<PAGE>
Registration No. 333-05053
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM S-6
Post-Effective Amendment No. 3
to
Registration Statement
Under
SECURITIES ACT OF 1933
__________________
SEPARATE ACCOUNT VL
(Exact Name of Trust)
FIRST VARIABLE LIFE INSURANCE COMPANY
(Name of Depositor)
2122 York Road, Suite 300
Oak Brook, IL 60523-1930
(Complete Address of Depositor's Principal Executive Offices)
__________________
ARNOLD R. BERGMAN Copy To:
Vice President, General Counsel & Secretary THOMAS C. LAUERMAN, Esq.
First Variable Life Insurance Company Freedman, Levy, Kroll & Simonds
2122 York Road, Suite 300 1050 Connecticut Avenue, N.W.
Oak Brook, IL 60523-1930 Washington, D.C. 20036
(630) 684-9270 (202) 457-5106
(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, 1999 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 life
insurance policies.
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration
Statement.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item No. in
Form N-8 B-2 Location
- ------------ --------
<S> <C>
1, 2 COVER PAGE, FIRST VARIABLE LIFE INSURANCE COMPANY, THE SEPARATE ACCOUNT
3 Inapplicable
4 DISTRIBUTION AND OTHER AGREEMENTS
5, 6 THE SEPARATE ACCOUNT
7 Inapplicable
8 APPENDIX C: Financial Statements
9 Legal Proceedings
10 (a), (b), (c), (d), (e) HIGHLIGHTS, SURRENDER AND WITHDRAWALS, Surrender, Withdrawals, TRANSFERS
AMONG INVESTMENT OPTIONS, LAPSE AND REINSTATEMENT, DETERMINATION OF
ACCOUNT VALUE, OTHER PROVISIONS OF THE POLICY, THE POLICIES, YOUR
INVESTMENT OPTIONS
10 (f) VOTING RIGHTS, OTHER PROVISIONS OF THE POLICY
10 (g), (h) TRANSFERS AMONG INVESTMENT OPTIONS
10 (i) MIXED AND SHARED FUNDING, POLICY BENEFITS AND VALUES, OTHER PROVISIONS OF
THE POLICY
11, 12 SEPARATE ACCOUNT INVESTMENT OPTIONS: MFS Variable Insurance Trust
("MFS") Variable Investors Series Trust ("VIST"),
13 HIGHLIGHTS, OTHER CHARGES AND DEDUCTIONS (NOT CURRENTLY CHARGED),
ELIMINATION, REDUCTION, OR REFUND OF CHARGES AND DEDUCTIONS, INCREASES
IN BONUSES
14, 15 APPLICATION AND ISSUANCE OF A POLICY, Free Look Right, ALLOCATION OF PREMIUMS
16 PREMIUMS, ALLOCATION OF PREMIUMS, DETERMINATION OF ACCOUNT VALUE
17 SURRENDERS AND WITHDRAWALS; Surrenders; Withdrawals, MATURITY PROCEEDS;
PAYMENT OF PROCEEDS
18 OUR TAXATION, DETERMINATION OF ACCOUNT VALUE, THE SEPARATE ACCOUNT, THE
AVAILABLE OPTIONS, THE POLICIES, MORE ABOUT CHARGES AND DEDUCTIONS
19 REPORTS AND RECORDS, ADVERTISING PRACTICES, OTHER PROVISIONS OF THE POLICY
20 TRANSFERS AMONG INVESTMENT OPTIONS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
21 POLICY LOANS, Preferred Loan Amounts, Immediate Loan Repayment, THE
POLICIES
22, 23, 24 Inapplicable
25 FIRST VARIABLE LIFE INSURANCE COMPANY
26 Inapplicable
27 FIRST VARIABLE LIFE INSURANCE COMPANY
28 OUR MANAGEMENT
29 FIRST VARIABLE LIFE INSURANCE COMPANY
30, 31, 32, 33, 34 Inapplicable
35 STATE REGULATION
36 Inapplicable
37 Inapplicable
38, 39, 40, 41 (a) DISTRIBUTION AND OTHER AGREEMENTS, FIRST VARIABLE LIFE INSURANCE COMPANY
41 (b), 41 (c), 42, 43 Inapplicable
44 DETERMINATION OF ACCOUNT VALUE
45 Inapplicable
46 SURRENDER AND WITHDRAWALS; Surrender; Withdrawals
47, 48, 49, 50 Inapplicable
51 POLICY BENEFITS AND VALUES
52 DEATH BENEFIT AMOUNTS, Face Amount and Guideline Single Premium, Face
Amount and Additional Premium Payments
53 (a) FEDERAL TAX MATTERS
53 (b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 APPENDIX C: Financial Statements
</TABLE>
<PAGE>
Prospectus [Date]
CAPITAL ONE PAY VL
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Issued by
FIRST VARIABLE LIFE INSURANCE COMPANY
<TABLE>
OUR MARKETING AND EXECUTIVE OFFICE: OUR VARIABLE SERVICE CENTER: OR, FOR EXPRESS DELIVERIES;
<S> <C> <C>
2122 York Road P.O. Box 1317 1206 Mulberry Street
Oak Brook, IL 60523 Des Moines, IA 50305-1317 Des Moines, IA 50309
Automated Information Line: (800) 845-0689
(800)-59-FUNDS
</TABLE>
The Policy described in this prospectus provides life insurance coverage that is
payable upon the death of the Insured. The Policy also permits you to
accumulate Account Value based on the premiums you pay, the charges and expenses
of the Policy, and the investment results of the underlying investment options.
The Policy requires an initial premium payment of at least $10,000 and, subject
to certain restrictions, you may also make additional premium payments under the
Policy.
Generally, we determine the death benefit amount under the Policy on the Policy
Date by treating the initial premium as equal to 100% of the "guideline single
premium." After the Policy Date, we determine the death benefit amount monthly
based on the Account Value at that time multiplied by the applicable death
benefit factor shown in the Policy. We guarantee that the initial death benefit
amount will remain in force for a minimum period as long as you pay the initial
premium and take no withdrawals or loans of Account Value. The initial death
benefit amount is the Face Amount shown in the Policy when issued. The minimum
guarantee period is the later of the 10th Contract Anniversary or the Insured's
65th birthday.
You may allocate your payments and your Policy's Account Value among nineteen
different investment options, or to our Fixed Account. The investment options
are available through our segregated asset account called Separate Account VL
(the "Separate Account"). The Separate Account invests in selected portfolios
of eight mutual funds (the "Funds"). The portfolios currently available under
the Policy are:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
SEPARATE ACCOUNT INVESTMENT OPTIONS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM American BT Insurance Federated Templeton Lord Abbett
MUTUAL Variable Century Funds Insurance Variable Series
FUND Insurance Variable Trust Series Products Fund, Inc.
Funds, Inc. Portfolios, Inc. ("BT") ("FIS") Series Fund ("LA")
("AIM") ("ACS") ("FT")
--------------------------------------------------------------------------------------------
V.I. Capital Small Cap Prime Money International Growth &
Appreciation VP Value Index Fund II Fund Income
(Class 2)
PORTFOLIOS
--------------------------------------------------------------------------------------------
V.I. Growth Equity 500
Index
======================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================
MUTUAL MFS Variable Insurance Trust Variable Investors Series Trust
FUND ("MFS") ("VIST")
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MFS New Matrix
Discovery MFS Growth Small Cap Growth Growth & Equity -
Series-seeks Series Growth Income sector
capital weighted
PORTFOLIOS appreciation equities
-------------------------------------------------------------------------------------------
MFS Growth Multiple World High Income U.S.
with Income Strategies - Equity Bond Government
Series stocks, bonds Bond
& cash
======================================================================================================
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION APPROVED OR DISAPPROVED THESE SECURITIES OR 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
FUNDS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION NOT CONTAINED IN THIS
PROSPECTUS (OR IN ANY SALES LITERATURE WE HAVE APPROVED.) WE DO NOT OFFER THE
POLICIES EVERYWHERE, AND THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER ANYWHERE
THAT IT WOULD BE UNLAWFUL. IN CERTAIN JURISDICTIONS, VARIOUS TIME PERIODS AND
OTHER TERMS AND CONDITIONS MAY VARY FROM WHAT IS DESCRIBED IN THIS PROSPECTUS.
ANY SUCH VARIATIONS THAT APPLY TO YOUR POLICY WILL BE INCLUDED IN THE POLICY OR
A RELATED RIDER OR ENDORSEMENT.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS
HIGHLIGHTS
FIRST VARIABLE LIFE INSURANCE COMPANY
THE SEPARATE ACCOUNT
YOUR INVESTMENT OPTIONS
The Available Options
Transfers Among Investment Options
General Requirements
Automatic Transfer Programs
Restrictions on Transfers
Automatic Transfers of Small Accounts
Mixed and Shared Funding
MORE ABOUT CHARGES AND DEDUCTIONS
Monthly Deductions
Daily Deductions
Withdrawal Charges
Fund Expenses
Other Charges and Deductions (Not Currently Charged)
Elimination, Reduction, or Refund of Charges and Deductions; Increases in Bonuses
Purposes of Policy Charges
THE POLICIES
Application and Issuance of a Policy
"Free Look" Right
Premiums
Grace Period
Allocation of Premiums
Telephone Transactions
POLICY BENEFITS AND VALUES
Death Benefit
Death Benefit Amount
Death Benefit Face Amount and Guideline Single Premium Face Amount and Additional
Premium Payments
Additional Benefit Rider
Acceleration of Death Benefit Rider
Determination of Account Value
Policy Loans
Preferred Loan Amounts
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
Misstatement of Age or Sex
Owner and Beneficiary
Assignments
Reports and Records
Voting Rights
</TABLE>
<PAGE>
Suspension of Payments and Transfers
Nonparticipation in Our Dividends
DISTRIBUTION AND OTHER AGREEMENTS
OUR MANAGEMENT
FEDERAL TAX MATTERS
General
Our Taxation
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-Death Distributions from a Policy that is a
Modified Endowment Contract
Taxation of Pre-Death Distributions from a Policy that is not a
Modified Endowment Contract ("MEC")
Diversification Requirements
ADVERTISING PRACTICES
LEGAL MATTERS
State Regulation
Legal Proceedings
Counsel
EXPERTS
REGISTRATION STATEMENT
YEAR 2000 ISSUES
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
APPENDICES
APPENDIX A: ANNUAL RATES OF RETURN FOR THE SEPARATE ACCOUNT
INVESTMENT OPTIONS
APPENDIX B: ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES,
CASH SURRENDER VALUES AND ACCUMULATED VALUE OF
PREMIUMS
APPENDIX C: FINANCIAL STATEMENTS
DEFINITIONS
BUSINESS DAY - Each day the New York Stock Exchange is open for regular trading,
The New York Stock Exchange is currently closed on weekends and on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Each Business Day ends at the close of regular trading for the
day on the exchange, which usually is 4:00 p.m. Eastern time.
Insured - The person whose life is insured under the Policy.
AGE - The attained age of the Insured on the date for which age is determined.
POLICY ANNIVERSARY - An anniversary of the Policy Date.
POLICY DATE - The date the Policy takes effect, as shown on the Owner's Policy
data page. Policy Months and Policy Years are measured from this date.
POLICY MONTH - Each one-month period beginning on the Policy Date and generally
on the same day of each month after that.
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.
PREMIUM RATE CLASS - An insurance underwriting risk category that is used to
determine certain benefits and charges under a Policy. For example, the initial
premium and cost of insurance charges will vary by the premium rate class
assigned the Insured. On the date of this prospectus, we use Preferred, Smoker
and Non-Smoker premium rate classes that will differ based on the sex of the
Insured. These classes are further sub-divided into "standard" and
"substandard" insurance classes. Charges are generally higher for substandard
insurance classes.
HIGHLIGHTS
These highlights discuss certain important aspects of the Policy. The rest of
this prospectus explains these and other aspects in greater detail. You should
be sure to read the prospectus and the prospectuses of the Funds for more
complete information.
HOW DO INVESTMENT RESULTS AFFECT A POLICY?
You invest the Account Value under your Policy in one or more of the investment
options we offer. Your Account Value increases or decreases by the amount of
any positive or negative return it earns in those options. Your Account Value
also will decrease by the amount of all charges and deductions we make under
your Policy. The Death Benefit we pay under your Policy when the Insured dies
can also vary as a result of the investment results achieved for your Account
Value.
Account Value invested in our Separate Account investment options is not
guaranteed, and you bear the entire investment risk under those options.
Account Value allocated to our Fixed Account, however, is provided with our
guarantees of principal and a minimum 3% rate of interest on an annual basis.
(Similar guarantees apply to an amount of your Account Value that equals any
Policy loans that you take out.)
<PAGE>
HOW MUCH CAN I (OR MUST I) INVEST IN A POLICY?
You must pay the initial premium specified in the Policy for it to take effect.
Payment of the initial premium specified in the Policy guarantees that the
Policy will remain in force, unless you take a withdrawal or loan (including
transfers of loans) of Account Value, for a minimum guarantee period. The
minimum period is the later of the 10th Contract Anniversary or the Insured's
65th birthday.
The Policy is primarily intended to be a single premium Policy, but permits
additional premium payments to be paid under limited circumstances. For
example, additional premiums may be paid to keep the Policy in force after the
minimum guarantee period, or for an amount limited to the lesser of 5% of the
initial premium or $5,000. We will not permit you to pay so much premium that
your Policy would fail to meet the definitions of a life insurance contract
under the Internal Revenue Code ("Code").
WILL I HAVE ACCESS TO MY ACCOUNT VALUE?
You may borrow up to 90% of your Policy's Cash Surrender Value, subject to
certain limitations. (Cash Surrender Value is your Account Value less any loan,
less any accrued loan interest, and less any applicable Surrender Charges.) You
may surrender (i.e., cancel) your Policy at any time and we will pay you the
Cash Surrender Value. Subject to certain limits, you also may make a partial
withdrawal of your Cash Surrender Value. Withdrawals will, however, cause a
reduction in your Policy's death benefit amount.
WHAT GENERAL INCOME TAX CONSEQUENCES WILL I HAVE FROM OWNING A POLICY?
The Policy is generally designed to be a "modified endowment contract" for
federal income tax purposes. Under current federal income tax law, any pre-
death distributions from a modified endowment contract, or "MEC," including
loans, assignments, partial withdrawals and surrenders, will be included in your
taxable income on an income first basis, and a 10% penalty tax will be imposed
on any such income distributed before you attain age 59-1/2.
Under current federal tax law, you generally do not pay income tax on increases
in your Account Value unless and until there is a distribution. A complete
surrender of the Policy will, and a partial withdrawal may, be included in your
gross income to the extent that the distribution exceeds your investment in the
Policy. Additional amounts may be taxable if a partial surrender during the
first 15 Policy Years results in or is necessitated by a reduction in benefits.
Death Benefit Proceeds paid to the Beneficiary under the Policy are generally
not subject to federal income tax.
Please review the FEDERAL TAX MATTERS section of this prospectus for additional
information. We 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.
HOW MUCH DO WE PAY THE POLICY'S BENEFICIARY WHEN THE INSURED PERSON DIES?
Upon the death of the Insured, we will pay the Death Benefit Proceeds to the
Beneficiary. The Death Benefit Proceeds are:
. the current death benefit amount,
. minus any outstanding Policy loans and interest thereon, and
. minus any due and unpaid monthly deductions and charges under your Policy.
The Beneficiary may receive the proceeds in a lump sum or in the form of one of
our annuity payout options.
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A POLICY?
The Policy is subject to the following charges and deductions:
Monthly Deductions - composed of the following:
. administrative charge - at an annualized rate of .40% of Account Value;
. maintenance fee - $2.50 if Account Value is less than $100,000;
. cost of insurance - at an annualized rate of .40% of Account Value for the
first 10 Contract Years and then at an annualized rate of .55% of Account
Value, based on the Company's current scale, which is not guaranteed; and
. distribution, premium tax and federal tax charges for the first ten Contract
Years, at an annualized rate of .65% of Account Value (.20% on an annual basis
for distribution expenses; .25% on an annual basis for premium tax expenses;
and .20% on an annual basis for federal tax expense).
<PAGE>
Daily Deductions - the charge currently equals an annual rate of 0.90% (which we
may increase to not more than 1.20%) of the daily net assets in each Separate
Account Investment Option.
Withdrawal Charge - will be assessed during the first 9 Policy Years upon
withdrawals of Account Value, or if the Account Value is applied to an optional
annuity payment option. The withdrawal charge decreases from 9.75% of premiums
to 0% at the end of the ninth Contract Year. It is composed of a Sales Charge
of up to 7.5% of premium(s) and an Unreimbursed Premium Tax Charge of up to
2.25% of premiums No Withdrawal Charges will be taken on a partial withdrawal in
any Contract Year unless the amount withdrawn exceeds the annual Free Withdrawal
Amount. The annual Free Withdrawal Amount is equal to 15% of the premium
payment(s) that have been made. (These 15% withdrawals do not reduce premium
payments for purposes of computing the Withdrawal Charges.)
Fund Expenses - we purchase shares of the Portfolios of the Funds 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. Accordingly, these expenses reduce the return you earn in our
related variable investment options. The total annual expenses of the Portfolios
as a percentage of average net assets for the year ended December 31, 1998 were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
ANNUAL FUND EXPENSES AFTER
EXPENSE REIMBURSEMENTS
Other
Management 12b-1 Operating Total
Mutual Fund Portfolio Fees Fees Expenses Expenses*
--------------------- ---- ---- -------- ---------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation 0.00% 0.67%
AIM V.I. Growth 0.00% 0.72%
ACS V.P. Value 1.00% - 0.00% 1.00%
BT Small Cap Index 0.35% - 0.10% 0.45%
BT Equity 500 Index 0.20% - 0.10% 0.30%
FIS Prime Money Fund II 0.50% - 0.30% 0.80%
FT International (Class 2) 0.69% 0.25% 0.19% 1.13%
LA Growth & Income 0.50% - 0.01% 0.51%
MFS New Discovery 0.90% - 0.27% 1.17%
MFS Growth 0.75% - 0.25% 1.00%
MFS Growth with Income 0.75% - 0.20% 0.95%
VIST Small Cap Growth 0.85% - 0.50% 1.35%
VIST World Equity 0.70% - 0.50% 1.20%
VIST Growth 0.70% - 0.32% 1.02%
VIST Matrix Equity 0.65% - 0.50% 1.15%
VIST Growth & Income 0.75% - 0.50% 1.25%
VIST Multiple Strategies 0.70% - 0.45% 1.15%
VIST High Income Bond 0.70% - 0.50% 1.20%
VIST U.S. Government Bond 0.60% - 0.25% 0.85%
- -------------------------------------------------------------------------------------------
</TABLE>
* "Total Expenses" for the Portfolios before reimbursement by the relevant
------
Fund's investment advisor, for the period ended December 31, 1998, were as
follows: 5.22% for the MFS New Discovery Portfolio; 1.84 % for the VIST Small
Cap Growth Portfolio; 1.51% for the VIST World Equity Portfolio; 1.03% for the
VIST Growth Portfolio; 1.48% for the VIST Matrix Equity Portfolio; 1.33% for the
VIST Growth & Income Portfolio; 1.46% for the VIST High Income Bond Portfolio;
and 1.59% for the VIST U.S. Government Bond Portfolio.
Other Expenses - we also have the right to begin making the following additional
charges under the Policies (which we have decided not to impose for now):
Transaction Fees - currently none, guaranteed not to exceed $10 for each
transfer among Investment Options that you make in excess of twelve transfers
per Policy Year.
Tax Charge - currently none, but we reserve the right to impose charges for
other taxes that may be payable and are attributable to the Policies in the
future.
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
We are a stock life insurance company that was organized under Arkansas law in
1968. We engage principally in the business of variable life insurance,
variable annuities, and fixed annuities. We hold licenses to sell insurance in
49 states, the District of Columbia and the U.S. Virgin Islands. Irish Life of
North America, Inc. ("ILoNA") owns all of our outstanding stock, and Irish Life
& Permanent plc. ("Irish Life & Permanent"), in turn, owns all of ILoNA. Irish
Life & Permanent is a leading life and financial services group in Ireland with
total assets of over $25 billion at May 1, 1999.
We have an A (Excellent) rating from A.M. Best Company, an independent firm that
analyzes insurance carriers. We also have an AA- rating from Standard and
Poor's and an AA- rating from Duff & Phelps Credit Rating Co. on claims paying
ability. These ratings only reflect the opinion of the rating company on our
relative financial strength, and on our ability to satisfy our obligations under
the Policies. The ratings do not reflect the investment performance of the
Separate Account, or the degree of risk associated with an investment in the
Separate Account.
THE SEPARATE ACCOUNT
We authorized the establishment of Separate Account VL (the "Separate Account")
under Arkansas law on March 6, 1987; and we have registered the Separate Account
with the Securities and Exchange Commission ("SEC") as a unit investment trust-
type investment company.
The Separate Account's assets belong to us. However, our other creditors could
reach only the amount (if any) in the Separate Account that exceeds the current
value of our obligations to policyholders who have chosen a Separate Account
investment option.
The Separate Account has several different investment options within it. We
invest the assets allocated to each investment option in one Portfolio of the
Funds.
We may add other investment options to the Policies that, in turn, may be
invested in other Portfolios of the Funds, or in portfolios of other mutual
funds. We may restrict these other investment options to customers of specified
distributors.
PERFORMANCE INFORMATION
Appendix A to this prospectus sets out the performance record of each portfolio
that you can select as an investment option.
YOUR INVESTMENT OPTIONS
THE AVAILABLE OPTIONS
You may allocate your premium payments and existing Account Value to one or more
of our Separate Account investment options and/or to our Fixed Account. The
currently available Portfolios for our Separate Account investment options are
listed on the cover page of this prospectus. More information, including a
discussion of potential risks, appears in the current prospectuses for the
Funds, which accompany this prospectus. (The prospectuses for the Funds may
also describe other portfolios that are not available under a Policy.) You
should read this prospectus and the prospectuses for the Funds carefully before
investing in any Separate Account investment option.
We do 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 our judgment, further investment in the shares should become inappropriate or
inadvisable in view of the purpose of the Policies, we may substitute shares of
another portfolio or investment vehicle for shares already purchased or to be
purchased in the future. We also may, in our 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.
We may also combine separate account investment options or operate them in any
form permitted by law, including a form that allows them to make direct
investments.
This prospectus generally describes only the Policy and Separate Account
investment options. Because of certain exemptions, interests in our Fixed
Account are not registered under the securities laws, nor have we registered the
Fixed Account as an investment company. Accordingly, the protections of the
federal securities laws do not apply to our Fixed Account. We will credit your
Account Values in the
<PAGE>
Fixed Account with at least a minimum effective rate of interest per year. We
may credit additional amounts of "current" interest in our 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 that has been previously
invested in the Fixed Account. We determine current interest rates in advance,
and credit interest daily to your Account Value in the Fixed Account.
TRANSFERS AMONG INVESTMENT OPTIONS
General Requirements. You may transfer Account Value among investment options
by written request or telephone. The minimum amount you may transfer is the
lesser of (a) $1,000 or (b) your entire interest in the applicable investment
option. You should mail, fax or express written transfer requests to our
Variable Service Center shown on the front cover of this prospectus. You can
also request a transfer by phoning 1-800-228-1035.
Transfer requests must clearly specify the amount to be transferred and the
investment options affected. All transfer requests made at the same time for
Separate Account investment options will be treated as a single request. The
transfer will be effective at the prices we next compute after we receive the
transfer request at our Variable Service Center.
You may transfer Account Value from the Fixed Account to other investment
options only by request within 30 days of a Policy Anniversary, and you may not
transfer the entire Account Value in the Fixed Account in less than 4 Policy
Years. For example, transfers from the Fixed Account during the first Policy
Year cannot total more than 25% of the Fixed Account Value on the Policy Date.
After the first Policy Year, your transfers from the Fixed Account during a
Policy Year may not exceed the greater of:
. 25% of your Fixed Account Value on the immediately preceding Policy
Anniversary; or
. 100% of your Fixed Account Value transferred to other investment options
during the immediately preceding Policy Year.
We can impose a transaction fee if you make more than 12 "free" transfers in a
Policy Year, but currently, do not do so.
Automatic Transfer Programs - You can participate in automatic transfer
arrangements, including dollar cost averaging and asset rebalancing programs.
You initiate these programs by making a written or telephone request to our
Variable Service Center shown on the front cover of this prospectus. We make
the automatic transfers on the last business day of whichever of the following
intervals you request: quarterly, semi-annually, annually, monthly (for dollar
cost averaging only), or at any other interval that we approve. You may request
us to cease automatic transfers at any time.
Automatic transfers from the Fixed Account are subject to the restrictions
described above in General Requirements (except that, for dollar cost averaging
only, you can transfer up to 100% of your Fixed Account Value within one Policy
Year if you have selected the monthly interval.) Automatic transfers are not
subject to any transaction fee and do not count toward the number of "free"
transfers. We currently do not charge you for an automatic transaction program,
or impose a transfer fee, although we reserve the right to do so in the future.
The dollar cost averaging program permits transfers from the FIS Prime Money
Fund II investment option or the Fixed Account to other Separate Account
investment options on a regularly scheduled basis. Such systematic transfers
may prevent investing too much when the price of securities is high or too
little when the price is low. There is no guarantee of this, however. Also,
since systematic transfers, such as dollar cost averaging, involve continuous
investment regardless of fluctuating price levels, you should consider your
ability to continue purchases through all phases of the market cycle.
The minimum amount, for each dollar cost averaging transfer, is $100. You must
have $1,200 of Account Value in the Prime Money Fund II investment option or
the Fixed Account, as applicable, before a "dollar cost averaging" program may
begin.
The asset rebalancing program enables you to select the percentage levels of
Account Value you wish to maintain in particular investment options. At the
intervals you select, we will automatically rebalance your Account Value to
maintain the indicated percentages by transfers among the investment options.
You must include all of your Account Value allocated to the Separate Account
investment options in any asset rebalancing program.
Other investment programs, such as systematic transfers and systematic
withdrawals, or other transfers or withdrawals may not work well in concert with
the asset rebalancing program. Therefore, you should monitor your use of these
programs while the asset rebalancing program is being used.
<PAGE>
Restrictions on Transfers. Generally, you may make an unlimited number of
transfers in any Policy Year. Frequent requests to transfer, however, may have
a detrimental effect on the value of Portfolio shares values held in the
Separate Account. We may therefore limit the number of permitted transfers in
any Policy Year, or refuse to honor any transfer request for an owner or a group
of owners, if :
. the purchase or redemption of shares of one or more of the Portfolios is to
be restricted because of excessive trading ; or
. a specific transfer or group of transfers is deemed to have a detrimental
effect on Policy Account Value or Portfolio share prices.
We may also at any time suspend or cancel acceptance of third party transfer
requests on behalf of a Policyowner; or restrict the Investment Options that
will be available for such transfers. Notice will be provided to the third
party in advance of the restrictions. We will not impose any restrictions,
however, if we have received satisfactory evidence that:
. you have appointed the third party to act on your behalf for all financial
affairs; or
. a court of competent jurisdiction has appointed the third party to act on
your behalf.
We also reserve the right at any time and without prior notice to otherwise
modify, suspend or terminate the transfer privileges.
Automatic Transfers of Small Accounts. We reserve the right, subject to any
applicable law, to transfer Account Value from any investment option if less
than $250, to the investment option with the greatest Account Value.
MIXED AND SHARED FUNDING
We buy shares of the Funds for the Separate Account in connection with the
Policies, and for allocation to separate accounts funding variable annuity
policies and other variable life insurance policies issued by us. The Funds
offer shares to other insurance companies and to other separate accounts, either
affiliated or unaffiliated with us, for the same purpose. In the future, it may
conceivably become disadvantageous for variable life insurance separate accounts
and variable annuity separate accounts to invest in one or more of the Funds'
Portfolios simultaneously, if the interests of variable life insurance and
variable annuity policy owners differ. The boards of trustees of the Funds
investing in those Portfolios intend to monitor events to identify any material
irreconcilable conflicts that may arise and to determine what action, if any,
they or the insurance companies should take in response.
MORE ABOUT CHARGES AND DEDUCTIONS
MONTHLY DEDUCTIONS
On the first day of each Policy Month we make a Monthly Deduction from each
Policy's Account Value. We make the deduction from your investment options in
proportion to the amount of your Account Value in each (i.e., on a "pro-rata
basis") or by any other method you select and we approve.
For example, we will permit you to have deductions first taken from one or more
preselected investment options. You may also request deductions to first be
taken from the investment option that has the best investment performance over
the prior Policy Month.
The Monthly Deductions include the following charges:
Maintenance Fee. The monthly maintenance fee is $2.50 for a Contract with less
than $100,000 in Account Value and helps compensate us for our expenses in
administering the Policies.
Cost of Insurance. This is a charge for the cost of providing life insurance
coverage for the Insured. This charge is guaranteed not to exceed the maximum
cost of insurance charge determined on the basis of the mortality table
guaranteed in the Contract, calculated, for standard risk Insureds, using the
1980 Commissioner's Standard Ordinary Mortality tables, Age Last Birthday ("1980
CSO"). These mortality tables are sex distinct and the guaranteed cost of
insurance charge may vary by the attained age, sex and underwriting class of the
Insured. The maximum cost of insurance charge for substandard risk Insureds are
based on multiples or additives to the guaranteed standard rates established by
the 1980 CSO.
Currently, a cost of insurance charge is taken that is not more than the maximum
cost of insurance charge where an Insured is determined by the Company to be a
standard nonsmoker underwriting risk. This monthly charge is equal to an
effective annual rate of 0.40% of Account Value and is not guaranteed. For
Contract Years 11 and later, this monthly charge is anticipated to be increased
to an annual effective rate of 0.55% of Account Value.
Other Monthly Charges. We calculate these charges as a percentage of your
Policy's net assets in each investment option. An Administrative Charge is made
at an effective rate that is equal, on an annual basis, to 0.40% of Account
Value to help compensate us for
<PAGE>
our expenses in administering the Policies and the Separate Account. A
Distribution Charge is made during the first 10 Policy Years at an effective
rate that is equal, on an annual basis, to 0.20% of Account Value. A Premium Tax
Charge is made during the first 10 Policy Years at an effective rate that is
equal, on an annual basis, to 0.25% of Account Value. (This charge is made to
offset the average premium tax we expect to pay to various states and local
jurisdictions, although it will not necessarily equal the premium taxes we paid
with respect to a particular Policy.) A Federal Tax Charge is made at an
effective rate that is equal, on an annual basis, to 0.20% of Account Value
during the first 10 Policy Years to help compensate us for the increase in our
federal tax liability from the application of Section 848 of the Code.
DAILY DEDUCTIONS
Each Business Day, we deduct a mortality and expense risk charge that we
calculate as a percentage of your Policy's net assets in each Separate Account
investment option. The charge is currently 0.90%, on an annual basis. This
charge helps compensate us for assuming mortality and expense risks under the
Policies.
WITHDRAWAL CHARGES
During the first 9 Policy Years, we may assess a withdrawal charge if you
surrender your Policy, withdraw Account Value, or apply Account Value to an
optional annuity payment option.
The withdrawal charge consists of two separate components, one for a sales
charge and one for an unreimbursed premium tax charge, that are stated
separately in your Policy. Overall, we determine the withdrawal charge by
applying the percentages shown in the table below to the purchase payments we
deem withdrawn, surrendered or applied to an optional annuity payment. Purchase
payments are deemed withdrawn or surrendered in the order in which they are
made. We take withdrawal charges from your investment options on a pro-rata
basis, or by any other method you select and we approve.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Withdrawal Charge - as a percentage of purchase payments:
<S> <C>
Policy Year 1 9.75%
Policy Year 2 9.5%
Policy Year 3 9%
Policy Year 4 8%
Policy Year 5 7%
Policy Year 6 6%
Policy Year 7 5%
Policy Year 8 4%
Policy Year 9 3%
Policy Year 10+ NONE
- ----------------------------------------------------------------------
</TABLE>
Free Withdrawal Amount. We will not assess a withdrawal charge on a withdrawal
of Account Value until the amount withdrawn for that Policy Year exceeds a "free
withdrawal amount" equal to 15% of your purchase payments, less amounts taken as
loans that year.
The 15% withdrawals do not reduce purchase payments for purposes of computing
the withdrawal charge. The charge will continue to apply to the amount withdrawn
or surrendered during any of the first 9 Policy Years that exceeds 15% of
--------
Purchase Payments. The unused portion of the "free withdrawal amount" for one
Contract Year does not carry over to the next Contract Year.
The free withdrawal amount is not available on withdrawal requests that would
result in less than $1,000 of remaining Account Value.
Waiver of Withdrawal Charges. We will waive the withdrawal charges:
. after the first Contract Year and subject to state availability, if the
Insured or the Insured's spouse is confined in an approved nursing home for
90 days;
. if any Death Benefits are paid; or
. if the Account Value is applied after five Contract Years to an optional
annuity payment option.
To qualify for a waiver of the Withdrawal Charges based upon confinement in a
qualified nursing home, the Insured or the Insured's spouse must never have been
confined in a qualifying nursing home on or before the date your application for
the Policy was signed. We may require evidence satisfactory to us for any of
these conditions. You should review your Policy carefully for a complete
description of these waivers.
<PAGE>
FUND EXPENSES
Our Separate Account purchases shares of the Portfolios of the Funds 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 -- Fund Expenses.")
OTHER CHARGES AND DEDUCTIONS (NOT CURRENTLY CHARGED)
We do not currently make the charges referred to after the caption "Tax Charge"
in the "Highlights" segment of this prospectus. We reserve the right to do so,
however.
Special Service Fees. We do not charge you for special services, such as
additional reports, dollar cost averaging, and asset rebalancing. Although we
do not currently intend to do so, we reserve the right to charge you for these
special services.
ELIMINATION, REDUCTION OR REFUND OF CHARGES AND DEDUCTIONS; INCREASES IN BONUSES
We may eliminate, reduce, or refund any charges and deductions on a Policy when
sales of Policies are made to certain individuals or to group and sponsored
arrangements. We will do this when we expect savings of sales, administration or
other expenses, or in a reduction in the level of risks we expect to assume
under the Policies. (This prospectus describes such groups under "Group and
Sponsored Arrangements" below.) We determine any such adjustment to charges and
deductions after examination of relevant factors such as:
. the size and type of group, because large numbers of Policies tend to lower
our per-Policy expenses;
. the total amount of premium payments to be received, because certain expenses
tend to be a smaller percentage of larger premium payments;
. any prior or existing relationship we have with the purchaser, because of the
likelihood of reduced marketing and implementation expenses;
. other circumstances, of which we are not presently aware, which could result
in reduced expenses; and
. after a Policy is issued, if we anticipate expenses for later Policy Years
that are lower than initially projected.
We also may eliminate, reduce or refund charges and deductions when we issue a
Policy to an officer, director, employee or agent of ours or any of our
affiliates. We do not, however, guarantee any adjustment in charges and
deductions, and any adjustment may vary by group.
All adjustments will be made under our uniform administrative rules then in
effect. In no event will adjustments to charges, or deductions 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, 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.
Gender-Neutral Policies. In 1983, the United States Supreme Court decided in
Arizona Governing Committee v. Norris that certain insurance contracts may not
be used to fund certain employee benefit programs where the contracts provided
values and benefits that varied with the gender of the insured person. We may
therefor offer Policies that do not vary by gender for use in connection with
certain employee benefit programs. We recommend that any employer proposing to
offer the Policies to employees under a group or sponsored arrangement consult
its attorney before doing so.
We may also offer the Policy with provisions and charges that are gender neutral
in states where required, and where the "unisex" version of the Policy has been
approved. Currently, the State of Montana prohibits the use of actuarial tables
that distinguish between men and women in determining premiums and policy
benefits.
PURPOSES OF POLICY CHARGES
We have designed the charges under the Policies to cover, on the whole, our
direct and indirect costs of selling, administering and providing benefits under
the Policies. These charges are also designed, on a whole to compensate us for
the risks we assume under the Policies. These include mortality risks (such as
the risk that insured persons will, on average, die before we expect, thereby
increasing the
<PAGE>
amount of claims we must pay); investment risks (such as the risk that adverse
investment performance will make it more costly for us to provide the transfer
rights under the Policies or reduce the amount of our asset-based fee revenues
below what we anticipate); sales risks (such as the risk that we sell fewer
Policies and receive lower net revenue than we expect, thereby depriving us 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 we must provide will exceed what we currently
project).
If, as expected, the charges that we collect from the Policies exceed our total
costs in connection with the Policies, we will earn a profit. Otherwise we will
incur a loss. We have set the current and maximum rates of certain of our
charges with reference to estimates of the amount of specific types of expenses
or risks that we will incur. In some cases, this prospectus identifies such
expenses or risks in the name of the charge: e.g., the administrative charge,
- -
distribution 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 we collect from that charge will
never be more than the amount of such expense or risk, or that we may not also
be compensated for such expense or risk out of any other charges we may deduct
under the terms of the Policies.
THE POLICIES
APPLICATION AND ISSUANCE OF A POLICY
If you wish to purchase a Policy, you must submit an application to our Variable
Service Center. You select:
. The initial premium you intend to pay; and
. The initial death benefit ("Face Amount") of the Policy; and
. The investment options to which we will allocate your premium.
We will review an application under our underwriting rules, and we may request
additional information or reject the application.
Applicants between the ages of 0 and 80 are eligible for simplified underwriting
without a medical examination under our current underwriting rules, which are
subject to change. We generally will not issue Policies to insure persons older
than age 85; nor will we generally issue Policies to employee benefit plans
qualified under Section 401 of the Internal Revenue Code. If we decline an
application, we will refund any premium payment made.
If we issue the Policy, Monthly Deductions will begin as of the Policy Date. If
you make a premium payment with the application, the Policy Date generally will
be the date we approve the application. If you instead pay the initial premium
upon delivery of the Policy, the Policy Date generally will be five days after
we issue the Policy.
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed. In
that case, even though Monthly Deductions begin earlier, backdating may be
advantageous, for example, to obtain a lower cost of insurance rate, based on a
lower Age of the insured person.
"Free Look Right." You have the right to review your Policy during an initial
inspection period specified in the Policy and, if dissatisfied, to return it to
us or to the agent through whom you purchased it. We will refund the Account
Value, any Monthly Deductions, and any other charge we assessed on a Policy that
is returned during the permitted period, unless a different amount is required
by state law. The "free look" period is typically 10 days from your receipt of
a Policy, but may be greater depending on state requirements.
PREMIUMS
The Policy is designed for a large single premium (minimum $10,000) to be paid
by you on or before the Policy Date, with a limited ability to make additional
premium payments. Additional premium payments under the Policy are permitted
under the following circumstances:
. an additional premium payment is required to keep the Policy in force after
the minimum guarantee period; or
. an additional premium is paid equal to the lesser of 5% of the initial
premium or $5,000.
We may require that any Policy loans be repaid prior to accepting any additional
premium payments, and require evidence of insurability on the Insured before
accepting an additional premium in excess of the permitted amounts.
<PAGE>
The minimum death benefit guarantee period begins on the Policy Date and ends on
the earliest of:
. the 10/th/ Policy Anniversary;
. the Insured's Age 65;
. the date you first make a withdrawal of Account Value; or
. the date you first take a Policy loan (There is no minimum death benefit
guarantee period if your Policy is issued subject to a Policy loan..)
Grace Period. After the end of your Policy's minimum guarantee period, your
Policy will enter a grace period on the first Business Day of any Policy Month
on which your Policy Cash Surrender Value will not cover the current Monthly
Deduction and accrued interest on any Policy loans you have taken.
The grace period runs for 61 days from the applicable Business Day. We will
send you a notice at your last known address which will show the amount
necessary to cover the Monthly Deduction(s) due plus an amount equal to three
times the current Monthly Deduction. If you do not pay at least this amount by
the end of the grace period, your Policy will end without value.
ALLOCATION OF PREMIUMS
General. We allocate the premium payments you make (after any deductions) to
the investment options you select. We use "Accumulation Units" to keep track of
your interest in any Separate Account investment option you select. We
determine the number of Accumulation Units credited to a Policy by dividing the
amount allocated a Separate Account investment option by the value of the
applicable Accumulation Unit next determined after receipt of your premium
payment. We calculate Accumulation Unit Values as of the end of each Business
Day. Premium payments allocated to the Fixed Account are credited in dollars.
Premium payments are generally allocated to the Separate Accounts or the Fixed
Account as of the later of the Policy Date or the date we receive your premium.
Delayed Investment Allocation Date. We reserve the right to allocate premium
payments to the FIS Prime Money Fund II investment option for an investment
delay period before they will be invested (together with any investment gain) in
any other investment option(s) you designate. In that case, we would reallocate
your Account Value to the investment options you have selected at the end of
your Policy's "free look" period. We would measure the investment delay period
from the date your Policy is issued from our 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 you.
If we elect to delay your investment allocation date, your Policy will contain a
provision to that effect.
TELEPHONE TRANSACTIONS
You may initiate various transactions by calling 1-800-845-0689. These are:
transfers of Account Value, notification of a change in your address, change of
premium allocations among investment options, partial withdrawal requests,
Policy loans and systematic withdrawals. You may authorize your representative
to make these calls on your behalf.
You may also call 1-800-59-FUNDS for current Accumulation Unit values, current
Account Value, and for telephone transfers of Account Value.
If you own a Policy jointly with another owner, unless both owners have advised
us to the contrary, we will accept instructions from either one of the joint
owners.
We will use reasonable procedures (such as requiring identifying information
from the caller, tape recording the telephone instructions, and providing
written confirmation of the transaction) in order to authenticate instructions
communicated by telephone. You will be responsible for any telephone
instructions we reasonably believe to be genuine. Therefore, you will bear any
losses arising from any errors in the communication of instructions. If we do
not employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable to you for any losses due to dishonored
or fraudulent instructions. We may modify or terminate our procedures for
telephone transactions at any time.
<PAGE>
POLICY BENEFITS AND VALUES
DEATH BENEFIT
If we receive proof that the Insured died while the Policy was in force, we will
pay the Death Benefit Proceeds to the Beneficiary. You may elect for the Death
Benefit Proceeds to be paid in a single sum or under one of our other Payout
Options before the death of the Insured. If no such election is in effect at the
death of the Insured, the Beneficiary may make the election during a 60-day
period following our receipt of proof of death. We will hold up payment of the
Death Benefit Proceeds in the meantime.
Death Benefit Amount
The death benefit amount under a Policy is the greater of:
. the Face Amount or
. the Account Value times the applicable percentage shown in the Minimum Death
Benefit table on the next page.
The initial death benefit amount on the Policy Date is generally equal to the
Face Amount. The death benefit amount is reviewed each Policy Month, based on
the Account Value at the beginning of that Policy Month. We determine the final
death benefit amount on the date we receive proof of the Insured's death.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
MINIMUM DEATH BENEFIT
- --------------------------------------------------------------
Age Percentage of Age Percentage of
Account Value Account Value
- --------------------------------------------------------------
<S> <C> <C> <C>
40 or less 250
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75-90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
60 130 95+ 100
- --------------------------------------------------------------
</TABLE>
Face Amount and Guideline Single Premium - The Face Amount on the Policy Date is
determined by treating the initial premium as a "guideline single premium." The
"guideline single premium" is an amount necessary to keep the Policy in force
until the Maturity Date, using the Policy's guaranteed charges, and assuming a
6% net investment return and other assumptions and calculations required by the
Code for a Policy to qualify as life insurance contract under what is commonly
referred to as the "guideline premium test." The "guideline single premium"
will vary by the Insured's age on the Policy Date, sex and underwriting risk
class. This will generally result in the same
<PAGE>
initial premium providing a Face Amount that is higher for non-smokers than
smokers, and a higher Face Amount for females than for males.
Face Amount and Additional Premium Payments. Additional premium payments may
result in an increase in Death Benefit by an amount sufficient to permit a
Policy to remain within the definition of a "life insurance contract" under Code
section 7702. We may require additional evidence of the insurability of the
Insured before accepting the additional payments.
ACCELERATED BENEFIT RIDER
Subject to regulatory approval in your local area, an Acceleration of Death
Benefit Rider is included in a Policy. The rider permits you to receive an
advance of the Death Benefit when the Insured person has a terminal illness with
a life expectancy of less than 12 months (all as defined in the rider).
We compute the maximum amount of advance under a formula set forth in the rider.
In no event will we advance more that $50,000, however. Amounts advanced under
the rider generally will be considered Death Benefits for federal income tax
purposes. (See "Federal Tax Matters - Income Tax Treatment of Policy Benefits.")
We do not charge for this rider. For more complete information about the rider
and its availability, you should consult your sales representative or request a
copy of the form of the rider.
DETERMINATION OF ACCOUNT VALUE
Your Account Value under a Policy includes its value in the Separate Account, in
the Fixed Account and, in the Loan Account. Your Account Value in a Separate
Account investment option at any time equals the number of Accumulation Units
you hold in that option multiplied by the then-current value of one such
Accumulation Unit. We compute this value in such a way that the investment
return on your Account Value in any Separate Account investment option will
differ from the total return achieved by the underlying Fund Portfolio only by
the amount of the charges and deductions we make under your Policy from that
investment option.
Your Account Value in the Fixed Account investment option or in the Loan Account
earns fixed rates of interest as described elsewhere in this prospectus. Your
Account Value in the Fixed Account will increase by the amount of such interest,
but will decrease by the amount of any charges or deductions that we take from
that account for your Policy.
Your Account Value in any investment option, or in the Loan Account will also
vary by the amount of transfers we make among those components of Account Value
in response to requests that you make, or that we make automatically in
connection with any Policy loans that you take and the payment of principal and
interest due thereon. Your Account Value in each investment option also will
increase by the amount that you direct to that option from your premium payments
and will decrease by the amount of any withdrawals that you take from that
option.
POLICY LOANS
We will lend you up to 90% of your Policy's Cash Surrender Value at any time
after the initial free-look period. You may request a Policy loan by submitting
a request in writing or by telephone to our Variable Service Center shown on the
front cover of this prospectus. (See "Telephone Transactions.")
Each loan must be at least $1,000. We will automatically transfer Account Value
equal to the amounts you borrow to your Policy's Loan Account from the other
investment options you are then using. We will make the transfer in proportion
to the Account Value in each, unless you request a different allocation and we
agree. We credit amounts in your Loan Account with interest at a minimum
annual rate of 3%.
The interest you must pay us on a Policy loan accrues daily at an annual loan
interest rate of 5% and is payable on each Policy Anniversary. If not paid
when due, we will add it as an additional Policy loan and transfer additional
Account Value to your Loan Account. A loan repayment increases your Account
Value in your Policy's other investment options on a dollar-for-dollar basis.
Unless you request otherwise, loans and loan repayments are attributed to the
Separate Account Investment Options and the Fixed Account in proportion to the
Account Value in each. We may disapprove any such request, however. You must
designate any loan repayment as such. Otherwise, we will treat the payment as a
premium payment.
Preferred Loan Amounts. On the date of this prospectus, we credit interest on
preferred loan amounts at an annual effective rate of 5%.
Immediate Loan Repayment. If, on the first Business Day of a Policy Month, the
Account Value less the Withdrawal Charge is not sufficient to pay the Monthly
Deduction, any loan interest then due and unpaid, and any other Policy charges,
you must make a loan
<PAGE>
repayment within 61 days after such Business Day. We will send a notice to you
or your assignee, if any. The Policy will terminate without value after 61 days,
unless you make a sufficient repayment to reduce the Policy loans and pay any
other amounts then due.
SURRENDER AND WITHDRAWALS
Surrender. You may surrender your Policy for its Cash Surrender Value at any
time while the Insured is living, by a signed written request conforming to our
administrative procedures. We calculate the Cash Surrender Value as of the close
of the Business Day when your surrender request is received at our Variable
Service Center. The Cash Surrender Value equals your Account Value reduced by
any unpaid Policy loans and accrued interest and by any applicable withdrawal
charges. You may elect to have all or part of the Cash Surrender Value applied
to a payout option. (See "Payout Options.") The election must be in writing,
except that we will accept telephone requests that apply to only part of the
Cash Surrender Value. Our liability to pay the Death Benefit proceeds ends when
you surrender your Policy.
Withdrawals. You may withdraw a portion of the Policy's Cash Surrender Value
(minimum $1,000). This will reduce the Account Value and cause a proportionate
reduction in the Policy's Face Amount and death benefit. A requested withdrawal
requires our consent, however:
. if the Death Benefit would be reduced below that required to qualify the
Policy as life insurance; or
. if the remaining Account Value would be less than $1,000.
We will take any withdrawals from your Policy's investment options on a pro-rata
basis, unless you make a request in writing in advance for a different method.
We reserve the right to approve or disapprove any such request.
MATURITY PROCEEDS
If the Insured is living on the Policy's "Maturity Date" (the Policy anniversary
of the Policy Date on which the Insured's Age is 100), we will pay the Cash
Surrender Value. In such case, the Policy will terminate and we will have no
further obligations under it. We will calculate the Cash Surrender Value for
this purpose as of the Maturity Date, although we may defer paying such amount
to you until you return your Policy to us.
LAPSE AND REINSTATEMENT
If your Policy lapses following a 61-day grace period, you may still, within 3
years thereafter, request that we reinstate the Policy. You would need to
provide us with satisfactory evidence, however, that the Insured is still
insurable and pay certain amounts specified in the Policy.
Any reinstatement will be effective on the first Business Day of the first
Policy Month that begins on or after we approve reinstatement. The values and
terms and conditions of the reinstated Policy will be in accordance with our
administrative procedures.
PAYMENT OF PROCEEDS
We ordinarily will pay any Cash Surrender Value, Death Benefit Proceeds, or loan
proceeds from the Separate Account Investment Options, and begin Payout Options
funded through Separate Account investment options, within seven days after
receipt by our Variable Service Center of a request, or proof of death of the
insured persons, and all other required elections and documentation in a form
satisfactory to us. However, we may delay payment or transfers from a Separate
Account investment option in certain circumstances. (See "Suspension of
Payments and Transfers.") We may also delay payment if we contest the Policy.
We will pay interest on Death Benefit Proceeds from the date they become payable
to the date they are paid in one sum or, if a Payout Option is selected, to the
effective date of the option.
TAX WITHHOLDING
All distributions from your Policy, or portions thereof, which are included in
your gross income are subject to federal income tax withholding. We will
withhold federal taxes at the rate of 10% from each distribution. However, you
may elect not to have taxes withheld or to have taxes withheld at a different
rate.
PAYOUT OPTIONS
Payout Options provide a series of payments in lieu of a single sum payment by
us. You may elect a Payout Option:
. for all or part of the Cash Surrender Value payable when you make a
withdrawal or surrender the Policy; or
<PAGE>
. for all or part of the Death Benefit Proceeds payable upon death of the
Insured.
You may elect to change a previously elected Payout Option for Death Benefit
Proceeds. Any such election or change relating to Death Benefit Proceeds must
be made:
. while the Insured is living; and
. by written request to our Variable Service Center.
Annuitization Bonus. We will increase your Account Value by an "Annuitization
Bonus" when Cash Surrender Value or the Death Benefit Proceeds are applied to a
Payout Option. The increase will be based on your Account Value at the end of
the Business Day immediately preceding the date the initial Payout Option amount
is determined.
We determine the Annuitization Bonus rate for a Policy at the time of issue, but
the Bonus may be modified, reduced or eliminated for subsequently issued
Policies. On the date of this prospectus, the Annuitization Bonus rate is 3% of
Account Value. We will pro-rate any increase among your Policy's investment
options on the Annuity Date.
You may select the following Payout Options or any other Payout Option
acceptable to us:
Option A - Life Annuity. Equal monthly payments during the life of the payee.
Option B - Life Annuity with Period Certain Of 120 Months. Equal monthly
payments during the lifetime of the payee, but for no less than 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 by you.
Option D - Death Benefit Proceeds Remaining With Us. The Death Benefit Proceeds
will remain in our Fixed Account and be credited with interest at an effective
annual rate of not less than 3%. The Payee may make full and partial
withdrawals at any time with no Surrender Charge.
Each payment under Payment Options A, B, or C will be at least equal the amounts
calculated based on the annuity tables contained in your Policy. If the payee
dies during a period certain (Payout Options B or C), any remaining payments
will be made to the estate of the Payee. The estate may elect to have the
commuted value of the remaining payments paid in a single sum instead. We 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 you
or your Beneficiary. In addition, under current federal income tax rules, the
annuitization bonus is deemed "income" on a Policy. Therefore, you should
consult a qualified tax adviser before deciding whether to elect one or more
Payout Options.
RIGHT TO EXCHANGE FOR A FIXED BENEFIT POLICY
During the first 24 Policy Months, if your Policy has not lapsed, you have an
unconditional right to transfer all of your Account Value in the Separate
Account investment option to the Fixed Account without any transaction charge.
OTHER PROVISIONS OF THE POLICY
SUICIDE EXCLUSION
If suicide of the Insured occurs within two years from the Policy Date (or less
if required by state law), we will limit the Death Benefit to your Policy's Cash
Surrender Value.
REPRESENTATIONS AND CONTESTABILITY
Generally, we can challenge the validity of your Policy for two years from the
Policy Date, based on any misrepresentations made in your application to us. We
can challenge an increase in benefits requiring evidence of insurability for two
years from the date of the increase. We can challenge a reinstatement of the
Policy until reinstatement has been in force for two years from its effective
date. However, the two-year time limits on our right to challenge all or part
of the Policy do not apply if the Insured dies within the two-year period.
MISSTATEMENT OF AGE OR SEX
<PAGE>
If any application for benefits under your Policy misstates the age or sex of
the Insured, the Death Benefit will be the amount provided by the correct age
and sex.
OWNER AND BENEFICIARY
The Policy application names the Policy owner, who in turn may name a new owner.
At the death of the owner, his or her estate will become the owner, unless he or
she has named a successor owner. Because the owner has the authority to
exercise most rights under a Policy, this prospectus generally refers to the
owner when it refers to "you" or "your". The owner's rights as such terminate
when the Insured dies. If two or more people are named as owners, we will
generally assume that one owner has the authority to act for all owners.
However, we may require the consent of all owners for certain transactions under
the Policy, such as an election to exchange the Policy for a fixed benefit
policy.
Beneficiary. The Policy application also names the Beneficiary under the Policy
and any contingent Beneficiary. You may change the Beneficiary of the Policy
(other than an irrevocably named Beneficiary) 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 that insured person in order to receive the Death
Benefit Proceeds. If no named Beneficiary is alive when the Insured dies, we
will pay the proceeds to the owner.
Changes and Assignments. A change of owner or Beneficiary requires a written
request satisfactory to us that is dated and signed by all of the owners. The
change will take effect on the date it is signed, but is subject to all payments
made and actions taken by us under the Policy before we receive the request at
our Variable Service Center.
ASSIGNMENTS
The owner may assign (transfer) the owner's rights in a 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. An assignment requires a written request signed by all of the
Policy's owners. An assignment will take effect only when we record it at our
Variable Service Center. We have no responsibility for any assignment not
submitted for recording; nor for the sufficiency or validity of any assignment.
Unfavorable tax consequences, including recognition of taxable income and the
loss of income tax-free treatment for any death benefit payable to the
Beneficiary may result from transferring ownership or making an assignment.
Therefore, you should consult with a qualified tax adviser before doing so.
REPORTS AND RECORDS
We will mail to your last known address of record an annual statement showing
your Policy's current Account Values, transactions since the last statement,
Policy loan information, and any other information required by federal or state
laws or regulations.
We will also send you annual and semi-annual reports containing the financial
statements of the Portfolios you are using.
In addition, you will receive statements of significant transactions, such as
changes in the Death Benefit, transfers among investment options, premium
payments, Policy loans, Policy loan principal, Policy loan repayments, and
Policy reinstatement or termination.
VOTING RIGHTS
We will vote the shares of the Portfolios held by the Separate Account at
regular or special meetings of the Portfolio's shareholders in accordance with
instructions received from you and other owners having the voting interest in
the affected Portfolio(s). We compute the number of votes that an owner has
the right to instruct for a particular Portfolio by dividing the owner's Account
Value in that Portfolio by that Portfolio's net asset value per share. We will
vote a Portfolio's shares held in our Separate Account for which we do not
receive instructions, as well as shares held in our Separate Account that are
not attributable to owners in the same proportion as we vote that Portfolio's
shares held in the Separate Account for which we have received instructions.
We may disregard voting instructions under limited circumstances prescribed by
SEC rule. We will include a summary of any such action and the reasons for it
in the next semiannual report to owners.
<PAGE>
SUSPENSION OF PAYMENTS AND TRANSFERS
Under certain circumstances, we may suspend or postpone transactions that
pertain to a Separate Account investment option under your Policy. These
include payment of Death Benefit Proceeds or Maturity Value, payment for
surrenders, withdrawals and Policy loans, or transfers, purchase payments and
loan repayments for any period when:
. the New York Stock Exchange is closed for regular trading;
. regular trading on the New York Stock Exchange is restricted by the SEC;
. an emergency exists as a result of which disposition of securities held in
the applicable Separate Account investment options is not reasonably
practicable or it is not reasonably practicable to determine the value of
such option's net assets; or
. the SEC, by order, permits such suspension during any other period.
We also may defer payment for a surrender, withdrawal or Policy loan, or
transfer from the Fixed Account, for the period permitted by law but not for
more than six months after we receive your written request. We will pay interest
to the extent provided under state insurance law on payments that are delayed.
Also, we may defer payment of any amount attributable to a check you have given
us in order to allow a reasonable time (not to exceed 15 days) for the check to
clear the banking system.
NONPARTICIPATION IN OUR DIVIDENDS
The Policies are "nonparticipating". This means that they do not participate in
(or receive) any dividend we pay or distribution of our 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, our wholly owned
subsidiary, was incorporated in Arkansas on July 26, 1991. It 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., FVCS offers
the Policies on a continuous basis.
FVCS and we have agreements with various broker/dealers under which their
registered representatives, who are also licensed insurance agents, will sell
the Policies. The commissions payable to a broker/dealer for sales of a Policy
may vary with the sales agreement. However, we do not expect that, on an
aggregate basis they will exceed 8.50% of the first year premium payment.
Broker/Dealers may also receive expense allowances, wholesaler fees, bonuses and
training fees.
FVCS and we may permit specific broker/dealers to sell versions of the Policies
that contain specific investment options that are not available through other
broker/dealers. FVCS and we may pay a different level of compensation for sales
of different versions of the Policies.
Under a Services Agreement with FVCS, we perform insurance underwriting,
issuance and other administrative services for our variable life insurance
policies, including the Policies.
The Company serves as the custodian of the assets of the Separate Account.
OUR MANAGEMENT
Here is a list of our directors and executive officers and their principal
business experience during the past five years. Unless otherwise noted, our
directors are located at 2211 York Road, Suite 202, Oak Brook, Illinois 60523
and all our executive officers are located at 2122 York Road, Suite 300, Oak
Brook, Illinois 60523.
DIRECTORS
Ronald M. Butkiewicz, Chairman. He is also the President and Chief Executive
Officer, Irish Life of North America, Inc., and Chairman and Chief Executive
Officer, Interstate Assurance Company.
<PAGE>
Michael J. Corey - 401 East Host Drive. Lake Geneva, WI 53147. He is a
Managing Director, Insurance/Professional Services Practice Group and President,
CSG International Inc.
Norman A. Fair - He is also Vice President, Treasurer, & Asst. Sec., Irish Life
of North America, Inc. and prior to 1994, he was the Senior Vice President and
Chief Financial Officer of Interstate Assurance Company.
Michael R. Ferrari, 25th & University Ave., Des Moines, IA 50311 - He is the
Chancellor, Texas Christian University; and prior to July 1998, he was the
President of Drake University.
Shane W. Gleeson - He is the Executive Vice President, Irish Life of North
America, Inc.; and prior to December
1997, he was the President, Interstate Assurance Company. Prior to November
1994, he was the Senior Vice President and Chief Operating Officer of Interstate
Assurance Company.
Jeff S. Liebmann, Esq., 1301 Avenue of the Americas
New York, NY 10019 - He is a partner of Dewey, Ballantine.
Kenneth R. Meyer, 200 South Wacker Dr., Suite 2100,
Chicago, IL 60606 - He is a Managing Director, Lincoln Capital Management Co.
Philip R. O'Connor, 111 West Washington, Suite 1247
Chicago, IL 60602 - He is the President of NEV Midwest, LLC and prior to April
1998, he was a Principal of Coopers & Lybrand LLP/Palmer Bellevue Corp.
Clark A. Ramsey - He is also Vice President and Corporate Actuary, Irish Life of
North America, Inc. Prior to March, 1998, he was the Vice President and
Actuarial Director, Allstate International, Inc.
EXECUTIVE OFFICER & DIRECTOR
John M. Soukup, President - Prior to July, 1997, he was the Market Development
Officer, Fortis Financial Group.
OTHER EXECUTIVE OFFICERS
Steven J. Horn, Senior Vice President and Chief Operations Officer - Prior to
January 1999, he was the Assistant Vice President of Irish Life of North
America, and prior to July 1998, he was the Sr. Vice President and General
Manager of United Casualty Insurance Company of America.
Arnold R. Bergman, Vice President, General Counsel and
Secretary - Prior to February 1995, he served as Counsel, Aetna Life Insurance
and Annuity Company.
Thomas Gualdoni, Vice President, Sales - Prior to December 1997, he was the Vice
President, Sales, Fortis
Benefits Insurance Company.
Martha Gross, Vice President, Administration - Prior to May 1998 she was an
Assistant Secretary of ours. She is also a Vice President, Interstate Assurance
Company.
Christopher S. Harden, Vice President & Treasurer - Prior to April, 1998 he was
the First Vice President and Chief Accounting Officer, COVA Financial Services
Life Insurance Company.
Martin Sheerin, Vice President & Chief Actuary - Prior to October, 1994, he was
a Vice President, Irish Life of North America, Inc.
FEDERAL TAX MATTERS
GENERAL
BECAUSE OF THE COMPLEXITY OF THE LAW AND BECAUSE TAX RESULTS WILL VARY ACCORDING
TO YOUR IDENTITY AND STATUS, YOU SHOULD SEEK INDIVIDUALIZED LEGAL AND TAX ADVICE
BEFORE PURCHASING OR TAKING ANY ACTION UNDER A POLICY.
<PAGE>
We cannot provide a comprehensive description of the federal income tax
consequences regarding the Policies in this prospectus, and special tax rules
may apply that we have not discussed herein. Nor does this discussion address
any applicable state, local, gift, inheritance, estate, and foreign or other tax
laws. This discussion assumes that you, the Policy's owner, are a natural
person and a U.S. citizen and resident. Finally, we would caution that the law
and the related regulations and interpretations on which we base our tax
analysis can change, and such changes can be retroactive.
OUR TAXATION
Under current federal income tax law, the operations of the Separate Account and
the Fixed Account do not require us to pay any tax. Thus, we currently impose
no charge for our federal income taxes. However, we may decide to charge the
Separate Account or Fixed Account for our federal income taxes, if there are
changes in federal tax law.
We may incur state and local taxes (in addition to premium taxes) in several
states. At present, these taxes are not significant and, accordingly, we do not
currently impose a charge for them. If they increase, however, we may impose a
charge for such taxes attributable to the Separate Account and/or Fixed Account.
INCOME TAX TREATMENT OF POLICY BENEFITS
Life Insurance. Section 7702 of the Internal Revenue Code provides that if
certain tests are met, your Policy will qualify as a life insurance contract for
federal tax purposes. The death benefit under a life insurance contract is
generally excluded from the gross income of the Beneficiary. Also, the owner of
a life insurance contract is generally not taxed on increases in the account
value until withdrawn or surrendered.
Section 7702 limits the amount of premiums that may be invested in a life
insurance contract and requires certain minimum amounts of life insurance
coverage, relative to the account value. We will monitor compliance with these
tests. As a result, we believe that 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. Similarly, we believe that accelerated
death benefit payments, if permitted under your Policies because of the terminal
illness of the Insured, in most cases will not constitute taxable income for
you. Such payments may be taxable income to you, however, if:
. you are not an insured person; or
. you have an insurable interest in either of the insured persons' lives
because that insured person is a director, officer or employee of yours or is
otherwise financially interested in any trade or business carried on by you.
Modified Endowment Contracts. The Code contains provisions affecting certain
life insurance policies that the Code refers to as "modified endowment
contracts."
Modified endowment contracts result when cumulative premiums paid under a Policy
at any time during the first seven Policy Years exceed the sum of the premiums
that would have been paid by then if the Policy provided for paid up future
benefits after the payment of seven level annual premiums ("seven-pay test").
The amount of premiums payable under the seven-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 seven-pay test.
Whenever there is a "material change" under a Policy, the Policy generally will
be:
. treated as a new Policy for purposes of determining whether it is a modified
endowment; and
. subjected to a new seven-pay test.
The Policy would become a modified endowment contract if, at time of the
material change or at any time during the next seven years, it failed to satisfy
such new seven-pay test. A material change for these purposes could result from
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, any decrease in Face Amount that you request or, in some
cases, a partial withdrawal or
<PAGE>
termination or reduction of benefits under a rider.) If you have already paid
(or subsequently pay) more premiums than permitted by the recalculated seven-pay
limit, your Policy will become a modified endowment contract.
Any Policy that you acquire in exchange for another life insurance policy that
is 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 make the new policy a modified
endowment contract if you pay no additional premiums and there is no benefit
increase as a result of the exchange.
Other Tax Effects of Policy Changes. Changes made to your Policy (for example,
a decrease in benefits under or a lapse or reinstatement of a Policy) may have
other tax effects. These include impacting the maximum amount of premiums you
can pay under the Policy, as well as the maximum amount of Account Value you can
maintain under the Policy.
Taxation of Pre-Death Distributions from a Policy that is a Modified Endowment
--
Contract. If your Policy falls within the definition of a modified endowment
contract, the following rules will apply to pre-death distributions:
. You must include distributions, such as withdrawals, in your gross income
subject to federal tax, to the extent the Account Value of the Policy exceeds
your investment in the Policy. Any additional amounts you receive, other than
Policy loans, will not constitute currently taxable income, but will reduce
your investment in the Policy.
. Policy Loans, including any increase in the amount of the loan to pay
interest, also constitute distributions to you for these purposes. Your
investment in the Policy, however, will increase by the amount of any loan
included in your gross income.
. If your Policy terminates after a grace period while there is a Policy loan,
the cancellation of such loan and accrued loan interest will also constitute
a distribution to you for these purposes to the extent not previously treated
as such.
. On the Maturity Date or upon a full surrender, any excess of the proceeds
(including any amounts we use to discharge any loan and accrued loan
interest) over your investment in the Policy, will also constitute a
distribution to you for these purposes.
. A change of ownership or Policy assignment also can constitute a distribution
for these purposes. For example, a collateral assignment will subject any
gain in the Policy to taxation.
For purposes of determining the amount of any distribution that is included in
gross income, you must treat all modified endowment contracts that we or our
affiliates issue to you during any calendar as a single modified endowment
contract.
The taxable amount of any distribution from a Policy that is a modified
endowment also will incur an additional penalty tax equal to 10% of such taxable
amount unless the distribution:
. is made on or after you attain age 59 1/2;
. results from your becoming disabled (as defined in the Code); or
. forms part of a series of substantially equal periodic payments made no less
frequently than annually for your life (or life expectancy) or for the joint
lives (or life expectancies) of the owner or the Beneficiary.
The Monthly Deductions under a modified endowment contract attributable to any
Other Insured Person Rider for a person who is not a member of your family may
constitute distributions from your policy for tax purposes. However, the
Beneficiary of this rider should not have to pay federal income tax on any
benefit received.
Distributions that occur during a Policy Year in which a Policy becomes a
modified endowment contract and during any subsequent Policy Years, will be
taxed as described in the preceding paragraphs. In addition, any distributions
from a Policy within two years before it becomes a modified endowment contract
also will be subject to tax in this manner. This means that a distribution made
from a Policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment.
Taxation of Pre-Death Distributions from a Policy that is not a Modified
---
Endowment Contract ("MEC"). As long as a Policy remains in force as a non-
modified endowment, you will not pay current income tax on the proceeds from any
Policy loan. Interest you pay on the loan generally will not be tax deductible,
however.
After the first 15 Policy Years, you will not pay current federal income tax on
any partial withdrawals you make, except to the extent such withdrawals exceed
your "investment" in the Policy. (The "investment" generally will equal the
premiums you have paid, less the amount of any previous distributions from your
Policy that were not taxable.) During the first 15 Policy Years, you could have
to pay federal income tax on certain withdrawals that reduce the Death Benefit,
to the extent that your Policy's Account Value exceeds your investment in the
Policy.
<PAGE>
On the Maturity Date or upon full surrender, any excess of proceeds (including
amounts we use to discharge any Policy loan and accrued loan interest) over your
investment in the Policy, will constitute taxable income to you for federal
income tax purposes. In addition, if your Policy terminates after a grace
period while you have a Policy loan outstanding, 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 you assign or transfer rights or
benefits under your Policy, you may be deemed to have received a distribution
from the Policy, all or part of which may be taxable.
DIVERSIFICATION REQUIREMENTS
The Internal Revenue Code provides that a variable life insurance policy will
not be treated as a life insurance contract under the Code for any period (and
any subsequent period) for which the related investments are not adequately
diversified. We intend that all Portfolios of the Funds in which your Policy
may invest will comply with the diversification requirements. If your Policy
did not qualify as life insurance, you would be subject to immediate taxation on
the increases in your Policy's Account Value, plus the cost of insurance
protection under your Policy. This treatment would apply for the period of non-
compliance and subsequently, unless and until we are able to settle the matter
with the Internal Revenue Service. We have no legal obligation to seek or
agree to any such settlement, however.
The amount of investment control which you may exercise under a Policy differs
in some respects from the situation addressed in published rulings issued by the
Internal Revenue Service in which it held that variable life insurance policy
owners were not deemed, for federal income tax purposes, to own the related
assets held in a separate account by the issuing insurance company. It is
possible that these differences, such as your ability to transfer among
investment choices or the number and type of investment choices available, would
cause you to be taxed as if you were the owner of the Portfolio shares that are
attributable to your Policy. In that case, you would be liable for income tax
on an allocable portion of any current income and gains realized by the Separate
Account, even though you have received no distribution of those amounts.
In the event any forthcoming guidance or ruling by federal income tax
authorities sets 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, result in your being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, we reserve the right to modify your Policy
in an attempt to maintain its intended tax treatment.
ADVERTISING PRACTICES
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. We may use references to,
reprints, or portions of reprints of such articles or rankings as sales
literature or advertising material. We may also use rankings that indicate the
names of other variable policy separate accounts and their investment
experience.
We, the Funds, or other parties may develop articles and releases about the
following matters in relation to the Separate Account, the Funds or individual
Portfolios: asset levels, and sales volumes, statistics and analyses of industry
sales volume and asset levels, or other characteristics. Our promotional
material for the Policies and Separate Accounts can refer to, or be a reprint
of, such articles and releases. Such literature may refer to personnel of an
adviser or 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,
we may publish advertising and sales literature concerning topics of general
investor interest for the benefit of registered representatives and prospective
purchasers of Policies. These materials may include, but are not limited to,
discussions of college planning, retirement planning, and reasons for investing
and historical examples of the investment performance of various classes of
securities, securities markets and indices.
LEGAL MATTERS
STATE REGULATION
We are subject to the insurance laws of Arkansas and to regulation by the
Arkansas Insurance Department. The National Association of Insurance
Commissioners periodically examines our operations. Such regulation does not,
however, involve any supervision of management or investment practices or
policies. In addition, we are subject to regulation under the insurance laws of
other jurisdictions in
<PAGE>
which we may operate. As a result, various time periods and other terms and
conditions described in this prospectus may vary depending on where you reside.
We will reflect any applicable variations in your Policy and riders, or related
endorsements.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate Account,
FVCS or we are a party.
COUNSEL
Our Legal Department has reviewed legal matters in connection with the Policies.
Freedman, Levy, Kroll & Simonds, of Washington, DC, has advised us 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, 1998 and December 31, 1997 and for each of the three years in
the period ended December 31, 1998 and the financial statements of First
Variable Life Insurance Company--Separate Account VL at December 31, 1998 and
for the period then ended as described in the report 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
We have filed a registration statement with the SEC under the Securities Act of
1933. This prospectus omits certain information contained in the Registration
Statement. You can obtain copies of such additional information from the SEC
upon payment of the prescribed fee.
YEAR 2000 ISSUES
Like other financial and business organizations around the world, we could be
adversely affected if our computer systems and those of our service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. We have completed an assessment of the Year 2000 impact
on our systems, procedures, customers and business processes. At December 31,
1998, our management is satisfied that our main operating systems are Year 2000
compliant. We are currently reviewing our general office systems and contacting
our service providers.
We believe that we will complete our Year 2000 project prior to any anticipated
impact on our operating systems. The date on which we believe we will complete
the Year 2000 project is based on our management's best estimates. Although
there can be no guarantee that these estimates will be achieved, our 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 our service providers.
<PAGE>
APPENDIX: A
ANNUAL RATES OF RETURN FOR THE SEPARATE ACCOUNT INVESTMENT OPTIONS
The following tables show performance information for the Separate Account
investment options for periods ending December 31, 1998. Table A-1 assumes that
---
each option had been in operation for the same period as its corresponding
Portfolio. Table A-2 is derived from historic performance results of the
---
RTS Separate Account investment options from the date they actually commenced
operations to fund variable life insurance policies. 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' mortality and expense risk
charge (.90% per annum).
The tables do not reflect several significant charges that will apply to your
---
Policy: cost of insurance charges, an administrative charge (.40% per annum), a
maitenance fee ($2.50 per month if Account Value is less than $100,000), the
distribution, premium tax and federal tax charges for the first 10 Policy years
(.65% per annum) and the withdrawal charge. If these charges were reflected,
the total return figures shown would be lower. For an example of the effect of
the deduction of the 10 year charges and 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>
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO AND PORTFOLIO FROM PORTFOLIO
INCEPTION DATE 1 YR. 3 YR. 5 YR. 10 YR. INCEPTION DATE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth - 5/4/95 (1)(4) (3.50) 6.65 N/A N/A 13.54
- ------------------------------------------------------------------------------------------------------------------
VIST World Equity - 6/10/88 (2)(4) 4.48 8.21 11.28 7.88 7.05
- ------------------------------------------------------------------------------------------------------------------
VIST Growth - 5/1/87 (1)(2)(4) 32.50 26.61 22.14 16.52 15.23
- ------------------------------------------------------------------------------------------------------------------
VIST Matrix Equity - 6/16/88 (2)(3)(4) 20.40 14.74 14.45 13.68 13.36
- ------------------------------------------------------------------------------------------------------------------
VIST Growth & Income - 5/31/95 (4) 11.77 16.47 N/A N/A 17.42
- ------------------------------------------------------------------------------------------------------------------
VIST Multiple Strategies - 5/5/87 (2)(4) 28.38 22.11 17.89 14.62 12.40
- ------------------------------------------------------------------------------------------------------------------
VIST High Income Bond - 6/1/87 (2)(4) 2.43 9.25 7.22 9.33 9.01
- ------------------------------------------------------------------------------------------------------------------
VIST US Gov. Bond - 5/27/87 (2)(4) 7.15 5.57 6.23 7.81 7.56
- ------------------------------------------------------------------------------------------------------------------
FIS Prime Money Fund II - 11/94 (4) 4.34 3.88 3.75 4.12 3.53
- ------------------------------------------------------------------------------------------------------------------
AIM V.I. Cap. Appreciation - 5/5/93 18.40 15.87 16.33 N/A 17.87
- ------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth - 5/5/93 33.22 25.29 20.54 N/A 19.97
- ------------------------------------------------------------------------------------------------------------------
American V.P. Value - 5/1/96 3.91 N/A N/A N/A 15.04
- ------------------------------------------------------------------------------------------------------------------
BT Equity Index - 10/1/97 27.81 N/A N/A N/A 23.35
- ------------------------------------------------------------------------------------------------------------------
BT Small Cap - 8/25/97 -3.08 N/A N/A N/A -2.97
- ------------------------------------------------------------------------------------------------------------------
FT International - 5/1/97 8.18 N/A 10.84 N/A 13.20
- ------------------------------------------------------------------------------------------------------------------
LA Growth & Income - 12/11/89 11.92 17.95 16.61 N/A 15.27
- ------------------------------------------------------------------------------------------------------------------
MFS New Discovery - 5/1/98 N/A N/A N/A N/A 1.30
- ------------------------------------------------------------------------------------------------------------------
MFS Growth - 5/1/99 N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
MFS Growth & Income - 10/9/95 21.42 24.58 N/A N/A 25.08
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table A-2 Annualized Total Return from the Separate Account Investment Options'
---
Inception Date (March 31, 1997)
<TABLE>
<CAPTION>
SEPARATE ACCOUNT FROM SEPARATE ACCOUNT FROM
INVESTMENT OPTIONS 1 YR. INCEPTION DATE INVESTMENT OPTIONS 1 YR. INCEPTION DATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth - (1)(4) (3.50)% 7.18% VIST Multiple Strategies - (4) 28.38% 23.77%
- -------------------------------------------------------------- ------------------------------------------------------
VIST World Equity - (4) 4.48% 7.17% VIST High Income Bond - (4) 2.43% 6.05%
- -------------------------------------------------------------- ------------------------------------------------------
VIST Growth - (1)(4) 32.50% 26.62% VIST US Gov. Bond - (4) 7.15% 7.64%
- -------------------------------------------------------------- ------------------------------------------------------
VIST Matrix Equity - (3)(4) 20.40% 20.23% FIS Prime Money Fund II - (4) 4.34% 3.37%
- -------------------------------------------------------------- ------------------------------------------------------
VIST Growth & Income - (4) 11.77% 16.47%
- --------------------------------------------------------------
</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 Separate
Account investment options were, respectively, "Small Cap Sub-Account" and
"Common Stock Sub-Account".
(2) On April 1, 1994, First Variable Advisory Services Corp., an affiliate of
ours, became the investment advisor. Prior to that date, results were
achieved by former investment advisers.
(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 Separate Account investment option 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 Separate Account investment option
reflects only the performance of an assumed investment in the Separate Account
Investment Option for the Policies during the particular time period shown. You
should consider this performance information in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Separate Account investment option invests and the market conditions during
the given time period. You should not consider it representative of what the
Separate Account investment option will achieve in the future. Actual returns
will differ from those shown and will depend on a number of factors, including
the investment allocations you make and the different investment rates of return
for the Portfolios.
<PAGE>
APPENDIX: B
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES,
CASH SURRENDER VALUES AND ACCUMULATED VALUE OF PREMIUMS
The tables in this Appendix B show how a Policy's Death Benefit, Cash Surrender
Value and Account Value could change over an extended period of time, assuming
constant gross annual rates of return for the Separate Account of 0%, 6% and
12%. ("Gross return" for this purpose means the assumed rate of return the
underlying Portfolio has earned before deducting any of its expenses or any
Policy Charges and deductions). The tables are based on an initial premium of
$30,000 to provide insurance coverage on females aged 55 and males aged 65. The
insureds are assumed to be in the nonsmoker standard risk classification. The
first version of each of the tables assumes our current (i.e., non-guaranteed)
rates for the cost of insurance charge, and other charges we make under a Policy
on a daily or monthly basis. The next table is based on our contractually
guaranteed rates for those items.
The Death Benefits, Cash Surrender Values and Account Values shown in the tables
also reflect an unweighted average of the investment advisory fees and other
operating expenses incurred by the Portfolios that were available to Contract
Owners on December 31, 1998, at an annual rate of 0.97% of the average daily
net assets of the Portfolios. This average reflects a voluntary "caps" on the
investment advisory fees. If the investment adviser discontinued these caps,
the values illustrated on the following pages could be less. (See
"Highlights"). If the unweighted average included investment options first
available on May 1, 1999, to average of the investment advisory fee, and other
operating expenses insured by the Portfolios would be less and the values
illustrated on the following pages would be more.
Taking account of the charges for mortality and expense risks and administrative
expense in the Separate Account and the average investment advisory fee and
operating expenses of the Portfolios, the gross current annual rates of return
of 0%, 6% and 12% correspond to net investment experience at constant annual
rates of 1.87%, 4.13% and 10.13% and -2.02%, 3.98% and 9.98%, respectively for
the "current" and "guaranteed" tables. The tables do not reflect any tax charges
attributable to the Separate Account since we currently make no such charges. If
we impose any such charges 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.
The second column of each table shows the amount that would accumulate if you
instead invested your assumed premiums to earn interest, after taxes of 5% per
year, compounded annually.
<PAGE>
$30,000 INITIAL PREMIUM
$96,753 SPECIFIED AMOUNT
------
FEMALE NONSMOKER: AGE 55
CURRENT RATES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
- ------------------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
----------------------------------------------------------------------------------------
of PAID PLUS
Contract INTEREST AT Account Surr. Death Account Surr. Death Account Surr. Death
Year 5% Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,985 26,060 96,753 30,759 27,834 96,753 32,532 29,607 96,753
- -------------------------------------------------------------------------------------------------------------------
2 33,075 28,004 25,154 96,753 31,537 28,687 96,753 35,280 32,430 96,753
- -------------------------------------------------------------------------------------------------------------------
3 34,729 27,055 24,355 96,753 32,336 29,636 96,753 38,262 35,562 96,753
- -------------------------------------------------------------------------------------------------------------------
4 36,465 26,137 23,737 96,753 33,156 30,756 96,753 41,500 39,100 96,753
- -------------------------------------------------------------------------------------------------------------------
5 38,288 25,250 23,150 96,753 33,998 31,898 96,753 45,014 42,914 96,753
- -------------------------------------------------------------------------------------------------------------------
6 40,203 24,391 22,591 96,753 34,861 33,061 96,753 48,829 47,029 96,753
- -------------------------------------------------------------------------------------------------------------------
7 42,213 23,561 22,061 96,753 35,748 34,248 96,753 52,969 51,469 96,753
- -------------------------------------------------------------------------------------------------------------------
8 44,324 22,758 21,558 96,753 36,658 35,458 96,753 57,463 56,263 96,753
- -------------------------------------------------------------------------------------------------------------------
9 46,540 21,981 21,081 96,753 37,591 36,691 96,753 62,341 61,441 96,753
- -------------------------------------------------------------------------------------------------------------------
10 48,867 21,230 21,230 96,753 38,549 38,549 96,753 67,636 67,636 96,753
- -------------------------------------------------------------------------------------------------------------------
15 62,368 18,281 18,281 96,753 44,842 44,842 96,753 104,313 104,313 121,003
- -------------------------------------------------------------------------------------------------------------------
20 79,599 15,723 15,723 96,753 52,189 52,189 96,753 161,150 161,150 172,430
- -------------------------------------------------------------------------------------------------------------------
25 101,591 13,503 13,503 96,753 60,766 60,766 96,753 248,955 248,955 261,402
- -------------------------------------------------------------------------------------------------------------------
30 129,658 11,577 11,577 96,753 70,780 70,780 96,753 384,602 384,602 403,832
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
<PAGE>
$30,000 INITIAL PREMIUM
$96,753 SPECIFIED AMOUNT
------
FEMALE NONSMOKER: AGE 55
GUARANTEED RATES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
-----------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
-----------------------------------------------------------------------------------------
of PAID PLUS
Contract INTEREST AT Account Surr. Death Account Surr. Death Account Surr. Death
Year 5% Value Value Benefit Value Value Benefit Value Value Benefit
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,681 25,756 96,753 30,453 27,528 96,753 32,225 29,300 96,753
- ------------------------------------------------------------------------------------------------------------------
2 33,075 27,360 24,510 96,753 30,891 28,041 96,753 34,634 31,784 96,753
- ------------------------------------------------------------------------------------------------------------------
3 34,729 26,035 23,335 96,753 31,312 28,612 96,753 37,246 34,546 96,753
- ------------------------------------------------------------------------------------------------------------------
4 36,465 24,714 22,314 96,753 31,726 29,326 96,753 40,091 37,691 96,753
- ------------------------------------------------------------------------------------------------------------------
5 38,288 23,378 21,278 96,753 32,117 30,017 96,753 43,182 41,082 96,753
- ------------------------------------------------------------------------------------------------------------------
6 40,203 22,026 20,226 96,753 32,483 30,683 96,753 46,545 44,745 96,753
- ------------------------------------------------------------------------------------------------------------------
7 42,213 20,649 19,149 96,753 32,817 31,317 96,753 50,206 48,706 96,753
- ------------------------------------------------------------------------------------------------------------------
8 44,324 19,234 18,034 96,753 33,109 31,909 96,753 54,195 52,995 96,753
- ------------------------------------------------------------------------------------------------------------------
9 46,540 17,754 16,854 96,753 33,336 32,436 96,753 58,536 57,636 96,753
- ------------------------------------------------------------------------------------------------------------------
10 48,867 16,196 16,196 96,753 33,488 33,488 96,753 63,273 63,273 96,753
- ------------------------------------------------------------------------------------------------------------------
15 62,368 7,385 7,385 96,753 34,147 34,147 96,753 98,053 98,053 113,742
- ------------------------------------------------------------------------------------------------------------------
20 79,599 - - 96,753 31,048 31,048 96,753 153,453 153,453 164,194
- ------------------------------------------------------------------------------------------------------------------
25 101,591 - - 96,753 17,527 17,527 96,753 240,782 240,782 252,821
- ------------------------------------------------------------------------------------------------------------------
30 129,658 - - 96,753 - - 96,753 374,424 374,424 393,145
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
<PAGE>
$30,000 INITIAL PREMIUM
$58,176 SPECIFIED AMOUNT
------
MALE NONSMOKER: AGE 65
CURRENT RATES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
----------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
----------------------------------------------------------------------------------
PAID
of PLUS
Contract INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5 % Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
1 31,500 28,985 26,060 58,176 30,759 27,834 58,176 32,532 29,607 58,176
- ------------------------------------------------------------------------------------------------------------------
2 33,075 28,004 25,154 58,176 31,537 28,687 58,176 35,280 32,430 58,176
- ------------------------------------------------------------------------------------------------------------------
3 34,729 27,055 24,355 58,176 32,336 29,636 58,176 38,262 35,562 58,176
- ------------------------------------------------------------------------------------------------------------------
4 36,465 26,137 23,737 58,176 33,156 30,756 58,176 41,500 39,100 58,176
- ------------------------------------------------------------------------------------------------------------------
5 38,288 25,250 23,150 58,176 33,998 31,898 58,176 45,014 42,914 58,176
- ------------------------------------------------------------------------------------------------------------------
6 40,203 24,391 22,591 58,176 34,861 33,061 58,176 48,829 47,029 58,176
- ------------------------------------------------------------------------------------------------------------------
7 42,213 23,561 22,061 58,176 35,748 34,248 58,176 52,969 51,469 59,855
- ------------------------------------------------------------------------------------------------------------------
8 44,324 22,758 21,558 58,176 36,658 35,458 58,176 57,463 56,263 63,784
- ------------------------------------------------------------------------------------------------------------------
9 46,540 21,981 21,081 58,176 37,591 36,691 58,176 62,341 61,441 67,952
- ------------------------------------------------------------------------------------------------------------------
10 48,867 21,230 21,230 58,176 38,549 38,549 58,176 67,636 67,636 72,371
- ------------------------------------------------------------------------------------------------------------------
15 62,368 18,281 18,281 58,176 44,842 44,842 58,176 104,313 104,313 109,529
- ------------------------------------------------------------------------------------------------------------------
20 79,599 15,723 15,723 58,176 52,189 52,189 58,176 161,150 161,150 169,207
- ------------------------------------------------------------------------------------------------------------------
25 101,591 13,503 13,503 58,176 60,766 60,766 61,528 248,955 248,955 261,402
- ------------------------------------------------------------------------------------------------------------------
30 129,658 11,577 11,577 58,176 70,780 70,780 68,435 384,602 384,602 388,448
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
$30,000 INITIAL PREMIUM
$58,176 SPECIFIED AMOUNT
------
MALE NONSMOKER: AGE 65
GUARANTEED RATES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
-----------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
-----------------------------------------------------------------------------------------
PAID
of PLUS
Contract INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
1 31,500 28,470 25,545 58,176 30,248 27,323 58,176 32,027 29,102 58,176
- ------------------------------------------------------------------------------------------------------------------
2 33,075 26,878 24,028 58,176 30,441 27,591 58,176 34,222 31,372 58,176
- ------------------------------------------------------------------------------------------------------------------
3 34,729 25,214 22,514 58,176 30,574 27,874 58,176 36,613 33,913 58,176
- ------------------------------------------------------------------------------------------------------------------
4 36,465 23,460 21,060 58,176 30,636 28,236 58,176 39,232 36,832 58,176
- ------------------------------------------------------------------------------------------------------------------
5 38,288 21,596 19,496 58,176 30,614 28,514 58,176 42,114 40,014 58,176
- ------------------------------------------------------------------------------------------------------------------
6 40,203 19,594 17,794 58,176 30,492 28,692 58,176 45,307 43,507 58,176
- ------------------------------------------------------------------------------------------------------------------
7 42,213 17,421 15,921 58,176 30,248 28,748 58,176 48,869 47,369 58,176
- ------------------------------------------------------------------------------------------------------------------
8 44,324 15,033 13,833 58,176 29,854 28,654 58,176 52,875 51,675 58,692
- ------------------------------------------------------------------------------------------------------------------
9 46,540 12,378 11,478 58,176 29,277 28,377 58,176 57,336 56,436 62,496
- ------------------------------------------------------------------------------------------------------------------
10 48,867 9,394 9,394 58,176 28,477 28,477 58,176 62,217 62,217 66,572
- ------------------------------------------------------------------------------------------------------------------
15 62,368 - - 58,176 20,416 20,416 58,176 96,848 96,848 101,691
- ------------------------------------------------------------------------------------------------------------------
20 79,599 - - 58,176 - - 58,176 149,452 149,452 156,924
- ------------------------------------------------------------------------------------------------------------------
25 101,591 - - 58,176 - - 58,176 227,064 227,064 238,418
- ------------------------------------------------------------------------------------------------------------------
30 129,658 - - 58,176 - - 58,176 348,151 348,151 351,633
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES
FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
APPENDIX C: FINANCIAL STATEMENTS
The financial statements of First Variable Life Insurance Company contained in
this prospectus should be considered to bear only upon our ability to meet our
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
First Variable Life Insurance Company
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
UNDERTAKING REGARDING INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933 ("Act") may be permitted to directors and officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
Contract as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public Contract 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 Contracts described in this Registration Statement on Form S-6, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by First Variable Life Insurance
Company. 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
Contracts 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 Contracts 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
Contracts or prospectus, or otherwise.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference Sheet.
The prospectus consisting of _________ pages.
The undertaking to file reports.
The undertaking regarding indemnification.
The representation pursuant to Section 26(e) of the Investment Company Act of
1940.
The signatures.
Witten 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) (a) Specimen Variable Life Insurance Contract.*
(b) Specimen Accelerated Death Benefit Endorsement.#
(c) Specimen Extended Death Benefit Rider##
(6) (a) Articles of Incorporation of First Variable
Life Insurance Company.###
(b) By-Laws of First Variable Life Insurance Company.***
(7) Not Applicable.
(8) (a) Form of Participation Agreement with Variable Investors Series
Trust.**
(b) Form of Fund Participation Agreements: AIM Variable Funds, Inc.; et
al; American Century Investment Management, Inc.; BT Insurance Funds
Trust, et al; Lord Abbett Series Fund, Inc., et al; MFS Variable
Insurance Trust, et al; and Templeton Variable Products Series Fund,
et al####
(9) Not Applicable.
(10) Specimen Single Premium Variable Life Insurance Application.*
2. Opinion and consent of Arnold R. Bergman, Vice President, General Counsel
and Secretary of First Variable Life Insurance Company as to securities
being registered.***
3. Not Applicable.
<PAGE>
4. Not Applicable.
5. Not Applicable.
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 Philip R. O'Connor
Michael J. Corey Jeff S. Liebmann
Michael R. Ferrari Kenneth R. Meyer
_________________
* Incorporated herein by reference to the Form S-6 Registration
Statement of First Variable Life Insurance Company and Separate
Account VL, filed electronically with the Securities and Exchange
Commission on June 3, 1996 (File No. 333-05053).
Incorporated herein by reference to Post-Effective Amendment No. 22 to
** the Form N-4 Registration Statement of First Variable Life Insurance
Company and First Variable Annuity Fund E, filed electronically with
the Securities and Exchange Commission on September 18, 1996 (File No.
333-12197).
*** Incorporated herein by reference to 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. 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 April 30, 1997 (File No. 333-
05053).
## Filed herewith.
### Incorporated by reference to Post-Effective Amendment No. 1 to the
Form S-6 Registration Statement of First Variable Life Insurance
Company Separate Account VL, filed electronically with the Securities
and Exchange Commission on or about April 27, 1998 (File No. 333-
19193).
#### Incorporated herein by reference to Pre-Effective Amendment No. 4 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 or about April 27, 1999
(File No. 333-12197).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the First Variable
Life Insurance Company has duly caused this Post-Effective Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, on the 27th day of April, 1999.
First Variable Life Insurance Company
By: /s/ John M. Soukup
--------------------
John M. Soukup
President
ATTEST:
/s/ Arnold R. Bergman
- ---------------------
Arnold R. Bergman
Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Separate Account VL of First Variable Life Insurance Company, certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, on the 27th
day of April, 1999.
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
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities with First Variable Life Insurance Company,
on the 27th day of April, 1999.
PRINCIPAL EXECUTIVE OFFICER
/s/ John M. Soukup
- -----------------
John M. Soukup
President
PRINCIPAL ACCOUNTING OFFICER
/s/ Christopher S. Harden
- -------------------------
Christopher S. Harden
Vice President & Treasurer
DIRECTORS
/s/ Ronald M. Butkiewicz
- -------------------------
Ronald M. Butkiewicz
/s/ Michael J. Corey*
- ---------------------
Michael J. Corey
/s/ Norman A. Fair
- -----------------
Norman A. Fair
/s/ Michael R. Ferrari*
- ---------------------
Michael R. Ferrari
/s/ Shane W. Gleeson*
- --------------------
Shane w. Gleeson
/s/ Jeff S. Liebmann*
- -------------------
Jeff S. Liebmann
/s/ Kenneth R. Meyer*
- -------------------
Kenneth R. Meyer
/s/ Philip R. O'Connor*
- ---------------------
Philip R. O'Connor
- ------------------
/s/ Clark A. Ramsey
- ------------------
Clark A. Ramsey
/s/ John M. Soukup
- ------------------
John M. Soukup
*By: /s/ Arnold R. Bergman
--------------------
Arnold R. Bergman
Attorney-in-Fact
<PAGE>
Financial Statements
First Variable Life Insurance Company --
Separate Account VL
Year ended December 31, 1998
<PAGE>
First Variable Life Insurance Company --
Separate Account VL
Financial Statements
Year ended December 31, 1998
Contents
<TABLE>
<S> <C>
Report of Independent Auditors............................................. 1
Financial Statements
Statement of Assets, Liabilities, and Contract Owners' Equity.............. 2
Statement of Operations.................................................... 3
Statements of Changes in Contract Owners' Equity........................... 4
Notes to Financial Statements.............................................. 6
</TABLE>
<PAGE>
Report of Independent Auditors
To the Board of Directors of First Variable Life Insurance Company
and Contract Owners of Separate Account VL
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of First Variable Life Insurance Company -- Separate Account VL
as of December 31, 1998, and the related statement of operations for the year
then ended and the statements of changes in contract owners' equity for the year
then ended and 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 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.
Our procedures included confirmation of the securities owned as of December 31,
1998, by correspondence with Variable Investors Series Trust and Federated
Insurance Series Trust. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Variable Life Insurance
Company -- Separate Account VL at December 31, 1998, and the results of its
operations for the year then ended, and the changes in its contract owners'
equity for the year then ended and for the period from March 31, 1997 through
December 31, 1997, in conformity with generally accepted accounting principles.
March 18, 1999
1
<PAGE>
First Variable Life Insurance Company -
Separate Account VL
Statement of Assets, Liabilities, and Contract Owners' Equity
December 31, 1998
<TABLE>
<CAPTION>
Federated High
Prime Income Multiple
Money Growth Bond Strategies
Total Fund II Division Division Division
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in Variable Investors Series Trust
at net asset value (cost $9,947,602) $10,446,726 $ -- $2,514,903 $753,150 $1,211,656
Investments in Federated Prime Money Fund II
at net asset value (cost $419,963) 419,963 419,963 -- -- --
Receivable from First Variable Life Insurance
Company 181,983 -- -- -- 100,628
--------------------------------------------------------------------
Total assets $11,048,672 $419,963 $2,514,903 $753,150 $1,312,284
====================================================================
Liabilities
Payable to First Variable Life Insurance Company $ 70,479 $ 12,892 $ 16,492 $ 15,306 $ --
Contract owners' equity
Variable annuity contract owners' equity 10,978,193 407,071 2,498,411 737,844 1,312,284
--------------------------------------------------------------------
Total liabilities and contract owners' equity $11,048,672 $419,963 $2,514,903 $753,150 $1,312,284
====================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. Small
Matrix Government World Growth & Cap
Equity Bond Equity Income Growth
Division Division Division Division Division
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in Variable Investors Series Trust
at net asset value (cost $9,947,602) $1,205,416 $470,574 $789,583 $1,997,491 $1,503,953
Investments in Federated Prime Money Fund II
at net asset value (cost $419,963) -- -- -- -- --
Receivable from First Variable Life Insurance
Company 937 -- 33,094 -- 47,324
--------------------------------------------------------------
Total assets $1,206,353 $470,574 $822,677 $1,997,491 $1,551,277
==============================================================
Liabilities
Payable to First Variable Life Insurance Company $ -- $ 7,621 $ -- $ 18,168 $ --
Contract owners' equity
Variable annuity contract owners' equity 1,206,353 462,953 822,677 1,979,323 1,551,277
--------------------------------------------------------------
Total liabilities and contract owners' equity $1,206,353 $470,574 $822,677 $1,997,491 $1,551,277
==============================================================
</TABLE>
See accompanying notes.
2
<PAGE>
First Variable Life Insurance Company -
Separate Account VL
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
Federated High
Prime Income Multiple Matrix
Money Growth Bond Strategies Equity
Total Fund II Division Division Division Division
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 623,593 $7,278 $279,822 $65,715 $ 74,553 $ 51,886
Expenses:
Fees paid to First Variable
Life Insurance Company--
Risk and administrative charges 92,618 1,678 20,578 10,849 10,684 8,453
------------------------------------------------------------------------------
Net investment income (loss) 530,975 5,600 259,244 54,866 63,869 43,433
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on Variable
Investors Series Trust shares redeemed (150,817) -- (6,830) (26,762) 24,546 (33,571)
Net unrealized appreciation (depreciation)
on investments during the year 812,459 -- 299,094 4,432 186,414 116,810
------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 661,642 -- 292,264 (22,330) 210,960 83,239
------------------------------------------------------------------------------
Net increase in contract owners'
equity resulting from operations $1,192,617 $5,600 $551,508 $32,536 $274,829 $126,672
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. Small
Government World Growth & Cap
Bond Equity Income Growth
Division Division Division Division
----------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $26,915 $62,622 $ 54,802 $ --
Expenses:
Fees paid to First Variable
Life Insurance Company--
Risk and administrative charges 2,724 7,724 18,507 11,421
----------------------------------------------------
Net investment income (loss) 24,191 54,898 36,295 (11,421)
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on Variable
Investors Series Trust shares redeemed 124 (31,647) 3,233 (79,910)
Net unrealized appreciation (depreciation)
on investments during the year (8,920) (11,058) 108,532 117,155
----------------------------------------------------
Net realized and unrealized gain (loss)
on investments (8,796) (42,705) 111,675 37,245
----------------------------------------------------
Net increase in contract owners'
equity resulting from operations $15,395 $12,193 $148,060 $ 25,824
====================================================
</TABLE>
See accompanying notes.
3
<PAGE>
First Variable Life Insurance Company -
Separate Account VL
Statements of Changes in Contract Owners' Equity
Periods ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Federated Prime Money
Total Fund II Growth Division
1998 1997/(1)/ 1998 1997/(1)/ 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income $ 530,975 $ 293,541 $ 5,600 $ 660 $ 259,244
Realized gain (loss) on Variable Investors
Series Trust shares redeemed (150,817) 30,991 -- -- (6,830)
Net unrealized appreciation (depreciation)
on investments during the period 812,459 (313,337) -- -- (299,094)
-----------------------------------------------------------------------
Net increase (decrease) in contract owners'
equity resulting from operations 1,192,617 11,195 5,600 660 551,508
From contract owner transactions
Net proceeds from sale of accumulation units 6,635,155 4,204,473 358,835 225,761 1,225,672
Cost of accumulation units terminated and
exchanged (999,210) 4,442 (2,727) (168,166) (91,912)
-----------------------------------------------------------------------
Increase (decrease) in contract owners' equity
from contract owner transactions 5,635,945 4,208,915 356,108 57,595 1,133,760
-----------------------------------------------------------------------
Increase (decrease) in contract owners' equity 6,828,562 4,220,110 361,708 58,255 1,685,268
Contract owners' equity at beginning of period 4,220,110 -- 58,255 -- 829,635
-----------------------------------------------------------------------
Contract owners' equity at end of period $11,048,672 $ 4,220,110 $ 419,963 $ 58,255 $ 2,514,903
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
High Income Multiple Strategies
Bond Division Division
1997/(1)/ 1998 1997/(1)/ 1998 1997/(1)/
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income $ 50,022 $ 54,866 $ 43,302 $ 63,869 $ 27,256
Realized gain (loss) on Variable Investors
Series Trust shares redeemed 6,149 (26,762) 4,237 24,546 4,035
Net unrealized appreciation (depreciation)
on investments during the period (59,827) 4,432 (38,178) 186,414 (27,549)
-------------------------------------------------------------
Net increase (decrease) in contract owners'
equity resulting from operations (3,656) 32,536 9,361 274,829 3,742
From contract owner transactions
Net proceeds from sale of accumulation units 725,575 466,386 786,740 750,223 431,203
Cost of accumulation units terminated and
exchanged 107,716 (521,331) (20,542) (114,836) (32,877)
-------------------------------------------------------------
Increase (decrease) in contract owners' equity
from contract owner transactions 833,291 (54,945) 766,198 635,387 398,326
-------------------------------------------------------------
Increase (decrease) in contract owners' equity 829,635 (22,409) 775,559 910,216 402,068
Contract owners' equity at beginning of period -- 775,559 -- 402,068 --
-------------------------------------------------------------
Contract owners' equity at end of period $829,635 $ 753,150 $775,559 $1,312,284 $ 402,068
=============================================================
</TABLE>
/(1)/ From commencement of operations, March 31, 1997.
4
<PAGE>
First Variable Life Insurance Company -
Separate Account VL
Statements of Changes in Contract Owners' Equity (continued)
Periods ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Matrix Equity U.S. Government World Equity
Division Bond Division Division
1998 1997(1) 1998 1997(1) 1998 1997(1)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 43,433 $ 50,132 $ 24,191 $ 5,471 $ 54,898 $ 45,728
Realized gain (loss) on Variable Investors
Series Trust shares redeemed (33,571) 1,214 124 115 (31,647) 1,148
Net unrealized appreciation (depreciation)
on investments during the period 116,810 (46,673) (8,920) (4,328) (11,058) (56,711)
-------------------------------------------------------------------------------
Net increase (decrease) in contract owners'
equity resulting from operations 126,672 4,673 15,395 1,258 12,193 (9,835)
From contract owner transactions
Net proceeds from sale of accumulation units 853,105 237,690 352,694 86,790 480,470 414,940
Cost of accumulation units terminated and
exchanged (21,299) 5,512 (3,780) 18,217 (49,317) (25,774)
-------------------------------------------------------------------------------
Increase in contract owners' equity
from contract owner transactions 831,806 243,202 348,914 105,007 431,153 389,166
-------------------------------------------------------------------------------
Increase in contract owners' equity 958,478 247,875 364,309 106,265 443,346 379,331
Contract owners' equity at beginning of period 247,875 -- 106,265 -- 379,331 --
-------------------------------------------------------------------------------
Contract owners' equity at end of period $1,206,353 $247,875 $470,574 $106,265 $822,677 $379,331
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Growth & Income Small Cap
Division Growth Division
1998 1997(1) 1998 1997(1)
--------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 36,295 $ 56,731 $ (11,421) $ 14,239
Realized gain (loss) on Variable Investors
Series Trust shares redeemed 3,233 9,851 (79,910) 4,242
Net unrealized appreciation (depreciation)
on investments during the period 108,532 (38,508) 117,155 (41,563)
--------------------------------------------------------
Net increase (decrease) in contract owners'
equity resulting from operations 148,060 28,074 25,824 (23,082)
From contract owner transactions
Net proceeds from sale of accumulation units 1,107,293 808,742 1,040,477 487,032
Cost of accumulation units terminated and
exchanged (84,267) (10,411) (109,741) 130,767
--------------------------------------------------------
Increase in contract owners' equity
from contract owner transactions 1,023,026 798,331 930,736 617,799
--------------------------------------------------------
Increase in contract owners' equity 1,171,086 826,405 956,560 594,717
Contract owners' equity at beginning of period 826,405 -- 594,717 --
--------------------------------------------------------
Contract owners' equity at end of period $1,997,491 $826,405 $1,551,277 $594,717
========================================================
</TABLE>
(1) From commencement of operations, March 31, 1997.
See accompanying notes.
5
<PAGE>
First Variable Life Insurance Company --
Separate Account VL
Notes to Financial Statements
Year ended December 31, 1998
1. Organization
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, which approximates fair 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.
6
<PAGE>
First Variable Life Insurance Company --
Separate Account VL
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
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.
3. Investments
The following table presents selected data for investments in each of the
Portfolios of the Trust at December 31, 1998:
<TABLE>
<CAPTION>
Number of Net Asset
Shares Cost Value
----------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II 419,963 $ 419,963 $ 419,963
Growth Portfolio 61,333 2,275,635 2,514,903
High Income Bond Portfolio 82,173 786,896 753,150
Multiple Strategies Portfolio 70,678 1,052,791 1,211,656
Matrix Equity Portfolio 73,712 1,135,279 1,205,416
U.S. Government Bond Portfolio 45,589 483,821 470,574
World Equity Portfolio 57,979 857,352 789,583
Growth & Income Portfolio 125,617 1,927,467 1,997,491
Small Cap Growth Portfolio 99,656 1,428,361 1,503,953
---------------------------
$10,367,565 $10,866,689
===========================
</TABLE>
7
<PAGE>
First Variable Life Insurance Company --
Separate Account VL
Notes to Financial Statements (continued)
4. Contract Owners' Equity
Variable life contract owners' equity at December 31, 1998, consists of the
following:
<TABLE>
<CAPTION>
Accumulation Accumulation
Units Unit Value Equity
-----------------------------------------
<S> <C> <C> <C>
Cap One Pay policies
Federated Prime Money Fund II 25,446 10.723661 $ 272,881
Growth Division 138,529 16.443178 2,277,856
High Income Bond Division 59,075 11.318272 668,623
Multiple Strategies Division 77,855 15.672874 1,220,214
Matrix Equity Division 74,736 14.743613 1,101,885
U.S. Government Bond Division 38,486 11.678249 449,454
World Equity Division 64,678 11.570225 748,336
Growth & Income Division 127,936 13.787358 1,763,899
Small Cap Growth Division 105,819 11.573322 1,224,672
-----------
9,727,820
Cap Solutions policies
Federated Prime Money Fund II 13,028 10.299996 134,190
Growth Division 15,930 13.845152 220,556
High Income Bond Division 6,870 10.076598 69,221
Multiple Strategies Division 6,925 13.295360 92,069
Matrix Equity Division 8,660 12.063998 104,469
U.S. Government Bond Division 1,266 10.661862 13,498
World Equity Division 7,119 10.443054 74,341
Growth & Income Division 19,280 11.173216 215,424
Small Cap Growth Division 33,107 9.865085 326,605
-----------
1,250,373
-----------
Totals $10,978,193
===========
</TABLE>
8
<PAGE>
First Variable Life Insurance Company --
Separate Account VL
Notes to Financial Statements (continued)
5. Purchases and Sales of Securities
Cost of purchases and proceeds from sales of Trust and Federated shares by the
Fund during the year ended December 31, 1998, are shown below:
<TABLE>
<CAPTION>
Purchases Sales
-------------------------
<S> <C> <C>
Federated Prime Money Fund II $ 592,794 $ 231,262
Growth Portfolio 1,823,208 413,375
High Income Bond Portfolio 1,263,919 1,264,017
Multiple Strategies Portfolio 910,661 314,595
Matrix Equity Portfolio 1,114,235 239,786
U.S. Government Bond Portfolio 381,483 8,401
World Equity Portfolio 618,419 170,082
Growth & Income Portfolio 1,499,904 405,629
Small Cap Growth Portfolio 1,324,493 442,119
-------------------------
Totals $9,529,116 $3,489,266
=========================
</TABLE>
6. Expenses
As more fully disclosed in the prospectus, First Variable Life charges the Fund,
based on the value of the Fund, various charges. For Cap One Pay policies,
First Variable Life charges the Fund at an annual rate of .90% for mortality and
expense risks. For Cap Solutions policies, First Variable Life charges the Fund
at an annual rate of .50% for mortality and expense risks. Total charges to the
Fund for all the policy forms for the year ended December 31, 1998, were
$92,618.
7. Diversification Requirements
Under the provisions of section 817(h) of the Internal Revenue Code (the 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.
9
<PAGE>
First Variable Life Insurance Company -
Separate Account VL
Notes to Financial Statements (continued)
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 financial and business organizations around the world, First Variable
Life 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. First Variable Life has completed an
assessment of the Year 2000 impact on its systems, procedures, customers, and
business processes and has begun converting critical data processing systems.
In addition, First Variable Life is gathering information about the Year 2000
compliance status of its significant service providers and will continue to
monitor their compliance. First Variable Life believes it has taken the
necessary steps to address the Year 2000 issue; however, there can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the Fund.
10
<PAGE>
Consolidated Financial Statements
First Variable Life Insurance Company
Years ended December 31, 1998, 1997, and 1996
with Report of Independent Auditors
<PAGE>
First Variable Life Insurance Company
Consolidated Financial Statements
Years ended December 31, 1998, 1997, and 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................... 1
Consolidated Financial Statements
Consolidated Balance Sheets.............................................. 2
Consolidated Statements of Income........................................ 3
Consolidated Statements of Changes in Stockholder's Equity............... 4
Consolidated Statements of Cash Flows.................................... 5
Notes to Consolidated Financial Statements............................... 6
</TABLE>
<PAGE>
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, 1998 and 1997, 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, 1998.
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, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
February 2, 1999
1
<PAGE>
First Variable Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities - Available-for-sale, at fair value
(amortized cost: 1998 - $245,795,000; 1997 - $274,439,000) $264,741,000 $294,961,000
Option contracts 2,279,000 1,057,000
Equity securities - Available-for-sale, at fair value
(cost: $684,000 in 1998 and 1997) 173,000 825,000
Policy loans 606,000 267,000
--------------------------------------
Total investments 267,799,000 297,110,000
Cash and cash equivalents 3,353,000 3,029,000
Accrued investment income 4,878,000 5,744,000
Deferred policy acquisition costs 10,481,000 7,520,000
Value of insurance in force acquired (Note 4) 15,089,000 16,939,000
Property and equipment, less allowances for depreciation of
$836,000 in 1998 and $773,000 in 1997 574,000 445,000
Goodwill, less accumulated amortization of $621,000
in 1998 and $475,000 in 1997 2,302,000 2,448,000
Other assets 659,000 732,000
Assets held in separate accounts 266,257,000 219,807,000
--------------------------------------
Total assets $571,392,000 $553,774,000
======================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for annuity and life products $206,069,000 $233,988,000
Unearned revenue reserve 278,000 282,000
Supplementary contracts without life contingencies 22,955,000 21,711,000
Deferred income tax liability (Note 5) 5,850,000 6,692,000
Due to affiliates 139,000
Other liabilities 2,149,000 2,837,000
Liabilities related to separate accounts 266,257,000 219,807,000
--------------------------------------
Total liabilities 503,697,000 485,317,000
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
Accumulated other comprehensive income 8,195,000 9,066,000
Retained earnings 3,896,000 3,787,000
--------------------------------------
Total stockholder's equity 67,695,000 68,457,000
--------------------------------------
Total liabilities and stockholder's equity $571,392,000 $553,774,000
======================================
</TABLE>
See accompanying notes.
2
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Revenues:
Annuity and life product charges $ 4,026,000 $ 3,141,000 $ 2,408,000
Net investment income 22,295,000 22,597,000 23,458,000
Realized gains on investments 2,723,000 1,227,000 972,000
Other income 1,576,000 1,368,000 1,114,000
-----------------------------------------------
Total revenues 30,620,000 28,333,000 27,952,000
Benefits and expenses:
Annuity and life benefits 15,643,000 14,856,000 16,336,000
Underwriting, acquisition, and
insurance expenses 9,828,000 8,313,000 6,176,000
Amortization of value of insurance
in force acquired and deferred
policy acquisition costs 3,473,000 1,602,000 1,099,000
Management fee paid to parent 480,000 480,000 480,000
Other expenses 1,469,000 2,610,000 1,421,000
-----------------------------------------------
Total benefits and expenses 30,893,000 27,861,000 25,512,000
-----------------------------------------------
Income (loss) before income tax (273,000) 472,000 2,440,000
(benefit)
Income tax (benefit) (382,000) 153,000 836,000
-----------------------------------------------
Net income $ 109,000 $ 319,000 $ 1,604,000
===============================================
</TABLE>
See accompanying notes.
3
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
CAPITAL PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,500,000 $53,104,000 $13,189,000 $1,864,000 $70,657,000
Net income - - - 1,604,000 1,604,000
Net unrealized investment loss,
net of reclassification
adjustment - - (5,865,000) - (5,865,000)
-----------
Comprehensive loss (4,261,000)
-------------------------------------------------------------------------------------
Balance at December 31, 1996 2,500,000 53,104,000 7,324,000 3,468,000 66,396,000
Net income - - - 319,000 319,000
Net unrealized investment gain,
net of reclassification
adjustment - - 1,742,000 - 1,742,000
-----------
Comprehensive income 2,061,000
-------------------------------------------------------------------------------------
Balance at December 31, 1997 2,500,000 53,104,000 9,066,000 3,787,000 68,457,000
Net income - - - 109,000 109,000
Net unrealized investment loss,
net of reclassification adjustment
- - (871,000) - (871,000)
-----------
Comprehensive loss (762,000)
-------------------------------------------------------------------------------------
Balance at December 31, 1998 $2,500,000 $53,104,000 $ 8,195,000 $3,896,000 $67,695,000
=====================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 109,000 $ 319,000 $ 1,604,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Adjustments related to interest-sensitive products:
Annuity benefits 15,643,000 14,856,000 16,336,000
Annuity product charges (4,022,000) (3,141,000) (2,408,000)
Realized gains on investments (2,723,000) (1,227,000) (972,000)
Policy acquisition costs deferred (3,665,000) (3,208,000) (2,800,000)
Amortization of deferred policy
acquisition costs 912,000 594,000 360,000
Provision for depreciation and other
amortization 2,154,000 937,000 524,000
Provision for income taxes (382,000) 153,000 836,000
Other 478,000 3,560,000 (1,949,000)
-------------------------------------------------
Net cash provided by operating activities 8,504,000 12,843,000 11,531,000
INVESTING ACTIVITIES
Sale, maturity, or repayment of fixed
maturity investments 61,253,000 24,657,000 21,770,000
Acquisition of fixed maturities (29,074,000) (19,142,000) (7,517,000)
Acquisition of option contracts (1,223,000) (963,000) (94,000)
Policy loans and other (840,000) (267,000) (193,000)
-------------------------------------------------
Net cash provided by investing 30,116,000 4,285,000 13,966,000
activities
FINANCING ACTIVITIES
Receipts from interest-sensitive products
credited to policyholder account balances 58,317,000 64,181,000 58,175,000
Return of policyholder account balances on
interest-sensitive products (96,613,000) (80,713,000) (86,824,000)
-------------------------------------------------
Net cash used in financing activities (38,296,000) (16,532,000) (28,649,000)
-------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 324,000 596,000 (3,152,000)
Cash and cash equivalents at beginning
of year 3,029,000 2,433,000 5,585,000
-------------------------------------------------
Cash and cash equivalents at end of year $ 3,353,000 $ 3,029,000 $ 2,433,000
=================================================
</TABLE>
See accompanying notes.
5
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1998
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) are categorized as "available-for-sale," and
as a result, are reported at fair value, with unrealized gains and losses on
these securities included directly in accumulated other comprehensive income in
stockholder's equity, net of certain adjustments (see Note 3).
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 or accreted using methods
which result in a constant yield over the securities' expected lives.
Amortization or accretion 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 accumulated other comprehensive income in stockholder's equity.
6
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE ACQUIRED
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired is an asset that arose at the date the
Company was acquired by ILoNA. The initial value was determined by an actuarial
study using expected future gross profits as a measurement of the net present
value of the insurance acquired. Interest accrues on the current unamortized
balance at 7%.
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.
7
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 will
assess the fair value of the underlying business and reduce 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 of goodwill.
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 3.0% to 7.0% in 1998, and 4.5% to 6.5% in 1997.
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.
8
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Approximately 35%, 42%, and 68% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1998, 1997, and 1996,
respectively, were written through three wholesalers. 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.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS), No. 130, Reporting Comprehensive Income. SFAS 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the new standard had no impact on the Company's net income
or stockholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to the adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.
9
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENDING ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivatives Instruments and for Hedging Activities. SFAS No. 133
requires all derivatives to be recorded on the balance sheet at fair value and
establishes "special accounting" for the following three different types of
hedges; hedges of changes in the fair value of assets, liabilities, or firm
commitments; hedges of the variable cash flows of forecasted transactions; and
hedges of foreign currency exposures of net investments in foreign operations.
SFAS No. 133 is effective for years beginning after June 15, 1999, with earlier
adoption permitted. The Company has not determined the impact of adopting SFAS
No. 133.
RECLASSIFICATION
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the presentations made in the current years.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 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 sheets, 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 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.
10
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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: The Company has not determined the fair values associated with
its policy loans, 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,
1998 and 1997, the interest rate related to the outstanding policy loans is
5%.
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.
11
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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 107 at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- --------------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities -
Available-for-sale $264,741,000 $264,741,000 $294,961,000 $294,961,000
Option contracts 2,279,000 2,279,000 1,057,000 1,057,000
Equity securities 173,000 173,000 825,000 825,000
Policy loans 606,000 606,000 267,000 267,000
Cash and cash equivalents 3,353,000 3,353,000 3,029,000 3,029,000
Assets held in separate
accounts 266,257,000 266,257,000 219,807,000 219,807,000
LIABILITIES
Future policy benefits for
annuity and life products 206,069,000 206,069,000 233,988,000 233,988,000
Supplementary contracts
without life contingencies 22,955,000 22,955,000 21,711,000 21,711,000
Liabilities related to
separate accounts 266,257,000 266,257,000 219,807,000 219,807,000
</TABLE>
12
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
3. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and fair value information on fixed
maturities (bonds) and equity securities (common stocks) at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed maturities -
Available-for-sale:
United States Government and
agencies:
Mortgage and asset-backed
securities $ 996,000 $ 15,000 $ - $ 1,011,000
Other 20,025,000 1,717,000 9,000 21,733,000
State, municipal, and other
governments 3,987,000 252,000 - 4,239,000
Public utilities 59,463,000 7,622,000 7,000 67,078,000
Industrial and miscellaneous 161,324,000 10,041,000 685,000 170,680,000
-----------------------------------------------------------------------
Total fixed maturities -
Available-for-sale $245,795,000 $19,647,000 701,000 $ 264,741,000
=======================================================================
Equity securities $ 684,000 $ - $511,000 $ 173,000
=======================================================================
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
=======================================================================
</TABLE>
13
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and fair value of the Company's portfolio of fixed-maturity
securities at December 31, 1998, 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
AMORTIZED MARKET
COST VALUE
------------------------------
<S> <C> <C>
Due in one year or less $ 19,051,000 $ 19,307,000
Due after one year through five years 106,314,000 113,217,000
Due after five years through ten years 37,572,000 38,992,000
Due after ten years 81,862,000 92,214,000
Mortgage and asset-backed securities 996,000 1,011,000
------------------------------
$245,795,000 $264,741,000
==============================
</TABLE>
The unrealized gain or loss on fixed-maturity and equity securities available-
for-sale is reported as accumulated other comprehensive income, 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 that are recorded as accumulated other comprehensive income
were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
Unrealized gain on fixed-maturity and equity
securities available-for-sale $18,435,000 $20,663,000
Adjustments for assumed changes in
amortization pattern of:
Deferred policy acquisition costs (1,572,000) (1,780,000)
Value of insurance in force acquired (4,446,000) (5,157,000)
Deferred income tax liability (4,222,000) (4,660,000)
-------------------------------
Net unrealized investment gains $ 8,195,000 $ 9,066,000
===============================
</TABLE>
14
<PAGE>
First Variable Life Insuance 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
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Income from:
Fixed maturities $21,181,000 $22,183,000 $23,364,000
Cash and cash equivalents 155,000 225,000 288,000
Option contracts 1,118,000 408,000 -
Policy loans 37,000 - -
-----------------------------------------------
22,491,000 22,816,000 23,652,000
Less investment expenses (196,000) (219,000) (194,000)
-----------------------------------------------
Net investment income $22,295,000 $22,597,000 $23,458,000
===============================================
</TABLE>
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized gain (loss) on investments
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
REALIZED
Fixed maturities $ 2,723,000 $1,227,000 $ 972,000
===============================================
UNREALIZED
Fixed maturities $(1,576,000) $4,632,000 $(12,756,000)
Equity securities (652,000) 134,000 369,000
-----------------------------------------------
Unrealized gain (loss) on
investments $(2,228,000) $4,766,000 $(12,387,000)
===============================================
</TABLE>
15
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
A summary of the net unrealized gain (loss) recognized in other comprehensive
income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Realized gain on securities included
in net income $ 2,723,000 $ 1,227,000 $ 972,000
==============================================
Other comprehensive income:
Net unrealized gain (loss) arising
during the year, net of taxes of
$166,000, $2,020,000, and
($3,881,000), respectively $ 315,000 $ 3,970,000 $(7,534,000)
Reclassification adjustment, net of
taxes of $926,000, $416,000, and
$331,000, respectively (1,797,000) (811,000) (641,000)
----------------------------------------------
(1,482,000) 3,159,000 (8,175,000)
Adjustments:
Deferred policy acquisition costs,
net of taxes of $70,000 and
($195,000), respectively 138,000 (385,000) -
Value of insurance in force
acquired, net of taxes of
$238,000, ($525,000), and 473,000 (1,032,000) 2,310,000
$1,190,000, respectively
----------------------------------------------
611,000 (1,417,000) 2,310,000
----------------------------------------------
Net unrealized gain (loss)
recognized in other comprehensive income $ (871,000) $ 1,742,000 $(5,865,000)
==============================================
</TABLE>
An analysis of sales, maturities, and principal repayments of the Company's
fixed maturities portfolio for the years ended December 31, 1998, 1997, and 1996
is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
---------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Scheduled principal
repayments and calls $29,801,000 $ 909,000 $ 1,000 $30,709,000
Sales 28,729,000 1,861,000 46,000 30,544,000
---------------------------------------------------------
$58,530,000 $2,770,000 $47,000 $61,253,000
=========================================================
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
---------------------------------------------------------
$23,431,000 $1,298,000 $72,000 $24,657,000
=========================================================
</TABLE>
16
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
---------------------------------------------------
<S> <C> <C> <C> <C>
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
---------------------------------------------------
$20,798,000 $1,044,000 $72,000 $21,770,000
===================================================
</TABLE>
Income taxes during the years ended December 31, 1998, 1997, and 1996 include a
provision of $926,000, $416,000, and $331,000, respectively, for the tax effect
of realized gains.
OTHER
At December 31, 1998, fixed maturities with a carrying value of $8,894,000 were
held on deposit with state agencies to meet regulatory requirements.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded 10% of stockholder's equity
at December 31, 1998.
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 $2,279,000 and $1,057,000 at December 31,
1998 and 1997, respectively.
CONCENTRATIONS OF CREDIT RISK
The Company's investment in public utility bonds at December 31, 1998 represents
25% of total investments and 12% 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.
17
<PAGE>
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 years ended December 31, 1998, 1997, and
1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Excluding impact on net
unrealized investment gains and
losses:
Balance at beginning of year $22,096,000 $23,094,000 $23,833,000
Accretion of interest during
the year 1,457,000 1,582,000 1,642,000
Amortization of asset (4,018,000) (2,580,000) (2,381,000)
-----------------------------------------------
Balance prior to impact of net
unrealized investment gains and
losses 19,535,000 22,096,000 23,094,000
Impact of net unrealized
investment gains and losses (4,446,000) (5,157,000) (3,600,000)
-----------------------------------------------
Balance at end of year $15,089,000 $16,939,000 $19,494,000
===============================================
</TABLE>
During the year ended December 31, 1998, the amortization of value of insurance
in force acquired was increased by $1,600,000 due to gains realized on
securities sold supporting the acquired block of business. Amortization of the
value of insurance in force acquired for the next five years ending December 31
is expected to be as follows: 1999 - $1,242,000; 2000 - $1,380,000; 2001 -
$1,329,000; 2002 - $1,281,000; and 2003 - $1,231,000.
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 on 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.
18
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
Income tax expense (benefit) is included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Income tax (benefit) expense in
consolidated statements of income
on income before income tax (benefit) $(382,000) $ 153,000 $ 836,000
-------------------------------------------
(382,000) 153,000 836,000
Tax (benefit) expense in
consolidated statements of changes
in stockholder's equity:
Amounts attributable to change in
accumulated other comprehensive
income during year - Deferred (438,000) 887,000 (3,022,000)
-------------------------------------------
$(820,000) $1,040,000 $(2,186,000)
===========================================
</TABLE>
The effective tax rate on income (loss) before income tax (benefit) is different
from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Income (loss) before income tax (benefit) $(273,000) $472,000 $ 2,440,000
==========================================
Income tax (benefit) at federal
statutory rate (34%) $ (93,000) $160,000 $ 830,000
Tax effect (decrease) of:
Other (289,000) (7,000) 6,000
------------------------------------------
Income tax (benefit) expense $(382,000) $153,000 $ 836,000
==========================================
</TABLE>
19
<PAGE>
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 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 2,342,000 $ 1,969,000
Operating loss carryforwards 2,406,000 2,590,000
Other 163,000 124,000
------------------------------
4,911,000 4,683,000
Deferred tax liabilities:
Investments (5,031,000) (5,946,000)
Deferred policy acquisition costs (3,247,000) (2,523,000)
Value of insurance in force acquired (2,090,000) (2,533,000)
Other (393,000) (373,000)
------------------------------
(10,761,000) (11,375,000)
------------------------------
Deferred income tax liability $ (5,850,000) $ (6,692,000)
==============================
</TABLE>
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $7,076,000 at December 31, 1998 which expire from
2009 to 2012.
6. RETIREMENT AND COMPENSATION PLANS
Substantially all full-time employees of the Company are covered by a
noncontributory defined benefit pension plan sponsored by ILoNA. The benefits
are based on years of service and the employee's compensation. In addition,
effective January 1, 1996, ILoNA adopted a nonqualified supplemental plan to
provide benefits in excess of limitations established by the Internal Revenue
Code (the Code). The Company records its required contributions as pension
expense related to these plans. There were no material contributions to the plan
during the years ended December 31, 1998, 1997, or 1996.
20
<PAGE>
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 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 $10,000 in 1998) 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 $77,000, $37,000, and $27,000 for the
years ended December 31, 1998, 1997, and 1996, 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 1999,
this annual limitation aggregates $3,045,000; 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 ($37,000,000 at
December 31, 1998) 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.
Net loss for the Company, as determined in accordance with statutory accounting
practices, was $2,466,000, $1,240,000, and $1,507,000 for the years ended
December 31, 1998, 1997, and 1996, respectively. Total statutory capital and
surplus was $30,451,000 at December 31, 1998 and $33,556,000 at December 31,
1997.
21
<PAGE>
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 1998, the Company moved to
its current location and subleased its previous office space. Rent received
under the sublease agreement is netted against rent expense in 1998. During the
years ended December 31, 1998, 1997, and 1996, rent expense totaled $361,000,
$228,000, and $206,000, respectively. At December 31, 1998, minimum rental
payments due under all noncancelable operating leases, including the lease
agreement on the Company's previous office space with initial terms of one year
or more are:
Year ending December 31:
1999 $ 673,000
2000 689,000
2001 328,000
2002 6,000
Thereafter 3,000
----------
$1,699,000
==========
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, 1998 and 1997, the Company has not accrued for guaranty fund
assessments based on its historical experience and information available from
those making guaranty fund assessments. During 1997, the American Institute of
Certified Public Accountants issued Statement of Position 97-3 (SOP 97-3),
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments," that will require, beginning in 1999, the accrual of guaranty fund
assessments. The Company has not determined the impact of adopting SOP 97-3.
22
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS
The Company has a management agreement with ILoNA to provide for certain
management services. Amounts paid by the Company pursuant to this agreement were
$480,000 in both 1998 and 1997. In addition, an expense allocation agreement was
entered into with Interstate Assurance Company, a subsidiary of ILoNA, to
provide for certain administrative functions. Amounts paid during 1998 and 1997
by the Company pursuant to this agreement were $506,000 and $504,000,
respectively.
10. 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 was
substantially completed in June 1998.
11. 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 and has begun converting critical data processing systems. In
addition, the Company is gathering information about the Year 2000 compliance
status of its significant service providers and will continue to monitor their
compliance.
23
<PAGE>
Exhibit 5 (c)
Specimen Extended Death Benefit Rider
<PAGE>
[INSERT FIRST VARIABLE LIFE INSURANCE COMPANY LOGO]
A stock life insurance company
Little Rock, Arkansas
GUARANTEED DEATH BENEFIT RIDER
Unless stated otherwise below, all provisions of the Contract also apply to this
rider. This rider starts on the same date as the Contract unless a different
rider date is shown on the Contract Data Page.
The Contract is amended as follows:
1. The DEFINITIONS section is amended to include the following:
<TABLE>
<CAPTION>
<S> <C>
DEATH BENEFIT A period of time that begins on the Contract Date and ends on:
GUARANTEE PERIOD . the later of the 10th Contract Anniversary or the Insured's
65th birthday; or, if earlier,
. the date the Guaranteed Death Benefit Rider ends.
</TABLE>
2. The PREMIUM PAYMENTS GENERAL subsection is amended to include the
following:
"Payment of the initial Premium Payment guarantees that the Contract
will remain in force during the Death Benefit Guarantee Period for the
Death Benefit amount in effect on the Contract Date."
3. The first sentence of the PREMIUM PAYMENTS - GRACE PERIOD subsection is
deleted and the following inserted in its place:
"After the Death Benefit Guarantee Period, the Contract will enter a
grace period on the first Business Day of any Contract month where the
Cash Surrender Value is not sufficient to cover the current Monthly
Deduction and accrued interest on Contract loans."
4. The PREMIUM PAYMENTS REINSTATEMENT subsection is amended to include the
following:
"Unless the Company consents otherwise, a reinstated Contract will not
contain a Guaranteed Death Benefit Rider."
<PAGE>
GUARANTEED DEATH BENEFIT RIDER
(CONTINUED)
5. The third paragraph of the DEATH BENEFITS DEATH OF THE INSURED subsection
is deleted and the following inserted in its place:
"While the Guaranteed Death Benefit Rider is in effect, the Death
Benefit amount on the Contract Date will become the Death Benefit amount
in effect:
. on the first Business Day of any Contract month, if
. the Cash Surrender Value on that date is not sufficient to cover the current
Monthly Deduction.
"The Death Benefit amount in effect may be increased:
. if Additional Premium Payments are made; or
. as a result of an increase in Account Value.
If investment performance is favorable, the Death Benefit will be
increased to equal the applicable percentage of Account Value shown on
the Contract Data Pages.
"The Death Benefit amount in effect may be decreased:
. in the event of a Withdrawal; or
. as a result of a decrease in Account Value."
TERMINATION OF RIDER: This Rider will end on the earliest of:
. the date of the Insured's death; or
. the date of the first partial or full withdrawal of Contract Value; or
. the date a Contract loan is first taken; or
. the Business Day following the Owner's request to terminate the Rider; or
. termination of the Contract.
A request to end this Rider must be received by the Company at its Variable
Service Center.
Signed for the Company.
/s/ Arnold R. Bergman John M. ?
Secretary President
First Variable Life Insurance Company
Little Rock, Arkansas
<PAGE>
EXHIBIT 6
[LOGO OF FIRST VARIABLE LIFE
INSURANCE COMPANY]
April 27, 1999
First Variable Life Insurance Company
2122 York Road, Suite 300
Oak Brook, IL 60523
Re: Registration of Contract Interests
Separate Account VL of First Variable Life Insurance Company
(File No. 333-05053)
Gentlemen:
In my capacity as Actuary of First Variable Life Insurance Company, I have
provided actuarial advice concerning:
. 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 contr act ("Contract") described therein; and
. The preparation of the Contract forms for the Contract described in the
Registration Statement.
It is my professional opinion that:
1. The illustration of death benefits, account values, cash surrender values
and total premiums paid plus interest at 5% shown in the prospectus, based
on the assumptions stated in the illustration, and are consistent with the
provisions of the Contract. The rate structure of the Contract overall has
not been designed so as to make the relationship between premiums and
benefits, as shown in the illustrations included, appear more favorable 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, premium class and premium amounts.
2. All other numerical examples shown in the p rospectus are consistent with
the Contract and our practices and have not been designed to appear more
favorable 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
<PAGE>
EXHIBIT 7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 2, 1999 with respect to the consolidated
financial statements of First Variable Life Insurance Company and March 18, 1999
with respect to the financial statements of First Variable Life Insurance
Company---First Variable Separate Account VL, in Post Effective Amendment No. 3
to the Registration Statement (Form S-6 No. 333-05053) and related Prospectus of
First Variable Life Insurance Company.
/s/ Ernst & Young LLP
----------------------
ERNST & YOUNG LLP
Oak Brook, Illinois
April 27, 1999
