolio is invested in equity securities.
The Portfolio may also purchase without limitation dollar-denominated American
Depository Receipts ("ADRs"). ADRs are issued by domestic banks and evidence
ownership of underlying foreign securities.
VIST High Income Bond. The investment objective of this Portfolio is to obtain
as high a level of current income as is believed to be consistent with prudent
investment management. As a secondary objective, the Portfolio seeks capital
appreciation when consistent with its primary objective. The Portfolio seeks to
achieve its investment objectives by investing primarily in fixed income
securities rated lower than A. Many of the high yield securities in which the
Portfolio may invest are commonly referred to as "junk bonds." For special risks
involved with investing in such securities (including among others, risk of
default and illiquidity), see "Investment Objectives and Policies of the
Portfolios -- High Income Bond Portfolio" in the VIST prospectus.
VIST Matrix Equity. The investment objective of this Portfolio is capital
appreciation and current income. The Portfolio will seek to achieve its
investment objective by investing in a diversified portfolio that is selected by
the Sub-Adviser on the basis of its proprietary analytical model. Sector weights
are normally maintained at a similar level to that of the S&P 500 Index. The
Portfolio will invest at least 65% of its total assets n equity securities.
(Prior to May 1, 1997, the Matrix Equity Portfolio was known as the "Tilt
Utility Portfolio" and had different policies, but maintained the same
investment objective.)
VIST Multiple Strategies. The investment objective of this Portfolio is to seek
as high a level of total return over an extended period of time as is considered
consistent with prudent investment risk by investing in equity securities,
bonds, and money market instruments in varying proportions.
VIST Small Cap Growth. The investment objective of this Portfolio is to seek
capital appreciation. The Portfolio will invest, under normal conditions, at
least 65% of its total assets in securities of companies with small
capitalization (market capitalization or annual revenues under $1 billion at the
time of purchase). Prior to May 1, 1997, this Portfolio was known as the "Small
Cap Portfolio."
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VIST U.S. Government Bond. The investment objective of this Portfolio is to seek
current income and preservation of capital through investment primarily in
securities issued or guaranteed as to principal and interest by the U.S.
Government or by its agencies, authorities, or instrumentalities.
VIST World Equity. The investment objective of this Portfolio is to maximize
long-term total return by investing primarily in common stocks, and securities
convertible into common stocks, traded in securities markets located in
countries around the world, including the United States. See "Foreign
Investments" under "Policies and Techniques Applicable to all Portfolios" in the
VIST prospectus for a discussion of the risks involved in investing in foreign
securities.
Federated Insurance Series
Federated Insurance Series ("FIS") is an open-end investment management company
that was formed as a series trust to provide funding options for variable life
insurance and variable annuity contracts. Pursuant to an investment advisory
contract, investment decisions for FIS are made by Federated Advisers, an
affiliate of Federated Investment Counseling. Federated Securities Corp. is the
principal distributor for shares of FIS Prime Money Fund Portfolio.
FIS Prime Money Fund II. The investment objective of the Portfolio is to provide
current income consistent with stability of principal and liquidity. The
Portfolio pursues its investment objective by investing exclusively in money
market instruments maturing in 397 days or less. An investment in the FIS Prime
Money Fund II Portfolio is neither insured nor guaranteed by the U.S.
Government.
Fixed Account Option
This Prospectus is generally intended to describe the Contract and Separate
Account. Because of certain exemptive and exclusionary provisions, interests in
the Fixed Account are not registered under the Securities Act of 1933 and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940. Accordingly, neither the Fixed Account nor any interests
therein are generally subject to the provisions of these Acts, and the Company
has been advised that the staff of the SEC has not reviewed the disclosures in
the Prospectus relating to the Fixed Account.
The Company guarantees that it will credit interest to Account Values in the
Fixed Account at a minimum rate of 3% per year. Additional amounts of "current"
interest may be credited by the Company in its sole discretion. Additional
premium payments allocated to the Fixed Account may receive a different current
interest rate than the current interest rate credited to amounts transferred
from the Separate Account. Account Values existing in the Fixed Account may
receive a different current interest rate than the current interest rate(s)
credited on additional premium payment allocations and Separate Account
transfers. The Company determines current interest rates in advance, and credits
interest daily to Fixed Account value.
Transfers Among Contract Options
An Owner may transfer Account Value among Contract Options up to 12 times each
Contract Year without a Transfer Fee, prior to the election of an optional
annuity payment option by making a written request to the Variable Service
Center, or by telephone. (See "Telephone Transactions."). After that, a Transfer
Fee of $10 is deducted for each transfer. Systematic transfers of Account Value
approved by the Company are not taken into account in determining any Transfer
Fee. (See "Systematic Transfers" below and "Charges and Deductions -- Transfer
Fee.")
Prior to the Maturity Date, Account Value to be transferred from the Fixed
Account to other Contract Options in any Contract Year may only be requested
within 30 days of the Contract Anniversary and may not exceed: for transfers
during the first Contract Year, 25% of the Fixed Account Value on the Contract
Date; or for transfers after the first Contract Year, the greater of 25% of the
Fixed Account Value on the immediately preceding Contract Anniversary or 100% of
the Fixed Account Value transferred to other Contract Options during the
immediately preceding Contract Year.
Under an optional annuity payment option, the Owner may make a transfer from one
or more Sub-Accounts to other Sub-Accounts or to the Fixed Account only once
each Contract Year and no transfers will be permitted from
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the Fixed Account to the Separate Account. Amounts transferred from a
Sub-Account to the Fixed Account are subject to certain procedures set out in
the Contract.
General Requirements. All transfers are subject to the following:
If applicable, the Transfer Fee will be deducted from Account Value remaining in
the Sub-Account or Fixed Account from which the transfer is made. However, if
the entire interest in a Sub-Account or the Fixed Account is being transferred,
the Transfer Fee will be deducted from the amount which is transferred.
The minimum amount which may be transferred is the lesser of (a) $1,000; or (b)
the Owner's entire interest in the applicable Sub-Account or Fixed Account.
Any transfer instruction must clearly specify the amount which is to be
transferred and the Contract Options which are to be affected.
The Company reserves the right at any time and without prior notice to any party
to modify, suspend or terminate the transfer privileges including, but not
limited to, the description in "Suspension of Payments and Transfers."
All Sub-Account transfer requests made at the same time will be treated as a
single request. The transfer will be effective as of the date when the Company
receives the transfer request at its Variable Service Center. (See "Telephone
Transactions.")
Systematic Transfers - Dollar Cost Averaging. The Company permits systematic
transfers, such as dollar cost averaging, that an Owner may elect by written
request or by telephone. (See "Telephone Tranasactions.") Through systematic
transfers, designated amounts are transferred each month or quarter from a
selected Contract Option to other pre-selected Contract Options. The dollar cost
averaging program permits transfers from the Prime Money Fund Sub-Account or the
Fixed Account to other Sub-Account(s) on a regular scheduled basis. Through use
of systematic transfers, instead of transfers of the total Account Value at one
particular time, an Owner may be less susceptible to the impact of market
fluctuations. Systematic transfers prevent investing too much when the price of
shares is high and too little when the price of shares is low. However, since
systematic transfers, such as dollar cost averaging involve continuous
investment regardless of fluctuating price levels, the purchaser should consider
his ability to continue purchases through periods of low price levels. The
minimum amount which may be transferred at any time is $250. The Company may
require a minimum amount of Account Value before permitting systematic
transfers. The amount required for dollar cost averaging from the Prime Money
Fund Sub-Account or from the Fixed Account is $6,000.
All systematic transfers are made on the same day of each month or quarter (or
the next Business Day if the same day of the month or quarter is not a Business
Day.) If the Owner is participating in the dollar cost averaging program, the
transfers are not taken into account in determining any Transfer Fee.
Asset Rebalancing Program. The Company administers an asset rebalancing program
that an Owner may elect by written request to the Company at its Variable
Service Center. The asset rebalancing program enables the Owner to indicate to
the Company the percentage levels of Account Value he or she would like to
maintain in particular Sub-Accounts. On the last Business Day of each Contract
Quarter, the Account Value will be automatically rebalanced to maintain the
indicated percentages by transfers among the Sub-Accounts. All Account Value
allocated to the Sub-Accounts must be included in the asset rebalancing program.
Other investment programs, such as systematic transfers and systematic
withdrawals, or other transfers or withdrawals may not work in concert with the
asset rebalancing program. Therefore, Owners should monitor their use of these
programs and other transfers or withdrawals while the asset rebalancing program
is being used.
Restrictions on Transfers. Programmed or other frequent requests to transfer
among Contract Options by, or on behalf of, an Owner may have a detrimental
effect on the Fund share values held in the Separate Account. The Company may
therefore limit the number of permitted transfers in any Contract Year, or
refuse to honor any transfer request for an Owner or a group of Owners if it is
informed that the purchase or redemption of shares of one or more of the
Portfolios is to be restricted because of excessive trading, or if a specific
transfer or group of transfers is deemed to have a detrimental effect on AUV or
Portfolio share prices.
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The Company may also at any time suspend or cancel its acceptance of third party
authorizations on behalf of an Owner; or restrict the Contract Options that will
be available for such transfers. Notice will be provided to the third party in
advance of the restrictions. The restrictions will not be imposed, however, if
the Company is given satisfactory evidence that: (a) the third party has been
appointed by the Owner to act on the Owner's behalf for all financial affairs;
or (b) the third party has been appointed by a court of competent jurisdiction
to act on the Owner's behalf.
Automatic Transfers of Small Accounts. The Company reserves the right, subject
to any applicable law, to transfer Contract Value from any Contract Option if
less than $250, to the Contract Option with the highest Contract Value. (See
"The Contract--Minimum Value Contract Requirements.")
Changes in Contract Options
New Sub-Accounts may be established and additional portfolios or mutual funds
may be made available by the Company when, in its sole discretion, it determines
that conditions so warrant. Any new Sub-Accounts may be made available to
existing Owners on a basis to be determined by the Company. Each additional
Sub-Account will purchase shares in another portfolio of a Fund, or in another
mutual fund or investment vehicle.
The Company does not guarantee that continued purchase of Portfolio shares will
remain appropriate in view of the purposes of the Separate Account. If shares of
a Portfolio are no longer available for investment by the Separate Account or
if, in the judgment of the Company, further investment in the shares should
become inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another portfolio, or mutual fund for shares already
purchased or to be purchased in the future. The Company also may, in its
discretion, remove Portfolios for transfers or new investments. No substitution
of securities may take place without prior approval of the SEC and under the
requirements it may impose.
Mixed and Shared Funding
Shares of VIST and FIS Prime Money Fund II are sold to the Company for
allocation to the Separate Account in connection with the Contracts, and for
allocation to other separate accounts funding variable annuity contracts and
other variable life insurance contracts issued, or to be issued, by the Company.
Shares of VIST and FIS Prime Money Fund II may also be sold to other insurance
companies, either affiliated or unaffiliated with the Company, for the same
purpose. It is conceivable that, in the future, it may be disadvantageous for
variable life insurance separate accounts and variable annuity separate accounts
to invest in one or more of the VIST Portfolios or FIS Prime Money Fund II
simultaneously if the interests of variable life insurance and variable annuity
contract owners differ. The boards of trustees of VIST and FIS Prime Money Fund
II and the participating insurance companies intend to monitor events to
identify any material irreconcilable conflicts which may arise and to determine
what action, if any, should be taken in response.
CHARGES AND EXPENSES
Various charges and deductions are made from the Account Value and the Separate
Account. These are:
Monthly Deductions
On the first day of each Contract month, the Company will deduct an amount to
cover charges and expenses incurred in connection with the Contract.
Generally, this monthly deduction will be made by subtracting values from the
Fixed Account and/or canceling Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Contract Option bears to the
total Account Value for a Contract. The amount of the monthly deduction will
vary from month to month. If the Account Value is not sufficient to cover the
monthly deduction which is due, the Contract may lapse. (See
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"Lapse and Reinstatement.") The monthly deductions are comprised of the
following charges:
Administrative Charge
The Company makes a monthly deduction for an Administrative Charge. This charge
is equal to an annual rate of 0.40% multiplied by the account value. This
charge, together with the Maintenance Fee (see below), reimburses the Company
for its expenses for items such as the cost of processing Contract transactions,
issuing Owner statements and reports, and record keeping, as well as legal,
actuarial, systems, mailing and other overhead costs connected with the
Company's variable life insurance operations. The Administrative Charge has been
designed to cover actual costs and is not intended to produce a profit.
Maintenance Fee
The Company will make a deduction of $2.50 from any Contract with less than
$100,000 in Account Value to cover charges and expenses incurred in connection
with the Contract.
The Administrative Charge and Maintenance Fee are to reimburse the Company for
expenses related to issuance and maintenance of the Contracts. The Company does
notintend to profit from these charges.
Distribution Charge
During the first 10 Contract Years, the Company makes a monthly deduction to
compensate for a portion of the sales expenses which are incurred by the Company
with respect to the Contracts. This charge is equal to an annual rate of 0.20%
multiplied by the Account Value. The Company will monitor distribution charges,
federal tax charges and the sales charge portion of the Withdrawal Charges
deducted under a Contract to ensure that the sum of these charges will never
exceed 9% of the premium payments made under the Contract.
Premium Tax Charge
During the first 10 Contract Years, the Company makes a monthly deduction to
offset the average premium tax the Company is expected to pay to various states
and local jurisdictions but will not necessarily equal the premium taxes paid by
the Company with respect to a particular Contract. This charge is equal to an
annual rate of 0.25% multiplied by the Account Value. The Company expects to pay
an average premium tax of approximately $2,500 on $100,000 of premiums for all
states, although such tax rates can generally range from 0% to 4%. The Company
does not intend to profit from these charges.
Federal Tax Charge
During the first 10 Contract Years, the Company makes a monthly deduction to
compensate the Company for the increase in federal tax liability from the
application of Section 848 of the Code. This charge is equal to an annual rate
of 0.20% multiplied by the Account Value as of each Monthly Anniversary. The
Company currently treats this federal tax charge as if it were a sales load for
purposes of determining compliance with maximum sales loads permitted under SEC
rules.
Cost of Insurance
The Company will make a monthly deduction for the cost of providing life
insurance coverage for the Insured. This charge is guaranteed not to exceed the
maximum cost of insurance charge determined on the basis of the mortality table
guaranteed in the Contract, calculated, for standard issues, using the 1980
Commissioner's Standard Ordinary Mortality tables, Age Last Birthday ("1980
CSO"). The maximum cost of insurance charge for substandard issues are based on
multiples or additives to the guaranteed standard rates established by the 1980
CSO. These mortality tables are sex distinct and the guaranteed cost of
insurance charge may vary by the attained age, sex and underwriting class of the
Insured.
Currently, a cost of insurance charge is taken that is less than the maximum
cost of insurance charge where an Insured is determined by the Company to be a
standard nonsmoker underwriting risk. This monthly charge is equal
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to an annual rate of 0.40% of Account Value and is not guaranteed. For Contract
Years 11 and later, this monthly charge is anticipated to be increased to an
annual rate of 0.55% of Account Value.
Daily Deductions
Each Business Day, the Company will deduct charges which are equal to a
percentage of the daily net assets in each Sub-Account of the Separate Account
for this class of Contract. The daily charges are comprised of the following
charges:
Mortality and Expense Risk Charge
The Company makes a daily deduction for the Mortality and Expense Risk Charge,
which is equal to 0.90%, on an annual basis, of the daily net assets in each
Sub-Account. The mortality risk assumed under the Contract is that the Insured
may live for shorter periods of time than the Company estimated when it
guaranteed the maximum level of insurance charges in the Contract. The expense
risk assumed is that the actual expenses incurred in issuing and administrating
the Contracts may be greater than the Company estimated when it guaranteed the
maximum level of insurance charges in the Contract. In addition, the Company
assumes risks associated with the nonrecovery of Contract issue, underwriting
and other administrative expenses due to Contracts which lapse or are
surrendered during the early Contract Years.
If any amount collected by the Company from the mortality and expense risk
charge is not needed to cover Death Benefits and expenses, it will be
contributed to the Company's general account. Conversely, if the amount
collected is insufficient, the Company will make up the deficiency.
Transfer Fee
If more than 12 transfers have been made in a Contract Year, the Company will
deduct a Transfer Fee of $10 per transfer. Systematic transfers of Account Value
approved by the Company are not taken into account in determining any Transfer
Fee. (See "Systematic Transfers - Dollar Cost Averaging.") The charge is taken
pro rata from the Account Value in each Contract Option prior to a transfer and,
with respect to Sub-Accounts, will result in the cancellation of Accumulation
Units credited to the Contract.
Withdrawal Charges
Withdrawal Charges may be assessed if a Contract is surrendered, or if a
withdrawal of Account Value is made during the first nine Contract Years. The
Withdrawal Charges consist of two separate charges: a sales charge and an
unreimbursed premium tax charge.
Withdrawals of Account Value reduce the Death Benefit proportionately. (See
"Withdrawals.")
The Withdrawal Charges are calculated by separately multiplying the applicable
percentage shown in the tables below for the sales charge and the unreimbursed
premium tax charge by the premium deemed surrendered, withdrawn or applied to an
optional annuity payment option and totaling the results. The Withdrawal Charges
will vary depending on the number of Contract Years that have elapsed since the
Contract Date. An additional premium payment during this period will result in a
new level of Withdrawal Charges based on that payment. The level of the
additional Withdrawal Charge will be determined by reference to the Contract
Date, and will not apply beyond the tenth Policy Year. Premium payments are
deemed withdrawn in the order in which they are received by the Company. The
amount deducted from the Account Value will be determined by subtracting values
from the Fixed Account and/or canceling Accumulation Units from each applicable
Sub-Account in the ratio that the value of each Sub-Account bears to the total
Account Value, unless another method is requested and the Company approves the
request.
Application of the Withdrawal Charges. No Withdrawal Charges will be assessed
upon any withdrawal during Contract Years 2 through 9 unless the amount
withdrawn exceeds the Free Withdrawal Amount for that year. The annual Free
Withdrawal Amount is an amount equal to 15% of the premium paid and not
previously withdrawn or loaned during that Contract Year. These 15% withdrawals
do not reduce premium payments for purposes of computing the Withdrawal Charges.
The Withdrawal Charges will apply to the amount withdrawn or surrendered
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in any Contract Year that exceeds 15% of premium payments. The unused portion of
the Free Withdrawal Amount for one Contract Year will not be carried over to the
next Contract Year. The Free Withdrawal Amount is not available on withdrawal
requests that fail to meet the minimum remaining Account Value requirements for
a partial withdrawal. (See "Partial Withdrawals.")
Waiver of Withdrawal Charges. The Company will waive the Withdrawal Charges:
o after the first Contract Year and subject to state availability, if the
Insured or the Insured's spouse is confined in an approved nursing home for
90 days;
o if any Death Benefits are paid; or
o if the Account Value is applied after five Contract Years to an optional
annuity payment option. (See "Optional Annuity Payment Options.")
To qualify for a waiver of the Withdrawal Charges based upon confinement in a
qualified nursing home, the Insured or the Insured's spouse must never have been
confined in a qualifying nursing home on or before the date the application for
the Contract was signed. The Company may require evidence satisfactory to it for
any of these conditions. Owners should review their Contract carefully for a
complete description of these waivers.
Sales Charge
The sales charge reimburses the Company for expenses incurred in connection with
the promotion, sale and distribution of the Contracts.
The sales charges and distribution charges under the Contracts in any year are
not necessarily related to the Company's actual sales expenses for that year.
The Company expects that total revenues from the sales charges and distribution
charges will fall short of its total distribution expenses, and the excess will
be recovered from the Company's surplus and other revenues, including any
potential profit realized which may arise from the mortality and expense risk
charge.
The sales charge percentages against premiums are:
Contract Years Since Contract Date
1 2 3 4 5 6 7 8 9 10+
Sales
Charge 7.5% 7.5% 7.25% 6.5% 5.75% 5% 4.25% 3.5% 2.75% 0%
Unreimbursed Premium Tax Charge
The unreimbursed premium tax charge is to recover a portion of the premium tax
the Company has paid to any state or other government entity.
The unreimbursed premium tax percentages against premiums are:
Contract Years Since Contract Date
1 2 3 4 5 6 7 8 9 10+
Premium
Tax
Recovery 2.25% 2% 1.75% 1.5% 1.25% 1% 0.75% 0.5% 0.25% 0%
Other Charges and Expenses
Fund Expenses. Underlying shares of the Portfolios of Variable Investors Series
Trust ("VIST") and Federated Insurance Series ("FIS") are purchased at net asset
value, which reflects investment management fees, other operating expenses and
any expense reimbursement paid by an investment adviser to the applicable
Portfolio. The
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total annual expenses of the Portfolios as a percentage of average net assets
for the year ended December 31, 1996 were:
Other Operating
Management Expenses (After Total Annual
Portfolio Fees Reimbursement) Expenses
--------- ---- -------------- --------
VIST Common Stock .70% .47% 1.17%
VIST Growth & Income .75% .50% 1.25%
VIST High Income Bond .70% .50% 1.20%
VIST Multiple Strategies .70% .50% 1.20%
VIST Small Cap .85% .50% 1.35%
VIST Tilt Utility .65% .50% 1.15%
VIST U.S. Government Bond .60% .25% .85%
VIST World Equity .70% .50% 1.20%
Federated Prime Money Fund II .55% .25% .80%
First Variable Advisory Services Corp., the investment adviser to VIST, has
agreed through April 1, 1997 to reimburse VIST for operating expenses (exclusive
of management fees) in excess of .50% of a VIST Portfolio's average net assets
(.25% in the case of the VIST U.S. Government Bond Portfolio). Had this
investment adviser not reimbursed expenses of the VIST Portfolios, for the year
ended December 31, 1996, the VIST annual expenses, as a percentage of the
Portfolio's average assets, were 1.17% for the VIST Common Stock Portfolio;
1.99% for the VIST High Income Bond Portfolio; 1.32% for the VIST Multiple
Strategies Portfolio; 1.48% for the VIST Tilt Utility Portfolio; 1.66% for the
VIST U.S. Government Bond Portfolio; 2.38% for the Small Cap Portfolio; 2.63%
for the Growth & Income Portfolio; and 1.50% for the VIST World Equity
Portfolio. Federated Advisors, the investment adviser for FIS has voluntarily
agreed to waive any portion of its fee and/or reimburse certain operating
expenses of FIS in excess of .80% of the FIS Prime Money Fund II Portfolio's
average net assets, but can modify or terminate this voluntary agreement at any
time at its sole discretion. Had this investment adviser not waived expenses
and/or reimbursed expenses of the FIS Prime Money Fund II Portfolio for the year
ended December 31, 1996, the annual expenses, as a percentage of the Portfolio's
average assets, were 1.37%.
The management fees and other expenses are more fully described in the
prospectuses for each of the underlying Funds.
Income Taxes. While the Company is not currently reducing Account Value for
federal income taxes of the Separate Account, the Company reserves the right to
do so if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Separate Account. The Company will make
deductions for any income taxes incurred by it as a result of the operation of
the Separate Account whether or not there was a Company reserve for taxes and
whether or not it was sufficient.
The Company will make deductions for any withholding taxes required by
applicable law when amounts are distributed from a Contract. (See "Tax
Withholding.")
Special Service Fees. The Company may charge Owners for special services, such
as additional reports, and dollar cost averaging. As of the date of this
prospectus, it does not charge for these special services.
Elimination or Reduction of Charges and Expenses. The charges and expenses on a
Contract may be reduced or eliminated, in whole or in part, when sales of
Contracts are made to individuals or to a group of individuals in a manner that
results in savings of sales or administration expenses. Any reduction will be
determined by the Company after examination of relevant factors such as:
o the size and type of group to which sales are to be made, because expenses
for a larger group are generally less than for a smaller group since large
numbers of Contracts may be implemented and administered;
o the total amount of premium payments to be received, because expenses are
likely to be less on larger premium payments than on smaller ones;
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o any prior or existing relationship with the Company, because of the
likelihood of implementing the Contract with fewer contacts; and other
circumstances, of which the Company is not presently aware, which could
result in reduced expenses.
Charges may also be eliminated when a Contract is issued to an officer,
director, employee or agent of the Company or any of its affiliates. In no event
will reductions or elimination of the charges be permitted where reductions or
elimination will be unfairly discriminatory to any person.
Group and Sponsored Arrangements. Group arrangements include those in which a
trustee, employer, an association or similar entity purchases individual
Contracts covering a group of individuals on a group basis. An example of such
an arrangement is a non-tax qualified deferred compensation plan. Sponsored
arrangements include those in which an employer, an association or similar
entity permits the Company to offer Contracts to its employees or members on an
individual basis.
The United States Supreme Court has held that certain insurance contracts
providing values and benefits that vary with the sex of the insured may not be
used to fund certain employee benefit programs. Therefore, the Company may offer
Contracts for use in connection with certain employee benefit programs where the
cost of insurance does not vary with the sex of the insured. The Company
recommends that any employer proposing to offer the Contracts to employees under
a group or sponsored arrangement consult its attorney before doing so.
THE CONTRACT
Application and Issuance of a Contract
An application must be submitted to the Company at its Variable Service Center
by anyone wishing to purchase a Contract. If a premium payment is made with the
application, the Contract Date will be the later of the date the Company
approves the application or the date of receipt of the premium payment. Only one
premium payment may be made before the Contract is issued. Applicants between
the ages of 0 and 80 are eligible for simplified underwriting without a medical
examination under the Company's current underwriting rules, which are subject to
change. The Company will review an application under its underwriting rules, and
may request additional information or reject an application.
If a Contract is issued, monthly Contract charges will begin as of the Contract
Date, even if the Contract's issuance was delayed due to underwriting
requirements. If the Company declines an application, it will refund the premium
payment made.
If the premium is paid upon delivery of the Contract, the Contract will have a
Contract Date which is generally five days after issue. Monthly Contract charges
will begin on the Contract Date. Insurance coverage under the Contract will
begin upon receipt of the premium.
Under limited circumstances, the Company may backdate a Contract, upon request,
by assigning a Contract Date earlier than the date the application is signed.
Backdating may be desirable, for example, so that the Cost of Insurance rate for
the initial Death Benefit amount is lower, based on the Insured's insurance age.
Free Look Right. An Owner has the right to review a Contract during an initial
inspection period specified in the Contract and, if dissatisfied, to return it
to the Company or to the agent through whom it was purchased. When the Contract
is returned to the Company during the permitted period, it will be voided as if
it had never been in force. The Company will ordinarily refund the Account Value
(which may be greater or less than the premium payments received) on a Contract
returned during the permitted period, unless a different amount is required by
state law. The "free look" period is typically 10 days, and may be greater
depending on state requirements.
Premiums
The Contracts are designed for a large single premium to be paid by the Owner on
or before the Contract Date. Generally, the minimum initial premium the Company
requires for a Contract is $10,000. The initial premium is used to determine the
initial Death Benefit under the Contract (See "Death Benefits.")
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The Contract is primarily intended to be a single premium Contract with a
limited ability to make additional premium payments. Additional premium payments
under the Contract are permitted under the following circumstances:
(a.) an additional premium payment is required to keep the Contract in
force (See "Lapse and Reinstatement"); or
(b.) an additional premium is paid equal to the lesser of (i) $5,000; or
(ii) 5% of the initial premium.
Payment of additional premiums may increase the Death Benefit.However, the
Company reserves the right to require satisfactory evidence of insurability
before accepting an additional premium payment in excess of the lesser of (a)
$5,000 or (b) 5% of the initial premium. The Company may require that any
Contract loans be repaid prior to accepting any additional premium payments.
The Company will not accept any additional premium payment which would result in
the total premiums paid exceeding the premium limitation prescribed by Internal
Revenue Service to qualify the Contract as a life insurance contract.
Allocation of Premiums
Premium payments are allocated to the appropriate Sub-Account(s) within the
Separate Account that invest in the selected Portfolio(s), or to the Fixed
Account, in accordance with an Owner's instructions. For each Sub-Account,
premium payments are converted to Accumulation Units. The number of Accumulation
Units credited to a Contract is determined by dividing the amount allocated to
the Sub-Account by the value of the applicable Accumulation Unit as of the
Valuation Period during which the premium payment is allocated to the
Sub-Account. Premium payments allocated to the Fixed Account are credited in
dollars.
Premium payments are generally allocated to the Sub-Accounts or the Fixed
Account as of the later of the Contract Date or the date the premium is
received.
Delayed Investment Start Date. Initial premium payments are allocated to the
Sub-Accounts or to the Fixed Account as selected by the Owner. On the date of
this Prospectus, the Company does not delay investment start dates and will
allocate premium payments to the selected Contract Options upon issuance of a
Contract. The Company reserves the right, however, to allocate initial premium
payments to the Prime Money Fund II Sub-Account for an investment delay period
before they will be invested (together with any investment gain) in any other
Sub-Account(s) designated by the Owner. If the Company elects to delay such
initial investments in Sub-Accounts, the delay would apply where a Contract is
issued subject to a requirement that premium payments be refunded upon the
exercise of a "free look" right. Allocation to the Sub-Account(s) designated by
the Owner would be made at the end of the "free look" inspection period. The
investment delay period would be measured from the date a Contract is issued
from the Variable Service Center and would include up to 5 extra days in
addition to the applicable "free look" inspection period to provide time for
mail or other delivery of the Contract to the Owner.
Should the Company elect to delay investment start dates, it will so advise
prospective investors in a Contract.
Telephone Transactions
An Owner may initiate various transactions by telephone. The Variable Service
Center (1-800-845-0689) is available for telephone transfers of Account Value,
notification of change of address, change of premium allocations among Policy
Options, partial withdrawal requests and policy loans.
The Company's automated information line (1-800-59-FUNDS) is available for
current information on Accumulation Unit Values, current Account Value, and for
telephone transfers of Account Value.
If there are joint owners of a Policy, unless the Company is informed to the
contrary, instructions will be accepted from either one of the joint owners.
Requests for transfers or reallocations by telephone will be automatically
permitted. The Company will use reasonable procedures such as requiring certain
22
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identifying information from the caller, tape recording the telephone
instructions, and providing written confirmation of the transaction, in order to
confirm that instructions communicated by telephone are genuine. Any telephone
instructions reasonably believed by the Company to be genuine will be the
Owner's responsibility, including losses arising from any errors in the
communication of instructions. As a result of this, the Owner will bear the risk
of loss. If the Company does not employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, the Company may be liable
for any losses due to dishonored or fraudulent instructions.
CONTRACT VALUES AND BENEFITS
Death Benefit
When an application for a Contract is approved, the Company determines the Face
Amount of insurance and then issues a Contract. The Death Benefit on the
Contract Date is the Face Amount, and any additional benefit riders elected. The
Death Benefit will never be less than the Face Amount. The Death Benefit may be
adjusted as a result of additional premium payments, an increase or decrease in
Account Value, or in the event of Withdrawals.
Upon receipt of proof of death of the Insured, the Company will pay the Death
Benefit Proceeds to the Beneficiary. The Owner or the Beneficiary may elect that
the Death Benefit Proceeds be paid in a single sum, in the form of a fixed
annuity, or that they be retained by the Company in its general account. Amounts
retained by the Company will be credited with interest at an annual rate of not
less than 3%. The amount of the Death Benefit is determined on the date the
Company receives proof of the Insured's death and will be the greater of (a) the
Face Amount or (b) the Account Value times the death benefit factor from the
following table:
<TABLE>
<CAPTION>
Percentage of Percentage of Percentage of
Attained Age Account Value Attained Age Account Value Attained Age Account Value
<S> <C> <C> <C> <C> <C>
35 250 57 142 79 105
36 250 58 138 80 105
37 250 59 134 81 105
38 250 60 130 82 105
39 250 61 128 83 105
40 250 62 126 84 105
41 243 63 124 85 105
42 236 64 122 86 105
43 229 65 120 87 105
44 222 66 119 88 105
45 215 67 118 89 105
46 209 68 117 90 105
47 203 69 116 91 104
48 197 70 115 92 103
49 191 71 113 93 102
50 185 72 111 94 101
51 178 73 109 95 100
52 171 74 107 96 100
53 164 75 105 97 100
54 157 76 105 98 100
55 150 77 105 99 100
56 146 78 105
</TABLE>
Face Amount and Guidleine Single Premium - The Face Amount on the Contract Date
is determined by treating the initial premium as a "guideline single premium."
The "guideline single premium" is an amount necessary to keep the Contract in
force until the Maturity Date, using guaranteed mortality and expense charges,
and the calculations required by the Code for a life insurance contract under
the guideline premium test. The "guideline single premium" will vary by attained
age, sex and underwriting risk class. This will generally result in the same
initial premium providing a Face Amount that is higher for non-smokers than
smokers, and a higher Face Amount for females than for males.
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<PAGE>
Face Amount and Additional Premium Payments - Additional premium payments may
result in an increase in the Face Amount of insurance coverage. If necessary,
the Company will increase the Face Amount by an amount sufficient to permit the
contract to remain within the definition of a "life insurance contract" under
section 7702 of the Code.
Adjustments to the Death Benefit Proceeds. The Death Benefit Proceeds actually
paid to the beneficiary are equal to the Death Benefit reduced by any
outstanding loan and accrued loan interest. The Death Benefit Proceeds will be
increased by any other rider benefits payable.
Additional Benefits by Rider
The Company may in the future permit Owners to purchase additional benefits
provided by rider to the Contract, subject to the Company's underwriting and
issuance standards. These additional benefits may increase the monthly cost of
insurance charge.
Acceleration of Death Benefit Rider
Subject to state availability, an accelerated death benefit rider is included in
a Contract. This rider permits an Owneer to receive an advance of 50% of the
Death Benefit, less any indebtedness, up to a maximum of $50,000. The advance is
payable when the Insured has been diagonosed as having a terminal illness with a
life expectancy of 12 months or less.
Amounts advanced under the rider generally will be considered death benefit for
income tax purposes. (See "Federal Tax Status - Life Insurance and Modified
Endowment Contract Definitions.")
Determination of Account Value
Account Value and Cash Surrender Value. The Account Value under a Contract
includes its value in the Separate Account, in the Fixed Account and, if there
is any Indebtedness, in the Loan Account. The Account Value reflects premiums,
the Net Investment Experience of the Contract's Sub-Accounts, interest credited
on its Account Value in the Fixed Account and on amounts held in the Loan
Account, amounts deducted for Contract charges or any Withdrawal Charges that
apply to an Owner request to reduce the Face Amount and amounts withdrawn or
surrendered.
The Contract's Cash Surrender Value is the amount the Owner will receive upon
surrender of the Contract. The Cash Surrender Value is the Account Value reduced
by any outstanding Contract loan (and accrued interest) and by any applicable
Withdrawal Charges. (See "Preferred and Non-Preferred Loans" and "Withdrawal
Charges.")
The Contract's Cash Surrender Value in the Separate Account may increase or
decrease daily depending on the Net Investment Experience of the Contract's
Sub-Accounts. Unfavorable investment experience can reduce the Cash Surrender
Value to zero. Because there is no guaranteed minimum Account Value in the
Separate Account, the Owner bears the entire investment risk with respect to the
Account Value allocated to the Separate Account.
Net Investment Experience. The Net Investment Experience of the Contract's
Sub-Accounts will affect the Contract's Account Value and, in some
circumstances, the Death Benefit. The Net Investment Experience of the
Sub-Accounts is determined as of the close of regular trading on the New York
Stock Exchange on each day when the Exchange is open for trading.
A Sub-Account's Net Investment Experience for any period reflects the investment
experience of the underlying Portfolio shares for the same period, reduced by
the charges against the Sub-Account for that period. (Currently the Sub-Accounts
are charged only for the Company's mortality and expense risk and administrative
expenses, but in the future the Company may impose a charge against the
Sub-Accounts for taxes if appropriate. See "Charges and Expenses" and "Taxation
of the Company and the Separate Account.")
The investment experience of Portfolio shares for any period is the increase or
decrease in their net asset value for the period invested reduced by the amount
of any dividends or capital gains distributions on the shares during the
24
<PAGE>
period. Dividends and capital gains distributions on Portfolio shares are
reinvested in additional shares of the Fund and affect subsequent investment
experience.
Owners who allocate Account Value to the Fixed Account will not share in the
actual investment experience of the Fixed Account. Instead, the Company
guarantees that Account Values in the Fixed Account will earn interest at an
effective annual rate of at least 3.0%. The Company may from time to time credit
interest at a higher rate than 3.0%, but it is under no obligation to do so. The
Company declares the current interest rate for the Fixed Account periodically.
Account Values that are in the Fixed Account will earn interest daily.
Preferred and Non-Preferred Loans
The Owner may borrow all or part of the Contract's "loan value" at any time
after the free look period. The Company will usually make the loan within seven
days of the date when a loan request is received in writingor by telephone at
the Variable Service Center. (See "Telephone Transactions.")
The maximum amount available for a loan is equal to 90% of the Account Value
less the sum of Withdrawal Charges and Indebtedness. A loan reduces the
Contract's Account Value in the Sub-Accounts and the Fixed Account by the amount
of the loan. The amount taken from the Contract's Sub-Accounts as a result of a
loan does not participate in the investment experience of the Sub-Accounts.
Therefore, the Death Benefit and Account Value of the Contract can be
permanently affected by a loan, even if it is repaid. In addition, any proceeds
payable under a Contract are reduced by the amount of any outstanding loan plus
accrued interest. Because the Contract will generally be considered a `modified
endowment contract' for federal income tax purposes, a loan may be subject to
adverse tax consequences. (See "Federal Tax Status - Income Tax Treatment of
Contract Benefits.")
A loan repayment increases the Account Value in the Sub-Accounts and the Fixed
Account by the amount of the repayment. Unless the Owner requests otherwise,
loans and loan repayments are attributed to the Sub-Accounts and the Fixed
Account in proportion to the Account Value in each.
If a loan plus accrued interest exceeds the Contract's Account Value less the
Withdrawal Charges on the next loan interest due date (or, if greater, on the
date the calculation is made), the Company will notify the Owner that the
Contract is going to terminate. The Contract will terminate without value 61
days after the notice is mailed unless the excess amount is paid to the Company
within that time.
The interest rate charged on loans is 5% per year and is due on each Contract
Anniversary. If not paid, the interest accrued on the loan is added to the loan.
An amount equal to the unpaid interest is deducted from the Contract's Account
Value in the Sub-Accounts and the Fixed Account and transferred to the Loan
Account.
Preferred Loan Amounts. A preferred loan amount is determined on the Contract
Date and on the first Business Day of each Contract month. It is equal to the
excess of Account Value over the total premiums paid.
Surrenders and Partial Withdrawals
Surrenders. The Owner may surrender a Contract for its Cash Surrender Value at
any time while the Insured is living by a signed written request conforming to
the Company's administrative procedures. The Cash Surrender Value of the
surrendered Contract will be determined as of the Business Day when a surrender
request is received at the Company's Variable Service Center. The Cash Surrender
Value equals the Account Value reduced by any Contract loans and accrued
interest and by any applicable Withdrawal Charges. (See "Withdrawal Charges.")
The Owner may elect in writing to have all or may elect in writing or by
telephone to have part of the Cash Surrender Value applied to an optional
annuity payment option. (See "Optional Annuity Payment Options" and "Telephone
Transactions.")
Partial Withdrawal. The Owner may request in writing or by telephone a partial
withdrawal under the Contract to receive a portion of its Cash Surrender Value.
(See "Telephone Transactions.") A partial withdrawal will cause a proportionate
reduction in the Contract's Account Value and Death Benefit. No partial
withdrawal may reduce the Death Benefit below that required to qualify the
Contract as life insurance or below the Contract's Face Amount, except with The
Company's consent.
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<PAGE>
Any Withdrawal Charges that apply to a partial withdrawal will be deducted pro
rata from the Contract's Account Value in the Sub-Accounts and the Fixed
Account. The Surrender Charge applied will reduce any remaining Withdrawal
Charges under the Owner's Contract.
Tax Impact of Modified Endowment Contract Status. Because the Contract will
generally be considered a "modified endowment contract" for federal income tax
purposes, a surrender or partial withdrawal may be subject to adverse tax
consequences. (See "Federal Tax Status - Income Tax Treatment of Contract
Benefits.")
Maturity Proceeds
If the Insured is living on the "Maturity Date" (the anniversary of the Contract
Date on which the Insured is age 100), on surrender of the Contract to the
Company, the Company will pay the Owner the Cash Surrender Value. In such case,
the Contract will terminate and the Company will have no further obligations
under the Contract.
Lapse and Reinstatement
If the Cash Surrender Value in the Contract is insufficient to pay the monthly
deductions, loan interest, or other charges which become due but are unpaid, a
grace period of 61 days will be allowed for payment of sufficient premium to
continue the Contract in force. The Company will notify the Owner of the amount
required to continue the Contract in force. If the required premium amount is
not received within 61 days of the notice, the Contract will terminate without
value. If the Insured dies during the grace period, the Company will pay the
Death Benefit Proceeds.
If the grace period ends and the Owner has neither paid the required premium nor
surrendered the Contract for its Cash Surrender Value, the Owner may reinstate
the Contract by (a) submitting a written request at any time within three years
after the end of the grace period and prior to the Maturity Date; (b) providing
evidence of insurability satisfactory to the Company; (c) paying a sufficient
premium to cover all charges that were due and unpaid during the grace period;
(d) paying an additional premium at least three times the guaranteed monthly
cost of insurance charge under the Contract and all other applicable charges;
and (e) repaying any indebtedness against the Contract that existed at the end
of the grace period.
Payment of Proceeds
The Company ordinarily will pay any Cash Surrender Value, Contract loan value or
Death Benefit Proceeds from the Sub-Accounts within seven days after receipt by
the Variable Service Center of a request, or proof of death of the Insured in a
form satisfactory to the Company. However, the Company may delay payment or
transfers from the Sub-Accounts. (See "Suspension of Payments and Transfers.")
The Company may also delay payment if it considers it necessary to contest the
Contract. The Company will pay interest on the Death Benefit Proceeds from the
date they become payable to the date they are paid in one sum or, if an optional
annuity payment option was selected, to the effective date of the option. (See
"Optional Annuity Payment Options.")
Tax Withholding
All distributions or portions thereof which are includable in the gross income
of the Owner are subject to federal income tax withholding. The Company will
withhold federal taxes at the rate of 10% from each distribution. However, the
Owner may elect not to have taxes withheld or to have taxes withheld at a
different rate.
Optional Annuity Payment Options
If no election has been previously made by the Owner, the Beneficiary may elect
that Death Benefit Proceeds be paid as a single sum, as a fixed annuity or
retained by the Company in its general account (see "Death Benefits.") The
Contract's Death Benefit Proceeds and Cash Surrender Value can be paid in one
sum, or the Owner or payee can choose to receive all or part of the proceeds as
fixed annuity payments (payments which are guaranteed as to dollar amount by the
Company). Other payment options may also be made available, subject to
applicable regulatory requirements. The guaranteed mortality assumptions used in
determining payment levels will not vary based on sex.
26
<PAGE>
Annuitization Bonus. Subject to state availability, the Company intends to
increase the amount applied to optional annuity payment options A, B, C, D and,
for specified periods greater than five years, E, by an "Annuitization Bonus".
The Annuitization Bonus Value will be calculated by the Company as of the
immediately preceding Business Day. The increase will be allocated pro rata to
the annuity payment options which the Owner has elected and will be deemed
"income" on the Contract for federal income tax purposes. (See "Income Tax
Treatment of Contract Benefits.")
The "Annuitization Bonus" for a Contract will be determined by the Company at
the time of issuance of a Contract, but may be modified, reduced or eliminated
for Contracts subsequently issued. On the date of this prospectus, the
Annuitization Bonus is 3% of the amount applied to annuity payment options A, B,
C, D and, for specified periods greater than five years, E.
The following annuity payment options are available:
Option A. Life Annuity. An annuity payable monthly during the lifetime of the
payee. Annuity payments cease at the death of the payee.
Option B. Life Annuity with Period Certain of 60, 120, 180 or 240 Months. An
annuity payable monthly during the lifetime of the payee for 60, 120, 180 or 240
months certain as selected.
Option C. Joint and Survivor Annuity. An annuity payable monthly during the
joint lifetime of the payee and a designated second person. At the death of
either payee, annuity payments will continue to be made to the survivor payee.
The survivor's annuity payments will equal 100%, 75%, 66-2/3% or 50% of the
amount payable during the joint lifetime, as chosen.
Option D. Joint and Contingent Annuity. An annuity payable monthly during the
lifetime of the payee and continuing during the lifetime of a designated second
person after the payee's death. The second person's annuity payments will equal
100%, 75%, 66 2/3% or 50% of the amount payable, as chosen.
Option E. Fixed Payments for a Period Certain. Annuity payable monthly for a
fixed amount for any specific period (at least 5 years but not exceeding 30
years), as chosen.
Option F. Death Benefit Proceeds Remaining with the Company. Proceeds from the
Death Benefit left with the Company. The Death Benefit Proceeds will remain in
the Contract Options to which they were allocated at the time of death unless
the beneficiary elects to reallocate them. Full and partial withdrawals may be
made at any time.
Annuity Options A, B, C & D are available for fixed annuity payments, variable
annuity payments or some combination of both. Annuity Option E is available for
fixed annuity payments only.
If the payee dies during a period certain (Annuity Options B or E), the
remaining annuity payments will be made to the beneficiary. The beneficiary may
elect to receive the commuted value of the remaining annuity payments in a
single sum instead. If no beneficiary is designated, the commuted value of the
remaining annuity payments will be made to the payee's estate in a single sum.
The Company will determine the commuted value by discounting the remaining
annuity payments at its then current interest rate used for commutation.
Right to Exchange for a Fixed Benefit Contract
During the first 24 months after the Contract Date, if the Contract has not
lapsed, there is an unconditional right to transfer all of the Account Value in
the Sub-Accounts to the Fixed Account.
OTHER PROVISIONS OF THE CONTRACT
Suicide Exclusion
If the Insured commits suicide within two years from the Contract's date of
issue (or less if required by state law), the Death Benefit will be limited to
the premiums paid, reduced by any outstanding loan and accrued loan interest.
27
<PAGE>
Representations and Contestability
Generally, the Company can challenge the validity of the Owner's Contract or any
rider to the Owner's Contract during the Insured's lifetime for two years from
the date of issue, based on misrepresentations made in the application. The
Company can challenge the portion of the Death Benefit resulting from payment of
an underwritten additional premium payment for two years, during the Insured's
lifetime, from the date the additional premium payment was received. However,
the two year time limit on the Company's right to challenge all or part of the
Contract does not apply in the event that the Insured dies within the two year
period.
Misstatement of Age or Sex
If the Insured's age or sex is misstated in the application, the Contract's
Account Value and Death Benefit will be what the premiums paid and unscheduled
premium payments made would have purchased, based on the Insured's correct age
or, if the Contract is sex-based, on the Insured's correct sex.
Owner and Beneficiary
The Owner is named in the application but may be changed from time to time. At
the death of the Owner, his or her estate will become the Owner unless a
successor Owner has been named. The Owner's rights as such terminate when the
Insured dies.
The beneficiary is also named in the application. The beneficiary of the
Contract may be changed at any time before the death of the Insured. The
beneficiary has no rights under the Contract until the death of the Insured and
must survive the Insured in order to receive the Death Benefit Proceeds. If no
named beneficiary survives the Insured, the proceeds will be paid to the Owner.
A change of Owner or beneficiary must be in written form satisfactory to the
Company and must be dated and signed by the Owner making the change. The change
will be subject to all payments made and actions taken by the Company under the
Contract before the signed change form is received by the Company at its
Variable Service Center.
Assignments
The Owner may assign (transfer) the Owner's rights in the Contract to someone
else. An absolute assignment of the Contract is a change of Owner and
beneficiary to the assignee. A collateral assignment of the Contract does not
change the Owner or beneficiary, but their rights will be subject to the terms
of the assignment. The assignments must be in writing, signed by the Owner and
recorded by the Company at its Variable Service Center. The Company is not
responsible for any assignment not submitted for recording, nor is the Company
responsible for the sufficiency or validity of any assignment.
The assignment will be subject to any Indebtedness under a contract before and
after the assignment was recorded.
Reports and Records
The Company will mail to the Owner, at the last known address of record, an
annual statement showing current Account Values, transactions since the last
statement, Contract loan information and any other information required by
federal or state laws or regulations.
The Owner will also be sent annual and semi-annual reports containing the
financial statements of the Separate Account and the Fund or Portfolio.
In addition, Owners will receive statements of significant transactions, such as
changes in the Death Benefit, transfers among Contract Options, premium
payments, Contract loans, increases in Contract loan principal, Contract loan
repayments, unpaid Contract loan interest added to principal, reinstatement and
termination.
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<PAGE>
Voting Rights
In accordance with its view of present applicable law, the Company will vote the
shares of the Portfolios held by the Separate Account Sub-Accounts at regular or
special meetings of the shareholders in accordance with instructions received
from Owners having the voting interest in the affected Portfolio(s). The number
of votes that an Owner has the right to instruct for a particular Sub-Account is
determined by dividing the Account Value in the Sub-Account by the net asset
value per share of the corresponding Portfolio. The Company will vote shares for
which it has not received instructions, as well as shares attributable to it, in
the same proportion as it votes shares for which it has received instructions. A
Fund may not be required to hold routine annual meetings of its shareholders.
The number of shares which an Owner has a right to vote will be determined as of
a date to be chosen by the Company not more than 60 days prior to a shareholder
meeting of a Fund. Each Owner having a voting interest will receive proxy
material, annual reports and any other materials relating to the appropriate
Portfolio.
If required by state insurance authorities, the Company may disregard voting
instructions if they would require that shares be voted to cause a change in the
Portfolios of a Sub-Account; or a change in the investment policy of the
Portfolios; or to approve or disapprove an investment advisory or underwriting
contract for a Portfolio. In addition, the Company may disregard voting
instructions in favor of changes, initiated by an Owner or a Fund's Board of
Trustees, in any investment policy, investment adviser or principal underwriter
of the Portfolio if the Company: (a) reasonably disapproves of the changes and
(b) in the case of a change in investment policy or investment adviser, the
Company makes a good faith determination that the proposed change is contrary to
state law or is prohibited by state regulatory authorities or that the change
would be inconsistent with a Sub-Account's investment objectives or would result
in the purchase of securities which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts of the
Company. If the Company does disregard voting instructions, a summary of that
action and the reasons for it will be included in the next semiannual report to
Owners.
Suspension of Payments and Transfers
The Company reserves the right to suspend or postpone payments for surrenders,
withdrawals and Contract loans or transfers from the Sub-Accounts for any period
when:
o the New York Stock Exchange is closed for trading;
o trading on the New York Stock Exchange is restricted by the SEC;
o an emergency exists as a result of which disposal of securities held in the
applicable Sub-Accounts is not reasonably practicable or it is not
reasonably practicable to determine the value of the applicable
Sub-Account's net assets; or
o during any other period when the SEC, by order, permits such suspension.
The Company also reserves the right to defer payment for a surrender,withdrawal
and Contract loan or transfer from the Fixed Account for the period permitted by
law but not for more than six months after written election is received by the
Company. The Company will pay interest in accordance with state insurance law
requirements on payments that are delayed.
Nonparticipation in Company Dividends
The Contracts are nonparticipating. This means that they do not participate in
any dividend distribution of the Company's surplus.
DISTRIBUTION AND OTHER AGREEMENTS
First Variable Capital Services, Inc. ("FVCS"), 10 Post Office Square, Boston,
MA 02109, acts as distributor of the Contracts. FVCS, a wholly owned subsidiary
of the Company, is registered with the SEC under the Securities Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc. The
Contract is offered on a continuous basis.
29
<PAGE>
The Company and FVCS have agreements with various broker/dealers under which the
Contracts will be sold by registered representatives of broker/dealers. The
registered representatives are required to be authorized under applicable state
regulations to sell variable life insurance contracts. The commissions payable
to a broker/dealer for sales of the Contract pursuant to the sales agreement is
not expected to exceed 8.50% of the first year premium payment. Broker/dealers
may receive expense allowances, wholesaler fees, bonuses and training fees.
Under a Services Agreement between the Company and FVCS, the Company performs
underwriting, issuance and other administrative services for the Contracts.
SAFEKEEPING OF ASSETS
The Company serves as the custodian of the assets of the Variable Account.
MANAGEMENT OF THE COMPANY
The directors and executive officers of the Company and their principal business
experience during the past five years, are:
Name and Address Position with Principal Occupation
the Company During Past 5 Years
Ronald M. Butkiewicz Chairman President and Chief Executive
2211 York Road, Suite 202 and Director Officer, Irish Life of North
Oakbrook, IL 60521 America, Inc.; Chairman and
Chief Executive Officer,
Interstate Assurance Company
Michael J. Corey Director Managing Director, Insurance
401 East Host Drive Practice Group, Ward Howell
Lake Geneva, WI 53147 Intl., Inc.; President, GSG
International Inc.
Norman A. Fair Director Vice President, Treasurer, &
2211 York Road, Suite 202 Asst. Sec., Irish Life of
Oakbrook, IL 60521 North America, Inc.; prior to
1994, Senior Vice President
and Chief Financial Officer,
Interstate Assurance Company
Michael R. Ferrari Director President, Drake University
25th & University Avenue
Des Moines, IA 50311
Stephen Shone Director Chief Financial Officer,
Lower Abbey Street Irish Life plc
Dublin 1, Ireland
T. David Kingston Director Managing Director,
Lower Abbey Street Irish Life plc
Dublin 1, Ireland
Stephan M. Largent President and Prior to April 1995,
10 Post Office Square Director President, ING America
Boston, MA 02109 Equities, Inc.
Jeff S. Liebmann Director Partner, Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Kenneth R. Meyer Director Managing Director, Lincoln
200 South Wacker Drive, Capital Management Co.
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<PAGE>
Suite 2100
Chicago, IL 60606
Thomas K. Neavins Director Vice President and Corporate
2211 York Road, Suite 202 Secretary, Irish Life of
Oakbrook, IL 60521 North America, Inc.
Philip R. O'Connor Director Principal of Coopers & Lybrand
111 West Washington, (non-voting) LLP/Palmer Bellevue Corp.
Suite 1247
Chicago, IL 60602
Anthony J. Koenig, Jr. Vice President Vice President and Treasurer;
10 Post Office Square and Treasurer prior to June, 1996, Assistant
Boston, MA 02109 Controller; prior to 1993,
Audit Manager, Ernst &
Young LLP.
Arnold R. Bergman Vice President- Vice President-Legal &
10 Post Office Square Legal & Administration and Secretary;
Boston, MA 02109 Administration prior to February 1995,
and Secretary Counsel, Aetna Insurance and
Annuity Company.
Martin Sheerin Vice President Vice President and Chief
10 Post Office Square and Chief Actuary; prior to October,
Boston, MA 02109 Actuary 1994, Vice President, Irish
Life of North America, Inc.
Thomas Simpson Vice President Vice President; prior to
10 Post Office Square and Chief February, 1996, Vice
Boston, MA 02109 Marketing Officer President, Hamilton Life Ins.
Co.; prior to November, 1994,
National Sales Manager,
Bankers Nat. Life Ins. Co.
FEDERAL TAX STATUS
General
BECAUSE OF THE COMPLEXITY OF THE LAWS AND BECAUSE TAX RESULTS WILL VARY
ACCORDING TO THE STATUS OF THE OWNER, LEGAL AND TAX ADVICE MAY BE NEEDED BY A
PERSON, EMPLOYER OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A CONTRACT.
It should be understood that any detailed description of the federal income tax
consequences regarding the purchase of these Contracts cannot be made in this
prospectus and that special tax rules may be applicable with respect to
purchases not discussed herein. In addition, no attempt is made to consider any
applicable state or other tax laws. This discussion of federal tax status is
based upon the Company's understanding of current federal income tax laws as
they are currently interpreted.
Taxation of the Company and the Separate Account
Under current federal income tax law, no tax is imposed on the Company as a
result of the operations of the Separate Account and the Fixed Account. Thus, no
charge is currently imposed for Company federal income taxes. The Company
reserves the right to charge the Separate Account or Fixed Account for Company
federal income taxes, if there are changes in federal tax law.
Under current laws the Company may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and, accordingly, the Company is not currently imposing a charge for them. If
they increase, however, a charge for such taxes attributable to the Separate
Account and/or Fixed Account may be imposed.
31
<PAGE>
Life Insurance and Modified Endowment Contract Definitions
Life Insurance. Section 7702 of the Code provides that if certain tests are met,
a Contract will be treated as life insurance for federal tax purposes. The
Company will monitor compliance with these tests. As a result, the Company
believes Owners will not be taxed on increases in Account Value under the
Contracts until they are distributed. Furthermore, the Company believes the
Death Benefits received under the Contracts are excludable from the gross income
of the beneficiary pursuant to the provisions of Section 101(a) of the Code.
Accelerated Benefits Rider. Section 101(g) of the Code provides that amounts
received under a life insurance contract on the life of an insured who is a
terminally ill individual, as defined, may be treated as an amount paid by
reasonable death of the insured. (See "Acceleration of Death Benefit Rider" for
more information regarding the rider.)
Modified Endowment Contract. Section 7702A of the Code contains provisions
affecting the tax treatment of any loan, assignment or other pre-death
distribution from a life insurance contract which is also a "modified endowment
contract". The Company has designed the Contracts to meet the definition of a
modified endowment contract.
A modified endowment contract is a life insurance contract where premiums paid
under the Contract at any time during the first seven contract years exceeds the
sum of the net level premiums that would have been paid on or before such time
if the Contract provided for paid up future benefits after the payment of seven
level annual premiums ("7-pay test"). (The amount of premiums payable under the
7-pay test are calculated based upon certain assumptions regarding the
Contract's earnings and the use of a reasonable mortality charge. Riders to the
Contract are considered part of the Contract for purposes of applying the 7-pay
test.)
Any Contract received in exchange for a modified endowment contract will also be
a modified endowment contract. However, an exchange under Section 1035 of the
Code of a life insurance contract entered into before June 21, 1988 will not
cause the new Contract to be treated as a modified endowment contract if no
additional premiums are paid and there is no increase as a result of the
exchange.
Income Tax Treatment of Contract Benefits
If the Contract falls within the definition of a modified endowment contract,
the following rules will apply to distributions under such Contract:
(a) Distributions will be included in gross income to the extent the Account
Value of the Contract exceeds the investment in the Contract (i.e., will be
treated as income first). Any additional amounts received other than Contract
loans will be treated as a return of capital to the Owner and will reduce the
Owner's investment in the Contract.
(b) Loans are considered distributions. An investment in the Contract will be
increased by the amount of any prior loan that was included in the Owner's gross
income.
(c) A Contract assignment is treated as a distribution. For example, a
collateral assignment is a distribution which will subject any gain that accrues
in the Contract to taxation.
(d) For purposes of determining the amount of the distribution which is included
in gross income, all modified endowment contracts issued by the Company and its
affiliates to the same Owner during any 12-month period must be treated as one
modified endowment contract.
Any taxable distribution will be subject to an additional tax equal to 10% of
the taxable amount of the distribution unless the distribution is:
(a) made on or after the date when the Owner attains age 59 1/2;
(b) is attributable to the Owner becoming disabled; or
32
<PAGE>
(c) is part of a series of substantially equal periodic payments made no less
frequently than annually for the life (or life expectancy) or for the joint
lives (or life expectancies) of the Owner or the beneficiary.
Diversification Requirements
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable life insurance contracts. The Code provides that a
variable life insurance contract will not be treated as a life insurance
contract under Section 7702 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.
Failure to comply with the diversification requirements may result in the
Contract not qualifying as life insurance. If the Contract does not qualify as
life insurance, Owners may be subject to immediate taxation on the increases in
Account Value of their Contracts plus the cost of insurance protection for the
year.
The Company intends that all Portfolios of the Funds underlying the Contracts
will be managed by the Fund or its investment adviser to comply with the
diversification requirements set forth in Section 817(h) of the Code and Treas.
Reg. 1.817-5 promulgated thereunder.
The Treasury Department has indicated that the diversification regulations do
not provide guidance regarding the circumstances in which Owners may direct
their investments to Sub-Accounts of the Separate Account without being
considered the owners of the assets of the Separate Account. 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 situation addressed in published rulings
issued by the Internal Revenue Service ("IRS") 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 the owner of the assets of the Separate
Account. To the extent the Owner is treated as owner of the assets of the
Separate Account attributable to the Owner's Contract, the Owner would be liable
for federal income tax on the earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling by the IRS 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 Owner
being retroactively determined to be the owner 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.
ADVERTISING PRACTICES
The Company may from time to time receive endorsements of the Contracts from
professional organizations. The Company may use such endorsements in
advertisements or sales material for the Contracts. The Company may also pay the
professional organization making the endorsement for the use of its customer or
mailing lists in order to distribute promotional materials regarding the
Contracts. An endorsement of the Contracts by a third party is not necessarily
indicative of the future performance or results which may be obtained by persons
who purchase the Contracts.
From time to time, articles discussing the Separate Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to, Lipper Analytical Services Inc. and Morningstar,
Inc.) may publish their own rankings or performance reviews of variable contract
separate accounts, including the Separate Account. References to, reprints or
portions of reprints of such articles or rankings may be used by the Company as
sales literature or advertising material and may include rankings that indicate
the names of other variable contract separate accounts and their investment
experience.
33
<PAGE>
Articles and releases, developed by the Company, the Funds and other parties,
about the Separate Account or the Funds regarding individual Portfolio, Fund and
Fund Group asset levels and sales volumes, statistics and analyses of industry
sales volume and asset levels, and other characteristics may appear in various
publications. References to or reprints of such articles may be used in
promotional literature for the Contracts or the Separate Account. Such
literature may refer to personnel of the adviser, or personnel of the
sub-advisers, who have investment management responsibility, and their
investment style. The reference may allude to or include excerpts from articles
appearing in the media.
The advertising and sales literature for the Contracts and the Separate Account
may refer to historical, current and prospective economic trends. In addition
sales literature may be published concerning topics of general investor interest
for the benefit of registered representatives and prospective Owners. These
materials may include, but are not limited to, discussions of college planning,
retirement planning, reasons for investing and historical examples of the
investment performance of various classes of securities, securities markets and
indices.
LEGAL MATTERS
State Regulation
The Company is subject to the laws of the State of Arkansas governing insurance
companies and to the regulations of the Arkansas Insurance Department. An annual
statement in a prescribed form is filed with the Insurance Department each year
covering the operation of the Company for the preceding year and its financial
condition as of the end of such year. Regulation by the Insurance Department
includes periodic examination to determine the Company's contract liabilities
and reserves so that the Insurance Department may certify the items are correct.
The Company's books and accounts are subject to review by the Insurance
Department at all times and full examination of its operations is conducted
periodically by the National Association of Insurance Commissioners. Such
regulation does not, however, involve any supervision of management or
investment practices or policies. In addition, the Company is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
Legal Proceedings
There are no material pending legal proceedings to which the Separate Account,
First Variable Capital Services, Inc. or First Variable Life Insurance Company
is a party.
EXPERTS
The audited financial statements of First Variable Life Insurance Company
included in this prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as indicated in their report herein,
and are included herein in reliance on their authority as experts in accounting
and auditing.
Legal matters in connection with the Contracts have been reviewed by the
Company's Legal Department. Mayer, Brown & Platt, of Washington, DC, has
provided advice on certain matters relating to the federal securities and tax
laws.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This prospectus omits
certain information contained in the Registration Statement. Copies of such
additional information may be obtained from the SEC upon payment of the
prescribed fee.
34
<PAGE>
APPENDIX: A
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES,
CASH SURRENDER VALUES AND ACCUMULATED VALUE OF THE PREMIUM
The tables in Appendix A illustrate the way the Contracts operate. They show how
the Death Benefit, Cash Surrender Value and Account Value change over an
extended period of time assuming hypothetical gross rates of return (i.e.
investment income and capital gains, realized or unrealized) for the Separate
Account equal to constant after-tax annual rates of 0%, 6% and 12%. The tables
are based on an initial premium of $30,000 to provide insurance coverage on
females aged 55 and males aged 65. The insureds are assumed to be in the
nonsmoker standard risk classification. Values are first given based on current
mortality rates and other Contract charges and then based on guaranteed
mortality rates and other Contract charges. Death Benefits, Cash Surrender
Values and Account Values for a Contract would be different from the amounts
shown if the actual gross rates of return do not average 0%, 6% or l2%, but are
either above or below that average for the period. They would also be different
depending on the allocation of Account Value among the Separate Account's
Sub-Accounts if the aggregate gross rate of return for all Sub-Accounts averaged
0%, 6% or 12%, but varied above or below that average for individual
Sub-Accounts. They would also be different if any Contract loan were made during
the period of time illustrated, if the Insured were a different age or sex, or
in the smoker standard risk classification, or if the Contracts were issued at a
unisex rate.
The Death Benefits, Cash Surrender Values and Account Values shown in the tables
reflect the fact that the Company makes: (a) a monthly deduction from the
Account Value on the first day of each Contract month for (i) a Maintenance Fee
of $2.50 if the Account Value is less than $100,000, (ii) a Distribution Charge
equivalent to an annual rate of 0.20% of the Account Value for the first ten
Contract Years, (iii) a Premium Tax Charge equivalent to an annual rate of 0.25%
of the Account Value for the first ten Contract Years, (iv) a federal tax charge
at an annual rate of 0.20% of the Account Value for the first ten Contract
Years, and (v) a cost of insurance charge; (b) a daily charge assessed against
the Separate Account for a Mortality and Expense Risk Charge equivalent to an
annual rate of 0.90% of the average daily net assets of the Separate Account;
and (c) a monthly Administrative Charge equivalent to an annual rate of 0.40% of
the average daily net assets of the Separate Account. The Cash Surrender Values
shown in the tables reflect the Account Value upon surrender. (See "Charges and
Expenses.") The Death Benefits, Cash Surrender Values and Account Values shown
in the tables also reflect a simple average of the investment advisory fees and
operating expenses incurred by the Fund or Portfolio, at an annual rate of 1.12%
of the average daily net assets of the Fund or Portfolio. This average reflects
a voluntary cap on the investment advisory fees. If the investment adviser
discontinues these caps, the values illustrated on the following pages could be
less. (See "Fund Expenses.")
Taking account of the charges for mortality and expense risks and administrative
expense in the Separate Account and the average investment advisory fee and
operating expenses of the Fund or Portfolio, the gross annual rates of return of
0%, 6% and 12% correspond to net investment experience at constant annual rates
of (1.12)%, 4.88% and 10.88%, respectively.
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Separate Account since no such charges are currently
made. If any such charges are imposed in the future, the gross annual rate of
return would have to exceed the rates shown by an amount sufficient to cover the
tax charges, in order to produce the Death Benefits, Cash Surrender Values and
Account Values illustrated. (See "Taxation of the Company and the Separate
Account.")
The second column of each table shows the amount which would accumulate if the
initial premium was invested to earn interest, after taxes, of 5% per year,
compounded annually.
35
<PAGE>
$30,000 INITIAL PREMIUM
$96,753 SPECIFIED AMOUNT
FEMALE NONSMOKER: AGE 55
CURRENT RATES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
-------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
of PAID PLUS -------------------------------------------------------------------------------------------------------
Policy INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,941 26,016 96,753 30,714 27,789 96,753 32,487 29,562 96,753
- -------------------------------------------------------------------------------------------------------------------------------
2 33,075 27,919 25,069 96,753 31,446 28,596 96,753 35,184 32,334 96,753
- -------------------------------------------------------------------------------------------------------------------------------
3 34,729 26,931 24,231 96,753 32,196 29,496 96,753 38,106 35,406 96,753
- -------------------------------------------------------------------------------------------------------------------------------
4 36,465 25,978 23,578 96,753 32,965 30,565 96,753 41,274 38,874 96,753
- -------------------------------------------------------------------------------------------------------------------------------
5 38,288 25,057 22,957 96,753 33,753 31,653 96,753 44,708 42,608 96,753
- -------------------------------------------------------------------------------------------------------------------------------
6 40,203 24,167 22,367 96,753 34,560 32,760 96,753 48,430 46,630 96,753
- -------------------------------------------------------------------------------------------------------------------------------
7 42,213 23,309 21,809 96,753 35,388 33,888 96,753 52,465 50,965 96,753
- -------------------------------------------------------------------------------------------------------------------------------
8 44,324 22,479 21,279 96,753 36,236 35,036 96,753 56,838 55,638 96,753
- -------------------------------------------------------------------------------------------------------------------------------
9 46,540 21,679 20,779 96,753 37,105 36,205 96,753 61,579 60,679 96,753
- -------------------------------------------------------------------------------------------------------------------------------
10 48,867 20,905 20,905 96,753 37,995 37,995 96,753 66,718 66,718 96,753
- -------------------------------------------------------------------------------------------------------------------------------
15 62,368 17,862 17,862 96,753 43,878 43,878 96,753 102,190 102,190 118,540
- -------------------------------------------------------------------------------------------------------------------------------
20 79,599 15,242 15,242 96,753 50,696 50,696 96,753 156,797 156,797 167,773
- -------------------------------------------------------------------------------------------------------------------------------
25 101,591 12,985 12,985 96,753 58,598 58,598 96,753 240,586 240,586 252,615
- -------------------------------------------------------------------------------------------------------------------------------
30 129,658 11,042 11,042 96,753 67,758 67,758 96,753 369,149 369,149 387,607
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS, PREVAILING RATES
AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
36
<PAGE>
$30,000 INITIAL PREMIUM
$96,753 SPECIFIED AMOUNT
FEMALE NONSMOKER: AGE 55
GUARANTEED RATES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
-------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
of PAID PLUS -------------------------------------------------------------------------------------------------------
Policy INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,637 25,712 96,753 30,409 27,484 96,753 32,181 29,256 96,753
- -------------------------------------------------------------------------------------------------------------------------------
2 33,075 27,275 24,425 96,753 30,800 27,950 96,753 34,537 31,687 96,753
- -------------------------------------------------------------------------------------------------------------------------------
3 34,729 25,911 23,211 96,753 31,173 28,473 96,753 37,089 34,389 96,753
- -------------------------------------------------------------------------------------------------------------------------------
4 36,465 24,555 22,155 96,753 31,535 29,135 96,753 39,861 37,461 96,753
- -------------------------------------------------------------------------------------------------------------------------------
5 38,288 23,186 21,086 96,753 31,872 29,772 96,753 42,816 40,716 96,753
- -------------------------------------------------------------------------------------------------------------------------------
6 40,203 21,804 20,004 96,753 32,181 30,381 96,753 45,950 44,150 96,753
- -------------------------------------------------------------------------------------------------------------------------------
7 42,213 20,399 18,899 96,753 32,455 30,955 96,753 49,297 47,797 96,753
- -------------------------------------------------------------------------------------------------------------------------------
8 44,324 18,960 17,760 96,753 32,685 31,485 96,753 52,865 51,665 96,753
- -------------------------------------------------------------------------------------------------------------------------------
9 46,540 17,456 16,556 96,753 32,846 31,946 96,753 56,647 55,747 96,753
- -------------------------------------------------------------------------------------------------------------------------------
10 48,867 15,878 15,878 96,753 32,928 32,928 96,753 60,654 60,654 96,753
- -------------------------------------------------------------------------------------------------------------------------------
15 62,368 6,989 6,989 96,753 33,140 33,140 96,753 87,474 87,474 101,470
- -------------------------------------------------------------------------------------------------------------------------------
20 79,599 -- -- 96,753 29,384 29,384 96,753 125,075 125,075 133,831
- -------------------------------------------------------------------------------------------------------------------------------
25 101,591 -- -- 96,753 14,742 14,742 96,753 177,984 177,984 186,883
- -------------------------------------------------------------------------------------------------------------------------------
30 129,658 -- -- 96,753 -- -- 96,753 251,073 251,073 263,627
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS, PREVAILING RATES
AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
37
<PAGE>
$30,000 INITIAL PREMIUM
$58,176 SPECIFIED AMOUNT
MALE NONSMOKER: AGE 65
CURRENT RATES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
-------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
of PAID PLUS -------------------------------------------------------------------------------------------------------
Policy INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,941 26,016 58,176 30,714 27,789 58,176 32,487 29,562 58,176
- -------------------------------------------------------------------------------------------------------------------------------
2 33,075 27,919 25,069 58,176 31,446 28,596 58,176 35,184 32,334 58,176
- -------------------------------------------------------------------------------------------------------------------------------
3 34,729 26,931 24,231 58,176 32,196 29,496 58,176 38,106 35,406 58,176
- -------------------------------------------------------------------------------------------------------------------------------
4 36,465 25,978 23,578 58,176 32,965 30,565 58,176 41,274 38,874 58,176
- -------------------------------------------------------------------------------------------------------------------------------
5 38,288 25,057 22,957 58,176 33,753 31,653 58,176 44,708 42,608 58,176
- -------------------------------------------------------------------------------------------------------------------------------
6 40,203 24,167 22,367 58,176 34,560 32,760 58,176 48,430 46,630 58,176
- -------------------------------------------------------------------------------------------------------------------------------
7 42,213 23,309 21,809 58,176 35,388 33,888 58,176 52,465 50,965 59,285
- -------------------------------------------------------------------------------------------------------------------------------
8 44,324 22,479 21,279 58,176 36,236 35,036 58,176 56,838 55,638 63,091
- -------------------------------------------------------------------------------------------------------------------------------
9 46,540 21,679 20,779 58,176 37,105 36,205 58,176 61,579 60,679 67,121
- -------------------------------------------------------------------------------------------------------------------------------
10 48,867 20,905 20,905 58,176 37,995 37,995 58,176 66,718 66,718 71,388
- -------------------------------------------------------------------------------------------------------------------------------
15 62,368 17,862 17,862 58,176 43,878 43,878 58,176 102,190 102,190 107,299
- -------------------------------------------------------------------------------------------------------------------------------
20 79,599 15,242 15,242 58,176 50,696 50,696 58,176 156,797 156,797 164,637
- -------------------------------------------------------------------------------------------------------------------------------
25 101,591 12,985 12,985 58,176 58,598 58,598 61,528 240,586 240,586 252,615
- -------------------------------------------------------------------------------------------------------------------------------
30 129,658 11,042 11,042 58,176 67,758 67,758 68,435 369,149 369,149 372,841
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS, PREVAILING RATES
AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
38
<PAGE>
$30,000 INITIAL PREMIUM
$58,176 SPECIFIED AMOUNT
MALE NONSMOKER: AGE 65
GUARANTEED RATES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
-------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
of PAID PLUS -------------------------------------------------------------------------------------------------------
Policy INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,102 25,177 58,176 29,823 26,898 58,176 31,545 28,620 58,176
- -------------------------------------------------------------------------------------------------------------------------------
2 33,075 26,227 23,377 58,176 29,541 26,691 58,176 33,052 30,202 58,176
- -------------------------------------------------------------------------------------------------------------------------------
3 34,729 24,383 21,683 58,176 29,151 26,451 58,176 34,502 31,802 58,176
- -------------------------------------------------------------------------------------------------------------------------------
4 36,465 22,565 20,165 58,176 28,647 26,247 58,176 35,868 33,468 58,176
- -------------------------------------------------------------------------------------------------------------------------------
5 38,288 20,664 18,564 58,176 28,019 25,919 58,176 37,115 35,015 58,176
- -------------------------------------------------------------------------------------------------------------------------------
6 40,203 18,625 16,825 58,176 27,261 25,461 58,176 38,206 36,406 58,176
- -------------------------------------------------------------------------------------------------------------------------------
7 42,213 16,415 14,915 58,176 26,441 24,941 58,176 39,209 37,709 58,176
- -------------------------------------------------------------------------------------------------------------------------------
8 44,324 13,988 12,788 58,176 25,558 24,358 58,176 40,103 38,903 58,176
- -------------------------------------------------------------------------------------------------------------------------------
9 46,540 11,291 10,391 58,176 24,583 23,683 58,176 40,875 39,975 58,176
- -------------------------------------------------------------------------------------------------------------------------------
10 48,867 8,263 8,263 58,176 23,326 23,326 58,176 41,516 41,516 58,176
- -------------------------------------------------------------------------------------------------------------------------------
15 62,368 -- -- 58,176 11,212 11,212 58,176 44,372 44,372 58,176
- -------------------------------------------------------------------------------------------------------------------------------
20 79,599 -- -- 58,176 -- -- 58,176 45,935 45,935 58,176
- -------------------------------------------------------------------------------------------------------------------------------
25 101,591 -- -- 58,176 -- -- 58,176 49,217 49,217 58,176
- -------------------------------------------------------------------------------------------------------------------------------
30 129,658 -- -- 58,176 -- -- 58,176 54,850 54,850 58,176
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS, PREVAILING RATES
AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
39
<PAGE>
APPENDIX B:
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
First Variable Life Insurance Company
We have audited the accompanying consolidated balance sheets of First Variable
Life Insurance Company (the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholder's equity, and
cash flows for the years then ended and for the period September 22, 1994 (date
operations acquired) through December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Variable Life Insurance Company at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended and for the period September 22, 1994 (date operations acquired) through
December 31, 1994, in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
February 7, 1997
40
<PAGE>
First Variable Life Insurance Company
Consolidated Balance Sheets
December 31
1996 1995
---------------------------
Assets
Investments:
Fixed maturities--available-for-sale,
at market (amortized cost: 1996--
$278,305,000; 1995--$290,943,000) $294,195,000 $319,589,000
Equity securities, at market value
(cost: $684,000 in 1996 and 1995)
691,000 322,000
Other invested assets 94,000 --
---------------------------
Total investments 294,980,000 319,911,000
Cash and cash equivalents 2,433,000 5,585,000
Accrued investment income 5,636,000 5,943,000
Deferred policy acquisition costs 5,486,000 3,046,000
Value of insurance in force acquired 19,494,000 16,733,000
Property and equipment, less allowances
for depreciation of $508,000 in 1996
and $228,000 in 1995
649,000 739,000
Goodwill, less accumulated amortization
of $329,000 in 1996 and $183,000 in
1995 2,594,000 2,740,000
Other assets 2,273,000 151,000
Assets held in separate accounts 176,306,000 132,176,000
---------------------------
Total assets $509,851,000 $487,024,000
===========================
Liabilities and stockholder's equity
Liabilities:
Future policy benefits for annuity products $239,509,000 $255,694,000
Unearned revenue reserve 52,000 --
Supplementary contracts without life
contingencies 21,008,000 19,543,000
Deferred income tax liability 5,642,000 7,826,000
Other liabilities 938,000 1,128,000
Liabilities related to separate accounts 176,306,000 132,176,000
---------------------------
Total liabilities 443,455,000 416,367,000
Commitments and contingencies
Stockholder's equity:
Capital stock, par value $1.00 per share--
authorized 3,500,000 shares, issued
and outstanding 2,500,000 shares
2,500,000 2,500,000
Additional paid-in capital 53,104,000 53,104,000
Net unrealized investment gains 7,324,000 13,189,000
Retained earnings 3,468,000 1,864,000
Total stockholder's equity 66,396,000 70,657,000
---------------------------
Total liabilities and stockholder's equity $509,851,000 $487,024,000
===========================
See accompanying notes.
41
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Income
Period from
September 22,
1994 (date
operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------
Revenues:
Annuity product charges $ 2,408,000 $ 1,786,000 $ 344,000
Net investment income 23,458,000 23,465,000 5,318,000
Realized gains on investments 972,000 900,000 541,000
Other income 1,114,000 829,000 178,000
---------------------------------------------
Total revenues 27,952,000 26,980,000 6,381,000
Benefits and expenses:
Annuity benefits 16,336,000 16,694,000 4,038,000
Underwriting, acquisition
and insurance expenses 7,275,000 6,600,000 1,281,000
Management fee paid to parent 480,000 480,000 120,000
Other expenses 1,421,000 1,269,000 214,000
---------------------------------------------
Total benefits and expenses 25,512,000 25,043,000 5,653,000
---------------------------------------------
Income before income taxes 2,440,000 1,937,000 728,000
Income taxes 836,000 666,000 135,000
---------------------------------------------
Net income $ 1,604,000 $ 1,271,000 $ 593,000
=============================================
See accompanying notes.
42
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Net
Unrealized
Additional Investment Total
Capital Paid-in Gains Retained Stockholder's
Stock Capital (Losses) Earnings Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial capitalization on
September 22, 1994 $ 1,500,000 $ 49,104,000 $ 50,604,000
Issuance of 1,000,000 shares of
capital stock pursuant to
stock dividend
1,000,000 (1,000,000) --
Net income for 1994 -- -- $ 593,000 593,000
Change in net unrealized
investment gains/losses -- -- $ (3,308,000) -- (3,308,000)
Balance at December 31, 1994 2,500,000 48,104,000 (3,308,000) 593,000 47,889,000
Contribution from parent -- 5,000,000 -- -- 5,000,000
Net income for 1995 -- -- -- 1,271,000 1,271,000
Change in net unrealized
investment gains/losses -- -- 16,497,000 -- 16,497,000
----------------------------------------------------------------------------------------
Balance at December 31, 1995 2,500,000 53,104,000 13,189,000 1,864,000 70,657,000
Net income for 1996 -- -- -- 1,604,000 1,604,000
Change in net unrealized
investment gains/losses -- -- (5,865,000) -- (5,865,000)
----------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 2,500,000 $ 53,104,000 $ 7,324,000 $ 3,468,000 $ 66,396,000
========================================================================================
</TABLE>
See accompanying notes.
43
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
Period from
September 22,
1994 (date
operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------
Operating activities
Net income $ 1,604,000 $ 1,271,000 $ 593,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Adjustments related to
interest-sensitive
products:
Annuity benefits 16,336,000 16,694,000 4,038,000
Annuity product charges (2,408,000) (1,786,000) (344,000)
Realized gains on investments (972,000) (900,000) (541,000)
Policy acquisition costs
deferred (2,800,000) (3,693,000) (693,000)
Amortization of deferred
policy acquisition costs 360,000 132,000 8,000
Provision for depreciation
and other amortization 524,000 481,000 243,000
Provision for deferred
income taxes 836,000 666,000 135,000
Other (1,949,000) (6,765,000) 1,724,000
---------------------------------------------
Net cash provided by operating
activities 11,531,000 6,100,000 5,163,000
Investing activities
Sale, maturity or repayment
of investments:
Fixed maturities--
available-for-sale 21,770,000 19,378,000 5,554,000
Equity securities -- 1,807,000 --
---------------------------------------------
21,770,000 21,185,000 5,554,000
Acquisition of investments:
Fixed maturities--available-
for-sale (7,517,000) (74,567,000) (29,543,000)
Equity securities -- (1,500,000) --
Other (94,000) -- --
---------------------------------------------
(7,611,000) (76,067,000) (29,543,000)
Other (193,000) (252,000) (81,000)
---------------------------------------------
Net cash provided (used) by
investing activities 13,966,000 (55,134,000) (24,070,000)
44
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows (continued)
Period from
September 22,
1994 (date
operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------
Financing activities
Receipts from interest-
sensitive products
credited to policyholder
account balances $ 58,175,000 $ 67,063,000 $ 14,153,000
Return of policyholder account
balances on interest-
sensitive products (86,824,000) (72,196,000) (16,285,000)
Contribution from parent -- 5,000,000 75,791,000
---------------------------------------------
Net cash provided (used) by
financing activities (28,649,000) (133,000) 73,659,000
---------------------------------------------
Net increase (decrease) in
cash and cash equivalents (3,152,000) (49,167,000) 54,752,000
Cash and cash equivalents at
beginning of period 5,585,000 54,752,000 --
---------------------------------------------
Cash and cash equivalents at
end of period $ 2,433,000 $ 5,585,000 $ 54,752,000
=============================================
See accompanying notes.
45
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1996
1. Significant Accounting Policies
Organization and Nature of Business
First Variable Life Insurance Company (the Company), a life insurance company
domiciled in the State of Arkansas, is a wholly-owned subsidiary of Irish Life
of North America, Inc. (ILoNA), which is owned by Irish Life, plc (Irish Life)
of Dublin, Ireland. The Company is licensed in 49 states and sells variable and
fixed annuity products through regional wholesalers and insurance brokers.
On September 22, 1994, ILoNA purchased the Company for $49,514,000 plus expenses
of $1,090,000. The financial statements presented herein represent operations
since the date of purchase.
Consolidation
The consolidated financial statements include the Company and its wholly-owned
subsidiaries, First Variable Advisory Services Corp. and First Variable Capital
Services, Inc. All significant intercompany transactions have been eliminated.
Investments
Fixed Maturities and Equity Securities
Fixed-maturity securities (bonds) may be categorized as "available-for-sale,"
"held for investment" or "trading." Fixed-maturity securities which may be sold
are designated as "available-for-sale." Available-for-sale securities are
reported at market value, and unrealized gains and losses on these securities
are included directly in stockholder's equity, net of certain adjustments (see
Note 3). Fixed-maturity securities that the Company has the positive intent and
ability to hold to maturity are designated as "held-for-investment."
Held-for-investment securities are reported at cost adjusted for amortization of
premiums and discounts. Changes in the market value of these securities, except
for declines that are other than temporary, are not reflected in the Company's
financial statements. Securities that are bought and held principally for the
purpose of selling them in the near term are designated as "trading securities."
Unrealized gains and losses on trading securities are included in current
earnings. At December 31, 1996 and 1995, all of the Company's fixed-maturity
securities are designated as available-for-sale, although the Company is not
precluded from designating fixed-maturity securities as held-for-investment or
trading at some future date.
46
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Premiums and discounts on investments are amortized/accrued using methods which
result in a constant yield over the securities' expected lives.
Amortization/accrual of premiums and discounts on mortgage and asset-backed
securities incorporates a prepayment assumption to estimate the securities'
expected lives.
Equity securities (common stocks) are reported at market. The change in
unrealized appreciation and depreciation of marketable equity securities (net of
related deferred income taxes, if any) is included directly in stockholder's
equity.
Realized Gains and Losses on Investments
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows) and a specific writedown is taken. Such
reductions in carrying value are recognized as realized losses and charged to
income. Realized gains and losses on sales are determined on the basis of
specific identification of investments. If the Company expects that an issuer of
a security will modify its payment pattern from contractual terms but no
writedown is required, future investment income is recognized at the rate
implicit in the calculation of net realizable value under the expected payment
pattern.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Deferred Policy Acquisition Costs and Value of Insurance in Force Acquired
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired is an asset that arose at the date the
Company was acquired by ILoNA. The initial value was determined by an actuarial
study using expected future gross profits as a measurement of the net present
value of the insurance acquired. Interest accrues on the current unamortized
balance at 7%.
47
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
These costs are being amortized generally in proportion to expected gross
profits from surrender charges and investment, mortality and expense margins.
That amortization is adjusted retrospectively when estimates of current or
future gross profits (including the impact of investment gains and losses) to be
realized from a group of products are revised.
Property and Equipment
Property and equipment are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily using the straight-line method over
the estimated useful lives of the assets.
Goodwill
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is being amortized on a straight-line basis over a
period of twenty years.
The carrying value of goodwill is regularly reviewed for indicators of
impairment in value which, in the view of management, are other than temporary.
If facts and circumstances suggest that goodwill is impaired, the Company
assesses the fair value of the underlying business and reduces goodwill to an
amount that results in the book value of the underlying business approximating
fair value. The Company has not recorded any such writedowns during the periods
ended December 31, 1996, 1995 or 1994.
Future Policy Benefits
Future policy benefit reserves for annuity products are computed under a
retrospective deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims that are charged to
expense include benefit claims incurred in the period in excess of related
policy account balances. Interest crediting rates for annuity products ranged
from 4.5% to 6.5% in 1996, 4.5% to 6.8% in 1995 and 5.0% to 7.0% in 1994.
Deferred Income Taxes
Deferred income tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the asset or liability from period to period.
48
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Separate Accounts
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the investment
risk. The separate account assets and liabilities are carried at fair value.
Revenues and expenses related to the separate account assets and liabilities, to
the extent of benefits paid or provided to the separate account policyholders,
are excluded from the amounts reported in the accompanying consolidated
statements of income.
Recognition of Premium Revenues and Costs
Revenues for annuity products consist of policy charges for the cost of
insurance, administration charges and surrender charges assessed against
policyholder account balances during the period. Expenses related to these
products include interest credited to policyholder account balances and benefit
claims incurred in excess of policyholder account balances.
Approximately 22%, 49% and 0% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1996, 1995 and 1994,
respectively, were written through one wholesaler. The Company's management
believes that other broker/dealers could generate the same level of sales on
comparable terms. Direct premiums are not concentrated in any geographical area.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Significant estimates and assumptions are utilized in the calculation of
deferred policy acquisition costs, policyholder liabilities and accruals,
postretirement benefits, guaranty fund assessment accruals and valuation
allowances on investments. It is reasonably possible that actual experience
could differ from the estimates and assumptions utilized which could have a
material impact on the consolidated financial statements.
49
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
consolidated balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 also excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements and allows companies to forego the
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented herein are limited by
each of these factors and do not purport to represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Fixed-Maturity Securities: Fair values for fixed-maturity securities have
been determined by the Company's outside investment manager and are based
on quoted market prices, when available, or price matrices for securities
which are not actively traded, developed using yield data and other factors
relating to instruments or securities with similar characteristics.
Equity Securities: The fair values for equity securities are based on
quoted market prices.
Other Invested Assets and Cash and Cash Equivalents: The carrying amounts
reported in the consolidated balance sheets for these instruments
approximate their fair values.
Assets and Liabilities of Separate Accounts: Separate account assets and
liabilities are reported at estimated fair value in the Company's
consolidated balance sheets.
50
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
Future Policy Benefits and Supplementary Contracts Without Life
Contingencies: Fair values of the Company's liabilities under contracts not
involving significant mortality or morbidity risks (principally deferred
annuities) are stated at the cost the Company would incur to extinguish the
liability; i.e., the cash surrender value.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of SFAS No. 107 at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
Carrying Carrying
Value Fair Value Value Fair Value
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Assets
Fixed maturities-- available-
for-sale $294,195,000 $294,195,000 $319,589,000 $319,589,000
Equity securities 691,000 691,000 322,000 322,000
Other invested assets 94,000 94,000 -- --
Cash and cash equivalents 2,433,000 2,433,000 5,585,000 5,585,000
Assets held in separate
accounts 176,306,000 176,306,000 132,176,000 132,176,000
Liabilities
Future policy benefits for
annuity products 239,509,000 239,562,000 255,694,000 251,669,000
Supplementary contracts
without life contingencies
21,008,000 21,008,000 19,543,000 19,543,000
Liabilities related to separate
accounts 176,306,000 176,306,000 132,176,000 132,176,000
</TABLE>
51
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations
Fixed Maturities and Equity Securities
The following tables contain amortized cost and market value information on
fixed maturities (bonds) and equity securities (common stocks) at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
Fixed maturities--available-for-
sale:
United States Government
and agencies:
Mortgage and asset-
backed securities $ 25,641,000 $ 1,315,000 $ (105,000) $ 26,851,000
Other 22,483,000 1,109,000 (20,000) 23,572,000
State, municipal and other
governments 3,994,000 270,000 -- 4,264,000
Public utilities 81,053,000 6,224,000 (44,000) 87,233,000
Industrial and
miscellaneous 145,134,000 7,406,000 (265,000) 152,275,000
-------------------------------------------------------------------
Total fixed maturities--
available-for-sale $278,305,000 $ 16,324,000 $ (434,000) $294,195,000
===================================================================
Equity securities $ 684,000 $ 7,000 $ -- $ 691,000
===================================================================
December 31, 1995
Fixed maturities--available-for-
sale:
United States Government
and agencies:
Mortgage and asset-
backed securities $ 27,766,000 $ 2,465,000 $ (333,000) $ 29,898,000
Other 33,823,000 2,937,000 (63,000) 36,697,000
State, municipal and other
governments -- -- -- --
Public utilities 89,454,000 11,691,000 (698,000) 100,447,000
Industrial and
miscellaneous 139,900,000 12,700,000 (53,000) 152,547,000
-------------------------------------------------------------------
Total fixed maturities--
available-for-sale $290,943,000 $ 29,793,000 $ (1,147,000) $319,589,000
===================================================================
Equity securities $ 684,000 $ -- $ (362,000) $ 322,000
===================================================================
</TABLE>
52
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
The amortized cost and estimated market value of the Company's portfolio of
fixed-maturity securities at December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Estimated
Amortized Market
Cost Value
-------------------------------
Due in one year or less $ 1,011,000 $ 1,019,000
Due after one year through five years 65,683,000 67,758,000
Due after five years through ten years 102,261,000 107,206,000
Due after ten years 83,709,000 91,361,000
Mortgage and asset-backed securities 25,641,000 26,851,000
-------------------------------
$278,305,000 $294,195,000
===============================
The unrealized appreciation or depreciation on fixed-maturity and equity
securities available-for-sale is reported as a separate component of
stockholder's equity, reduced by adjustments to deferred policy acquisition
costs and value of insurance in force acquired that would have been required as
a charge or credit to income had such amounts been realized and a provision for
deferred income taxes. Net unrealized investment gains (losses) as reported were
comprised of the following:
December 31
1996 1995
--------------------------------
Unrealized appreciation on fixed-
maturity and equity securities
available-for-sale $ 15,897,000 $ 28,284,000
Adjustments for assumed changes
in amortization pattern of:
Deferred policy acquisition costs (1,200,000) (1,200,000)
Value of insurance in force acquired (3,600,000) (7,100,000)
Provision for deferred income
taxes (benefit) (3,773,000) (6,795,000)
--------------------------------
Net unrealized investment gains $ 7,324,000 $ 13,189,000
================================
53
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
Net Investment Income
Components of net investment income are as follows:
Period from
September 22,
1994 (date
operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------
Income from:
Fixed maturities--
available-for-sale
$ 23,364,000 $ 22,635,000 $ 4,713,000
Cash and cash equivalents 288,000 1,051,000 667,000
---------------------------------------------
23,652,000 23,686,000 5,380,000
Less investment expenses (194,000) (221,000) (62,000)
---------------------------------------------
Net investment income $ 23,458,000 $ 23,465,000 $ 5,318,000
=============================================
Realized and Unrealized Gains and Losses
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments are summarized below:
Period from
September 22,
1994 (date
operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------
Realized
Fixed maturities--
available-for-sale
$ 972,000 $ 593,000 $ 541,000
Equity securities -- 307,000 --
---------------------------------------------
Realized gains on investments $ 972,000 $ 900,000 $ 541,000
=============================================
Unrealized
Fixed maturities--
available-for-sale
$(12,756,000) $ 33,437,000 $ (4,791,000)
Equity securities 369,000 (133,000) (229,000)
---------------------------------------------
Change in unrealized
appreciation/depreciation
of investments
$(12,387,000) $ 33,304,000 $ (5,020,000)
=============================================
54
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio (all classified as available-for-sale) for the periods
ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Realized Realized
Cost Gains Losses Proceeds
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Scheduled principal repayments
and calls $ 13,416,000 $ 329,000 $ (8,000) $ 13,737,000
Sales 7,382,000 715,000 (64,000) 8,033,000
-------------------------------------------------------------------
Total $ 20,798,000 $ 1,044,000 $ (72,000) $ 21,770,000
===================================================================
Year ended December 31, 1995
Scheduled principal repayments
and calls $ 6,448,000 $ 117,000 $ (38,000) $ 6,527,000
Sales 12,337,000 635,000 (121,000) 12,851,000
-------------------------------------------------------------------
Total $ 18,785,000 $ 752,000 $ (159,000) $ 19,378,000
===================================================================
Period from September 22, 1994
(date operations acquired)
through December 31, 1994
Scheduled principal repayments
and calls $ 5,013,000 $ 541,000 -- $ 5,554,000
Sales -- -- -- --
-------------------------------------------------------------------
Total $ 5,013,000 $ 541,000 -- $ 5,554,000
===================================================================
</TABLE>
Income taxes during the periods ended December 31, 1996, 1995 and 1994 include a
provision of $331,000, $306,000 and $184,000, respectively, for the tax effect
of realized gains.
55
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
Other
At December 31, 1996, fixed maturities with a carrying value of $8,500,000 were
held on deposit with state agencies to meet regulatory requirements.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded 10% of stockholder's equity
at December 31, 1996.
Concentrations of Credit Risk
The Company's investment in public utility bonds at December 31, 1996 represents
30% of total investments and 17% of total assets. The holdings of public utility
bonds are widely diversified and all issues met the Company's investment
policies and credit standards when purchased.
4. Value of Insurance in Force Acquired
The value of insurance in force acquired is an asset that represents the present
value of future profits on business acquired. An analysis of the value of
insurance in force acquired for the periods ended December 31, 1996 and 1995 is
as follows:
Year ended December 31
1996 1995
--------------------------------
Excluding impact on net unrealized
investment gains and losses:
Balance at beginning of period $ 23,833,000 $ 24,476,000
Accretion of interest during
the period 1,642,000 1,691,000
Amortization of asset (2,381,000) (2,334,000)
--------------------------------
Balance prior to impact of net
unrealized investment gains
and losses 23,094,000 23,833,000
Offset against net unrealized
investment gains and losses (3,600,000) (7,100,000)
--------------------------------
Balance at end of period $ 19,494,000 $ 16,733,000
================================
56
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Value of Insurance in Force Acquired (continued)
Amortization of the value of insurance in force acquired for the next five years
ending December 31 is expected to be as follows: 1997--$1,008,000;
1998--$1,113,000; 1999--$1,280,000; 2000--$1,430,000 and 2001--$1,384,000.
5. Federal Income Taxes
The Company and its subsidiaries each file separate federal income tax returns.
Deferred income taxes have been established by the Company and its subsidiaries
based upon the temporary differences, the reversal of which will result in
taxable or deductible amounts in future years when the related asset or
liability is recovered or settled, within each entity.
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
Period from
September 22,
1994 (date
operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
-------------------------------------------
Taxes provided in consolidated
statements of income on
income before income
taxes-deferred $ 836,000 $ 666,000 $ 135,000
-------------------------------------------
836,000 666,000 135,000
Taxes provided in consolidated
statements of changes in
stockholder's equity:
Amounts attributable to
change in net unrealized
investment gains/losses
during year--deferred (3,022,000) 8,499,000 (1,704,000)
-------------------------------------------
$(2,186,000) $ 9,165,000 $(1,569,000)
===========================================
57
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Federal Income Taxes (continued)
The effective tax rate on income before income taxes is different from the
prevailing federal income tax rate as follows:
Period from
September 22,
1994 (date
operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------
Income before income taxes $ 2,440,000 $ 1,937,000 $ 728,000
=========== =========== ===========
Income tax at federal
statutory rate (34%)
$ 830,000 $ 659,000 $ 248,000
Tax effect (decrease) of:
Business meals and
entertainment 6,000 5,000 1,000
Other -- 2,000 (114,000)
----------- ----------- -----------
Income tax expense $ 836,000 $ 666,000 $ 135,000
=========== =========== ===========
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1996 and 1995 is as follows:
December 31
1996 1995
-------------------------------
Deferred tax assets:
Future policy benefits $ 1,524,000 $ 1,859,000
Operating loss carryforwards 2,245,000 1,540,000
Other 20,000 --
-------------------------------
3,789,000 3,399,000
Deferred tax liabilities:
Fixed-maturity and equity securities (4,702,000) (7,355,000)
Deferred policy acquisition costs (1,908,000) (1,248,000)
Value of insurance in force acquired (2,453,000) (2,280,000)
Other (368,000) (342,000)
-------------------------------
(9,431,000) (11,225,000)
-------------------------------
Deferred income tax liability $ (5,642,000) $ (7,826,000)
===============================
58
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Federal Income Taxes (continued)
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $6,603,000 at December 31, 1996 which expire from
2009 to 2011.
6. Retirement and Compensation Plans
Substantially all full-time employees of the Company are covered by a
noncontributory defined benefit pension plan sponsored by ILoNA. The benefits
are based on years of service and the employee's compensation. In addition,
effective January 1, 1996, ILoNA adopted a nonqualified supplemental plan to
provide benefits in excess of limitations established by the Internal Revenue
Code. The Company records its required contributions as pension expense related
to these plans. There were no material contributions to the plan during the
periods ended December 31, 1996, 1995 or 1994.
Employees of the Company also are eligible to participate in a contributory
defined contribution plan sponsored by ILoNA which is qualified under section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
employees of the Company. Employees can contribute up to 15% of their annual
salary (with a maximum contribution of $9,500 in 1996) to the plan. The Company
contributes an additional amount, subject to limitations, based on the voluntary
contribution of the employee. Further, the plan provides for additional employer
contributions based on the discretion of the Board of Directors of ILoNA.
Pension expense related to this plan was $27,000, $24,000 and $2,000 for the
periods ended December 31, 1996, 1995 and 1994, respectively.
The Company also has certain other benefit and incentive plans. These plans are
considered immaterial to the consolidated financial statements.
7. Stockholder's Equity
Common Stock Dividend
On December 14, 1994, the Company's Board of Directors authorized a 2/3-for-1
common stock dividend to increase the Company's capital stock to meet the
minimum statutory capital requirement as mandated by certain states in which the
Company does business. The additional $1,000,000 was transferred to capital
stock from additional paid-in capital.
59
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Stockholder's Equity (continued)
Statutory Limitations on Dividends
The ability of the Company to pay dividends to ILoNA is restricted because prior
approval of insurance regulatory authorities is normally required for payment of
dividends to the stockholder which exceed an annual limitation. During 1997,
this annual limitation aggregates $3,300,000; however, pursuant to a directive
received from the Arkansas Insurance Department in 1991, any proposed payment of
a dividend currently requires its approval. Also, the amount ($33,300,000 at
December 31, 1996) by which stockholder's equity stated in conformity with
generally accepted accounting principles exceeds statutory capital and surplus
as reported is restricted and cannot be distributed.
Statutory Accounting Policies
The financial statements of the Company included herein differ from related
statutory-basis financial statements principally as follows: (a) the bond
portfolio is designated as available-for-sale and carried at fair value rather
than generally being carried at amortized cost; (b) acquisition costs of
acquiring new business are deferred and amortized over the life of the policies
rather than charged to operations as incurred; (c) future policy benefit
reserves on certain annuity products are based on full account values, rather
than discounting methodologies utilizing statutory interest rates; (d) deferred
income taxes are provided for the differences between the financial statement
and income tax bases of assets and liabilities; (e) net realized gains or losses
attributed to changes in the level of interest rates in the market are
recognized as gains or losses in the consolidated statements of income when the
sale is completed rather than deferred and amortized over the remaining life of
the fixed maturity security; (f) declines in the estimated realizable value of
investments are charged to the consolidated statements of income for declines in
value, when such declines in value are judged to be other than temporary rather
than through the establishment of a formula-determined statutory investment
reserve (carried as a liability), changes in which are charged directly to
surplus; (g) agents' balances and certain other assets designated as
"nonadmitted assets" for statutory purposes are reported as assets rather than
being charged to surplus; (h) revenues for annuity products consist of policy
charges for the cost of insurance, policy administration charges and surrender
charges
60
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Stockholder's Equity (continued)
assessed rather than premiums received;(i) pension expense is recognized in
accordance with SFAS No. 87, Employers' Accounting for Pensions, rather than in
accordance with rules and regulations permitted by the Employee Retirement
Income Security Act of 1974; (j) the financial statements of subsidiaries are
consolidated with those of the Company and (k) assets and liabilities are
restated to fair values when a change in ownership occurs that is accounted for
as a purchase, with provisions for goodwill and other intangible assets, rather
than continuing to be presented at historical cost.
Net loss for the Company, as determined in accordance with statutory accounting
practices, was $1,507,000, $1,460,000 and $574,000 for the years ended December
31, 1996, 1995 and 1994, respectively. Total statutory capital and surplus was
$33,096,000 at December 31, 1996 and $34,637,000 at December 31, 1995.
The National Association of Insurance Commissioners currently is in the process
of codifying statutory accounting practices, the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices. That
project, which is expected to be completed in 1997, will likely change, to some
extent, statutory accounting practices. The codification may result in changes
to the permitted or prescribed accounting practices that the Company uses to
prepare its statutory-basis financial statements.
8. Commitments and Contingencies
The Company leases its home office space and certain other equipment under
operating leases which expire through 2001. During the periods ended December
31, 1996, 1995 and 1994, rent expense totaled $206,000, $419,000 and $81,000,
respectively. At December 31, 1996, minimum rental payments due under all
noncancelable operating leases with initial terms of one year or more are:
Year ending December 31:
1997 $ 230,000
1998 230,000
1999 238,000
2000 241,000
2001 61,000
-----------
$1,000,000
===========
61
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Commitments and Contingencies (continued)
The Company is involved in litigation where amounts are alleged that are
substantially in excess of contractual policy benefits or certain other
agreements. Management and its legal counsel do not believe any of these claims
will result in a material loss to the Company.
Assessments are, from time to time, levied on the Company by life and health
guaranty associations in most states in which the Company is licensed to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. Assessments have not been material to the Company's financial
statements in the past. However, the economy and other factors have caused a
number of failures of substantially larger companies since that time. At
December 31, 1996 and 1995, the Company has accrued $180,000 and $140,000,
respectively, for guaranty fund assessments based on its historical experience
and information available from those making guaranty fund assessments.
62
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
UNDERTAKING REGARDING INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933 ("Act") may be permitted to directors and officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
UNDERTAKING PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
In accordance with section 26(e) of the Investment Company Act of 1940, First
Variable Life Insurance Company represents that the fees and charges deducted
under the Contracts described in this Registration Statement on Form S-6, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by First Variable Life Insurance
Company.
63
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference Sheet.
The prospectus consisting of ____________ pages.
The undertaking to file reports.
The undertaking regarding indemnification.
The undertaking pursuant to Section 26(e) of the Investment Company
Act of 1940.
The signatures.
Written consents of the following persons:
Arnold R. Bergman (See Exhibit 3(a))
Mayer, Brown & Platt (See Exhibit 3(b))
Martin Sheerin (See Exhibits 6)
Ernst & Young LLP (See Exhibit 7)
The following exhibits:
1.A. (1) Resolution of the Board of Directors of the Company authorizing the
establishment of the Separate Account.*
(2) Not Applicable.
(3) (a) Underwriting Agreement.#
(b) Broker-Dealer Agreement.#
(c) Form of Sales Agreement.**
(4) Not Applicable.
(5) (c) Specimen Variable Life Insurance Contract.*
(d) Specimen Accelerated Death Benefit Endorsement.
(6) (a) Articles of Incorporation of First Variable Life Insurance
Company.***
(b) By-Laws of First Variable Life Insurance Company.#
(7) Not Applicable.
(8) Form of Participation Agreement.**
(9) Not Applicable.
(10) Specimen Single Premium Variable Life Insurance Application.*
64
<PAGE>
2. Included as exhibit I.A(5) above.
3. (a) Opinion and consent of Arnold R. Bergman, Vice President - Legal of
First Variable Life Insurance Company as to securities being
registered.
(b) Consent of Mayer, Brown & Platt.
4. Not Applicable.
5. Not Applicable.
6. Opinion and Consent of Actuary.
7. Consent of Ernst & Young LLP, Independent Auditors.
8. Not Applicable.
9. Not Applicable.
10. Powers of Attorney.
- -----------------
* Incorporated herein by reference to the Form S-6 Registration Statement of
First Variable Life Insurance Company and Separate Account VL, filed
electronically with the Securities and Exchange Commission on June 3, 1996
(File No. 333-05053).
** Incorporated herein by reference to Post-Effective Amendment No. 22 to the
Form N-4 Registration Statement of First Variable Life Insurance Company
and First Variable Annuity Fund E, filed electronically with the Securities
and Exchange Commission on September 18, 1996 (File No. 333-12197).
*** Incorporated herein by reference to Post-Effective Amendment No. 21 to the
Form N-4 Registration Statement of First Variable Life Insurance Company
and First Variable Annuity Fund E, filed electronically with the Securities
and Exchange Commission on April 29, 1996 (File No. 333-86738).
# Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement of First Variable Life Insurance Company
and Separate Account VL, filed electronically with the Securities and
Exchange Commission on November 15, 1996 (File No. 333-05053).
65
<PAGE>
Exhibit Index
Exhibit Sequentially
Number Description Numbered Page#
3.(a) Opinion and Consent of Arnold R. Bergman,
Vice President-Legal of First Variable
Life Insurance Company
5.(b) Accelerated Death Benefit Endorsement
3.(b) Consent of Mayer, Brown & Platt
6. Opinion and Consent of Actuary
7. Consent of Ernst & Young LLP, Independent Auditors
10. Powers of Attorney
# Appears in manually signed original only
66
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the First Variable
Life Insurance Company has duly caused this Post-Effective Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, on the 28th day of April, 1997.
First Variable Life Insurance Company
By: /s/ Stephan M. Largent
----------------------
Stephan M. Largent
President
ATTEST:
/s/ Arnold R. Bergman
- ---------------------
Arnold R. Bergman
Secretary
67
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Separate Account VL of First Variable Life Insurance Company, certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, on the 28th
day of April, 1997.
Separate Account VL of First Variable
Life Insurance Company
(Registrant)
By: First Variable Life Insurance Company
(Depositor)
By: /s/ Stephan M. Largent
----------------------
Stephan M. Largent
President
ATTEST:
/s/ Arnold R. Bergman
- ---------------------
Arnold R. Bergman
Secretary
68
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities with First Variable Life Insurance Company,
on the date indicated.
Date
PRINCIPAL EXECUTIVE OFFICER
s/ Stephan M. Largent April 28, 1997
- ---------------------- --------------
Stephan M. Largent
President
PRINCIPAL FINANCIAL OFFICER
s/ Anthony J. Koenig, Jr. April 28, 1997
- -------------------------
Anthony J. Koenig, Jr.
Vice President and Treasurer
DIRECTORS
s/ Ronald M. Butkiewicz* April 28, 1997
- -------------------------
Ronald M. Butkiewicz
s/Michael J. Corey* April 28, 1997
- -------------------------
Michael J. Corey
s/Michael R. Ferrari* April 28, 1997
- -------------------------
Michael R. Ferrari
s/Stephan M. Largent April 28, 1997
- -------------------------
Stephan M. Largent
s/T. David Kingston April 28, 1997
- -------------------------
T. David Kingston
s/Jeff S. Liebmann* April 28, 1997
- -------------------------
Jeff S. Liebmann
- ------------------------- --------------
Kenneth R. Meyer
s/Philip R. O'Connor* April 28, 1997
- -------------------------
Philip R. O'Connor
- ------------------------- --------------
Stephen Shone
s/ Norman A. Fair* April 28, 1997
- -------------------------
Norman A. Fair
s/ Thomas K. Neavins* April 28, 1997
- -------------------------
Thomas K. Neavins
* By: s/Arnold R. Bergman April 28, 1997
-------------------
Arnold R. Bergman
Attorney-in-Fact
69
<PAGE>
Exhibit 3. (a)
Opinion and Consent of Arnold R. Bergman, Vice President - Legal
of First Variable Life Insurance Company as to securities being registered
70
<PAGE>
Exhibit 3. (a)
[LOGO] FIRST
VARIABLE
LIFE
INSURANCE
COMPANY
April 28, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration of Contract Interests
Separate Account VL of First Variable Life Insurance Company
(File No. 333-05053)
Dear Sir/Madam:
In my capacity as Vice President - Legal of First Variable Life Insurance
Company ("First Variable"), I have acted as chief legal officer with regard to
variable life insurance contracts ("Contracts") described in the captioned
Registration and funded in Separate Account VL ("Separate Account") of First
Variable. I have examined the Articles of Incorporation and Bylaws of First
Variable, the Contracts and such other records as I have deemed necessary in
connection with the rendering of this opinion.
Based upon the foregoing and having regard for such legal consideration as I
have deemed relevant, I am of the opinion that:
1. First Variable is a duly organized and existing stock life insurance
company under the laws of the state of Arkansas authorized to issue life
insurance and annuity contracts.
2. The establishment of the Separate Account has been duly authorized by the
Board of Directors of First Variable.
3. The Contracts, when duly issued and delivered by First Variable for value,
are valid and enforceable obligations of the Company under Arkansas law,
except as limited by bankruptcy and other laws generally affecting the
rights of creditors.
This opinion speaks only as of the date hereof and I expressly disclaim any
obligation to update it for any change in the law or facts occurring subsequent
to the date hereof.
I consent to the use in Registration No. 333-05053 of this opinion letter.
Very truly yours,
s/Arnold R. Bergman
- -------------------
Arnold R. Bergman
Vice President - Legal*
*Admitted in NY
71
<PAGE>
Exhibit 3. (b)
Consent of Mayer, Brown & Platt
72
<PAGE>
Exhibit 3. (b)
MAYER, BROWN & PLATT
CONSENT OF
MAYER, BROWN & PLATT
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus comprising a part of the Form S-6 Registration
Statement of First Variable Insurance Company.
/s/ Mayer, Brown & Platt
------------------------
MAYER, BROWN & PLATT
Washington, DC
April 25, 1997
73
<PAGE>
Exhibit 5.(b)
Accelerated Death Benefit Endorsement
74
<PAGE>
Exhibit 5.(b)
[LOGO] FIRST
VARIABLE
LIFE
INSURANCE
COMPANY
Little Rock, Arkansas
ACCELERATED DEATH BENEFIT ENDORSEMENT
The Contract to which this Endorsement is attached is amended as follows:
You may elect to receive an advance on the Death Benefit of this Contract when
the Insured has been diagnosed as having a terminal illness with a life
expectancy of 12 months or less. The advance will be equal to fifty percent
(50%) of the Insurance Amount (or Specified Amount, if applicable), less any
indebtedness.
The advance will be computed exclusive of any riders. The maximum advance is
$50,000. The advance will be treated as a lien on the Contract. This advance
will be paid in a lump sum to you or to any other payee you so designate,
subject to the Company's receipt of all of the following:
1. Your written election of this option;
2. Your written designation of the Company as an irrevocable beneficiary for a
portion of the Contract death benefit equal to the amount of the advance;
3. proof acceptable to the Company from a licensed physician other than the
Insured or a member of his immediate family that:
a) the Insured has been diagnosed as having a terminal illness with a
life expectancy of 12 months or less;
b) such terminal illness was first diagnosed while the Insured was
covered under this Contract; and
c) such terminal illness could be expected in at least 80% of cases to
result in death within one year.
The Company may require a second opinion and examination of the Insured at the
Company's expense by a physician designated by the Company.
Unless otherwise provided in the election of this option, the payee may neither
commute, anticipate, assign, alienate nor otherwise encumber any payment under
this option. Proceeds under this Contract and any payment under this Endorsement
will be exempt from the claims of creditors and from legal process to the extent
permitted by law.
GENERAL PROVISIONS
The Effective Date for this Endorsement is the Contract Date, unless another
date is shown on the Contract Data Pages. There is no cost for this Endorsement.
75
<PAGE>
All other terms, provisions and conditions of the entire Contract remain
unchanged except as stated herein. For Purposes of this Endorsement, "you" and
"your" means the Owner and any irrevocable Beneficiary(ies) for this Contract.
Signed for the Company.
/s/Stephan M. Largent /s/Arnold R. Bergman
President Secretary
76
<PAGE>
Exhibit 6
Opinion and Consent of Actuary
77
<PAGE>
Exhibit 6.
[LOGO] FIRST
VARIABLE
LIFE
INSURANCE
COMPANY
April 28, 1997
First Variable Life Insurance Company
10 Post Office Square, 12th Floor
Boston, MA 02109
Re: Registration of Contract Interests
Separate Account VL of First Variable Life Insurance Company
(File No. 333-05053)
Gentlemen:
In my capacity as Actuary of First Variable Life Insurance Company, I have
provided actuarial advice concerning:
o The preparation of the captioned registration statement ("Registration
Statement") on Form S-6 filed by First Variable Life Insurance Company and
its Separate Account VL with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to the variable universal life
insurance contract ("Contract") described therein; and
o The preparation of the policy forms for the Contract described in the
Registration Statement.
It is my professional opinion that:
1. The illustration of death benefits, account values, cash surrender values
and total premiums paid plus interest at 5% shown in the prospectus, based
on the assumptions stated in the illustration, are consistent with the
provisions of the Contract. The rate structure of the Contract overall is
reasonable and has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations included, appear more
favourable to prospective buyers than other illustrations which could have
been provided at other combinations of ages, sex of the insured, death
benefit option and amount, definition of life insurance test, premium class
and premium amounts. Insureds in other premium classes may have higher cost
of insurance charges.
2. All other numerical expamples shown in the prospectus are consistent with
the Contract and our practices and have not been designed to appear more
favourable to prospective buyers than other examples which could have been
provided.
I hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement.
Sincerely
/s/ Martin Sheerin
Martin Sheerin FSA, MAAA
78
<PAGE>
Exhibit 7
Consent of Ernst & Young LLP, Independent Auditors
79
<PAGE>
Exhibit 7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 7, 1997 in the Registration Statement (Form S-6
No. 333-05053) and related Prospectus of First Variable Life Insurance Company.
s/ Ernst & Young LLP
--------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 30, 1997
80
<PAGE>
Exhibit 10
Powers of Attorney
81
<PAGE>
Exhibit 10.
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Michael J. Corey, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/s/ Martin Sheerin /s/ Michael J. Corey
- ------------------ --------------------
Michael J. Corey
82
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Michael R. Ferrari, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/s/ Michael R. Friedberg /s/ Michael R. Ferrari
- ------------------------ ----------------------
Michael R. Ferrari
83
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Jeff S. Liebmann, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/s/ Michael R. Friedberg /s/ Jeff S.Liebmann
- ------------------------- -------------------
Jeff S. Liebmann
84
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Ronald M. Butkiewicz, a Director of
First Variable Life Insurance Company, a corporation duly organized under the
laws of the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R.
Bergman, or any one of the foregoing individually, as my attorney and agent, for
me, and in my name as a Director of this company on behalf of the Company or
otherwise, with full power to execute, deliver and file with the Securities and
Exchange Commission all documents required for registration of variable annuity
and variable life insurance contracts under the Securities Act of 1933, as
amended, and the registration of unit investment trusts under the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/s/ Martin Sheerin /s/ Ronald M. Butkiewicz
- ------------------ ------------------------
Ronald M. Butkiewicz
85
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Norman A. Fair, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 24th day of April, 1996
WITNESS:
/s/ Thomas K. Neavins /s/ Norman A. Fair
- ---------------------- ------------------
Norman A. Fair
86
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, T. David Kingston, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/s/ Martin Sheerin /s/ T. David Kingston
- ------------------ ---------------------
T. David Kingston
87
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Thomas K. Neavins, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15 day of May, 1996
WITNESS:
/s/ Martin Sheerin /s/ Thomas K. Neavins
- ------------------- ---------------------
Thomas K. Neavins
88
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Philip R. O' Connor, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MICHAEL R. FRIEDBERG /S/ PHILIP R. O'CONNOR
- ------------------------ ----------------------
Philip R. O'Connor
89
