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Registration No. 333-19193
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-6
Registration Statement
Under
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 1
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SEPARATE ACCOUNT VL
(Exact Name of Trust)
FIRST VARIABLE LIFE INSURANCE COMPANY
(Name of Depositor)
2122 York Road
Oak Brook, Illinois 60523
(Complete Address of Depositor's Principal Executive Offices)
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ARNOLD R. BERGMAN Copy to: THOMAS C. LAUERMAN
Vice President, General Counsel and Secretary Freedman, Levy, Kroll & Simonds
First Variable Life Insurance Company Suite 825
2122 York Road 1050 Connecticut Ave., N.W.
Oak Brook, Illinois 60523 Washington, D.C. 20036
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 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:
An indefinite amount of interests under flexible premium variable
universal life insurance policies.
Approximate Date of Public Offering:
[ ] Check box if it is proposed that this filing will become effective on
______________ at __________ pursuant to Rule 487.
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CROSS REFERENCE SHEET
Item No. in
Form N-8 B-2 Location
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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, Surrender and Withdrawals, Surrender
Charges, Transfers Among Policy Options, Lapse and
Reinstatement, Determination of Account Value, Other
Provisions of the Policy, The Policy, Policy Options
10(f) Voting Rights, Other Provisions of the Policy
10(g), (h) Changes to Policy Options
10(i) Mixed and Shared Funding, Policy Benefits and
Values, Other Provisions of the Policy
11, 12 Variable Investors Series Trust, Federated Insurance
Series
13 Highlights, Charges and Deductions, 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 Surrender and Withdrawals, Payment of Proceeds
18 Taxation of the Company and the Separate Account,
Determination of Account Value, The Separate
Account, Policy Options, The Policy, Charges and
Deductions
19 Reports and Records, Advertising Practices, Other
Provisions of the Policy
20 See 10(g) & 10(h)
21 Policy Loans
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 Surrender and Withdrawals
47, 48, 49, 50 Inapplicable
51 Policy Benefits and Values
52 Changes to Policy Options
53(a) Federal Tax Status
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
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Prospectus Dated:
CAPITAL SOLUTIONS VUL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Funded in
SEPARATE ACCOUNT VL
by
FIRST VARIABLE LIFE INSURANCE COMPANY
Marketing and Executive Office: Variable Service Center:
2122 York Road P.O. Box 1317
Oak Brook, IL 60523 Des Moines, IA 50305-1317
Automated Information Line: (800) 228-1035
(800)-59-FUNDS
This prospectus describes Capital Solutions VUL (the "Policy"), a flexible
premium variable life insurance policy issued by First Variable Life Insurance
Company (the "Company"). The Policy provides for life insurance coverage and for
the accumulation of an Account Value. An Owner may adjust the amount and
frequency of premium payments and the level of life insurance provided under the
Policy, subject to certain restrictions.
A Death Benefit is payable under the Policy upon the Insured's death. The Owner
may choose either a Death Benefit generally equal to the Face Amount (Death
Benefit Option A), or a Death Benefit generally equal to the Face Amount plus
the Account Value (Death Benefit Option B). The Death Benefit will never be less
than the current Face Amount of a Policy, less any due and unpaid charges, any
loans and any interest due or accrued on the loans, as long as the Policy stays
in force.
After a Policy is approved for issue by the Company, the Net Premium 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 ("Federated"). The portfolios currently available
under a Policy are: VIST Small Cap Growth, VIST World Equity, VIST Growth, VIST
Matrix Equity, VIST Growth & Income, VIST Multiple Strategies, VIST High Income
Bond, VIST U.S. Government Bond, and Federated Prime Money Fund II (the
"Portfolios"). (See "Policy Options.")
There is no guaranteed minimum Account Value for a Policy 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
Net Premiums have been allocated. The Owner bears the investment risk for all
amounts allocated to the Portfolios. The Policy continues in effect while the
Cash Surrender Value is sufficient to cover the current charges and deductions
under the Policy. The Company guarantees to keep the Policy in force during a
period ranging from 2 - 12 years, depending on the Insured's issue age, so long
as the required Minimum Monthly Premium amounts are paid. (See "Premiums.")
It may not be advantageous to replace existing insurance with the Policy
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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS (OR IN ANY SALES
LITERATURE APPROVED BY THE COMPANY) IN CONNECTION WITH THE OFFER OF THE POLICY
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THE POLICIES ARE NOT AVAILABLE IN ALL
JURISDICTIONS, AND THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
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TABLE OF CONTENTS
PAGE
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DEFINITIONS
HIGHLIGHTS
THE COMPANY
THE SEPARATE ACCOUNT
Financial and Performance Information
POLICY OPTIONS
Variable Investors Series Trust
Federated Insurance Series
Fixed Account Option
Transfers Among Policy Options
General Requirements
Systematic Transfers - Dollar Cost Averaging
Asset Rebalancing Program
Restrictions on Transfers
Automatic Transfers of Small Accounts
Changes in Policy Options
Mixed and Shared Funding
CHARGES AND DEDUCTIONS
Monthly Deductions
Administrative Charge
Cost of Insurance
Optional Additional Benefit Rider Charges
Other Charges
Daily Deductions
Surrender Charge
Surrender Charge Percentage
Maximum Surrender Charge
Fund Expenses
Other Charges and Deductions
Income Taxes
Premium Load
Transaction Charges
Special Service Fees
Elimination, Reduction, or Refund of Charges and Deductions;
Increases in Bonuses Group and Sponsored Arrangements
Purposes of Policy Charges
THE POLICIES
Application and Issuance of a Policy
Free Look Right
Premiums
Planned Premiums
Monthly Minimum Premium; Death Benefit Guarantee
Additional Premiums
Grace Period
Premium Limitations
Allocation of Premiums
General
Delayed Investment Allocation Date
Telephone Transactions
POLICY BENEFITS AND VALUES
Death Benefit
Death Benefit Options
Applicable Percentage of Death Benefit Factors
Change in Death Benefit Options and Face Amount
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Adjustments to the Death Benefit Proceeds
Premium Value and Cash Value Bonuses
Premium Value Bonus
Cash Value Bonuses
Availability of Bonuses
Optional Additional Benefit Riders
Acceleration of Death Benefit Rider
Accidental Death Benefit Rider
Additional Term Insurance on the Insured
Children's Term Insurance Rider
Cost of Living Rider
Disability Waiver Benefit Riders
Extension of Maturity Date Rider
Other Insured Persons Rider
Determination of Account Value
Account Value and Cash Surrender Value
Net Investment Experience
Policy Loans
Regular Loans
Preferred Loan
Immediate Loan Repayment
Surrender and Withdrawals
Surrender
Withdrawals
Maturity Proceeds
Lapse and Reinstatement
Payment of Proceeds
Tax Withholding
Payout Options
Tax Impact
Right to Exchange for a Fixed Benefit Policy
OTHER PROVISIONS OF THE POLICY
Suicide Exclusion
Representations and Contestability
Option to Extend Maturity Date
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
Income Tax Treatment of Policy Benefits
Life Insurance
Acceleration of Death Benefits Rider
Modified Endowment Contracts
Other Tax Effects of Policy Changes
Taxation of Pre-Distributions from a Policy that is not a Modified
Endowment
Contract
Taxation of Pre-Distributions from a Policy that is a Modified
Endowment Contract
Diversification Requirements
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ADVERTISING PRACTICES
LEGAL MATTERS
State Regulation
Legal Proceedings
Counsel
EXPERTS
REGISTRATION STATEMENT
APPENDICES
APPENDIX A: ANNUAL RATES OF RETURN FOR THE SUB-ACCOUNTS
APPENDIX B: ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER
VALUES AND ACCUMULATED VALUE OF PREMIUMS
APPENDIX C: 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 Policy that are: (a) in
the Separate Account; (b) in the Fixed Account; and, if there is an outstanding
Policy 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 Insured's age as of his or her last birthday 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 regular trading,
which is Monday through Friday, except for the following holidays: New Year's
Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day.
CASH ACCUMULATION VALUE - Account Value minus any existing Indebtedness.
CASH SURRENDER VALUE - The amount available upon surrender of the Policy, which
is equal to the Account Value reduced by any outstanding Policy loan and accrued
interest; and reduced by any applicable Surrender Charges.
CODE - The Internal Revenue Code of 1986, as amended.
COMPANY - First Variable Life Insurance Company.
DEATH BENEFIT - The Death Benefit is the amount of insurance provided under a
Policy 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 and less any unpaid monthly
deductions and charges. The Death Benefit Proceeds are increased by any amounts
payable under optional additional benefit riders to a Policy.
DISTRIBUTOR - First Variable Capital Services, Inc., 2122 York Road, Oak Brook,
IL 60523.
FACE AMOUNT - A dollar amount used to determine the Death Benefit under a
Policy. It is shown on the Owner's Policy data page.
FIXED ACCOUNT - The Fixed Account is the non-loaned portion of the 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 Investors Series Trust and Federated Insurance Series, each of
which is an open-end management investment company (i.e., a "mutual fund") in
which the Separate Account invests.
INDEBTEDNESS - All amounts owed to the Company by an Owner for loans on the
Policy plus interest due or accrued on the loans.
INSURED - The person on whose life the Policy is issued.
LOAN ACCOUNT - An account which is established in the Company's general account
for any amounts requested for loans plus interest due or accrued on the loans.
MATURITY DATE - The first Policy Anniversary that falls on or after the
Insured's 95th birthday.
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MONTHLY DEDUCTION - The amount deducted from Account Value on the first Business
Day of each Policy Month to cover charges and expenses incurred in connection
with the Policy and any additional benefit riders.
NET AMOUNT AT RISK - The difference between a Policy's Death Benefit and its
Account Value.
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.
NET PREMIUM - The amounts paid for a Policy, less the applicable Premium Load.
OWNER - The person entitled to all the ownership rights under a Policy. The
initial owner is stated on the application for a Policy, and may be later
changed as the Policy provides.
POLICY ANNIVERSARY - An anniversary of the Policy Date.
POLICY DATE - The date the provisions of the Policy take effect, as shown on the
Owner's Policy data page. Policy Months and Policy Years are measured from this
date.
POLICY OPTION - The Fixed Account or any of the Sub-Accounts of the Separate
Account which can be selected by the Owner of a Policy.
POLICY QUARTER - One quarter of a Policy Year. The first Policy Quarter begins
on the Policy Date and ends on the last Business Day of the third Policy Month.
POLICY YEAR - Each 12-month period beginning on the Policy Date.
PORTFOLIO - A Fund's separate and distinct class of shares that is available as
the underlying investment under a Policy Option.
PREMIUM RATE CLASS - An insurance underwriting risk category that is used to
determine certain benefits and charges under a Policy. For example, Monthly
Minimum Premiums, cost of insurance charges, and Premium Value Bonuses will vary
by the premium rate class assigned an Insured. On the date of this prospectus,
the Company uses Preferred, Smoker and Non-Smoker premium rate classes which
will differ based on the sex of the Insured. These classes are further
sub-divided into "standard" and "substandard" categories. Charges are generally
higher for substandard categories.
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
Policies is located at 1206 Mulberry Street, Des Moines, IA 50309. The mailing
address is P.O. Box 1317, Des Moines, IA 50305-1317.
HIGHLIGHTS
The following is a brief listing of the basic features of the Policy. These and
other features of the Policy are explained in detail throughout the prospectus.
Investors should be sure to read the prospectus and the prospectuses of the
Funds for more complete information.
This prospectus describes a Policy issued by the Company that provides flexible
premium life insurance. Death Benefits and Account Value under these Policies
are "variable" and will reflect the Net Investment Experience of the Policy
Option(s) and Portfolios chosen by the Owner. The Fixed Account Policy Option
provides guarantees of principal and interest. (For a description of the Fixed
Account, see "Fixed Account Option" which appears later in this
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prospectus.) However, the portion of the Account Value invested in the
Sub-Accounts is not guaranteed and an Owner bears the investment risk on this
portion of the Account Value. (See "Determination of Account Value." )
Generally, a Policy may be issued on a proposed Insured up to Age 80 for a
minimum Face Amount of $25,000, or on a proposed Insured between Ages 81 - 85
for a Face Amount between $100,000 and $500,000. (See "Application and Issuance
of a Policy. ") An applicant must select a Face Amount and a Death Benefit
Option on the life of the proposed Insured. All persons proposed for insurance
must meet the Company's underwriting and other criteria for issuance.
The Policy generally requires payment of an initial premium on or before the
Policy Date equal to at least 2 Monthly Minimum Premiums. Additional amounts may
be paid thereafter, subject to certain restrictions, as long as the Policy meets
the definition of a life insurance contract under the Code. Payment of the
Monthly Minimum Premium amounts specified in the Policy guarantees that the
Policy will remain in force for a guarantee period ranging from 2 to 12 years,
depending on the Insured's issue age. Planned and unplanned additional premiums
may be paid, subject to certain limitations.
Payment of large amounts of premium relative to the Death Benefit during the
first seven Policy Years may cause a Policy to be classified as a "modified
endowment contract" under section 7702A of the Code. Under current federal
income tax law, pre-death distributions under modified endowment contracts,
including loans, assignments, partial withdrawals and surrenders, 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. (See "Federal
Tax Status.")
Owners have the right to return the Policy according to the terms of its
"free-look" right. (See "Application and Issuance of a Policy--Free Look
Right.")
The Account Value may be transferred by the Owner among the Sub-Accounts (see
"Transfers Among Policy Options") or from a Sub-Account to the Fixed Account.
Transfers from the Fixed Account are more restricted, however.
(See "Fixed Account Option" and "Transfers Among Policy Options.")
A loan privilege is available under the Policy after the "free look" period. The
Policy may be surrendered at any time, subject to a Surrender Charge, and a
withdrawal may be made of a Policy's Cash Surrender Value after the first Policy
Year. (See "Policy Loans" and "Surrender and Withdrawals.")
Subject to approval by the appropriate local insurance regulatory authority, a
Policy continuously in force for 8 Policy Years will be eligible for monthly
Premium Value Bonuses and Cash Value Bonuses. Premium Value Bonuses are
scheduled to be paid monthly starting in the 9th Policy Year, based on the
amount of premiums paid and not deemed withdrawn or borrowed. The amount of a
Premium Value Bonus credited each month is based on the Insured's premium rate
class, and the Monthly Minimum Premium and Premium Value Bonus percentage
rate(s) then in effect. On the date of this prospectus, the Premium Value Bonus
percentage ranges from an annual rate of 11% of the Policy's Monthly Minimum
Premium for Preferred premium rate classes, to an annual rate of 5% for
Non-Smoker and Smoker premium rate classes.
The Cash Value Bonus is also scheduled to be paid monthly starting in the 9th
Policy Year, based on a Policy's then current Cash Accumulation Value and the
Company-determined percentage rate then in effect. On the date of this
prospectus, the Cash Value Bonus annual percentage rate ranges from 0.15% for a
Policy with Cash Accumulation Value of $100,000 or more at the start of the
applicable Policy Year, to 0.10% for Cash Accumulation Value over $25,000 but
under $100,000, to 0% for Cash Accumulation Value of $25,000 or less.
The Company may change the Premium Value Bonus and Cash Value Bonus percentage
rates at any time, but guarantees that the Premium Value Bonus annual rate will
not be less than 6% for Preferred premium rate classes and 3% for Non-Smoker and
Smoker premium rate classes. Because there is no minimum guaranteed Cash Value
percentage rate, the Company could terminate Cash Value Bonuses at any time. The
Premium Value and Cash Value Bonuses will not be paid if the purchaser's state
does not permit them. Prospective purchasers should check with their sales
representatives or call the Company's Variable Service Center to confirm the
availability of the bonuses. (See "Policy Benefits and Values - Premium Value
Bonuses and Cash Value Bonuses.")
Upon the death of the Insured, the Company will pay the Death Benefit Proceeds
to the Beneficiary. (See "Death Benefit.") Death Benefit Proceeds paid to the
Beneficiary under the Policy are generally not subject to federal income
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tax. Under current law, undistributed increases in Account Value are not taxable
to the Owner. (See "Federal Tax Status.") The Company may make any change in a
Policy or take any other action in order to comply with applicable state and
federal law, including all tax law requirements for treatment as life insurance.
The proceeds may be received in a lump sum or in the form of an annuity payout.
(See "Payout Options.")
The Policy is currently subject to the following charges and deductions:
Monthly Deductions - composed of the following:
- - administrative charge - currently $8.50 each Policy Month (which the
Company can increase to not more than $11.00 per month);
- - policy benefit charge - at an annualized rate of 0.27% of Cash
Accumulation Value,
- - a cost of insurance charge - based on the Insured's attained age, sex,
premium rate class, duration and amount of coverage; and
- - any charges for optional additional benefit riders. (See "Monthly
Deductions.")
Daily Deductions - on the date of this Prospectus, the charge is equal to an
annual rate of 0.50% (which the Company can increase to not more than 0.90%) of
the daily net assets in each Sub-Account. (See "Daily Deductions.")
Surrender Charge - may be assessed during the first 12 Policy Years. The
Surrender Charge varies by stated percentages for each Policy Year during this
period. The maximum Surrender Charge is 125% of 12 Monthly Minimum Premiums up
to a limit, for standard premium rate classes, of $60 per $1,000 of Face Amount.
A new set of Surrender Charges is established for the 12 year period following
an increase in Face Amount.
Fund Expenses - 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, 1997 were:
<TABLE>
<CAPTION>
Other Operating
Management Expenses (After Total Annual
Portfolio Fees Reimbursement) Expenses
--------- ---- -------------- --------
<S> <C> <C> <C>
VIST Small Cap Growth .85% .50% 1.35%
VIST World Equity .70% .50% 1.20%
VIST Growth .70% .40% 1.10%
VIST Matrix Equity .65% .50% 1.15%
VIST Growth & Income .75% .50% 1.25%
VIST Multiple Strategies .70% .49% 1.19%
VIST High Income Bond .70% .50% 1.20%
VIST U.S. Government Bond .60% .25% .85%
Federated Prime Money Fund II .55% .25% .80%
</TABLE>
First Variable Advisory Services Corp., the investment adviser to VIST, has
agreed through April 1, 1999 to reimburse VIST for operating expenses (exclusive
of management fees) in excess of .50% of a VIST Portfolio's average daily 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, 1997, the VIST annual expenses, as a percentage of the
Portfolio's average assets, would have been 1.79% for the VIST Small Cap Growth
Portfolio; 1.47% for the VIST World Equity Portfolio; 1.54% for the VIST Matrix
Equity Portfolio; 1.60% for the VIST Growth & Income Portfolio; 1.21% for the
VIST Multiple Strategies Portfolio; 1.64% for the VIST High Income Bond
Portfolio; and 1.73% for the VIST U.S. Government Bond 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, 1997, the annual expenses, as a percentage of the Portfolio's
average assets, would have been 1.00%.
The management fees and other expenses are more fully described in the
prospectuses for each of the underlying Funds.
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The Company, in the future, can also begin making the following additional
charges under a Policy:
Premium Load - guaranteed not to exceed 2.5% of each Premium Payment. On the
date of this Prospectus, the Company does not impose this charge. (See "Premium
Load.")
Transaction Fees - for certain transfers of Account Value between and among
Policy Options, loans, withdrawals of Cash Surrender Value and upon surrender of
a Policy:
- - Transfers, loans and withdrawals - on the date of this Prospectus, the
Company does not impose a transaction fee, but reserves the right to
impose a transaction fee of $25 for: (a) each transfer in excess of
twelve (12) transfers per Policy Year; (b) any loan; and (c) any
withdrawal of Cash Surrender Value. (See "Transaction Charges.")
- - Additional transaction charge - may be imposed for surrenders made for
the benefit of a third party assignee of the Policy pursuant to section
1035 of the Code. (See "Surrender Charge.")
Tax Charge - a charge for taxes incurred by the Company for federal income taxes
incurred by the Separate Account.
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 business of variable life insurance,
variable annuities, and fixed annuities. 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 of Des Moines, Iowa and Guarantee Reserve Life
Insurance Company of Calumet City, Illinois. 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 1997, the Irish Life consolidated group had in excess of $14 billion
in assets. ILoNA is a Delaware corporation, incorporated as Carrig
International, Inc. in 1986.
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 to the Company's
ability to satisfy its obligations under the Policies.
THE SEPARATE ACCOUNT
The Company authorized the establishment of Separate Account VL (the "Separate
Account), a segregated asset account, pursuant to Arkansas insurance law on
March 6, 1987. The Separate Account is registered 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 Policy
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 Policies,
credited to or charged against the Separate Account without regard to other
income, gains or losses of the Company. The Company's general account also
supports all of the Company's obligations, including those arising under the
Policies.
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
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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
charges and deductions assessed under a Policy.
FINANCIAL AND PERFORMANCE INFORMATION
The information presented in Appendix A to this prospectus reflects the
performance of the underlying investments of the Portfolios through December 31,
1997.
POLICY OPTIONS
Owners of a Policy 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 Policy. 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.
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 policies. 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
Policy are: Pilgrim Baxter & Associates, Ltd. with respect to VIST Small Cap
Growth Portfolio; Value Line, Inc. with respect to VIST Growth and VIST Multiple
Strategies Portfolios; State Street Bank and Trust Company with respect to VIST
Matrix Equity Portfolio; Warburg Pincus Asset Management, Inc. with respect to
VIST Growth & Income Portfolio; Keystone Investment Management Company with
respect to VIST World Equity Portfolio; Federated Investment Counseling with
respect to VIST High Income Bond Portfolio; and Strong Capital Management, Inc.
with respect to VIST U.S.
Government Bond Portfolio.
Each Portfolio has a distinct investment objective and policy. The investment
objectives of the Portfolios available under a Policy are:
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).
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.
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.
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 in equity securities.
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
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<PAGE> 14
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 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 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 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.
FEDERATED INSURANCE SERIES
Federated Insurance Series ("Federated") 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 policies. Pursuant to an investment
advisory policy, investment decisions for Federated are made by Federated
Advisers, an affiliate of Federated Investment Counseling. Federated Securities
Corp. is the principal distributor for shares of Federated Prime Money Fund
Portfolio.
Federated 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 Federated
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 Policy 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 effective rate of 4% per year. Additional amounts of
"current" interest may be credited by the Company in its sole discretion. New
premium payments and transfers from the Separate Account or Loan Account to the
Fixed Account may each receive different current interest rate(s) than the
current interest rate(s) credited to Account Value existing in the Fixed
Account. The Company determines current interest rates in advance, and credits
interest daily to Fixed Account Value.
TRANSFERS AMONG POLICY OPTIONS
General Requirements. An Owner may transfer Account Value among Policy Options
by written request or telephone authorization. The minimum amount which may be
transferred is the lesser of (a) $100; or (b) the Owner's entire interest in the
applicable Sub-Account or Fixed Account. A written request to transfer Account
Value, or to reallocate future premium payments should be sent or telecopied to
the Variable Service Center. To request a transfer or reallocation by telephone,
the Owner should contact his or her sales representative or contact the Variable
Service Center at 1-800-228-1035. Requests for transfers or reallocations by
telephone will be automatically permitted. (See "Telephone Transactions.")
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<PAGE> 15
Any transfer instruction must clearly specify the amount which is to be
transferred and the Policy Options which are to be affected. 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 end of the Valuation Period in which the
Company receives the transfer request at its Variable Service Center.
Unless otherwise permitted by the Company, Account Value cannot be entirely
transferred from the Fixed Account to other Policy Options in less than 2 Policy
Years. For example, only 50% of the Fixed Account Value on the Policy Date may
be transferred to other Policy Options during the first Policy Year, and the
remainder may be transferred during the second Policy Year. After the first
Policy Year, transfers during a Policy Year may not exceed the greater of:
- - 50% of the Fixed Account Value on the immediately preceding Policy
Anniversary; or
- - 100% of the Fixed Account Value transferred to other Policy Options
during the immediately preceding Policy Year.
A transaction fee may be imposed if the Owner makes more than 12 "free"
transfers in a Policy Year. The Company may from time to time increase the
permitted number of free transfers. (See "Charges and Deductions.")
Systematic Transfers - Dollar Cost Averaging. The Company permits systematic
transfers, such as dollar cost averaging, that an Owner may initiate by
telephone or by written request to the Company at its Variable Service Center.
Through systematic transfers, designated amounts are transferred on the last
Business Day of each pre-selected period from a selected Policy Option to other
pre-selected Policy Options. The Owner may select from among the following
periods, or any other period acceptable to the Company: monthly, quarterly,
semi-annually or annually. The dollar cost averaging program permits transfers
from the Prime Money Fund II Sub-Account or the Fixed Account to other
Sub-Account(s) on a regularly 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 may 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 $100. The Company requires $1,200
of Account Value to be in the Prime Money Fund II Sub-Account or the Fixed
Account, as applicable, before a "dollar cost averaging" program may begin.
Transfers from the Fixed Account are also subject to the restrictions described
above in General Requirements, except that 100% of amounts in the Fixed Account
may be systematically transferred within one year if transfers are made monthly.
Systematic transfers under the dollar cost averaging program are not subject to
the transaction fee on transfers, and are not taken into account for purposes of
determining the number of "free" transfers within a year. The Company does not
currently charge for enrolling in the dollar cost averaging program, but
reserves the right to do so. (See "Special Service Fees.")
Asset Rebalancing Program. The Company administers an asset rebalancing program
that an Owner may initiate by telephone or 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
pre-selected period, the Account Value will be automatically rebalanced to
maintain the indicated percentages by transfers among the Policy Options. The
Owner may select from among the following periods, or any other period
acceptable to the Company: quarterly, semi-annually or annually. All Account
Value allocated to the Separate Account Policy Options must be included in the
asset rebalancing program. Asset rebalancing involving transfers from the Fixed
Account are subject to the restrictions described above in General Requirements.
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.
Transfers under the asset rebalancing program are not subject to the transaction
fee on transfers, and are not taken into account for purposes of determining the
number of "free" transfers within a year. The Company does not currently charge
for enrolling in the asset rebalancing program, but reserves the right to do so.
(See "Special Service Fees.")
Restrictions on Transfers. Programmed or other frequent requests to transfer
among Policy 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 Policy Year, or refuse to honor
any transfer request for an
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<PAGE> 16
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.
The Company may also at any time suspend or cancel its acceptance of third party
authorizations on behalf of an Owner; or restrict the Policy 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.
The Company also reserves the right at any time and without prior notice to any
party to otherwise modify, suspend or terminate the transfer privileges
including, but not limited to, the description in "Suspension of Payments and
Transfers."
Automatic Transfers of Small Accounts. The Company reserves the right, subject
to any applicable law, to transfer Account Value from any Policy Option if less
than $100, to the Policy Option with the highest Account Value.
CHANGES IN POLICY 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 invest in another portfolio of a Fund, or in another mutual
fund or in other investments.
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 Policies, 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, to the extent
required, and in compliance with requirements the SEC may impose.
MIXED AND SHARED FUNDING
Shares of VIST and Federated Prime Money Fund II are sold to the Company for
allocation to the Separate Account in connection with the Policies, and for
allocation to other separate accounts funding variable annuity policies and
other variable life insurance Policies issued, or to be issued, by the Company.
Shares of VIST and Federated 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 Federated Prime
Money Fund II simultaneously if the interests of variable life insurance and
variable annuity policy owners differ. The boards of trustees of VIST and
Federated 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 DEDUCTIONS
MONTHLY DEDUCTIONS
On the first day of each Policy Month, a Monthly Deduction will be made by
reducing a Policy's Fixed Account Value and/or canceling Accumulation Units from
each Sub-Account to which any of the Policy's Account Value is then allocated.
The deductions will be in the ratio that the value of each Policy Option bears
to the Cash Accumulation Value, or by any other method selected by the Owner and
acceptable to the Company. The amount of the monthly deduction will vary from
month to month.
The Monthly Deductions are comprised of the following charges:
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<PAGE> 17
Administrative Charge. This charge is currently $8.50 per Policy Month, and is
guaranteed by the Company not to exceed $11 per Policy Month.
Cost of Insurance. This is a charge for the cost of providing life insurance
coverage for the Insured. The Cost of Insurance Charge for any Policy Month is
determined by: (a) subtracting the Account Value from the Death Benefit; (b)
dividing the net amount by 1.003273739; and (c) multiplying the results by the
current cost of insurance rate divided by 1,000. The cost of insurance rate is
based on the length of time a Policy has been in force and the insured's Age,
sex and premium rate class. This charge is guaranteed not to exceed the maximum
cost of insurance charge determined on the basis of the mortality table
guaranteed in the Policy, calculated, for standard issues, using the 1980
Commissioner's Standard Ordinary Mortality tables, Age Last Birthday ("1980
CSO"). These mortality tables are sex distinct and separate mortality tables may
be used for different premium rate classes. The maximum cost of insurance charge
for substandard risk Insureds are based on multiples of or additions to the
guaranteed standard rates established by the 1980 CSO.
The Company currently is charging cost of insurance rates that are lower,
although it can at any time raise them to not more than the above-described
guaranteed maximums.
In general, the cost of insurance rates increase with the Insured's age.
Therefore, the longer a Policy is owned, the higher the cost of insurance rate
will be. Also, the cost of insurance rates will generally be lower if the
Insured is a female than if a male. Similarly, current cost of insurance rates
are lower for non-smokers than smokers, and lower for persons that have other
highly favorable health characteristics, as compared to those that do not. On
the other hand, insured persons who present particular health, occupational or
avocational risks may be charged higher cost of insurance rates and other
additional charges based on the Face Amount of their Policies.
The monthly cost of insurance rates for an increase in Face Amount will be based
on the Age and premium rate class of the insured at the time of the increase.
Optional Additional Benefit Rider Charges. The monthly deduction varies for
certain optional additional benefit riders that an Owner may elect to add to the
Policy:
- - The Acceleration of Death Benefit Rider and Extension of Maturity Date
Rider are included with a Policy at no additional cost in each jurisdiction
where the riders are available.
- - Accidental Death Benefit Rider. An additional monthly charge is specified
in the Policy.
- - Additional Term Insurance on the Insured. The monthly charge for the term
life insurance riders on the base Policy's Insured will not exceed the maximum
rates shown in the Policy. Term life insurance provided under this rider may be
less costly initially under nonguaranteed "current" insurance charges in effect
on the date of this prospectus than an equivalent amount of insurance coverage
under the base Policy. However, for Owners who intend to qualify for Premium
Value Bonuses and Cash Value Bonuses, and meet the Monthly Minimum Premium
requirements for the Death Benefit Guarantee, coverage under the base Policy
will probably be less costly over time.
- - Children's Term Insurance Rider. The monthly charge for this rider is
shown in the Policy.
- - Cost of Living Rider. There is no charge for the rider, but any
additional amounts of insurance purchased under the rider will increase the Face
Amount of the base Policy, and be subject to corresponding additional monthly
cost of insurance charges.
- - Disability Waiver Benefit Riders. The monthly charges for these riders
are stated in the Policy.
- - Other Insured Persons Rider. The monthly charge for the term life
insurance riders will not exceed the maximum rates shown in the Policy.
See "Optional Additional Benefit Riders" for a more detailed explanation of
rider benefits and limitations.
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<PAGE> 18
Other Charges. The Company will make an additional monthly charge for the
benefits it expects to provide under the Policies. This charge is computed as a
percentage of the Policy's Account Value on each monthly deduction day. The
charge is made at an effective rate that is equal, on an annual basis, to 0.27%.
DAILY DEDUCTIONS
Each Business Day, the Company will deduct a mortality and expense risk charge
which is equal to a percentage of the net assets in each Sub-Account of the
Separate Account for this class of Policy. The mortality and expense risk charge
is currently equal to 0.50% (which the Company guarantees will not be increased
to more than 0.90%), on an annual basis, of the average daily net assets in each
Sub-Account.
SURRENDER CHARGE
A surrender charge may be assessed if a Policy is surrendered during the first
12 Policy Years. (See "Surrender and Withdrawals.") A new set of surrender
charges will be established for the 12 year period following a permitted
increase in Face Amount. The additional surrender charge will be computed as if
the Face Amount increase were being issued in the form of a new Policy, based on
the insured person's age and other risk characteristics at the time of the
increase. (See "Death Benefit - Change in Death Benefit Options and Face
Amount.")
Surrender Charge Percentage. For each Policy Year, the maximum surrender charge
applicable to the initial Face Amount is multiplied by the surrender charge
percentage shown below. The result is then applied if a full surrender is made
at any time during that Policy Year:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Surrender Surrender
Policy Year Charge % Policy Year Charge %
------------------------------------------------------------------
<S> <C> <C> <C>
1 50% 8 50%
------------------------------------------------------------------
2 100% 9 40%
------------------------------------------------------------------
3 100% 10 30%
------------------------------------------------------------------
4 100% 11 20%
------------------------------------------------------------------
5 100% 12 10%
------------------------------------------------------------------
6 80% 13+ 0%
------------------------------------------------------------------
7 60%
-------------------------
</TABLE>
Maximum Surrender Charge. The maximum surrender charge is 125% of one year's
Monthly Minimum Premium, but not more than $60 per $1,000 of Face Amount for
standard premium rate classes. This per $1,000 limit will not apply if an
Insured is in a substandard premium rate class. (See "Premiums - Monthly Minimum
Premium.") The dollar amount of the maximum surrender charge on the Policy Date
is stated in the Policy. No surrender charge is imposed upon a partial decrease
in Face Amount, but the full surrender charge will remain in effect for a
subsequent surrender.
FUND EXPENSES
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.
(See "Highlights.")
OTHER CHARGES AND DEDUCTIONS (NOT CURRENTLY CHARGED)
Income Taxes. While the Company is not currently reducing Account Value for
federal income taxes of the Separate Account, it 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.
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<PAGE> 19
Premium Load. The Premium Load is a deduction that the Policy permits the
Company to make from each premium payment. On the date of this Prospectus, no
Premium Load is being deducted by the Company. The Company guarantees that any
Premium Load deducted under any Policy will not exceed 2.5% of each premium
paid.
Transaction Charges. On the date of this Prospectus, the Company does not impose
a transaction charge on transfers, withdrawals or loans. The Company reserves
the right, however, to assess a $25 transaction charge for:
- - each transfer of Account Value in excess of the number of permitted
"free" transfers (See "Transfers Among Policy Options");
- - a withdrawal of Cash Surrender Value (See "Surrender and Withdrawals");
- - and any loan using the Policy as security (See "Policy Loans").
Transaction charges will be deducted pro-rata from Account Value in each Policy
Option prior to the transaction, or by any other method selected by the Owner
and approved by the Company in advance of the transaction. If the entire
interest in a Sub-Account or the Fixed Account is being transferred, the
pro-rata portion of any applicable transaction fee will be deducted from the
amount which is transferred. Transfers under a systematic transfer program are
not taken into account in determining any transfer fee. (See "Systematic
Transfers - Dollar Cost Averaging.")
Additional transaction charges, guaranteed not to exceed $250, may be imposed
for surrenders made for the benefit of a third party assignee of the Policy
pursuant to section 1035 of the Internal Revenue Code.
Special Service Fees. The Company may charge Owners for special services, such
as additional reports, dollar cost averaging, and asset rebalancing. As of the
date of this prospectus, it does not charge for these special services.
ELIMINATION, REDUCTION OR REFUND OF CHARGES AND DEDUCTIONS; INCREASES IN BONUSES
The charges and deductions on a Policy may be eliminated, reduced or refunded,
in whole or in part, when sales of Policies are made to individuals or to group
and sponsored arrangements in a manner that results in expected savings of
sales, administration or other expenses, or in a reduction in the level of risks
the Company expects to assume under the Policies. (Such groups are described
under "Group and Sponsored Arrangements" below.) Any such adjustment to charges
and deductions will be determined by the Company after examination of relevant
factors such as:
- - 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 Policies may be implemented and administered;
- - the total amount of premium payments to be received, because certain
expenses are likely to be less on larger premium payments than on smaller
ones;
- - any prior or existing relationship with the Company, because of the
likelihood of implementing the Policy with fewer contacts;
- - other circumstances, of which the Company is not presently aware, which
could result in reduced expenses; and
- - after a Policy is issued, in the event anticipated expenses for later
Policy Years are anticipated to be less than initially projected.
Charges and deductions may also be eliminated, reduced or refunded when a Policy
is issued to an officer, director, employee or agent of the Company or any of
its affiliates. No adjustment in charges and deductions is guaranteed by the
Company, and any adjustment may vary by group. Based on the same considerations
as discussed above, the Company may also credit higher Policy bonuses to members
of selected groups then would otherwise be payable. (See "Premium Value Bonuses
and Cash Value Bonuses.")
All adjustments will be made under the Company's uniform administrative rules
then in effect, and in no event will adjustments to charges, deductions or
Policy bonuses be permitted if the adjustment would 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
Policies 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 Policies to its employees or members on an
individual basis.
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<PAGE> 20
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
Policies for use in connection with certain employee benefit programs where the
Policy does not vary with the sex of the Insured. The Company recommends that
any employer proposing to offer the Policies to employees under a group or
sponsored arrangement consult its attorney before doing so.
PURPOSES OF POLICY CHARGES
The charges under the Policies are designed to cover, in the aggregate, the
Company's direct and indirect costs of selling, administering and providing
benefits under the Policies. They are also designed, in the aggregate, to
compensate the Company for the risks it assumes pursuant to the Policies. These
include mortality risks (such as the risk that insured persons will, on average,
die before the Company expects, thereby increasing the amount of claims the
Company must pay); investment risks (such as the risk that adverse investment
performance will make it more costly to provide the Guaranteed Death Benefit
under the Policies or reduce the amount of the Company's asset-based fee
revenues below what the Company anticipates); sales risks (such as the risk that
the number of Policies sold and the premiums received (net of withdrawals) are
less than the Company expects thereby depriving the Company of expected
economies of scale); regulatory risks (such as the risk that tax or other
regulations may be changed in ways adverse to issuers of variable life insurance
policies); and expense risks (such as the risk that the costs of administrative
services that the Company must provide will exceed what the Company currently
projects).
If, as expected, the charges that the Company collects from the Policies exceed
its total costs in connection with the Policies, the Company will earn a profit.
Otherwise it will incur a loss. The current and maximum rates of certain of the
Company's charges have been set with reference to estimates of the amount of
specific types of expenses or risks that the Company will incur. In some cases,
this prospectus identifies such expenses or risks in the name of the charge:
e.g., the administrative charge, cost of insurance charge, and mortality and
expense risk charge. However, the fact that any charge bears the name of a
particular expense or risk does not mean that the amount the Company collects
from that charge will never be more than the amount of such expense or risk, or
that the Company may not also be compensated for such expense or risk out of any
other charges the Company is permitted to deduct by the terms of the Policies.
THE POLICIES
APPLICATION AND ISSUANCE OF A POLICY
An application must be submitted to the Company's Variable Service Center by
anyone wishing to purchase a Policy. The applicant selects:
- - A Face Amount( minimum of $25,000 on a proposed Insured up to Age 80, or
a Face Amount between $100,000 and $500,000 on a proposed Insured between
Ages 81 - 85); and a Death Benefit Option on the life of a proposed
Insured (see "Death Benefit");
- - The amount of planned premium that is intended to be paid (see
"Premiums"); and
- - The way that Net Premiums will be allocated to the Sub-Account(s) and/or
the Fixed Account (see "Allocation of Premiums").
The Company generally will not issue Policies to insure persons older than Age
85 nor will it generally issue Policies to employee benefit plans qualified
under Section 401 of the Code. The Company will review an application under its
underwriting rules, and may request additional information or reject an
application. If the Company declines an application, it will refund any premium
payment made. If a Policy is issued, Monthly Deductions will begin as of the
Policy Date.
If a premium payment is made with the application, the Policy Date generally
will be the date the Company approves the application. If the premium is paid
upon delivery of the Policy, the Policy will have a Policy Date which is
generally five days after issue.
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<PAGE> 21
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed. Even
though Monthly Deductions begin earlier, backdating may be desirable, for
example, so that the cost of insurance rate is lower, based on a lower Age of
the Insured.
Free Look Right. An Owner has the right to review a Policy during an initial
inspection period specified in the Policy and, if dissatisfied, to return it to
the Company or to the agent through whom it was purchased. When the Policy 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,
Premium Load, and any Monthly Deductions (which may be greater or less than the
premium payments received) on a Policy 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 Policy is designed for the flexible payment of premiums. The amount of
premiums paid and the time between payments may vary, as long as the Account
Value is greater than the next Monthly Deductions. The minimum premium amount
required on the Policy Date, as shown in the Policy, will at least equal 2 times
the Monthly Minimum Premium. The Owner may also elect to pay: planned premiums;
Monthly Minimum Premiums; and/or additional premiums, subject to the limitations
described below.
Planned Premiums. The Owner may elect, within limits specified by the Company,
to pay premium on a pre-determined schedule. The Company will provide periodic
reminder notices. Failure to make a payment will not result in lapse of a
Policy, provided the Account Value is sufficient to cover the Monthly Deductions
as they fall due. Although planned premium payments will not necessarily assure
that a Policy will remain in force (see "Lapse and Reinstatement"), the amounts
paid will generally provide greater benefits than if a lower amount of premium
is paid. Paying planned premiums can also help assure that coverage remains in
force if they are greater than or equal to the Monthly Minimum Premium.
The Owner may arrange to pay planned premiums by pre-authorized automatic
deductions from accounts maintained at other financial institutions, and may
request to change the amount of planned premiums by submitting a written request
to the Variable Service Center.
Monthly Minimum Premium; Death Benefit Guarantee. The Monthly Minimum Premium is
shown in the Policy and varies by issue age, sex, Death Benefit amount
(including optional additional benefit riders), and premium rate class of the
Insured. It will be increased if the Face Amount is increased, or other benefits
added, during the Death Benefit Guarantee Period.
A Policy is guaranteed to stay in force during the Death Benefit Guarantee
period if, as of the first Business Day of each Policy Month, the cumulative
amount of premiums paid, less the sum of any outstanding Policy loans (including
accrued interest) and cumulative withdrawals, at least equals the Monthly
Minimum Premium times the number of elapsed Policy Months. The length of the
Death Benefit guarantee period ranges from 2 to 12 years, depending on the
Insured's Age on the Policy Date (the "issue age"):
Issue Age Guaranteed Death Benefit Period
--------- -------------------------------
0 - 53 12 Policy Years
54 - 59 To Age 65
60 - 70 5 Policy Years
71 and over Later of Age 75 or 2 Policy Years
(In Massachusetts, however, the Guaranteed Death Benefit Period is 5 policy
years, and is only available for Issue Ages 0-70.)
Any charges that were due but not taken during the Guaranteed Death Benefit
Period because of insufficient Account Value, will be accrued and deducted
during later Policy Years. Any due and unpaid Monthly Deductions will be
deducted from the Death Benefit.
Additional Premiums. The Owner may pay additional premiums during the lifetime
of the Insured at any time (except as described below under "Premium
Limitations.").
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<PAGE> 22
Grace Period. During the Death Benefit Guarantee Period, if sufficient Monthly
Minimum Premiums are not paid, the Policy will enter a grace period on the first
Business Day of any Policy Month where the Cash Surrender Value is not
sufficient to cover the current Monthly Deduction and accrued interest on any
Policy Loans. After the Death Benefit Guarantee Period, the Policy will enter a
grace period on the first Business Day of any Policy Month where the Cash
Surrender Value is not sufficient to cover the current Monthly Deduction and
accrued interest on Policy loans.
A grace period of 61 days from the applicable Business Day will be allowed for
the payment of a minimum required premium. The Company will send a grace period
notice to the Owner's last known address which will show the minimum required
premium for the grace period. This is the amount necessary to cover the Monthly
Deduction(s) due under the Policy plus an amount equal to three times the
current Monthly Deduction. If the minimum required premium is not paid by the
end of the grace period, the Policy will end without value. If the Insured dies
during the grace period, the Death Benefit is reduced by any Indebtedness and
unpaid Monthly Deduction(s).
PREMIUM LIMITATIONS
The Company will refuse any premium payment that may cause this Policy no longer
to be treated as life insurance for tax purposes. The Company reserves the right
to require satisfactory evidence of insurability before accepting any premium
payment that would increase the then current Death Benefit under a Policy. The
Company may require that any Indebtedness be repaid prior to accepting any
premium payments.
Payment of premiums in excess of certain amounts may cause a Policy to be
classified as a "modified endowment contract" for federal income tax purposes.
(See "Federal Tax Status.")
ALLOCATION OF PREMIUMS
General. Net 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,
Net Premium payments are converted to Accumulation Units. The number of
Accumulation Units credited to a Policy is determined by dividing the amount
allocated to the Sub-Account by the value of the applicable Accumulation Unit
next determined after receipt of a premium payment. Calculations of Accumulation
Unit Value for each Sub-Account are made as of the end of each Business Day. Net
Premium payments allocated to the Fixed Account are credited in dollars. Net
Premium payments are generally allocated to the Sub-Accounts or the Fixed
Account as of the later of the Policy Date or the date the premium is received.
Delayed Investment Allocation Date. Net 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 this allocation and will allocate
Net Premium payments to the selected Policy Options as described above. The
Company reserves the right, however, to allocate Net 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 Policy Option(s)
designated by the Owner. If the Company elects to delay such initial investments
in the Policy Options, the delay would apply where a Policy is issued subject to
a requirement that Net Premium payments be refunded upon the exercise of a "free
look" right. Allocation to the Policy Option(s) designated by the Owner would be
made at the end of the "free look" period. The investment delay period would be
measured from the date a Policy 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 Policy to
the Owner.
Should the Company elect to delay investment allocation dates, it will so advise
prospective investors in a Policy.
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, policy loans and systematic withdrawals.
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.
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<PAGE> 23
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
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. The Company may
modify or terminate its procedures for telephone transactions at any time.
POLICY BENEFITS AND VALUES
DEATH BENEFIT
As long as the Policy remains in force, the Company will pay a Death Benefit
upon the death of the Insured. Upon receipt of proof of death of the Insured and
any applicable election for payment of the Death Benefit, the Company will pay
the Death Benefit Proceeds to the Beneficiary. While the Insured is living, the
Owner may elect for the Death Benefit Proceeds to be paid in a single sum or
under a Payout Option. If no election is in effect at the death of the Insured,
the Beneficiary may make the election during a 60 day period following the
Company's receipt of proof of death.
The amount of the Death Benefit is based on values as of the date of death. The
Death Benefit amount is based on the Death Benefit Option in effect on the date
of the Insured's death and any increases or decreases to the Face Amount.
Death Benefit Option A. Under this option, the Death Benefit is the greater of:
(a) the Face Amount or (b) the Account Value times the applicable percentage of
Death Benefit factors from the table below.
Death Benefit Option B. Under this option, the Death Benefit is the greater of:
(a) the Face Amount plus the Account Value or (b) the Account Value times the
applicable percentage of Death Benefit factors from the table below.
Applicable Percentage of Death Benefit Factors.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Attained of Account Attained of Account Attained of Account
Age Value Age Value Age 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
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
53 164 75 105
54 157 76 105
55 150 77 105
56 146 78 105
</TABLE>
Change in Death Benefit Options and Face Amount. The Owner may make written
request to the Variable Service Center not more than once each Policy Year
during the Insured's lifetime to change the Death Benefit Option. A change from
Death Benefit Option B to Death Benefit Option A will cause the Face Amount to
be increased by the amount of the Account Value. A change from Death Benefit
Option A to Death Benefit Option B will cause the Face Amount to decrease by the
amount of the Account Value.
The Owner may request to increase or decrease the Face Amount by making written
request to the Variable Service Center during the Insured's lifetime. No
decrease in the Face Amount may be requested, however, during the first Policy
Year.
The Company may require evidence of insurability for a change that would
increase the Face Amount. The Company may restrict any requested increases in
Face Amount to minimums and maximums that vary with the Insured's Age and
premium rate class. If the Face Amount is increased during any Death Benefit
Guarantee period, the Monthly Minimum Premium will usually be increased. (See
"Premiums.") The increase in Monthly Minimum Premium would begin when the
increase in Face Amount begins, and would apply for the remainder of the
applicable Death Benefit Guarantee Period. The increase in Monthly Minimum
Premium would be based on the Insured's attained age, sex, additional Face
Amount and premium rate class. The surrender charge and applicable surrender
charge period will also increase as a result of an increase in Face Amount,
other than an increase due solely to a change in Death Benefit Option. (See
"Surrender Charge.")
Any reduction in Face Amount will be in the following order:
(a) against the most recent increase in Face Amount;
(b) against the next most recent increases;
(c) against the initial Face Amount.
The Company may deny any request to reduce the Face Amount (including reductions
resulting from a change of Death Benefit Option A to Death Benefit Option B) if:
(a) the Death Benefit would be reduced below that required to qualify
the Policy as life insurance; or
(b) the Death Benefit would be reduced below the minimum Face Amount
shown in the Policy.
A change in Death Benefit Option or Face Amount will take effect on the first
Business Day of the Policy Month coinciding with or next following the date the
Company approves the request. For a discussion of possible tax consequences of
changing insurance coverage under a Policy, see "Federal Tax Status."
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 Indebtedness and unpaid monthly charges, and increased by the
amounts, if any, payable to the Beneficiary under any optional additional
benefits riders.
PREMIUM VALUE BONUSES AND CASH VALUE BONUSES
Subject to approval by the appropriate local insurance regulatory authority, a
Policy continuously in force for 8 Policy Years will be eligible for monthly
Premium Value and Cash Value Bonuses. The bonuses will be allocated to Policy
Options in the same manner as then in effect for premium payments.
Premium Value Bonus. Premium Value Bonuses are scheduled to be paid monthly
starting in the 9th Policy Year, based on the amount of premiums paid and not
deemed withdrawn or borrowed. The amount of a Premium Value Bonus credited each
month is determined by multiplying the Policy's Monthly Minimum Premium by the
Premium Value percentage rate(s) then in effect. On the date of this prospectus,
the Premium Value percentage ranges from an annual rate of 11% for Preferred
premium rate classes, to an annual rate of 5% for Non-Smoker and Smoker premium
rate classes.
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<PAGE> 25
Cash Value Bonuses. The Cash Value Bonus is also scheduled to be paid monthly
starting in the 9th Policy Year. The amount of each month's bonus is determined
by multiplying the Policy's then current Cash Accumulation Value by a
Company-determined percentage rate then in effect. On the date of this
prospectus, the Cash Value Bonus annual rate ranges from 0.15% for a Policy with
Cash Accumulation Value of $100,000 or more at the start of the applicable
Policy Year, to 0.10% for Cash Accumulation Value over $25,000 but under
$100,000, to 0% for Cash Accumulation Value of $25,000 or less.
Availability of Bonuses. The Premium Value and Cash Value Bonuses will not be
paid before the ninth policy year, or if the purchaser's state does not permit
them. The Company may change the Premium Value and Cash Value Bonus percentage
rates at any time, but guarantees that the Premium Value Bonus annual rate will
not be less than 6% for Preferred premium rate classes and 3% for Non-Smoker and
Smoker premium rate classes. Because there is no minimum guaranteed Cash Value
Bonus percentage rate, the Company could terminate Cash Value Bonuses at any
time. Because the Policies have been available only since January, 1998, the
Company has not credited any bonuses to Owners of the Policies. Prospective
purchasers should check with their sales representatives or call the Company's
Variable Service Center to confirm the availability of the bonuses. (See "Policy
Benefits and Values Premium Value Bonuses and Cash Value Bonuses.")
OPTIONAL ADDITIONAL BENEFIT RIDERS
The Company permits applicants for, and Owners of, a Policy to purchase
additional benefits provided by rider to the Policy, subject to state
availability and the Company's underwriting and issuance standards. The
descriptions in the following paragraphs are not complete summaries. For more
complete information, purchasers should consult their sales representatives or
request a copy of the form of the rider in which they are interested. The riders
to be made available upon appropriate local regulatory approval include:
Acceleration of Death Benefit Rider. This rider permits an Owner to receive an
advance of the Death Benefit when the Insured has been diagnosed as having a
terminal illness with a life expectancy of less than 12 months, all as defined
in the rider. The advance, up to a maximum of $500,000, is calculated as the
product of (a) times (b), which is divided by (c), and reduced by (d), where:
(a) is equal to the Death Benefit in effect when the advance is paid;
(b) is a percentage of Death Benefit (not to exceed 100%) as elected by the
Owner;
(c) is the sum of 1 plus "i", where "i" equals the Published Monthly Average
(Moody's Corporate Bond Yield Average - Monthly Average Corporates as
published by Moody's Investors Service, Inc., or its successor) for the
calendar month ending two months prior to the date the rate is
determined; and
(d) is the percentage of Death Benefit elected by the Owner times the
Indebtedness, if any, at the time the advance is paid.
If the Moody's Corporate Bond Yield Average - Monthly Average Corporates is no
longer published, the Insurance Commissioner of the state in which the Policy's
application is dated will substitute a similar average. The "i" rate is
determined by the Company on January 1 and July 1 of each calendar year. The
rate may be increased whenever such increase would be at least 1/2%. The rate
will be decreased whenever such decrease would be at least 1/2%. Amounts
advanced under the rider generally will be considered Death Benefits for federal
income tax purposes. (See "Federal Tax Status - Life Insurance and Modified
Endowment Contract Definitions.") There is no charge for this rider.
Upon payment of an advance under this Rider, the Policy's Face Amount, Account
Value, Cash Surrender Value and any term life insurance rider benefit on the
life of the Insured will be reduced by the percentage of Death Benefit and term
life insurance rider benefit advanced to the Owner; and any Indebtedness will be
reduced by the portion of the Indebtedness deemed repaid when calculating the
advance. The Policy will terminate if the percentage of Death Benefit elected by
the Owner is 100%.
Accidental Death Benefit Rider. This rider provides an additional amount
specified in the Policy if the Insured dies from an accidental injury, subject
to exclusions listed in the rider. The benefits provided by the rider will
terminate at age 70. (See "Charges and Deductions - Optional Additional Benefit
Rider Charges.")
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<PAGE> 26
Additional Term Insurance on the Insured. A "Covered Insured Rider" provides
additional convertible term life insurance coverage for a pre-selected period up
to Age 95. An Owner may convert the term insurance to a permanent plan of life
insurance, subject to the conditions listed in the rider, up to the Insured's
Age 70. (See "Charges and Deductions - Optional Additional Benefit Rider
Charges.")
Coverage on the Insured that is provided under the rider lowers the Monthly
Minimum Premium requirement from the amount that would be required if the same
amount of coverage were provided under the base Policy. Coverage under the
rider, as compared to coverage under the base Policy, also results in a lower
Surrender Charge, a smaller amount of premiums that would be required initially
to maintain a Policy's Guaranteed Death Benefit, and lower charges based on
minimum premium payments and Account Value. However, the amount of any Premium
Value Bonus will be reduced if coverage on the Insured is taken under the rider
instead of the base Policy, and the potential for Cash Value Bonuses may also be
reduced if only Monthly Minimum Premiums are paid. (See "Premium Value and Cash
Value Bonuses.")
Children's Term Insurance Rider. This rider provides up to $10,000 of term life
insurance on the lives of the Insured's children who are between 15 days of age
and age 18 on the Policy Date. The coverage terminates for each insured child on
the child's 21st birthday. An Owner may convert the term insurance to a
permanent plan of insurance, subject to the conditions listed in the rider,
within 31 days before or after an Insured child's 21st birthday. (See "Charges
and Deductions - Optional Additional Benefit Rider Charges.")
Cost of Living Rider. This rider permits the Owner to purchase additional
amounts of insurance based on increases in the Consumer Price Index published by
the U.S. Department of Labor, without submitting additional evidence of
insurability to the Company. The amount of additional insurance to be offered by
the Company is based on the formula described in the rider, up to a maximum of
$30,000 of Face Amount every third Policy Year until the Policy Anniversary
following the Insured's 65th birthday. There is no charge for the rider, but any
additional amounts of insurance purchased under the rider will increase the Face
Amount of the base Policy, and be subject to the same additional monthly cost of
insurance charges, Monthly Minimum Premiums and surrender charges as would any
other Face Amount increase under the Policy. (See "Premiums - Monthly Minimum
Premium" and "Charges and Deductions.")
Disability Waiver Benefit Riders. An applicant may elect to purchase either or
both of the disability benefit riders available. The riders provide benefits if
the Insured is totally disabled, as defined under the terms of the applicable
rider, before Age 60. A "Waiver of Monthly Deduction" rider waives the Monthly
Deductions incurred in connection with the Policy. (The waiver does not include
daily deductions against Separate Account assets for the mortality and expense
risk charge, which will continue to apply.) A "Cash Deposit Benefit" rider
provides for a deposit of a pre-selected monthly benefit amount into a Policy's
Account Value, which will be applied against the Monthly Minimum Premium
requirements for the Guaranteed Death Benefit. (See "Premiums - Monthly Minimum
Premium.") (See "Charges and Deductions - Optional Additional Benefit Rider
Charges.")
Extension of Maturity Date Rider. This rider allows the Owner to request a later
Maturity Date if the Account Value is at least $2,000. It is included with a
Policy at no additional cost. (See "Other Provisions of Policy--Option to Extend
Maturity Date.")
The Owner may request that any rider benefits be canceled at any time. The
rider, and any charges therefor, will terminate at the end of the Policy Month
during which a written request was received at the Variable Service Center.
Other Insured Persons Rider. This rider provides term life insurance coverage on
the lives of additional insured persons selected by the Owner. An Owner may
convert the term insurance to a permanent plan of life insurance, subject to the
conditions listed in the rider, up to the insured person's Age 70. In the event
an insured person under this rider is not a family member, certain special tax
rules will apply. For a brief description of these tax rules, see "Federal Tax
Status - Income Tax Treatment of Policy Benefits." (See "Charges and Deductions
Optional Additional Benefit Rider Charges.")
The Owner may request that any rider benefits be canceled at any time. The
rider, and any charges therefor, will terminate at the end of the Policy Month
during which a written request is received at the Variable Service Center.
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<PAGE> 27
DETERMINATION OF ACCOUNT VALUE
Account Value and Cash Surrender Value. The Account Value under a Policy
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 Sub-Accounts, interest credited on its
Account Value in the Fixed Account and on amounts held in the Loan Account,
amounts deducted for charges and deductions due under the Policy, and amounts
withdrawn.
The Cash Surrender Value is the amount the Owner will receive upon surrender of
the Policy. The Cash Surrender Value is the Account Value reduced by any
outstanding Policy loan (and accrued interest) and by any applicable Surrender
Charges. (See "Policy Loans" and "Surrender Charge.")
The Account Value and Cash Surrender Value in the Separate Account may increase
or decrease daily depending on the Net Investment Experience of the
Sub-Accounts. Unfavorable investment experience and charges can reduce the 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 Sub-Accounts
will affect the Account Value, the Cash Surrender 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.
The investment experience of Portfolio shares for any period is the increase or
decrease in their net asset value for the period invested plus the amount of any
dividends or capital gains distributions on the shares during the period.
Dividends and capital gains distributions on Portfolio shares are reinvested in
additional shares of the Portfolio on the payment date and affect subsequent
investment experience.
Owners who allocate Account Value to the Fixed Account will not share in the
investment experience of any of the Company's assets. Instead, the Company
guarantees that Account Values in the Fixed Account will earn interest at an
effective annual rate of at least 4%. The Company may from time to time credit
interest at rates higher than 4%, but it is under no obligation to do so. The
Company declares current interest rates for the Fixed Account periodically.
Account Values that are in the Fixed Account will earn interest daily.
POLICY LOANS
The Owner may borrow all or part of the Policy's "loan value" at any time after
the initial free-look period. The Company will usually make the loan within
seven days of the date when a loan request is received in writing or by
telephone at the Variable Service Center. (See "Telephone Transactions.")
The maximum amount available for a loan is equal to 90% of the excess of Account
Value over the sum of Surrender Charges and Indebtedness. The minimum amount for
each loan is $100. A loan reduces the Account Value in the Sub-Accounts and the
Fixed Account by the amount of the loan. 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 at the equivalent of a minimum guaranteed
annual interest rate of 4%.
Interest on a policy loan accrues daily and will be payable in arrears at the
end of each Policy Month. If not paid when due, an amount equal to the unpaid
interest is deducted from the Account Value in the Sub-Accounts and the Fixed
Account and transferred to the Loan Account as an additional loan on the first
Business Day of the next Policy Month. 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. The Company may disapprove any such request.
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<PAGE> 28
Regular Loans. Indebtedness attributable to a Regular Loan is charged interest
at the equivalent of a 6% effective annual loan interest rate. After the first
Policy Year, certain Indebtedness attributable to a Regular Loan will be
converted automatically into a Preferred Loan. The conversion will occur if the
Cash Accumulation Value on a Policy Anniversary equals or exceeds $10,000. If
so, outstanding Indebtedness attributable to a Regular Loan, up to a loan
conversion limit equal to 15% of such Cash Accumulation Value, will be converted
into a Preferred Loan within 7 Business Days of the Policy Anniversary.
Preferred Loan. A Preferred Loan is charged interest at the equivalent of a 4%
effective annual loan interest rate. An Owner may qualify for Preferred Loans if
the Cash Accumulation Value on any Policy Anniversary is at least $10,000. If
so, the maximum available for a Preferred Loan that year is equal to 15% of such
Cash Accumulation Value, less any Indebtedness attributable to a Regular Loan
that is automatically converted that year to a Preferred Loan. A Preferred Loan
will reduce the amount available as a Regular Loan.
Immediate Loan Repayment. If the Indebtedness on the first Business Day of a
Policy Month exceeds the Account Value less the Surrender Charge, an immediate
loan repayment will be required. A period of 61 days will be allowed from the
first day of such Policy Month for the loan repayment. The Company will send a
notice to the Owner or assignee, if any. The Policy will terminate without value
61 days after the mailing of the notice unless a sufficient repayment is made
during that period. A repayment is sufficient if it is large enough to reduce
the total Indebtedness to an amount equal to: (a) the Policy's Account Value
less the Surrender Charge; plus (b) an amount sufficient to continue the Policy
in force for 3 months.
The amount taken from the 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 Policy can be permanently affected by a
loan, even if it is repaid. In addition, any proceeds payable under a Policy are
reduced by the amount of any outstanding loan plus accrued interest.
A loan repayment must be designated as such. Otherwise, the Company may treat
the payment as a Premium Payment.
SURRENDER AND WITHDRAWALS
Surrender. The Owner may surrender a Policy 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
Policy will be determined as of the close 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 Policy loans and accrued interest
and by any applicable Surrender Charges. (See "Surrender Charges.") The Owner
may elect in writing to have all of the Cash Surrender Value, or may elect in
either writing or telephone, to have part of the Cash Surrender Value applied to
a payout option. (See "Payout Options.") The Company's liability for the Death
Benefit ends when a Policy is surrendered.
Withdrawals. After the first Policy Year, the Owner may make a withdrawal of a
portion of the Policy's Cash Surrender Value (minimum $100). A withdrawal will
reduce the Account Value and Death Benefit generally by the amount withdrawn and
any applicable transaction charge. If Death Benefit Option A is in effect, a
withdrawal will reduce the Face Amount by the withdrawal plus any applicable
transaction charge. (See "Transaction Charges.") A withdrawal may not be made,
unless the Company expressly consents, if:
- - the Death Benefit would be reduced below that required to qualify the
Policy as life insurance; or
- - the Death Benefit would be reduced below the minimum Face Amount
specified in the Policy; or
- - the remaining Cash Surrender Value would be less than the greater of (a)
$1,000 or (b) 3 times the most recent Monthly Deduction.
A permitted withdrawal will result in the cancellation of Accumulation Units
from each applicable Sub-Account Policy Option or a reduction in Fixed Account
Value in the ratio that the Account Value in the Policy Option bears to the Cash
Accumulation Value. The Owner may request in writing in advance if a different
method for canceling Accumulation Units or reducing Fixed Account Value is
desired. The Company reserves the right to approve or disapprove any such
request.
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<PAGE> 29
MATURITY PROCEEDS
If the Insured is living on the "Maturity Date" (the anniversary of the Policy
Date on which the Insured is Age 95), the Company will pay the Owner the Cash
Surrender Value on surrender of the Policy to the Company. In such case, the
Policy will terminate and the Company will have no further obligations under the
Policy. The Cash Surrender Value for this purpose will be determined as of the
Maturity Date.
LAPSE AND REINSTATEMENT
If sufficient premiums are not paid, a Policy may lapse following a 61 day grace
period. (See "Premiums - Grace Period." ) If the Insured dies during the grace
period, the Company will pay the Death Benefit Proceeds.
If a grace period ends and the Owner has neither paid the required premium nor
surrendered the Policy for its Cash Surrender Value, the Owner may reinstate the
Policy by:
(a) submitting a written request at any time within 3 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 and deductions that were
due and unpaid during the grace period;
(d) paying a sufficient premium to keep the Policy in force for 3 Policy
Months from the date of reinstatement; and
(e) repaying any Indebtedness under the Policy that existed at the end of the
grace period.
The reinstatement will be effective on the first Business Day of the first
Policy Month that begins on or after the Company approves reinstatement. The
values under and terms and conditions of the reinstated Policy will be in
accordance with the Company's administrative procedures.
PAYMENT OF PROCEEDS
The Company ordinarily will pay any Cash Surrender Value, Death Benefit Proceeds
or loan 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, and all
other required elections and documentation 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 Policy. 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 payment option
was selected, to the effective date of the option. (See "Payout 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.
PAYOUT OPTIONS
The Policy's Death Benefit Proceeds and Cash Surrender Value can be paid in one
sum, or all or part of the Proceeds may be paid under a Payout Option. If a
Payout Option is selected for the payment of Cash Surrender Value, any Surrender
Charges and Indebtedness will be deducted from the Account Value before the
first payment is made.
During the Insured's lifetime, the Owner may elect: (a) for Cash Surrender Value
to be paid under a Payout Option; (b) for Death Benefit Proceeds to be paid
under a Payout Option; and (c) to change a previously elected Payout Option for
Death Benefit Proceeds. Any election for (b) or (c) must be by written request
to the Variable Service Center.
The following Payout Options or any other Payout Option acceptable to the
Company may be selected:
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Option A - Life Annuity. Equal monthly payments during the life of the payee.
Option B - Life Annuity With Periods Certain Of 120 Months: Equal monthly
payments during the lifetime of the payee and in any event for 120 months.
Option C - Fixed Payments For A Period Certain: Equal monthly payments for any
specified period (at least five years but not exceeding thirty years), as
selected.
Option D - Death Benefit Proceeds Remaining With The Company: Proceeds from the
Death Benefit left with the Company. The Death Benefit Proceeds will remain in
the Fixed Account and be credited with interest by the Company at an effective
annual rate of not less than 4%. Full and partial withdrawals may be made at any
time with no Surrender Charge.
The amount of each payment under Payment Options A, B, or C will be not less
than the amounts calculated based on the annuity tables in the Policy. The
Company may permit other settlement options. If the payee dies during a period
certain (Payout Options B or C), the remaining payments attributable to Death
Proceeds will be made to the estate of the Beneficiary. The Beneficiary may
elect to have the commuted value of the remaining payments paid in a single sum
instead. The Company will determine the commuted value by discounting the
remaining payments at its then current interest rate used for commutation.
Tax Impact. Whether a Payout Option is chosen may have tax consequences for the
Owner or Beneficiary. Therefore, a qualified tax adviser should be consulted
before deciding whether to elect one or more Payout Options.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
During the first 24 months after the Policy Date, if the Policy has not lapsed,
there is an unconditional right to transfer all of the Account Value in the
Sub-Accounts to the Fixed Account without any transaction charge.
OTHER PROVISIONS OF THE POLICY
SUICIDE EXCLUSION
If the Insured commits suicide within two years from the Policy Date (or less if
required by state law), the Death Benefit will be limited to the Cash Surrender
Value.
REPRESENTATIONS AND CONTESTABILITY
Generally, the Company can challenge the validity of the Policy or any rider to
the Policy on the Policy Date during the Insured's lifetime for two years from
the Policy Date, based on misrepresentations made in the application. The
Company can challenge an increase in Death Benefit requiring evidence of
insurability for two years, during the Insured's lifetime, from the date of the
increase. For any increase in Face Amount (or in rider benefit) requiring
evidence of insurability, the Company will not contest payment of the Death
Benefit Proceeds (or rider benefit) based on such an increase after it has been
in force during the Insured's lifetime for two years from its effective date.
Any reinstatement of the Policy will be incontestable after that reinstatement
has been in force for two years from its effective date during the lifetime of
the Insured. However, the two year time limit on the Company's right to
challenge all or part of the Policy does not apply if the Insured dies within
the two year period.
OPTION TO EXTEND MATURITY DATE
The Owner may elect a later maturity date, if the Account Value is at least
$2,000. With this option, the Death Benefit will equal the Account Value. As
described in the related rider attached to the Policy, a request must be made in
writing and within six months prior to the current maturity date. (See "Optional
Additional Benefit Riders.")
For any period during which the Maturity Date is extended, the following
conditions apply: the Owner will not be permitted to make any further premium
payments except if necessary to prevent lapse of the Policy; no increase or
decrease in the Face Amount or change of Death Benefit Options will be
permitted; no partial withdrawal will be permitted if Account Value remaining
after the withdrawal is $2,000; all value in the Separate Account will be
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<PAGE> 31
transferred to the Fixed Account; the Company will not credit Bonuses to Account
Value, including but not limited to, Premium Value Bonuses and Cash Value
Bonuses; all supplemental riders except the Acceleration of Death Benefit rider
will terminate; Indebtedness will be charged interest at an annual rate of 4%
per year; and the Death Benefit will equal the applicable Minimum Death Benefit
Percentage of Account Value. For attained ages beyond Age 95, the applicable
Minimum Death Benefit Percentage is the Minimum Death Benefit Percentage at Age
95.
MISSTATEMENT OF AGE OR SEX
If the Insured's Age or sex is misstated in any application for benefits under
this Policy, the Death Benefit will be the amount provided by the Insured's
correct age and 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 and any contingent Beneficiary are also named in the
application. A Beneficiary of the Policy (other than an irrevocably named
Beneficiary) may be changed at any time before the death of the Insured. The
Beneficiary has no rights under the Policy 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 effective on the date it is signed, but subject to all payments made and
actions taken by the Company under the Policy 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 Policy to someone
else. An absolute assignment of the Policy designates the assignee as Owner and
Beneficiary. A collateral assignment of the Policy does not change the Owner or
Beneficiary, but their rights will be subject to the terms of the assignment.
All collateral assignees of record must consent to any full surrender or partial
withdrawals. The assignment must be in writing, signed by the Owner and is
effective only when 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 Policy before and
after the assignment was recorded. Because there may be unfavorable tax
consequences, including recognition of taxable income and the loss of income
tax-free treatment for any death benefit payable to the Beneficiary, an Owner
should consult a qualified tax adviser prior to transferring ownership or making
an assignment.
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, Policy 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 Funds or Portfolios the Owner is using.
In addition, Owners will receive statements of significant transactions, such as
changes in the Death Benefit, transfers among Policy Options, premium payments,
Policy loans, increases in Policy loan principal, Policy loan repayments,
reinstatement and termination.
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<PAGE> 32
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 Owner's Account Value in the Sub-Account by the net
asset value per share of the corresponding Portfolio. The Company will vote
shares held in the Sub-Account for which it has not received instructions, as
well as shares held in the Sub-Account that are attributable to it, in the same
proportion as it votes shares held in the Sub-Account for which it has received
instructions. On the date of this prospectus, the Funds are not required to hold
routine annual meetings of 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.
The Company may disregard voting instructions under limited circumstances
prescribed by SEC rule. 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 of Death Benefit
proceeds and Maturity Values and payments for surrenders, withdrawals and Policy
loans or transfers from the Sub-Accounts for any period when:
- - the New York Stock Exchange is closed for trading;
- - trading on the New York Stock Exchange is restricted by the SEC;
- - 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
- - 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 Policy 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 to the extent provided under state
insurance law requirements on payments that are delayed.
Also, the Company can defer payment of any amount that is attributable to a
purchase payment made by check for a reasonable period of time (not to exceed 15
days) to allow the check to clear the banking system.
NONPARTICIPATION IN COMPANY DIVIDENDS
The Policies are nonparticipating. This means that they do not participate in
any dividend or distribution of the Company's surplus.
DISTRIBUTION AND OTHER AGREEMENTS
First Variable Capital Services, Inc. ("FVCS"), 2122 York Road, Oak Brook,
Illinois 60523, acts as distributor of the Policies. FVCS, a wholly owned
subsidiary of the Company, is registered with the SEC as a broker/dealer under
the Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The Policy is offered on a continuous basis.
The Company and FVCS have agreements with various broker/dealers under which the
Policies 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 policies. The commissions payable to
a broker/dealer for sales of a Policy may vary with the sales agreement, but are
not expected, on an aggregate basis, to exceed 100% of the amount of premiums
paid in the first Policy Year up to 12 Monthly Minimum Premiums, plus 4% of
additional first year premium payments, plus 3.5% of all premiums received in
Policy Years 2 through 5. In addition, Broker/Dealers
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<PAGE> 33
may receive annual "trail commission" equivalent to 0.30% of a Policy's Account
Value beginning in Policy Year 6, as well as expense allowances, wholesaler
fees, bonuses and training fees.
Under a Services Agreement between the Company and FVCS, the Company performs
insurance underwriting, issuance and other administrative services for the
Policies.
SAFEKEEPING OF ASSETS
The Company serves as the custodian of the assets of the Separate Account.
MANAGEMENT OF THE COMPANY
The directors and executive officers of the Company and their principal business
experience during the past five years, are:
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address the Company During Past 5 Years
- ---------------- ----------- -------------------
<S> <C> <C>
Ronald M. Butkiewicz Chairman and Director President and Chief Executive Officer,
2211 York Road, Suite 202 Irish Life of North America, Inc.;
Oak Brook, IL 60523 Chairman and Chief Executive Officer,
Interstate Assurance Company
Michael J. Corey Director Managing Director, Insurance Practice
401 East Host Drive Group, Ward Howell Intl., Inc.;
Lake Geneva, WI 53147 President, CSG International Inc.
Norman A. Fair Director Vice President, Treasurer, & Asst. Sec.,
2211 York Road, Suite 202 Irish Life of North America, Inc.; prior
Oak Brook, IL 60523 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, Irish Life plc
Lower Abbey Street
Dublin 1, Ireland
T. David Kingston Director Prior to April 1, 1998, Managing
Lower Abbey Street Director, Irish Life plc
Dublin 1, Ireland
John M. Soukup President and Director President and Director of the Company;
2122 York Road prior to July, 1997, Market Development
Oak Brook, IL 60523 Officer, Fortis Financial Group
Jeff S. Liebmann Director Partner, Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Kenneth R. Meyer Director Managing Director, Lincoln Capital
200 South Wacker Drive, Suite 2100 Management Co.
Chicago, IL 60606
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
Shane W. Gleeson Director Executive Vice President, Irish Life of
2211 York Road, Suite 202 North America, Inc.; prior to December
Oak Brook, IL 60523 1997, President, Interstate Assurance
Company; prior to November 1994, Senior
Vice President and Chief Operating
Officer, Interstate Assurance Company.
Philip R. O'Connor Director Principal of Coopers & Lybrand LLP/Palmer
111 West Washington, Suite 1247 Bellevue Corp.
Chicago, IL 60602
Arnold R. Bergman Vice President, General Vice President, General Counsel and
2122 York Road Counsel and Secretary Secretary of the Company; prior to
Oak Brook, IL 60523 February 1995, Counsel, Aetna Life
Insurance and Annuity Company.
Martin Sheerin Vice President and Chief Vice President and Chief Actuary of the
2122 York Road Actuary Company; prior to October, 1994, Vice
Oak Brook, IL 60523 President, Irish Life of North America,
Inc.
Thomas Gualdoni Vice President - Sales Vice President of the Company; prior to
2122 York Road December 1997, Vice President, Sales,
Oak Brook, IL 60523 Fortis Benefits Insurance Company.
Constance Graves Assistant Vice President Assistant Vice President and Assistant
10 Post Office Square and Assistant Controller Controller of the Company; prior to
Boston, MA 02109 December, 1993, Statutory Accountant,
Allmerica Financial Services.
</TABLE>
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 POLICY.
It should be understood that any detailed description of the federal income tax
consequences regarding the purchase of these Policies 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, local, gift, inheritance, estate, foreign or other tax laws.
This discussion assumes that the Owner is a natural person and a U.S. citizen
and resident. This discussion of federal tax status is based upon the Company's
understanding of current federal income tax laws as they are currently
interpreted. These laws and the related regulations and interpretations can
change, and such changes can be retroactive.
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
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<PAGE> 35
they increase, however, a charge for such taxes attributable to the Separate
Account and/or Fixed Account may be imposed.
INCOME TAX TREATMENT OF POLICY BENEFITS
Life Insurance. Section 7702 of the Code provides that if certain tests are met,
a Policy 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 Policies unless
and until they are distributed. Furthermore, the Company believes the Death
Benefits received under the Policies are generally excludable from the gross
income of the Beneficiary pursuant to the provisions of Section 101 of the Code.
Acceleration of Death 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
reason of the death of the insured. The Company believes that under this
provision, accelerated death benefit payments are generally excluded from the
Owner's gross income. This exclusion does not apply, however, to amounts paid to
someone other than the Insured, if the payee has an insurable interest in the
Insured's life because the Insured is a director, officer or employee of the
payee or by reason of the Insured being financially interested in any trade or
business carried on by the payee. (See "Acceleration of Death Benefit Rider" for
more information regarding the rider.)
Modified Endowment Contracts. Section 7702A of the Code contains provisions
affecting the tax treatment of any loan, assignment or other pre-death
distribution from a life insurance policy which is also a "modified endowment
contract."
A modified endowment contract is a life insurance policy where cumulative
premiums paid under the policy at any time during the first seven policy years
exceed the sum of the net level premiums that would have been paid on or before
such time if the policy 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 is calculated based upon certain assumptions regarding the
policy's earnings and the use of a reasonable mortality charge. Riders to a
Policy are considered part of the Policy for purposes of applying the 7-pay
test.)
Whenever there is a "material change" under a Policy, the Policy will generally
be (a) treated as a new contract for purposes of determining whether the Policy
is a modified endowment and (b) subjected to a new seven-pay period and a new
seven-pay premium limit. The new seven-pay limit would be determined taking into
account, under a prescribed formula, the Account Value of the Policy at the time
of such change. A materially changed Policy would be considered a modified
endowment contract if it failed to satisfy the new seven-pay limit. A material
change for these purposes could occur as a result of a change in death benefit
option, election of additional rider benefits, an increase in a Policy's Face
Amount and certain other changes.
If a Policy's benefits are reduced during the first seven Policy years (or
within seven years after a material change), the seven-pay premium limit will be
redetermined based on the reduced level of benefits and applied retroactively
for purposes of the seven-pay test. (Such a reduction in benefits could include,
for example, a decrease in Face Amount requested by the Owner or, in some cases,
a partial withdrawal or termination or reduction of benefits under a rider.) If
the premiums previously paid are greater than the recalculated seven-pay limit,
the Policy will become a modified endowment contract.
Any Policy 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 policy entered into before June 21, 1988 will not cause the
new policy to be treated as a modified endowment contract if no additional
premiums are paid and there is no increase in benefits as a result of the
exchange.
Other Tax Effects of Policy Changes. Changes made to a Policy (for example, a
decrease in benefits under or a lapse or reinstatement of a Policy) may also
have other tax effects on the Policy. Such effects may include impacting the
maximum amount of premiums that can be paid under the Policy, as well as the
maximum amount of Account Value that may be maintained under the Policy.
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<PAGE> 36
Taxation of Pre-Death Distributions from a Policy that is not a Modified
Endowment Contract. As long as a Policy remains in force as a non-modified
endowment, a Policy loan will be treated as indebtedness, and no part of the
loan proceeds will be subject to current federal income tax. Interest on the
loan generally will not be tax deductible.
After the first 15 Policy Years, the proceeds from a withdrawal will not be
subject to federal income tax except to the extent such proceeds exceed the
Owner's "investment" in the Policy. (The "investment" generally will equal the
premiums paid, less the amount of any previous distributions from the Policy
that were not taxable.) During the first 15 Policy Years, certain withdrawals
that reduce the Death Benefit could be subject to federal income tax to the
extent that the Policy's Account Value exceeds the Owner's investment in the
Policy.
On the Maturity Date or upon full surrender, any excess of the amount of
proceeds (including amounts the Company uses to discharge any Policy loan and
accrued loan interest) over the Owner's investment in the Policy, will be
subject to federal income tax. In addition, if a Policy terminates after a grace
period while there is a Policy loan, the cancellation of such loan and accrued
loan interest will be treated as a distribution and could be subject to tax
under the above rules. Finally, if the Owner makes an assignment of rights or
benefits under a Policy, the Owner may be deemed to have received a distribution
from the Policy, all or part of which may be taxable.
Taxation of Pre-Death Distributions from a Policy that is a Modified Endowment
Contract. If the Policy falls within the definition of a modified endowment
contract, the following rules will apply to pre-death distributions under such
Policy:
(a) Distributions, such as withdrawals, will be included in the recipient's
gross income to the extent the Account Value of the Policy exceeds the
investment in the Policy (i.e. will be treated as income first). Any
additional amounts received, other than Policy loans, will be treated as a
return of capital to the Owner and will reduce the Owner's investment in
the Policy.
(b) Loans are considered distributions, including any increase in the amount of
the loan to pay interest. The Owner's investment in the Policy for tax
purposes will be increased by the amount of any prior loan that was
included in the Owner's gross income.
(c) A Policy assignment is treated as a distribution. For example, a collateral
assignment is a distribution which will subject any gain that accrues in
the Policy 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 calendar year must
be treated as one modified endowment contract.
Any taxable distribution from a Policy that is a modified endowment 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 (as defined in the Code); or
(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.
If a Policy terminates after a grace period while there is a Policy loan, the
cancellation of such loan and accrued loan interest will be treated as a
distribution to the extent not previously treated as such and could be subject
to tax, including the 10% penalty tax, as described above. In addition, on the
Maturity Date and upon a full surrender, any excess of the proceeds (including
any amounts the Company uses to discharge any loan and accrued loan interest)
over the Owner's investment in the Policy, will be subject to federal income tax
and, unless an exception applies, the 10% penalty tax.
The coverage under the Other Insured Persons Rider for a non-family member is
not a qualified additional benefit as defined in Section 7702 of the Code. As a
result, the Monthly Deductions under a modified endowment contract attributable
to such coverage may be deemed to be distributions from the policy for tax
purposes. However, the benefit payable under the rider should be excludable from
the gross income of the beneficiary. A qualified tax advisor should be consulted
for more complete information.
Distributions that occur during a Policy year in which a Policy becomes a
modified endowment and during any subsequent Policy years, will be taxed as
described in the four preceding paragraphs. In addition, distributions from a
Policy within two years before it becomes a modified endowment also will be
subject to tax in this manner. This means
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<PAGE> 37
that a distribution made from a Policy that is not a modified endowment could
later become taxable as a distribution from a modified endowment.
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable life insurance policies. The Code provides that a
variable life insurance policy 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 Policy
not qualifying as life insurance. If the Policy does not qualify as life
insurance, Owners may be subject to immediate taxation on the increases in
Account Value of their Policies plus the cost of insurance protection. This
treatment would apply for the period of non-compliance and subsequently, unless
and until the Company received a settlement of the matter with the Internal
Revenue Service. The Company has no legal obligation to seek or agree to any
such settlement, however.
The Company intends that all Portfolios of the Funds underlying the Policies
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 Policy 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 Policy, the Owner would be liable for federal income tax on the
earnings allocable to the Policy prior to receipt of payments under the Policy.
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 Policy in an attempt to maintain favorable tax treatment.
ADVERTISING PRACTICES
The Company may from time to time receive endorsements of the Policies from
professional organizations. The Company may use such endorsements in
advertisements or sales material for the Policies. 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
Policies. An endorsement of the Policies by a third party is not necessarily
indicative of the future performance or results which may be obtained by persons
who purchase the Policies.
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 policy separate accounts and their investment
experience.
Articles and releases, developed by the Company, the Funds and other parties,
about the Separate Account or the Funds regarding individual Portfolio or Fund
asset levels and sales volumes, statistics and analyses of industry sales volume
37
<PAGE> 38
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 Policies 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 Policies 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 regulation by 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 Policy 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. As a result, various time
periods and other terms and conditions described in this prospectus may vary
depending on where the Owner resides. These variations will be reflected in the
Policy and riders, or related endorsements.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate Account,
the Distributor or the Company is a party.
COUNSEL
Legal matters in connection with the Policies have been reviewed by the
Company's Legal Department. Freedman, Levy, Kroll & Simmonds, of Washington, DC,
has advised the Company on certain matters relating to the federal securities
and tax laws.
EXPERTS
The consolidated financial statements of First Variable Life Insurance Company
at December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997 and the financial statements of First Variable Life
Insurance Company--Separate Account VL at December 31, 1997 and for the period
then ended appearing in this prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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.
38
<PAGE> 39
APPENDIX: A
ANNUAL RATES OF RETURN FOR THE SUB-ACCOUNTS
The following tables show performance information for the Sub-Accounts for
periods ending December 31, 1997. Table A-1 assumes that each Sub-Account had
been in operation for the same period as its corresponding Portfolio, and
investing in that Portfolio. Table A-2 is derived from historic performance
results of the Sub-Accounts from the date they actually commenced operations
(March 31, 1997) to fund a modified single premium variable life insurance
policy not described in this prospectus. Both tables reflect the total of the
income generated by the Portfolio shown, less total Portfolio operating
expenses, plus or minus realized or unrealized capital gains and losses, and
less the deductions for the Policies' current mortality and expense risk charge
(.50% per annum) and the policy benefit charge (0.27% per annum).
The tables do not reflect three significant charges. If these charges were
included, the total return figures shown would be lower. First, cost of
insurance charges have not been deducted. Second, the surrender charges have not
been deducted. Third, the administrative charge (currently $8.50 per month under
the Policies) has not been deducted. For an example of the effect of the
deduction of the surrender charge, compare the "Cash Surrender Value" to the
corresponding "Account Value" in the hypothetical illustrations on pages
____ to ____.
Table A-1 Average Annual Total Return from Portfolio Inception Date
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
FROM
PORTFOLIO AND PORTFOLIO PORTFOLIO
INCEPTION DATE 1 YR. 3 YR. 5 YR. 10 YR. INCEPTION
DATE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth - 5/95 (1)(4) -.04 N/A N/A N/A 20.45
---------------------------------------------------------------------------------------------------------
VIST World Equity - 6/88 (2)(4) 9.21 14.62 13.91 N/A 7.48
---------------------------------------------------------------------------------------------------------
VIST Growth - 6/88 (1)(2)(4) 22.85 27.95 17.44 15.10 12.03
---------------------------------------------------------------------------------------------------------
VIST Matrix Equity - 6/88 (2)(3)(4) 21.28 18.67 13.96 N/A 12.79
---------------------------------------------------------------------------------------------------------
VIST Growth & Income - 5/95(4) 27.43 N/A N/A N/A 19.88
---------------------------------------------------------------------------------------------------------
VIST Multiple Strategies - 5/87 (2)(4) 21.02 23.22 14.38 12.70 11.15
---------------------------------------------------------------------------------------------------------
VIST High Income Bond - 6/87 (2)(4) 12.77 14.79 9.73 10.38 9.81
---------------------------------------------------------------------------------------------------------
VIST US Gov. Bond - 5/87 (2)(4) 8.60 9.63 6.67 7.78 7.76
---------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II - 11/94(4) 4.03 4.06 N/A N/A 4.05
---------------------------------------------------------------------------------------------------------
</TABLE>
Table A-2 Annualized Total Return of the Sub-Accounts from Sub-Accounts'
Inception Date (March 31, 1997)
<TABLE>
<CAPTION>
-------------------------------------------------
FROM
SUB-ACCOUNT INCEPTION
DATE
-------------------------------------------------
<S> <C>
Small Cap Growth - (1)(4) 20.02
-------------------------------------------------
World Equity - (4) 10.83
-------------------------------------------------
Growth - (1)(4) 24.19
-------------------------------------------------
Matrix Equity - (3)(4) 22.55
-------------------------------------------------
Growth & Income - (4) 23.45
-------------------------------------------------
Multiple Strategies - (4) 21.33
-------------------------------------------------
High Income Bond - (4) 10.59
-------------------------------------------------
US Gov. Bond - (4) 9.08
-------------------------------------------------
Prime Money Fund II - (4) 2.87
-------------------------------------------------
</TABLE>
(1) Prior to May 1, 1997, the VIST Small Cap Growth Portfolio was named the
VIST "Small Cap Portfolio," and the VIST Growth Portfolio was named the
VIST "Common Stock Portfolio." The names of the corresponding Sub-Accounts
were, respectively, "Small Cap Sub-Account" and "Common Stock Sub-Account".
(2) On April 1, 1994, First Variable Advisory Services Corp., an affiliate of
the Company, became the investment advisor. Prior to that date, results
were achieved by former investment advisers.
39
<PAGE> 40
(3) Prior to May 1, 1997, the VIST Matrix Equity Portfolio was named the VIST
"Tilt Utility Portfolio" and had different investment policies. The name
and objective of the corresponding Sub-Account also differed.
(4) Performance information reflects any fee waivers and expense reimbursements
with respect to the Portfolios. Absent such waivers or reimbursements, the
performance shown would have been lower.
Performance information shown above for any Sub-Account reflects only the
performance of an assumed investment in the Sub-Account for the Policies during
the particular time period on which the calculations are based. Performance
information should be considered in light of the investment objectives and
policies, characteristics and quality of the Portfolio in which the Sub-Account
invests and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future. Actual
returns may be more or less than those shown and will depend on a number of
factors, including the investment allocations by an Owner and the different
investment rates of return for the Portfolios.
40
<PAGE> 41
APPENDIX: B
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES,
CASH SURRENDER VALUES AND ACCUMULATED VALUE OF PREMIUMS
The tables in Appendix B illustrate the way the Policies 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 payment of an annual premium of $1,275 for a male Age 45 and $2,100
for a male Age 55; and a Face Amount of $100,000. The males aged 45 and 55 are
assumed to be in the Preferred - standard premium risk class. The tables are
first given based on current (i.e., non-guaranteed) premium load, administrative
expense charge, cost of insurance rates, and mortality and expense risk charge,
and the policy benefit charge and expected Premium Value Bonuses and Cash Value
Bonuses beginning in the 9th Policy Year. The next tables are based on the
guaranteed premium load, administrative expense charge, cost of insurance rates,
and mortality and expense risk charge, and the policy benefit charge and the
guaranteed Premium Value Bonuses beginning in the 9th Policy Year.
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 Portfolios, at an annual rate of 1.12% of the average
daily net assets of the Portfolios. 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 "Highlights")
Taking account of any daily charges for mortality and expense risks and
administrative expense in the Separate Account and the average investment
advisory fee and operating expenses of the Portfolios, the gross current annual
rates of return of 0%, 6% and 12% correspond to net investment experience at
constant annual rates of -1.62%, 4.38% and 10.38%, respectively, for the
"current" tables, and -2.02%, 3.98% and 9.98% respectively, for the "guaranteed"
tables. 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
assumed premiums were invested to earn interest, after taxes of 5% per year,
compounded annually.
41
<PAGE> 42
MALE ISSUE AGE 45
PREFERRED STANDARD PREMIUM RATE CLASS - $1,275 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
CURRENT POLICY CHARGES AND BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
----------------------------------------------------------------------------------------------------
Premiums 0% (1)(2)(3) 6% (1)(2)(3) 12% (1)(2)(3)
Premiums ------------------------------ ------------------------------- -------------------------------
End of Accumulated Cash Cash Cash
Policy at 5% Account Surrender Death Account Surrender Death Account Surrender Death
Year Interest(1) Value Value Benefit Value Value Benefit Value Value Benefit
------ ----------- ------- --------- ------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,339 842 45 100,000 905 108 100,000 967 171 100,000
2 2,744 1,630 36 100,000 1,807 213 100,000 1,992 399 100,000
3 4,220 2,400 806 100,000 2,744 1,151 100,000 3,120 1,526 100,000
4 5,770 3,128 1,534 100,000 3,694 2,100 100,000 4,335 2,741 100,000
5 7,397 3,863 2,269 100,000 4,705 3,111 100,000 5,699 4,106 100,000
6 9,106 4,591 3,316 100,000 5,769 4,494 100,000 7,216 5,941 100,000
7 10,900 5,315 4,359 100,000 6,888 5,932 100,000 8,903 7,947 100,000
8 12,784 6,021 5,224 100,000 8,054 7,257 100,000 10,767 9,970 100,000
9 14,762 6,749 6,111 100,000 9,309 8,671 100,000 12,868 12,230 100,000
10 16,839 7,388 6,910 100,000 10,543 10,065 100,000 15,115 14,637 100,000
15 28,888 9,614 9,614 100,000 16,761 16,761 100,000 29,706 29,706 100,000
20 44,267 9,409 9,409 100,000 22,069 22,069 100,000 51,602 51,602 100,000
25 63,895 8,058 8,058 100,000 27,581 27,581 100,000 87,291 87,291 100,500
30 88,945 6,758 6,758 100,000 34,786 34,786 100,000 148,566 148,566 157,677
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(3) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following nonguaranteed factors for Policy Years 9 and after:
Premium Value Bonus Percentage: 11% Cash Value Bonus Percentage: Cash Surrender Value less than $25,000: .00%
Cash Surrender Value $25,000 to $100,000: .10%
Cash Surrender Value $100,001 or more: .15%
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A 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 POLICY 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.
42
<PAGE> 43
MALE ISSUE AGE 45
PREFERRED STANDARD PREMIUM RATE CLASS - $1,275 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
GUARANTEED POLICY CHARGES AND BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
----------------------------------------------------------------------------------------------------
Premiums 0% (1)(2)(3) 6% (1)(2)(3) 12% (1)(2)(3)
Premiums ------------------------------ ------------------------------- -------------------------------
End of Accumulated Cash Cash Cash
Policy at 5% Account Surrender Death Account Surrender Death Account Surrender Death
Year Interest(1) Value Value Benefit Value Value Benefit Value Value Benefit
------ ----------- ------- --------- ------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,339 753 0 100,000 812 15 100,000 871 74 100,000
2 2,744 1,473 0 100,000 1,638 44 100,000 1,810 217 100,000
3 4,220 2,149 555 100,000 2,467 873 100,000 2,814 1,220 100,000
4 5,770 2,793 1,200 100,000 3,312 1,718 100,000 3,900 2,306 100,000
5 7,397 3,395 1,801 100,000 4,160 2,566 100,000 5,065 3,472 100,000
6 9,106 3,941 2,666 100,000 5,000 3725 100,000 6,306 5,031 100,000
7 10,900 4,434 3,478 100,000 5,832 4,876 100,000 7,631 6,674 100,000
8 12,784 4,874 4,077 100,000 6,655 5,858 100,000 9,048 8,251 100,000
9 14,762 5,312 4,674 100,000 7,521 6,883 100,000 10,621 9,984 100,000
10 16,839 5,674 5,196 100,000 8,355 7,877 100,000 12,289 11,810 100,000
15 28,888 6,133 6,133 100,000 11,733 11,733 100,000 22,152 22,152 100,000
20 44,267 3,458 3,458 100,000 12,441 12,441 100,000 34,679 34,679 100,000
25 63,895 7,660 766 100,000 11,247 11,247 100,000 53,196 53,196 100,000
30 88,945 0 0 0 9,736 9,736 100,000 84,283 84,283 100,000
</TABLE>
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(3) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following guaranteed factors for Policy Years 9 and after:
Premium Value Bonus Percentage: 6% Cash Value Bonus Percentage: .00%
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A 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 POLICY 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.
43
<PAGE> 44
MALE ISSUE AGE 55
PREFERRED STANDARD PREMIUM RATE CLASS - $2,100 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
CURRENT POLICY CHARGES AND BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
----------------------------------------------------------------------------------------------------
Premiums 0% (1)(2)(3) 6% (1)(2)(3) 12% (1)(2)(3)
Premiums ------------------------------ ------------------------------- -------------------------------
End of Accumulated Cash Cash Cash
Policy at 5% Account Surrender Death Account Surrender Death Account Surrender Death
Year Interest(1) Value Value Benefit Value Value Benefit Value Value Benefit
------ ----------- ------- --------- ------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,205 1,351 38 100,000 1,453 140 100,000 1,555 243 100,000
2 4,520 2,537 0 100,000 2,822 197 100,000 3,120 495 100,000
3 6,951 3,618 993 100,000 4,163 1,538 100,000 4,758 2,133 100,000
4 9,504 4,619 1,994 100,000 5,502 2,877 100,000 6,504 3,879 100,000
5 12,184 5,578 2,953 100,000 6,873 4,248 100,000 8,408 5,783 100,000
6 14,998 6,493 4,393 100,000 8,278 6,178 100,000 10,487 8,387 100,000
7 17,953 7,353 5,778 100,000 9,708 8,133 100,000 12,748 11,173 100,000
8 21,056 8,136 6,823 100,000 11,139 9,826 100,000 15,186 13,874 100,000
9 24,314 8,909 7,859 100,000 12,641 11,591 100,000 17,894 16,844 100,000
10 27,734 9,499 8,711 100,000 14,038 13,250 100,000 20,715 19,928 100,000
15 47,581 9,960 9,960 100,000 19,502 19,502 100,000 37,494 37,494 100,000
20 72,910 4,472 4,472 100,000 19,727 19,727 100,000 58,360 58,360 100,000
25 105,238 0 0 0 16,364 16,364 100,000 89,562 89,562 100,000
30 146,498 0 0 0 12,025 12,025 100,000 143,199 143,199 149,342
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(3) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following nonguaranteed factors for Policy Years 9 and after:
Premium Value Bonus Percentage: 11% Cash Value Bonus Percentage: Cash Surrender Value less than $25,000: .00%
Cash Surrender Value $25,000 to $100,000: .10%
Cash Surrender Value $100,001 or more: .15%
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A 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 POLICY 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.
44
<PAGE> 45
MALE ISSUE AGE 55
PREFERRED STANDARD PREMIUM RATE CLASS - $2,100 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
GUARANTEED POLICY CHARGES AND BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
----------------------------------------------------------------------------------------------------
Premiums 0% (1)(2)(3) 6% (1)(2)(3) 12% (1)(2)(3)
Premiums ------------------------------ ------------------------------- -------------------------------
End of Accumulated Cash Cash Cash
Policy at 5% Account Surrender Death Account Surrender Death Account Surrender Death
Year Interest(1) Value Value Benefit Value Value Benefit Value Value Benefit
------ ----------- ------- --------- ------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,205 1,072 0 100,000 1,164 0 100,000 1,256 0 100,000
2 4,520 2,049 0 100,000 2,298 0 100,000 2,559 0 100,000
3 6,951 2,931 306 100,000 3,401 776 100,000 3,915 1,290 100,000
4 9,504 3,707 1,082 100,000 4,458 1,833 100,000 5,315 2,690 100,000
5 12,184 4,356 1,731 100,000 5,444 2,819 100,000 6,741 4,116 100,000
6 14,998 4,878 2,778 100,000 6,355 4,255 100,000 8,194 6,094 100,000
7 17,953 5,264 3,689 100,000 7,175 5,600 100,000 9,665 8,090 100,000
8 21,056 5,478 4,166 100,000 7,863 6,550 100,000 11,117 9,805 100,000
9 24,314 5,616 4,566 100,000 8,507 7,457 100,000 12,648 11,598 100,000
10 27,734 5,563 4,775 100,000 8,985 8,198 100,000 14,141 13,353 100,000
15 47,581 1,674 1,674 100,000 7,702 7,702 100,000 19,900 19,900 100,000
20 72,910 0 0 0 0 0 0 17,885 17,885 100,000
25 105,238 0 0 0 0 0 0 7,122 7,122 100,000
30 146,498 0 0 0 0 0 0 0 0 0
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(3) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following guaranteed factors for Policy Years 9 and after:
Premium Value Bonus Percentage: 6% Cash Value Bonus Percentage: .00%
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A 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 POLICY 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.
45
<PAGE> 46
APPENDIX: C FINANCIAL STATEMENTS
The financial statements of the Company contained in this prospectus should be
considered to bear only upon the ability of the Company to meet its obligations
under the Policies. They should not be considered as bearing upon the investment
experience of the Separate Account.
The following financial statements are included in this Appendix:
First Variable Life Insurance Company Separate Account VL
Financial Statements at December 31, 1997 and for the period then ended
First Variable Life Insurance Company
Consolidated Financial Statements at December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997
46
<PAGE> 47
First Variable Life Insurance Company -
First Variable Separate Account VL
Financial Statements
Period ended December 31, 1997
47
<PAGE> 48
Report of Independent Auditors
To the Board of Directors of First Variable Life Insurance Company
and Contract Owners of First Variable Separate Account VL
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of First Variable Life Insurance Company--First Variable Separate
Account VL as of December 31, 1997, and the related statements of operations and
changes in contract owners' equity for the period from March 31, 1997
(commencement of operations) through December 31, 1997. These financial
statements are the responsibility of First Variable Life Insurance Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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.
Our procedures included confirmation of the securities owned as of December 31,
1997 by correspondence with Variable Investors Series Trust and Federated
Investors. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Variable Life Insurance
Company--First Variable Separate Account VL at December 31, 1997, and the
results of its operations and the changes in its contract owners' equity for the
period from March 31, 1997 through December 31, 1997, in conformity with
generally accepted accounting principles.
Boston, Massachusetts
January 30, 1998
48
<PAGE> 49
First Variable Life Insurance Company--
First Variable Separate Account VL
Statement of Assets, Liabilities and
Contract Owners' Equity
December 31, 1997
<TABLE>
<CAPTION>
HIGH U.S.
FEDERATED INCOME MULTIPLE MATRIX GOVERNMENT
PRIME MONEY GROWTH BOND STRATEGIES EQUITY BOND
TOTAL FUND II DIVISION DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in Variable Investors
Series Trust, at value (cost
$4,421,491) $4,108,154 $812,838 $775,603 $404,737 $247,969 $106,295
Investments in Federated Prime
Money Fund II, at value (cost
$58,464) 58,464 $58,464
Receivable from First Variable
Life Insurance Company 61,400 16,797
---------- ------- -------- -------- -------- -------- --------
Total assets $4,228,018 $58,464 $829,635 $775,603 $404,737 $247,969 $106,295
========== ======= ======== ======== ======== ======== ========
LIABILITIES
Payable to First Variable Life
Insurance Company $ 7,908 $ 209 $ 44 $ 2,669 $ 94 $ 30
CONTRACT OWNERS' EQUITY
Variable annuity contract
owners' equity 4,220,110 58,255 $829,635 775,559 402,068 247,875 106,265
---------- ------- -------- -------- -------- -------- --------
Total liabilities and contract
owners' equity $4,228,018 $58,464 $829,635 $775,603 $404,737 $247,969 $106,295
========== ======= ======== ======== ======== ======== ========
<CAPTION>
WORLD GROWTH & SMALL CAP
EQUITY INCOME GROWTH
DIVISION DIVISION DIVISION
--------------------------------
<S> <C> <C> <C>
ASSETS
Investments in Variable Investors
Series Trust, at value (cost
$4,421,491) $384,193 $791,364 $585,155
Investments in Federated Prime
Money Fund II, at value (cost
$58,464)
Receivable from First Variable
Life Insurance Company 35,041 9,562
-------- -------- --------
Total assets $384,193 $826,405 $594,717
======== ======== ========
LIABILITIES
Payable to First Variable Life
Insurance Company $ 4,862
CONTRACT OWNERS' EQUITY
Variable annuity contract
owners' equity 379,331 $826,405 $594,717
-------- -------- --------
Total liabilities and contract
owners' equity $384,193 $826,405 $594,717
======== ======== ========
</TABLE>
See accompanying notes.
49
<PAGE> 50
First Variable Life Insurance Company--
First Variable Separate Account VL
Statement of Operations
Period ended December 31, 1997
<TABLE>
<CAPTION>
HIGH U.S.
FEDERATED INCOME MULTIPLE MATRIX GOVERNMENT
PRIME MONEY GROWTH BOND STRATEGIES EQUITY BOND
TOTAL FUND II DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 318,972 $1,324 $ 55,535 $ 47,215 $ 29,289 $ 51,350 $ 6,135
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 25,431 664 5,513 3,913 2,033 1,218 664
--------- ------ -------- -------- -------- -------- -------
Total expenses 25,431 664 5,513 3,913 2,033 1,218 664
--------- ------ -------- -------- -------- -------- -------
Net investment income 293,541 660 50,022 43,302 27,256 50,132 5,471
Realized and unrealized gain (loss)
on investments:
Realized gain on Variable
Investors Series Trust shares
redeemed 30,991 -- 6,149 4,237 4,035 1,214 115
Net unrealized depreciation on
investments during the period (313,337) -- (59,827) (38,178) (27,549) (46,673) (4,328)
--------- ------ -------- -------- -------- -------- -------
Net realized and unrealized loss on
investments (282,346) -- (53,678) (33,941) (23,514) (45,459) (4,213)
--------- ------ -------- -------- -------- -------- -------
Net increase (decrease) in contract
owners' equity resulting from
operations $ 11,195 $ 660 $ (3,656) $ 9,361 $ 3,742 $ 4,673 $ 1,258
========= ====== ======== ======== ======== ======== =======
<CAPTION>
WORLD GROWTH & SMALL CAP
EQUITY INCOME GROWTH
DIVISION DIVISION DIVISION
--------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends $ 48,451 $ 61,509 $ 18,164
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 2,723 4,778 3,925
-------- -------- --------
Total expenses 2,723 4,778 3,925
-------- -------- --------
Net investment income 45,728 56,731 14,239
Realized and unrealized gain (loss)
on investments:
Realized gain on Variable
Investors Series Trust shares
redeemed 1,148 9,851 4,242
Net unrealized depreciation on
investments during the period (56,711) (38,508) (41,563)
-------- -------- --------
Net realized and unrealized loss on
investments (55,563) (28,657) (37,321)
-------- -------- --------
Net increase (decrease) in contract
owners' equity resulting from
operations $ (9,835) $ 28,074 $(23,082)
======== ======== ========
</TABLE>
See accompanying notes.
50
<PAGE> 51
First Variable Life Insurance Company--
First Variable Separate Account VL
Statement of Changes in Contract Owners' Equity
Period ended December 31, 1997
<TABLE>
<CAPTION>
HIGH U.S.
FEDERATED INCOME MULTIPLE MATRIX GOVERNMENT
PRIME MONEY GROWTH BOND STRATEGIES EQUITY BOND
TOTAL FUND II DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 293,541 $ 660 $ 50,022 $ 43,302 $ 27,256 $ 50,132 $ 5,471
Realized gain on Variable Investors
Series Trust shares redeemed 30,991 6,149 4,237 4,035 1,214 115
Net unrealized depreciation on
investments during the period (313,337) (59,827) (38,178) (27,549) (46,673) (4,328)
----------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) in contract
owners' equity resulting from
operations 11,195 660 (3,656) 9,361 3,742 4,673 1,258
----------- --------- --------- --------- --------- --------- ---------
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale of
accumulation units 4,204,473 225,761 725,575 786,740 431,203 237,690 86,790
Cost of accumulation units
terminated and exchanged 4,442 (168,166) 107,716 (20,542) (32,877) 5,512 18,217
----------- --------- --------- --------- --------- --------- ---------
Increase in contract owners' equity
from contract owner transactions 4,208,915 57,595 833,291 766,198 398,326 243,202 105,007
----------- --------- --------- --------- --------- --------- ---------
Increase in contract owners' equity
and balance at end of period $ 4,220,110 $ 58,255 $ 829,635 $ 775,559 $ 402,068 $ 247,875 $ 106,265
=========== ========= ========= ========= ========= ========= =========
<CAPTION>
WORLD GROWTH & SMALL CAP
EQUITY INCOME GROWTH
DIVISION DIVISION DIVISION
--------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income $ 45,728 $ 56,731 $ 14,239
Realized gain on Variable Investors
Series Trust shares redeemed 1,148 9,851 4,242
Net unrealized depreciation on
investments during the period (56,711) (38,508) (41,563)
--------- --------- ---------
Net increase (decrease) in contract
owners' equity resulting from
operations (9,835) 28,074 (23,082)
--------- --------- ---------
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale of
accumulation units 414,940 808,742 487,032
Cost of accumulation units
terminated and exchanged (25,774) (10,411) 130,767
--------- --------- ---------
Increase in contract owners' equity
from contract owner transactions 389,166 798,331 617,799
--------- --------- ---------
Increase in contract owners' equity
and balance at end of period $ 379,331 $ 826,405 $ 594,717
========= ========= =========
</TABLE>
See accompanying notes.
51
<PAGE> 52
First Variable Life Insurance Company--First Variable Separate Account VL
Notes to Financial Statements
December 31, 1997
1. ORGANIZATION
First Variable Separate Account VL (the Fund), which began operations on March
31, 1997, is a segregated account of First Variable Life Insurance Company
(First Variable Life) and is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Eight of the nine
investment divisions of the Fund are invested solely in the shares of the eight
corresponding portfolios of the Variable Investors Series Trust (the Trust), a
no-load, diversified, open-end, series management investment company registered
under the 1940 Act. The remaining investment division is invested in the
Federated Prime Money Fund II (Federated), a portfolio of Federated Insurance
Series Trust, an open-end management investment company. Under applicable
insurance law, the assets and liabilities of the Fund are clearly identified and
distinguished from the other assets and liabilities of First Variable Life. The
Fund cannot be charged with liabilities arising out of any other business of
First Variable Life.
First Variable Life is a wholly-owned subsidiary of Irish Life of North America,
Inc. (ILoNA), which is a wholly-owned subsidiary of Irish Life, plc. (Irish
Life) of Dublin, Ireland. First Variable Life is domiciled in the State of
Arkansas.
The assets of the Fund are not available to meet the general obligations of
First Variable Life or ILoNA and are held for the exclusive benefit of the
contract owners participating in the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
INVESTMENTS
The investments in shares of the Trust and Federated are stated at the net asset
value per share of the respective portfolios of the Trust and Federated.
Investment transactions are accounted for on the date the shares are purchased
or sold. The cost of shares sold and redeemed is determined on the first-in,
first-out method. Dividends and capital gain distributions received from the
Trust and Federated are reinvested in additional shares of the Trust and
Federated and are recorded as income by the Fund on the ex-dividend date.
FEDERAL INCOME TAXES
For federal income tax purposes, operations of the Fund are combined with those
of First Variable Life, which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
52
<PAGE> 53
First Variable Life Insurance Company--First Variable Separate Account VL
Notes to Financial Statements (continued)
3. INVESTMENTS
The following table presents selected data for investments in each of the
Portfolios of the Trust at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF NET ASSET
SHARES COST VALUE
-----------------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II 58,464 $ 58,464 $ 58,464
Growth Portfolio 23,423 872,665 812,838
High Income Bond Portfolio 79,794 813,781 775,603
Multiple Strategies Portfolio 28,588 432,286 404,737
Matrix Equity Portfolio 17,370 294,642 247,969
U.S. Government Bond Portfolio 10,461 110,623 106,295
World Equity Portfolio 27,278 440,904 384,193
Growth & Income Portfolio 54,325 829,872 791,364
Small Cap Growth Portfolio 37,563 626,718 585,155
----------------------------
Totals $4,479,955 $4,166,618
============================
</TABLE>
4. CONTRACT OWNERS' EQUITY
Variable life contract owners' equity at December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE EQUITY
-----------------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II 5,668 10.278 $ 58,255
Growth Division 66,852 12.410 829,635
High Income Bond Division 70,186 11.050 775,559
Multiple Strategies Division 33,163 12.124 402,068
Matrix Equity Division 20,241 12.246 247,875
U.S. Government Bond Division 9,750 10.899 106,265
World Equity Division 34,254 11.074 379,331
Growth & Income Division 66,991 12.336 826,405
Small Cap Growth Division 49,589 11.993 594,717
----------
Totals $4,220,110
==========
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of Trust and Federated shares by the
Fund during the period ended December 31, 1997 are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
----------------------------
<S> <C> <C>
Federated Prime Money Fund II $ 315,220 $ 256,756
Growth Portfolio 957,871 91,355
High Income Bond Portfolio 1,057,385 247,841
Multiple Strategies Portfolio 638,810 210,559
Matrix Equity Portfolio 326,291 32,863
U.S. Government Bond Portfolio 190,319 79,811
World Equity Portfolio 566,117 126,361
Growth & Income Portfolio 972,137 152,116
Small Cap Growth Portfolio 686,076 63,600
----------------------------
Totals $5,710,226 $1,261,262
============================
</TABLE>
53
<PAGE> 54
First Variable Life Insurance Company--First Variable Separate Account VL
Notes to Financial Statements (continued)
6. EXPENSES
First Variable Life charges the Fund, based on the value of the Fund, at an
annual rate of 0.90% for mortality risks, 0.20% for distribution expense risks,
.40% for administrative expense risks, .25% for premium taxes and .20% for
federal taxes. Total charges to the Fund for all the policy forms for the year
ended December 31, 1997 were $25,431.
7. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
life contract, other than a contract issued in connection with certain types of
employee benefits plans, will not be treated as a life contract for federal tax
purposes for any period for which the investments of the segregated asset
account on which the contract is based are not adequately diversified. The Code
provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
Treasury.
The Internal Revenue Service has issued regulations under section 817(h) of the
Code. First Variable Life believes that the Fund satisfies the current
requirements of the regulations, and it intends that the Fund will continue to
meet such requirements.
8. PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR
First Variable Capital Services, Inc., a wholly-owned subsidiary of First
Variable Life, is principal underwriter and general distributor of the contracts
issued through the Fund.
9. YEAR 2000 ISSUES (UNAUDITED)
Like other investment funds and financial and business organizations around the
world, the Fund could be adversely affected if the computer systems of First
Variable Life and those of its service providers do not properly process and
calculate date-related information and data from and after January 1, 2000.
First Variable Life has completed an assessment of the Year 2000 impact on its
systems, procedures, customers and business processes. At December 31, 1997,
management of First Variable Life is satisfied that their main operating systems
are Year 2000 compliant. First Variable Life is reviewing its general office
systems and will be contacting its service providers during 1998. First Variable
Life believes it will complete the Year 2000 project not later than December 31,
1998, which is prior to any anticipated impact on its operating systems.
The date on which First Variable Life believes it will complete the Year 2000
project is based on its management's best estimates. Although there can be no
guarantee that these estimates will be achieved, its management does not at this
time believe that actual results will differ materially from those anticipated.
Specific factors that might cause such material differences would most likely
result from First Variable Life's service providers.
54
<PAGE> 55
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, 1997 and 1996, and the
related consolidated statements of income, changes in stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
55
<PAGE> 56
First Variable Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities-available-for-sale, at
fair value (amortized cost:
1997-$274,439,000; 1996-$278,305,000) $294,961,000 $294,195,000
Option contracts 1,057,000 94,000
Equity securities-available-for-sale, at
fair value (cost: $684,000 in 1997 and 1996) 825,000 691,000
Policy loans 267,000 --
------------------------------
Total investments 297,110,000 294,980,000
Cash and cash equivalents 3,029,000 2,433,000
Accrued investment income 5,744,000 5,636,000
Deferred policy acquisition costs 7,520,000 5,486,000
Value of insurance in force acquired (Note 4) 16,939,000 19,494,000
Property and equipment, less allowances for depreciation
of $773,000 in 1997 and $508,000 in 1996 445,000 649,000
Goodwill, less accumulated amortization of $475,000
in 1997 and $329,000 in 1996 2,448,000 2,594,000
Other assets 732,000 2,273,000
Assets held in separate accounts 219,807,000 176,306,000
------------------------------
Total assets $553,774,000 $509,851,000
==============================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for annuity and life products $233,988,000 $239,509,000
Unearned revenue reserve 282,000 52,000
Supplementary contracts without life contingencies 21,711,000 21,008,000
Deferred income tax liability (Note 5) 6,692,000 5,642,000
Other liabilities 2,837,000 938,000
Liabilities related to separate accounts 219,807,000 176,306,000
------------------------------
Total liabilities 485,317,000 443,455,000
Commitments and contingencies (Note 8)
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 (Note 3) 9,066,000 7,324,000
Retained earnings 3,787,000 3,468,000
------------------------------
Total stockholder's equity 68,457,000 66,396,000
------------------------------
Total liabilities and stockholder's equity $553,774,000 $509,851,000
==============================
</TABLE>
See accompanying notes.
56
<PAGE> 57
First Variable Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Revenues:
Annuity and life product charges $ 3,141,000 $ 2,408,000 $ 1,786,000
Net investment income 22,597,000 23,458,000 23,465,000
Realized gains on investments 1,227,000 972,000 900,000
Other income 1,368,000 1,114,000 829,000
---------------------------------------------
Total revenues 28,333,000 27,952,000 26,980,000
Benefits and expenses:
Annuity and life benefits 14,856,000 16,336,000 16,694,000
Underwriting, acquisition and insurance
expenses 9,915,000 7,275,000 6,600,000
Management fee paid to parent 480,000 480,000 480,000
Other expenses 2,610,000 1,421,000 1,269,000
---------------------------------------------
Total benefits and expenses 27,861,000 25,512,000 25,043,000
---------------------------------------------
Income before income taxes 472,000 2,440,000 1,937,000
Income taxes 153,000 836,000 666,000
---------------------------------------------
Net income $ 319,000 $ 1,604,000 $ 1,271,000
=============================================
</TABLE>
See accompanying notes.
57
<PAGE> 58
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>
Balance at January 1, 1995 $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
Net income for 1997 -- -- -- 319,000 319,000
Change in net unrealized
investment gains/losses -- -- 1,742,000 -- 1,742,000
---------------------------------------------------------------------------------
Balance at December 31, 1997 $2,500,000 $53,104,000 $ 9,066,000 $ 3,787,000 $68,457,000
=================================================================================
</TABLE>
See accompanying notes.
58
<PAGE> 59
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 319,000 $ 1,604,000 $ 1,271,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Adjustments related to interest-sensitive
products:
Annuity benefits 14,856,000 16,336,000 16,694,000
Annuity product charges (3,141,000) (2,408,000) (1,786,000)
Realized gains on investments (1,227,000) (972,000) (900,000)
Policy acquisition costs deferred (3,208,000) (2,800,000) (3,693,000)
Amortization of deferred policy acquisition costs 594,000 360,000 132,000
Provision for depreciation and other amortization 937,000 524,000 481,000
Provision for deferred income taxes 153,000 836,000 666,000
Other 3,560,000 (1,949,000) (6,765,000)
-----------------------------------------------
Net cash provided by operating activities 12,843,000 11,531,000 6,100,000
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities-available-for-sale 24,657,000 21,770,000 19,378,000
Equity securities -- -- 1,807,000
-----------------------------------------------
24,657,000 21,770,000 21,185,000
Acquisition of investments:
Fixed maturities-available-for-sale (19,142,000) (7,517,000) (74,567,000)
Equity securities -- -- (1,500,000)
Option contracts (963,000) (94,000) --
-----------------------------------------------
(20,105,000) (7,611,000) (76,067,000)
Policy loans and other (267,000) (193,000) (252,000)
-----------------------------------------------
Net cash provided (used) by investing activities 4,285,000 13,966,000 (55,134,000)
</TABLE>
59
<PAGE> 60
First Variable Life Insurance Company
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Receipts from interest-sensitive products credited
to policyholder account balances $ 64,181,000 $ 58,175,000 $ 67,063,000
Return of policyholder account balances on
interest-sensitive products (80,713,000) (86,824,000) (72,196,000)
Contribution from parent -- -- 5,000,000
--------------------------------------------------
Net cash used in financing activities (16,532,000) (28,649,000) (133,000)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 596,000 (3,152,000) (49,167,000)
Cash and cash equivalents at beginning of year 2,433,000 5,585,000 54,752,000
--------------------------------------------------
Cash and cash equivalents at end of year $ 3,029,000 $ 2,433,000 $ 5,585,000
==================================================
</TABLE>
See accompanying notes.
60
<PAGE> 61
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1997
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 and variable universal life products through regional
wholesalers and insurance brokers.
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, 1997 and 1996, 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.
61
<PAGE> 62
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Option contracts are carried at unamortized premium paid for the contract
adjusted for increases in their intrinsic value from increases in the S&P 500
index.
Policy loans are carried at unpaid principal balances.
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 designated as available for sale and are
reported at fair value. The change in unrealized gain and loss of 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 write-down 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
write-down 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.
62
<PAGE> 63
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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%.
For variable universal life insurance and investment products, 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 indications 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 write-downs during the periods
ended December 31, 1997, 1996 or 1995.
63
<PAGE> 64
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE POLICY BENEFITS
Future policy benefit reserves for annuity and variable universal life 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 1997 and 1996, and 4.5% to 6.8% in 1995.
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 related asset or liability from period to period.
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 and variable universal life 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.
64
<PAGE> 65
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Approximately 42%, 68% and 49% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1997, 1996 and 1995,
respectively, were written through three wholesalers. 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.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (SFAS 130), which is effective for years beginning after December 15,
1997. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 will require that enterprises (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS 130 will not have any impact on the Company's consolidated
results of operations, financial position or cash flows.
65
<PAGE> 66
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.
Option Contracts: The fair values for option contracts are based on
settlement values, quoted market prices of comparable instruments and
fees currently charged to enter into similar loans offered to borrowers
with similar credit ratings. Similar characteristics are aggregated for
the purposes of the calculations.
Equity Securities: The fair values for equity securities are based on
quoted market prices.
Policy Loans and Other Loans Receivable: The Company has not determined
the fair values associated with its policy loans and other loans
receivable as management believes any differences between the Company's
carrying value and the fair values afforded these instruments are
immaterial to the Company's financial position and, accordingly, the cost
to provide such disclosure would exceed the benefit derived. At December
31, 1997, the interest rate related to the outstanding policy loans is
5%.
66
<PAGE> 67
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
Future Policy Benefits for Annuity and Life Products 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 Company is not required to and has not estimated
fair value of its liabilities under other contracts.
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities-
available-for-sale $294,961,000 $294,961,000 $294,195,000 $294,195,000
Option contracts 1,057,000 1,057,000 94,000 94,000
Equity securities 825,000 825,000 691,000 691,000
Policy loans 267,000 267,000 -- --
Cash and cash equivalents 3,029,000 3,029,000 2,433,000 2,433,000
Assets held in separate
accounts 219,807,000 219,807,000 176,306,000 176,306,000
LIABILITIES
Future policy benefits for
annuity and life products 233,988,000 233,988,000 239,509,000 239,562,000
Supplementary contracts
without life
contingencies 21,711,000 21,711,000 21,008,000 21,008,000
Liabilities related to
separate accounts 219,807,000 219,807,000 176,306,000 176,306,000
</TABLE>
67
<PAGE> 68
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,
1997 and 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturities-available-for-sale:
United States Government and agencies:
Mortgage and asset-backed securities $ 24,133,000 $ 730,000 $(283,000) $ 24,580,000
Other 23,546,000 1,391,000 (138,000) 24,799,000
State, municipal and other governments 3,991,000 250,000 -- 4,241,000
Public utilities 69,972,000 8,299,000 (303,000) 77,968,000
Industrial and miscellaneous 152,797,000 10,758,000 (182,000) 163,373,000
---------------------------------------------------------------
Total fixed maturities-available-for-sale $274,439,000 $21,428,000 $(906,000) $294,961,000
===============================================================
Equity securities $ 684,000 $ 141,000 $ -- $ 825,000
===============================================================
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
===============================================================
</TABLE>
68
<PAGE> 69
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 December31, 1997, 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.
<TABLE>
<CAPTION>
ESTIMATED
MARKET
AMORTIZED COST VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $ 4,969,000 $ 4,999,000
Due after one year through five years 71,798,000 74,535,000
Due after five years through ten years 97,448,000 104,134,000
Due after ten years 76,091,000 86,713,000
Mortgage and asset-backed securities 24,133,000 24,580,000
-------------------------------
$274,439,000 $294,961,000
===============================
</TABLE>
The unrealized gain or loss 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:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------
<S> <C> <C>
Unrealized appreciation on fixed-maturity and equity
securities available-for-sale $20,663,000 $15,897,000
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs (1,780,000) (1,200,000)
Value of insurance in force acquired (5,157,000) (3,600,000)
Provision for deferred income tax benefit (4,660,000) (3,773,000)
--------------------------
Net unrealized investment gains $ 9,066,000 $ 7,324,000
==========================
</TABLE>
69
<PAGE> 70
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Income from:
Fixed maturities-available-for-sale $22,183,000 $23,364,000 $22,635,000
Cash and cash equivalents 225,000 288,000 1,051,000
Option contracts 474,000 -- --
---------------------------------------------
22,882,000 23,652,000 23,686,000
Less investment expenses (285,000) (194,000) (221,000)
-----------------------------------------------
Net investment income $22,597,000 $23,458,000 $23,465,000
===============================================
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized gain (loss) on investments
are summarized below:
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
REALIZED
Fixed maturities-available-for-sale $1,227,000 $ 972,000 $ 593,000
Equity securities -- -- 307,000
----------------------------------------------
Realized gains on investments $1,227,000 $ 972,000 $ 900,000
UNREALIZED
Fixed maturities-available-for-sale $4,632,000 $(12,756,000) $33,437,000
Equity securities 134,000 369,000 (133,000)
----------------------------------------------
Change in unrealized
appreciation/depreciation of investments $4,766,000 $(12,387,000) $33,304,000
==============================================
</TABLE>
70
<PAGE> 71
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 3l, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
----------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1997
Scheduled principal repayments
and calls $11,636,000 $ 447,000 -- $12,083,000
Sales 11,795,000 851,000 $ (72,000) 12,574,000
----------------------------------------------------------------
Total $23,431,000 $1,298,000 $ (72,000) $24,657,000
================================================================
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
================================================================
December 31, 1995
Scheduled principal repayments
and ca!Is $ 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
================================================================
</TABLE>
Income taxes during the periods ended December 31, 1997, 1996 and 1995 include a
provision of $416,000, $331,000 and $306,000, respectively, for the tax effect
of realized gains.
71
<PAGE> 72
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
OTHER
At December 31, 1997, fixed maturities with a carrying value of $8,281,000 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 3l, 1997.
The Company has acquired call option contracts relating to its equity-indexed
annuity product to hedge increases in the S&P 500 index. The options are
purchased concurrently with the issuance of these annuity contracts and expire,
if not utilized, at the end of the annuities' term. The Company pays, at the
beginning of the option contract, a premium for transferring the risk of
unfavorable changes in the S&P 500 index. The carrying value of the option
contracts is based upon the unamortized premium paid for the contract adjusted
for increases in its intrinsic value from increases in the S&P 500 index. The
carrying value of these contracts was $1,057,000 and $94,000 at December 31,
1997 and 1996, respectively.
CONCENTRATIONS OF CREDIT RISK
The Company's investment in public utility bonds at December 31, 1997 represents
26% of total investments and 14% 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.
72
<PAGE> 73
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
-----------------------------
<S> <C> <C>
Excluding impact on net unrealized investment gains
and losses:
Balance at beginning of period $23,094,000 $23,833,000
Accretion of interest during the period 1,582,000 1,642,000
Amortization of asset (2,580,000) (2,381,000)
-----------------------------
Balance prior to impact of net unrealized investment
gains and losses 22,096,000 23,094,000
Offset against net unrealized investment gains and
losses (5,157,000) (3,600,000)
-----------------------------
Balance at end of period $16,939,000 $19,494,000
=============================
</TABLE>
Amortization of the value of insurance in force acquired for the next five years
ending December 31 is expected to be as follows: 1998-$1,113,000;
1999-$1,280,000; 2000-$1,430,000; 2001-$1,384,000 and 2002-$1,340,000.
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.
73
<PAGE> 74
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Taxes provided in consolidated
statements of income on income
before income taxes-deferred $ 153,000 $ 836,000 $ 666,000
---------------------------------------------
153,000 836,000 666,000
Taxes provided in consolidated
statements of changes in
stockholder's equity:
Amounts attributable to change in
net unrealized investment
gains/losses during year-deferred 897,000 (3,022,000) 8,499,000
---------------------------------------------
$1,050,000 $(2,186,000) $9,165,000
=============================================
</TABLE>
The effective tax rate on income before income taxes is different from the
prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 472,000 $2,440,000 $1,937,000
==========================================
Income tax at federal statutory rate (34%) $ 160,000 $ 830,000 $ 659,000
Tax effect (decrease) off:
Other (7,000) 6,000 7,000
------------------------------------------
Income tax expense $ 153,000 $ 836,000 $ 666,000
==========================================
</TABLE>
74
<PAGE> 75
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 3l, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 1,969,000 $ 1,524,000
Operating loss carryforwards 2,590,000 2,245,000
Other 124,000 20,000
------------------------------
4,683,000 3,789,000
Deferred tax liabilities:
Fixed-maturity and equity securities (5,946,000) (4,702,000)
Deferred policy acquisition costs (2,523,000) (1,908,000)
Value of insurance in force acquired (2,533,000) (2,453,000)
Other (373,000) (368,000)
------------------------------
(11,375,000) (9,431,000)
------------------------------
Deferred income tax liability $ (6,692,000) $(5,642,000)
==============================
</TABLE>
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $7,619,000 at December 31, 1997 which expire from
2009 to 2012.
6. RETIREMENT AND COMPENSATION PLANS
Substantially all full-time employees of the Company are covered by a
non-contributory 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, 1997, 1996 or 1995.
75
<PAGE> 76
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
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 1997) 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 $37,000, $27,000 and $24,000 for the
periods ended December 31, 1997, 1996 and 1995, 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
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 1998,
this annual limitation aggregates $3,360,000; 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 ($34,900,000 at
December 31, 1997) 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
76
<PAGE> 77
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCKHOLDER'S EQUITY (CONTINUED)
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 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 $1,240,000, $1,507,000 and $1,460,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Total statutory capital and
surplus was $33,556,000 at December 31, 1997 and $33,096,000 at December 31,
1996.
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 1998, 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.
77
<PAGE> 78
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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, 1997, 1996 and 1995, rent expense totaled $228,000, $206,000 and
$419,000, respectively. At December 31, 1997, minimum rental payments due under
all noncancelable operating leases with initial terms of one year or more are:
<TABLE>
<S> <C>
Year ending December 31:
1998 $230,000
1999 238,000
2000 241,000
2001 61,000
--------
$770,000
========
</TABLE>
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, 1997 and 1996, the Company has accrued $0 and $180,000,
respectively, for guaranty fund assessments based on its historical experience
and information available from those making guaranty fund assessments.
9. RELOCATION OF COMPANY
In December 1997, management decided to relocate the operations of the Company
from Boston to Illinois. As a result, at December 31, 1997, the Company accrued
a liability of $1,200,000, which relates to benefits for involuntarily
terminated employees, and certain other costs, including office and other lease
cancellations and write-down of furniture and equipment. The relocation is
expected to be completed by June 1998.
78
<PAGE> 79
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. YEAR 2000 ISSUES (UNAUDITED)
Like other financial and business organizations around the world, the Company
could be adversely affected if its computer systems and those of its service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The Company has completed an assessment of
the Year 2000 impact on its systems, procedures, customers and business
processes. At December 31, 1997, management is satisfied that their main
operating systems are Year 2000 compliant. The Company is reviewing its general
office systems and will be contacting its service providers during 1998. The
Company believes it will complete the Year 2000 project not later than
December 31, 1998, which is prior to any anticipated impact on its operating
systems.
The date on which the Company believes it will complete the Year 2000 project is
based on management's best estimates. Although there can be no guarantee that
these estimates will be achieved, management does not at this time believe that
actual results will differ materially from those anticipated. Specific factors
that might cause such material differences would most likely result from the
Company's service providers.
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<PAGE> 80
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 and 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 of 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.
REPRESENTATION 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 Policies 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. First Variable Life Insurance Company bases its representation on its
assessment of all the facts and circumstances, including such relevant factors
as: the nature and extent of such services, expenses and risks, the need for
First Variable Life Insurance Company to earn a profit, the degree to which the
Policies include innovative features, and regulatory standards for the grant of
exemptive relief under the Investment Company Act of 1940 used prior to October
1996, including the range of industry practice. This representation applies to
all Policies sold pursuant to this Registration Statement, including those sold
on the terms specifically described in the prospectus contained herein, or in
any variations thereof based on supplements, endorsements, or riders to any
Policies or prospectus, or otherwise.
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<PAGE> 81
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 representation pursuant to section 26(e) under the Investment Company Act of
1940.
The signatures.
Written consents of the following persons:
Martin Sheerin (See Exhibit 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) Specimen Variable Life Insurance Policy. * * * *
(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 Flexible Premium Variable Life Insurance
Application. * * * *
2. Opinion and consent of Arnold R. Bergman, Vice President,
General Counsel and Secretary, as to securities being
registered. * * * *
3. Not Applicable.
4. Not Applicable
5. Not Applicable
81
<PAGE> 82
6. Opinion and consent of Actuary.###
7. Consent of Ernst & Young LLP, Independent Auditors. ###
8. Powers of Attorney of the following individuals appointing John M. Soukup
or Arnold R. Bergman their attorney-in-fact to act for them in their
capacities as Directors of the Company or otherwise, to do all things
necessary to comply with the provisions and intent of the Securities Act
of 1933 and the Investment company Act of 1940 with respect to variable
life insurance policies and variable annuity contracts ###:
Ronald M. Butkiewicz Shane W. Gleeson Kenneth R. Meyer
Michael J. Corey T. David Kingston Philip R. O'Connor
Michael R. Ferrari Jeff S. Liebmann Stephen Shone
- ----------
* 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 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).
*** 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 Nos.
333-12197, 811-04092).
**** 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 October 30,
1997 (File No. 333-19193)
### Filed herewith.
82
<PAGE> 83
EXHIBIT INDEX
Filed herewith, as indicated on the Exhibit list.
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 23 day of April, 1998.
First Variable Life Insurance Company
By: /s/ John M. Soukup
---------------------------------
John M. Soukup
President
ATTEST:
/s/ Arnold R. Bergman
- -------------------------------
Arnold R. Bergman
Secretary
83
<PAGE> 84
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Separate Account VL of First Variable Life Insurance Company hereby
represents that this filing meets all the requirements for effectiveness under
paragraph (b) of Rule 485 under that Act and 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 23 day of April, 1998.
Separate Account VL of
First Variable Life Insurance Company
(Registrant)
By: First Variable Life Insurance Company
(Depositor)
By: /s/ John M. Soukup
-------------------------------------
John M. Soukup
President
ATTEST:
/s/ Arnold R. Bergman
- -------------------------------
Arnold R. Bergman
Secretary
84
<PAGE> 85
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 indicated with First Variable
Life Insurance Company, on the 23 day of April, 1998.
PRINCIPAL EXECUTIVE OFFICER
/s/ John M. Soukup
- ---------------------------------
John M. Soukup
President
PRINCIPAL ACCOUNTING OFFICER
/s/ Norman A. Fair
- ---------------------------------
Norman A. Fair
Principal Accounting Officer
DIRECTORS
/s/ Ronald M. Butkiewicz*
- ---------------------------------
Ronald M. Butkiewicz
/s/ John M. Soukup
- ---------------------------------
John M. Soukup
/s/ Michael J. Corey*
- ---------------------------------
Michael J. Corey
/s/ Michael R. Ferrari*
- ---------------------------------
Michael R. Ferrari
/s/ Shane W. Gleeson*
- ---------------------------------
Shane W. Gleeson
/s/ T. David Kingston*
- ---------------------------------
T. David Kingston
/s/ Jeff S. Liebmann*
- ---------------------------------
Jeff S. Liebmann
/s/ Kenneth R. Meyer*
- ---------------------------------
Kenneth R. Meyer
85
<PAGE> 86
/s/ Philip R. O'Connor*
- ---------------------------------
Philip R. O'Connor
/s/ Norman A. Fair
- ---------------------------------
Norman A. Fair
/s/ S. Shone*
- ---------------------------------
Stephen Shone
* By: /s/ Arnold R. Bergman
------------------------------------
Arnold R. Bergman
Attorney-in-Fact
April 23, 1998
86
<PAGE> 1
EXHIBIT 1A(6)(a)
ARTICLES OF INCORPORATION OF
FIRST VARIABLE LIFE INSURANCE COMPANY
87
<PAGE> 2
THE ARTICLES OF INCORPORATION
OF
FIRST VARIABLE LIFE INSURANCE COMPANY
ARTICLE I. The name of the corporation is First Variable Life Insurance Company.
ARTICLE II. The period of its duration is perpetual unless sooner terminated by
the affirmative vote of the holders of two-thirds (2/3) of the issued and
outstanding stock.
ARTICLE III. The kinds of business which the corporation is formed to transact
are as follows:
(a) The insuring lives of persons in every insurance pertaining
thereto or connected therewith, including accident and health insurance
and the granting or disposing of annuities and the transacting of
disability insurance, whether on a group, individual, franchise or
reinsurance basis, and any other type of insurance or other business
which may be or hereafter be lawfully conducted by legal reserve life
insurance companies organized under the laws of the State of Arkansas.
Any such business may be transacted on a variable basis stated in terms
of units or otherwise, but payable in lawful currency or on a fixed
basis, stated in terms of predetermined amounts of lawful currency; the
corporation may transact any such business in Arkansas or elsewhere.
(b) The Directors of the corporation shall have the power to segregate
and hold separate from the other funds and assets of the corporation,
premiums or other funds received from the sale of various types and
classes of policies and annuity contracts; the amount held may be
invested in such proportions and in such manner as determined by the
Board of Directors of the corporation or by a committee thereof; except
as may other-wise be required under Subsection (c) hereof. The assets
held in such separate account or accounts shall not be chargeable with
liabilities arising out of any other business the corporation may
conduct, but shall be held and applied exclusively for the benefit of the
holders or beneficiaries of those variable annuity contracts or life
insurance policies with respect to which the account or accounts have
been established;
(c) If a separate account is registered with an agency of the Federal
government having jurisdiction over such separate account or contracts
issued in connection therewith, provision may be made in the rules and
regulations for such separate account for voting by the owners of
separate account contracts with respect to the election of a Board of
Managers for such account, ratification of the selection of auditors for
such account by such Board, approval of investment advisory service
contracts for such account and such other matters as may be required by
applicable law.
ARTICLE IV. The capital of the corporation shall he divided into 3,500,000
shares of common stock having a par value of $1.00 each.
Stock authorized but not issued may be issued for such consideration as
shall be fixed from time to time by the Board of Directors, but the
consideration shall at all times be not less than the par value of said shares.
When shares of stock shall be issued and paid for in cash, at the rate
determined by the Board of Directors, such shares shall thereafter be
non-assessable. The private property of the stockholders shall not be subject to
the payment of corporate debts. No stockholder shall have any pre-emptive right
to subscribe for or purchase any stock, or security convertible into stock,
whether now or hereafter authorized. Stockholders shall not have the right to
cumulative voting with respect to the election of directors.
ARTICLE V. The affairs and business of the corporation shall be managed and
controlled by a Board of Directors consisting of not less than three (3)
members. The directors shall be elected in such number, for such terms, and in
such manner as shall be Provided by the bylaws of the corporation and any
director of the corporation may be removed at any annual or special meeting of
stockholders by the same vote as that required to elect a director.
ARTICLE VI. The principal place of business and the home office of the
corporation shall be at Little Rock, Arkansas, or such other place in the State
of Arkansas which shall be determined in accordance with the laws of the State
of Arkansas. The corporation may have such regional home offices as may be
necessary or convenient, which regional home offices may be established from
time to time. The records or assets of the corporation may be retained in such
regional home offices if approved in writing by the Commissioner of Insurance
for the State of Arkansas. The
88
<PAGE> 3
corporation shall at all times maintain an agent for service of process at its
principal place of business and home office in Little Rock, Arkansas.
ARTICLE VII. The capital and reserves of the domestic stock insurer shall be
invested in accordance with the laws of the State of Arkansas. If not
inconsistent with such laws, the funds of the corporation shall be invested as
follows:
(a) The reserve for insurance business transacted on a fixed-dollar
basis shall be invested primarily in debt obligations and other
fixed-dollar investments.
(b) The corporation shall have the power and right to invest 100% of
the assets of separate accounts established pursuant to Article Three,
Subsection (b), in common stocks or other equity securities; or In both
equity securities and debt obligations; or in real estate; or In such
other types of investments as the Board of Directors of the corporation
or the Board of Managers for such separate account deem reasonable,
necessary and proper to further the purposes of such accounts.
(c) The capital and surplus funds attributable to the stockholders of
the corporation may be invested in such types of investments as the Board
of Directors of the corporation deems reasonable, necessary and proper
for the fulfillment of the corporation's actual and contingent
obligations under policies and annuity contracts issued by the
corporation; and in particular, the corporation shall have the power and
right to invest 100% of such capital and surplus funds in common stocks
or other equity securities.
ARTICLE VIII. The Board of Directors may make Bylaws for the management of the
affairs and business of the corporation from time to time and may amend or
repeal the same. Bylaws made by the Board of Directors or the Shareholders may
be amended, added to or repealed by the holders of a majority of shares of stock
of the corporation entitled to vote, except that any changes to Articles IV, V
and XIII of the Bylaws whether enacted by the Board of Directors or Shareholders
require a vote of the holders of a majority of issued shares.
That at the time of said meeting 1,500,000 shares of common stock were
issued and outstanding, all being entitled to vote on the foregoing amendment to
Articles of Incorporation; that 1,500,000 shares of common stock voted for said
amendment, and no shares voted against said amendment.
That the foregoing is a true, correct and complete copy of the amendment
to Articles of Incorporation duly adopted as aforesaid at the stated meeting
held and conducted in accordance with the laws of the State of Arkansas and the
Bylaws of the Corporation on January 15, 1988.
That as President and Secretary, respectively, of the aforesaid
corporation, we are duly authorized and empowered to execute and file the within
Articles of Amendment to the Articles of Incorporation of FIRST VARIABLE LIFE
INSURANCE COMPANY.
IN WITNESS WHEREOF, the said corporation, FIRST VARIABLE LIFE INSURANCE COMPANY,
has caused its corporate name to be subscribed by its chairman, and its
corporate seal attached hereto affixed by its Secretary on this 15th day of
January, 1988.
FIRST VARIABLE LIFE INSURANCE COMPANY
By: /s/ Edward J. Malla
-------------------------------------
Edward J. Mallo, President
/s/ Vivion N. Joiner
- --------------------------------
Secretary
89
<PAGE> 1
EXHIBIT 6.
OPINION AND CONSENT OF ACTUARY
90
<PAGE> 2
Exhibit 6.
[FIRST VARIABLE LIFE INSURANCE COMPANY LOGO]
April 23, 1998
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. 333-19193)
Gentlemen:
In my capacity as Actuary of First Variable Life Insurance Company, I have
provided actuarial advice concerning:
- - 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 policy ("Policy") described therein; and
- - The preparation of the policy forms for the Policy described in the
Registration Statement.
It is my professional opinion that:
1. The illustrations 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 Policy. The rate structure of the
Policy 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.
2. All other numerical examples shown in the prospectus are consistent with
the Policy 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
91
<PAGE> 1
EXHIBIT 7.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
92
<PAGE> 2
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 reports dated February 6, 1998 with respect to the consolidated
financial statements of First Variable Life Insurance Company and January 30,
1998 with respect to the financial statements of First Variable Life Insurance
Company---First Variable Separate Account VL, in Post Effective Amendment No. 1
to the Registration Statement (Form S-6 No. 333-19193) and related Prospectus
of First Variable Life Insurance Company
/s/ Ernst & Young LLP
----------------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 24, 1998
93
<PAGE> 1
EXHIBIT 8.
POWERS OF ATTORNEY
94
<PAGE> 2
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, JOHN M. SOUKUP 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 22nd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ Ronald M. Butkiewicz
- --------------------------------- --------------------------------
Ronald M. Butkiewicz
95
<PAGE> 3
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, JOHN M. SOUKUP 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 23rd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ Michael J. Corey
- -------------------------------- --------------------------------
Michael J. Corey
96
<PAGE> 4
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, JOHN M. SOUKUP 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 23rd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ Michael R. Ferrari
- --------------------------- ------------------------------
Michael R. Ferrari
97
<PAGE> 5
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, SHANE W. GLEESON, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, JOHN M. SOUKUP 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 8th day of January 1998
WITNESS:
/s/Patricia Ballard /s/ Shane W. Gleeson
- ---------------------------- --------------------------
Shane W. Gleeson
98
<PAGE> 6
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, JOHN M. SOUKUP 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 23rd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ T. David Kingston
- ------------------------------- -------------------------------
T. David Kingston
99
<PAGE> 7
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, JOHN M. SOUKUP 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 23rd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ Jeff S. Liebmann
- ------------------------------- -------------------------------
Jeff S. Liebmann
100
<PAGE> 8
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, KENNETH R. MEYER, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, JOHN M. SOUKUP 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 23rd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ Kenneth R. Meyer
- ------------------------------- -------------------------------
Kenneth R. Meyer
101
<PAGE> 9
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, JOHN M. SOUKUP 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 23rd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ Philip R. O'Connor
- ------------------------------- -------------------------------
Philip R. O'Connor
102
<PAGE> 10
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, STEPHEN SHONE, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, JOHN M. SOUKUP 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 23rd day of October, 1997
WITNESS:
/s/ Patricia H. Ballard /s/ S. Shone
- ------------------------------- -------------------------------
Stephen Shone
103
