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Registration No. 333-19193
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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)
_______________________
Jeffery K. Hoelzel 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, 2000 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.
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CROSS REFERENCE SHEET
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Item No. in
Form N-8 B-2 Location
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1, 2 COVER PAGE, FIRST VARIABLE LIFE INSURANCE COMPANY, THE SEPARATE ACCOUNT
3 Inapplicable
4 DISTRIBUTION AND OTHER AGREEMENTS
5, 6 THE SEPARATE ACCOUNT; YOUR INVESTMENT OPTIONS
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: AIM Variable Insurance Funds, Inc.;
American Century Variable Portfolios, Inc.; Deutsche Asset Management VIT
Funds; Federated Insurance Series; Lord Abbett Series Fund, Inc.; MFS
Variable Insurance Trust; Seligman Portfolios, Inc.; Templeton Variable
Products Series Fund; Variable Insurance Products Funds; Variable
Investors Series Trust
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, THE POLICIES, 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
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19 REPORTS AND RECORDS, ADVERTISING PRACTICES, OTHER PROVISIONS OF THE POLICY
20 TRANSFERS AMONG INVESTMENT OPTIONS
21 POLICY LOANS, Preferred Loan Interest, 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>
3
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Prospectus May 1, 2000
CAPITAL SOLUTIONS VUL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Issued by
FIRST VARIABLE LIFE INSURANCE COMPANY
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Our Marketing and Executive Office: Our Variable Service Center: Or, for express deliveries;
2122 York Road P.O. Box 1317 4200 University Ave.
Oak Brook, IL 60523 Des Moines, IA 50305-1317 West Des Moines, IA 50266
Automated Information Line: (800) 845-0689
(800)-59-FUNDS
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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.
You have the flexibility to adjust the amount and frequency of premium payments
and the level of life insurance provided under the Policy.
You choose the form of death benefit from one of two options. Generally, the
death benefit amount is either equal to the Face Amount shown in the Policy
(Death Benefit Option A), or an amount equal to the Face Amount plus the Account
Value (Death Benefit Option B).
You may allocate your payments and your Policy's Account Value among twenty-nine
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 ten mutual funds (the "Funds"). The portfolios currently available under the
Policy are:
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<TABLE>
<CAPTION>
- ------------------------------------------------------------ ------------------------------------------------------------
Mutual Fund Portfolio Mutual Fund Portfolio
- ------------------------------------------------------------ ------------------------------------------------------------
<S> <C> <C> <C>
AIM Variable . V.I. Capital Appreciation Lord Abbett Series . Growth & Income
Insurance Funds, Inc. . V.I. Growth Fund Inc. ("LA")
("AIM")
- ------------------------------------------------------------ -------------------------------------------------------------
American Century . V.P. Value MFS* Variable . Growth Series (Initial
Variable Portfolios, Inc. Insurance Trust class shares - not available
("ACS") ("MFS") for new purchases)
. Growth Series (Service class
shares)
. Growth with Income Series
(Initial class shares -
not available for new
purchases)*
. Growth with Income Series
(Service class shares)
. New Discovery Series*
seeks capital appreciation
(Initial class shares - not
available for new purchases)
. New Discovery Series seeks
capital appreciation
(Service class shares)
- ------------------------------------------------------------ -------------------------------------------------------------
Deutsche Asset . EAFE Index Segliman Portfolios, . Communications & Information
Management VIT . Equity 500 Index Inc.
Funds ("DAM") . Small Cap Index ("SEL")
- ------------------------------------------------------------ -------------------------------------------------------------
Federated Insurance . High Income Bond Fund II Templeton Variable . Growth Securities
Series . Prime Money Fund II Products Series Fund (Class 2 shares)
("FIS") ("TEM") . International Securities
(Class 2 shares)
- ------------------------------------------------------------ -------------------------------------------------------------
Fidelity Variable . Contrafund Variable Investors . Small Cap Growth
Insurance Products seeks growth with income Series Trust ("VIST") . World Equity **
Funds ("FMR") . Equity - Income . Growth
. Growth Opportunities . Matrix Equity
(Service Class 2 shares) sector weighted equities
. Growth & Income
. Multiple Strategies
stocks, bonds & cash
. High Income Bond **
. U.S. Government Bond
- ------------------------------------------------------------ -------------------------------------------------------------
* Initial Class Shares not
available for new purchases
** Not available for new purchases
- ------------------------------------------------------------ -------------------------------------------------------------
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This prospectus contains information you should know before investing.
Additional information about the Contract and Separate Account is in our
Statement of Additional Information (the "Statement"). For a free copy, please
write to our Variable Service Center or call the number shown above. The
Statement, dated May 1, 2000, has been filed with the Securities and Exchange
Commission and is incorporated into this prospectus by reference. The table of
contents of the Statement is on page __ of this prospectus.
The Contracts are not bank deposits; are not federally insured; are not endorsed
by any bank or government agency; are not guaranteed, and may be subject to loss
of principal.
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
Contracts 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 Contract will be included in the Contract
or a related rider or endorsement.
5
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TABLE OF CONTENTS
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Page
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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
SURRENDER CHARGE
FUND EXPENSES
OTHER CHARGES AND DEDUCTIONS (NOT CURRENTLY CHARGED)
ELIMINATION, REDUCTION OR REFUND OF CHARGES AND DEDUCTIONS; INCREASES
IN BONUSES
Group and Sponsored Arrangements
Gender-Neutral Policies
PURPOSES OF POLICY CHARGES
THE POLICIES
APPLICATION AND ISSUANCE OF A POLICY
"Free Look Right"
PREMIUMS
Planned Premiums
Monthly Minimum Premium; Death Benefit Guarantee
Additional Premiums
Grace Period
ALLOCATION OF PREMIUMS
TELEPHONE TRANSACTIONS
POLICY BENEFITS AND VALUES
DEATH BENEFIT
Death Benefit Options A and B
Table of Minimum Death Benefit Factors
Change in Death Benefit Options and Face Amount
PREMIUM VALUE BONUSES AND CASH VALUE BONUSES
OPTIONAL ADDITIONAL BENEFIT RIDERS
Acceleration of Death Benefit Rider
Accidental Death Benefit Rider
Additional Term Insurance on the Insured
Children's Term Insurance Rider
Cost of Living Rider
Disability Waiver Benefit Riders
Extension of Maturity Date Rider
Other Insured Persons Rider
DETERMINATION OF ACCOUNT VALUE
POLICY LOANS
Regular Loan Interest
Preferred Loan Interest
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6
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Immediate Loan Repayment
Surrender and Withdrawals
Surrender
Withdrawals
MATURITY PROCEEDS
LAPSE AND REINSTATEMENT
PAYMENT OF PROCEEDS
TAX WITHHOLDING
PAYOUT OPTIONS
Option A - Life Annuity.
Option B - Life Annuity with Period Certain of 120 Months
Option C - Fixed Payments for A period Certain.
Option D - Death Benefit Proceeds Remaining With Us
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
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 not a Modified
---
Endowment Contract ("MEC")
Taxation of Pre-Death Distributions from a Policy that is a Modified
--
Endowment Contract
DIVERSIFICATION REQUIREMENTS
ADVERTISING PRACTICES
LEGAL MATTERS
STATE REGULATION
LEGAL PROCEEDINGS
COUNSEL
EXPERTS
REGISTRATION STATEMENT
YEAR 2000 ISSUES
</TABLE>
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
7
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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, Monthly
Minimum Premiums, cost of insurance charges, and Premium Value bonuses 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 4% 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.)
How much can I (or must I) invest in a Policy?
Payment of the Monthly Minimum Premium amounts specified in the Policy
guarantees that the Policy will remain in force for a guarantee period specified
in your Policy. The period ranges from 12 years for Insureds who are under Age
54 when the Policy is issued down to 2 years for Insureds who are Age 73 or
older when the Policy is issued. (In Massachusetts, however, the guarantee
period at all ages is 5 years, and is only available up to Age 70).
8
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Planned and unplanned additional premiums may be paid, subject to certain
limitations. For example, 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").
We may accept a payment of an amount that would, however, cause your Policy to
be classified as a "modified endowment contract" for tax purposes.
Payment of large amounts of premium (relative to the amount of insurance
coverage) during certain periods of time may cause a Policy to be classified as
a "modified endowment contract" under section 7702A of the Code. 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.
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 after the first Policy Year.
Do I receive special advantages for holding a Policy over a long term?
Your Policy will be eligible for Premium Value Bonuses and Cash Value bonuses
after 8 Policy Years.
We have developed a Premium Value Bonus to provide special value to Policy
owners who have paid, and continue to pay, Monthly Minimum Premium amounts. You
will qualify for the Premium Value Bonuses starting in the 9th Policy Year,
based on the amount of premiums you paid that you are not deemed to have
withdrawn or borrowed. The amount of a Premium Value Bonus credited each month
is based on the premium rate class of the insured persons, the total Monthly
Minimum Premium you have paid at that time and the Premium Value Bonus
percentages then in effect. The Premium Value Bonus percentage currently is
calculated at an annual rate of 11% of the Policy's Monthly Minimum Premium for
Preferred, Non-Smoker and Smoker premium rate classes, and 5% of Monthly Minimum
Premium for Non-Smoker and Smoker premium rate classes. We may change the
Premium Value Bonus percentage rates at any time, but the annual rate will not
be less than 6% for Preferred and 3% for Non-Smoker and Smoker standard premium
rate classes.
In addition to the Premium Value Bonus, a Cash Value Bonus is also scheduled to
be paid monthly starting in the 9th Policy Year, based on your then current
Account Value (net of Policy loans and interest thereon) and the Cash Value
Bonus percentage then in effect. The Cash Value Bonus annual percentage
currently ranges from .25% for a Policy with Account Value (net of Policy loans
and interest thereon) of more than $100,000 at the start of the applicable
Policy Year, to .15% if such value is more than $50,000 (up to $100,000), to
.10% of such value is $25,000 or more (but less than $50,000), to 0% if such
value is less than $25,000.
Because we do not guarantee any minimum Cash Value percentage, we could
terminate or reduce Cash Value Bonuses at any time.
The Premium Value and Cash Value Bonuses will not be paid if your state does not
permit them. You should check with your sales representative or call our
Variable Service Center to confirm the availability of the bonuses.
What general income tax consequences will I have from owning a Policy?
Under current federal tax law, you generally do not pay income tax on increases
in your Account Value unless and until there is a total surrender or partial
withdrawal. 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.
Under current federal tax, you will generally 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.
Special rules are applicable to a surrender, withdrawal, loan or transfer of
ownership from a Policy classified as a "modified endowment contract" or "MEC".
9
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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 (1) the amount payable under Death
Benefit Option A or B (whichever is in effect), (2) minus any outstanding Policy
loans and interest thereon, (3) minus any due and unpaid monthly deductions and
charges under your Policy, and (4) plus any amounts we owe under the terms of
any optional additional benefit riders to 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 - currently $8.50 each Policy Month (which we may
increase to not more than $11.00 per month);
. policy benefit charge - currently at an annualized rate of 0.27% of Account
Value for the first 25 Policy Years, but we may increase the duration of this
charge.
. a cost of insurance charge - based on the sex and premium rate class of the
Insureds, the Age, Policy Year and amount of coverage; and
. any charges for optional additional benefit riders.
Daily Deductions - the charge currently equals an annual rate of 0.70% (which we
may increase to not more than 0.90%) of the daily net assets in each Separate
Account investment option.
Surrender Charge - will be assessed upon termination of your Policy during the
first 12 Policy Years. The Surrender Charge varies for each Policy Year during
this period. The maximum Surrender Charge is 125% of 12 Monthly Minimum
Premiums up to a limit, for standard premium rate classes, of $60 per $1,000 of
Face Amount. A new set of Surrender Charges is established for the 12-year
period following an increase in Face Amount or the addition of additional
benefit riders.
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, 1999 were:
10
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Annual Fund Expenses After Expense Reimbursements
Management 12b-1
Mutual Fund Portfolio Fees Fees Other Operating Expenses Total Expenses*
--------------------- ---- ---- -------- --------
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AIM V.I. Capital Appreciation 0.62% 0.00% 0.11% 0.73%
AIM V.I. Growth 0.63% 0.00% 0.10% 0.73%
ACS V.P. Value 1.00% 0.00% 0.00% 1.00%
DAM EAFE Index 0.45% 0.00% 0.20% 0.65%
DAM Small Cap Index 0.35% 0.00% 0.10% 0.45%
DAM Equity 500 Index 0.20% 0.00% 0.10% 0.30%
FIS High Income Bond Fund II 0.60% 0.00% 0.19% 0.79%
FIS Prime Money Fund II 0.50% 0.00% 0.23% 0.73%
FMR Contrafund (Service Class 2) 0.58% 0.25% 0.12% 0.95%
FMR Equity - Income (Service Class 2) 0.48% 0.25% 0.10% 0.83%
FMR Growth Opportunities (Service Class 2) 0.58% 0.25% 0.13% 0.96%
LA Growth & Income 0.50% 0.00% 0.37% 0.87%
MFS New Discovery Series (Initial Class) 0.90% 0.00% 0.27% 1.17%
MFS New Discovery Series (Service Class) 0.90% 0.20% 0.17% 1.27%
MFS Growth Series (Initial Class) 0.75% 0.00% 0.26% 1.01%
MFS Growth Series (Service Class) 0.75% 0.20% 0.16% 1.11%
MFS Growth with Income Series (Initial
Class) 0.75% 0.00% 0.13% 0.88%
MFS Growth with Income Series (Service
Class) 0.75% 0.20% 0.13% 1.08%
SEL Communications & Information 0.75% 0.25% 0.11% 1.11%
TEM International (Class 2) 0.69% 0.25% 0.19% 1.13%
TEM Growth Securities (Class 2) 0.83% 0.25% 0.05% 1.13%
VIST Small Cap Growth 0.85% 0.00% 0.50% 1.35%
VIST World Equity 0.70% 0.00% 0.50% 1.20%
VIST Growth 0.70% 0.00% 0.32% 1.02%
VIST Matrix Equity 0.65% 0.00% 0.50% 1.15%
VIST Growth & Income 0.75% 0.00% 0.50% 1.25%
VIST Multiple Strategies 0.70% 0.00% 0.40% 1.10%
VIST High Income Bond 0.70% 0.00% 0.50% 1.20%
VIST U.S. Government Bond 0.60% 0.00% 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, 1999, were as follows:
0.43% for the DAM Equity 500 Index Portfolio; 1.18% for the DAM Small Cap Index
Portfolio; 1.15% for the DAM EAFE Index Portfolio; 2.49% for the MFS New
Discovery Series - Initial Class; 2.69% for the MFS New Discovery Series -
Service Class; 1.47% for the MFS Growth Series - Initial Class; 1.66% for the
MFS Growth Series - Service Class; 1.68 % for the VIST Small Cap Growth
Portfolio; 1.57% for the VIST World Equity Portfolio; 1.27% for the VIST Matrix
Equity Portfolio; 1.26% for the VIST Growth & Income Portfolio; 1.50% for the
VIST High Income Bond Portfolio; 1.39% for the VIST U.S. Government Bond
Portfolio of average daily net assets.
The purpose of this Table is to assist you in understanding the various costs
and expenses that you will bear directly and indirectly. The Table reflects
charges and expenses of the Separate Account as well as the Funds. For
additional information, see "MORE ABOUT CHARGES AND DEDUCTIONS" on page ____ and
the Funds prospectuses that accompany this prospectus.
11
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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):
Premium "Load" Charge - currently none, guaranteed not to exceed 2.5% of each
Premium Payment you make.
Transaction Fees - currently none, guaranteed not to exceed $25: (a) for each
transfer among Investment Options that you make in excess of twelve transfers
per Policy Year; (b) for any Policy loan; and (c) for any withdrawal of Cash
Surrender Value.
Additional Transaction Charge - currently none, may be imposed for surrenders
you make for the benefit of a third party assignee of the Policy pursuant to
section 1035 of the Internal Revenue Code. (See "Surrender Charge.")
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.
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. ILona
Financial Group, Inc. ("ILona"), formerly known as Irish Life of North America,
Inc. 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
$27 billion at May 1, 2000.
We have an A (Excellent) rating from A.M. Best Company, an independent firm that
analyzes insurance carriers. We also have an A+ 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 VIST
or Federated mutual 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
12
<PAGE>
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.
The investment objectives and policies of certain Separate Account investment
options are similar to the investment objectives and policies of other mutual
funds that the investment advisers manage. Although the objectives and policies
may be similar, the investment results of the Separate Account investment
options may be higher or lower than the results of such other mutual funds. The
investment advisers cannot guarantee, and make no representation, that the
investment results of similar funds will be comparable even though the funds
have the same advisers.
We may enter into certain arrangements under which we are reimbursed by the
Portfolios' advisers, distributors and/or affilaites for the administrative
services which we provide to the Portfolios.
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 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) $100 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.
Unless we consent, transfers from the Fixed Account to other investment options
during the first Policy Year cannot total more than 50% 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:
. 50% 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.
13
<PAGE>
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. Currently, dollar
cost averaging and automatic account rebalancing may not be in effect
simultaneously.
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 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.
14
<PAGE>
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:
Administrative Charge. This charge is currently $8.50 per Policy Month, we
guarantee this charge not to exceed $11 per Policy Month. This charge helps
compensate us for our expenses in administering the Policies and the Separate
Account.
Policy Benefit Charge. The monthly deduction includes an additional monthly
charge for the benefits we provide under the Policies. We compute the policy
benefit charge as a percentage of the Policy's Account Value on each monthly
deduction day. We make this charge at an effective annual rate of 0.27%. This
charge helps compensate us for our expenses in administering the Policies and
providing benefits under the Policies. We currently impose this charge for the
first 25 Policy Years, but may increase its duration to all Policy Years.
Cost of Insurance. This is a charge for the cost of providing life insurance
coverage for the insured person. First we subtract your then current Account
Value from your then current Death Benefit under your Policy. This tells us how
many dollars we stand to lose if you were to die at that time. We determine our
cost of insurance charge by (a) dividing that dollar amount of risk by
1.003273739 and (b) multiplying the result by the applicable current cost of
insurance rate. The cost of insurance rate varies based on the length of time a
Policy has been in force and the sex, Age and premium rate class of the Insured.
We guarantee this charge will not exceed the charge for the same amount of risk
based on the mortality table guaranteed in the Policy. For a standard risk
Insured, we guarantee the 1980 Commissioner's Standard Ordinary Mortality
Tables, Age Last Birthday ("1980 CSO"). These mortality tables differ for male
and female insured persons and separate mortality tables may be used for
different premium rate classes. The maximum cost of insurance charge for a
substandard risk Insured is based on multiples of or additions to the guaranteed
standard rates established by the 1980 CSO.
Optional Additional Benefit Rider Charges. Your Policy will specify any
additional monthly charge for additional benefit riders you elect to add to the
Policy.
. The Acceleration of Death Benefit Rider and Extension of Maturity Date Rider
are included with a Policy at no additional cost in each jurisdiction where the
riders are available.
. The monthly charge for additional term life insurance riders on the Insured
will not exceed the maximum rates shown in the Policy. Term life insurance
provided under this rider may be less costly initially under nonguaranteed
"current" insurance charges in effect on the date of this prospectus than an
equivalent amount of insurance coverage under the base Policy. However, if you
intend to qualify for Premium Value Bonuses and Cash Value Bonuses, and meet the
Monthly Minimum Premium requirements for the Death Benefit Guarantee, coverage
under the base Policy will probably be less costly over time.
. There is no charge for the Cost of Living rider, but any additional amounts
of insurance purchased under the rider will increase the Face Amount of the base
Policy, and be subject to corresponding additional monthly cost of insurance
charges.
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, on an annual basis, is currently 0.65% (which we
guarantee will not be increased to more than 0.90 %.) This charge helps
compensate us for assuming mortality and expense risks under the Policies.
15
<PAGE>
Surrender Charge
We may assess a surrender charge if you surrender your Policy during the first
12 Policy Years. This charge partially compensates us for our sales expenses and
insurance underwriting expenses.
Surrender Charge Percentage. For each Policy Year, we multiply 125% of one
year's Monthly Minimum Premium applicable to the initial Policy Benefits by the
surrender charge percentage shown below. We then deduct that amount if you make
a full surrender at any time during that Policy Year:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Policy Surrender Policy Surrender
Year Charge % Year Charge %
- ---------------------------------------------------------
<S> <C> <C> <C>
1 50% 8 50%
- ---------------------------------------------------------
2 100% 9 40%
- ---------------------------------------------------------
3 100% 10 30%
- ---------------------------------------------------------
4 100% 11 20%
- ---------------------------------------------------------
5 100% 12 10%
- ---------------------------------------------------------
6 80% 13+ 0%
- ---------------------------------------------------------
7 60%
- --------------------------------
</TABLE>
Maximum Surrender Charge. The surrender charge will not exceed 125% of one
year's Monthly Minimum Premium. Nor will it exceed $60 per $1,000 of Face Amount
for standard premium rate classes. This per $1,000 limit will not apply if the
Insured is in a substandard premium rate class. The Policy states the dollar
amount of the maximum surrender charge on the Policy Date. We impose no
surrender charge upon a partial decrease in Face Amount, but the full surrender
charge will remain in effect for a subsequent surrender.
Surrender Charge for Face Amount Increases: We will establish an additional
surrender charge for the 12 year period following any increase in Face Amount
that you request. The additional surrender charge will be computed as if the
Face Amount increase were being issued in the form of a new Policy, based on the
Age and other risk characteristics of the Insured at the time of the increase.
Upon surrender within the 12-year period, the remaining amount of surrender
charges for the Face Amount increase will be deducted, together with any amount
of surrender charge that still remains from the initial policy or from any prior
Face Amount increases.
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 captions "Premium
`Load' Charge", "Transaction Fees", "Additional Transaction Charges" and "Tax
Charge" in the "Highlights -- Other Expenses" 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;
16
<PAGE>
. 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
therefore 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 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 Guaranteed Death Benefit 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 the Company will incur. In some cases, this prospectus identifies
such expenses or risks in the name of the charge: e.g., the administrative
- -
charge, cost of insurance charge, and mortality and expense risk charge.
However, the fact that any charge bears the name of a particular expense or risk
does not mean that the amount 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:
. A Face Amount (minimum of $25,000 on a proposed Insured up to Age 80, or a
Face Amount between $100,000 and $500,000 on a proposed Insured between Ages
81- 85); and Death Benefit Option A or B; (see "Death Benefit");
17
<PAGE>
. The amount of planned premium that you intend to pay; 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. 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 first premium
upon delivery of the Policy, the Policy Date generally will be the day 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
Planned Premiums. You may chose, within limits, to pay premiums on a pre-
determined schedule. We will provide periodic reminder notices. Failure to
make such a payment will not result in termination of your Policy, so long as
your Policy has enough Cash Surrender Value to cover the Monthly Deductions as
they fall due. Although making planned premium payments will not necessarily
assure that your Policy will remain in force, the amounts paid will generally
result in greater benefits than if you pay a lower amount of premium.
You may arrange to pay planned premiums by pre-authorized automatic deductions
from accounts you maintain at other financial institutions. You may also
request to change the amount of your planned premiums by submitting a written
request to our Variable Service Center.
Monthly Minimum Premium; Death Benefit Guarantee. Your Policy shows the Monthly
Minimum Premium, which varies by Age on the Policy Date, Death Benefit amount
(including optional additional benefit riders), and the sex and premium rate
classes of the insured person. The Monthly Minimum Premium increases if the
Face Amount increases, or if you add other benefits, during the Death Benefit
Guarantee Period.
Your Policy will stay in force during the Death Benefit Guarantee period if, as
of the first Business Day of each Policy Month, the cumulative amount of
premiums paid over the life of your Policy at least equals your Policy's Monthly
Minimum Premium times the number of elapsed Policy Months. For this purpose,
the amount of premium paid is reduced by the sum of any outstanding Policy loans
(including accrued interest) and cumulative withdrawals.
The length of the Death Benefit guarantee period ranges from 2-12 years,
depending on the Insured's Age on the Policy Date (the "issue age"):
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Issue Age Guaranteed Death Benefit Period
--------- -------------------------------
- -----------------------------------------------------------
<S> <C>
0 - 53 12 Policy Years
- -----------------------------------------------------------
54 - 59 To Age 65
- -----------------------------------------------------------
60 - 70 5 Policy Years
- -----------------------------------------------------------
71 and over Later of Age 75 or 2 Policy Years
- -----------------------------------------------------------
</TABLE>
(In Massachusetts, the Guaranteed Death Benefit Period is 5 Policy Years, and is
only available for Issue Ages 0-70.)
We will accrue for later deduction any charges that were due but not taken
during the Guaranteed Death Benefit Period because of insufficient Account
Value. Any due and unpaid Monthly Deductions will be deducted from any Death
Benefit proceeds or from any Account Value that becomes available to pay the
deduction.
18
<PAGE>
Additional Premiums. You may pay additional premiums at any time during the
lifetime of the Insured, subject to three exceptions. First, we will refuse any
premium payment that may cause your Policy no longer to be treated as life
insurance for tax purposes. Second, we reserve the right to require
satisfactory evidence that both of the Insured is still insurable before we
accept any premium payment that would increase the then current Death Benefit
under your Policy. Third, we may require that you pay off any Policy loans you
have taken (and unpaid interest) prior to accepting any premium payments from
you.
If you pay premiums in excess of certain amounts your Policy may be classified
as a "modified endowment contract," or "MEC," for federal income tax purposes
and this could have adverse tax consequences for you. (See "Federal Tax Matters
- - Income Tax Treatment at Policy Benefits.")
Grace Period. After the end of your Policy's Death Benefit 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. This
also will happen during the Death Benefit Guarantee Period, if you have not paid
enough premiums to keep the guarantee in force.
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.
19
<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 Options A and B
The amount of the Death Benefit depends on whether you have chosen Death Benefit
Option A or Death Benefit Option B.
Option A. Under this option, the Death Benefit is the greater of:
- --------
. the Face Amount or
. the Account Value times the applicable percentage shown in the Minimum Death
Benefit table.
Option B. Under this option, the Death Benefit is the greater of:
- --------
. the Face Amount plus the Account Value or
. the Account Value times the applicable percentage shown in the Minimum Death
Benefit table:
<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 or older 100
- --------------------------------------------------------------
</TABLE>
Change in Death Benefit Options and Face Amount. You may make a written request
to our Variable Service Center not more than once each Policy Year:
. to change your Death Benefit Option, except that you may not change from
Death Benefit Option A to Death Benefit Option B during the first Policy
Year; and
. to increase or decrease the Face Amount of your Policy, except that you may
not request a decrease during the first Policy Year.
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If we approve a change from Death Benefit Option B to Death Benefit Option A, we
will automatically increase the Face Amount of your Policy by an amount equal to
the Policy's Account Value. Upon a change from Death Benefit Option A to Death
Benefit Option B, we will automatically decrease the Face Amount of your Policy
by an amount equal to the Policy's Account Value.
We may require evidence of the continued insurability of the Insured for a
change from Death Benefit Option B to Death Benefit Option A, or for any other
change that would increase the Face Amount. We also may restrict any requested
increases in the Face Amount to minimums and maximums that vary with the Age and
the premium rate class of the Insured, and may adjust the Age for any increases
in Face Amount. If the Face Amount increases during any Death Benefit Guarantee
period, the Monthly Minimum Premium also will usually increase for the
remainder of the applicable Death Benefit Guarantee Period. The increase in
Monthly Minimum Premium would be based on the Age, sex, additional Face Amount,
and premium rate class of the Insured. The surrender charge and applicable
surrender charge period will also increase as a result of an increase in Face
Amount, other than an increase due solely to a change in Death Benefit Option.
(See "Surrender Charge.")
Any reduction in Face Amount will take effect in the following order:
. against the most recent increase in Face Amount; then
. against the next most recent increases; then
. against the initial Face Amount.
We may deny any request to reduce the Face Amount (including reductions
resulting from a change of Death Benefit Option A to Death Benefit Option B):
. if the Death Benefit would be reduced below that required to qualify the
Policy as life insurance; or
. if the Death Benefit would be reduced below the minimum Face Amount shown in
the Policy.
A change in Death Benefit Option or Face Amount will take effect on the first
Business Day of the Policy Month coinciding with or next following the date we
approve the request. For a discussion of possible tax consequences of changing
insurance coverage under a Policy, see "Federal Tax Status."
Premium Value Bonuses and Cash Value Bonuses
Subject to approval by your local insurance regulatory authority, a Policy
continuously in force for 8 Policy Years will be eligible for monthly Premium
Value and Cash Value Bonuses. The bonuses will be allocated monthly among the
Policy's investment options on a pro rata basis based on the Account Value in
each, unless we approve a different method.
The amounts of these bonuses are discussed above under "Highlights.
Our life insurance policies funded through the Separate Account have only been
available since January 1998, and we have not yet credited any bonuses.
Optional Additional Benefit Riders
We offer optional additional benefit riders subject to regulatory approval in
your local area and to our underwriting and issuance standards. The following
descriptions are not complete. For more complete information about the riders
and their availability, you should consult your sales representative or request
a copy of the form of the rider in which you are interested. Coverage under
these riders may increase the Monthly Deduction under the Policy.
Acceleration of Death Benefit Rider - permits you to receive an advance of the
Death Benefit when the Insured 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 $500,000, 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.
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Accidental Death Benefit Rider - provides an additional amount specified in the
Policy if the Insured dies from an accidental injury, as defined in the rider,
up to age 70.
Additional Term Insurance on the Insured - provides additional convertible term
life insurance coverage for a preselected period up to Age 95. You may convert
this term insurance to a permanent plan of life insurance, subject to the
conditions listed in the rider, if the insured person has not yet reached his or
her age 70.
Children's Term Insurance Rider - provides up to $10,000 of term life insurance
on the lives of the Insured's children who are between 15 days of age and age 18
on the Policy Date. Coverage ends for each child on that child's 21st birthday.
You may then convert the coverage with 31 days to a permanent plan of life
insurance, subject to the conditions listed in the rider.
Cost of Living Rider - permits you to purchase additional amounts of insurance
based on formulas in the rider and increases in the Consumer Price Index
published by the U.S. Department of Labor. We do not require evidence of
insurability on the Insured person to purchase the additional insurance that may
be made available, based on the formula described in the rider, up to a maximum
of $30,000 of Face Amount every third Policy Year until the Policy Anniversary
following the Insured's 65th birthday.
Disability Waiver Benefit Riders - provide benefits if the Insured is totally
disabled, as defined under the terms of the applicable rider, before Age 60. A
"Waiver of Monthly Deduction" rider waives the Monthly Deductions (but not the
daily deductions or other fees and expenses) under the Policy. A "Cash Deposit
Benefit" rider provides for a deposit of a pre-selected monthly benefit amount
into a Policy's Account Value. Although Monthly Deductions will continue to
apply under this rider, its benefits paid into the Policy's Account Value will
be applied against the Monthly Minimum Premium requirements for the Guaranteed
Death Benefit described elsewhere in this prospectus.
You may select only one of the riders when you apply for a Policy.
Extension of Maturity Date Rider - permits you to request a Maturity Date beyond
Age 95 if the Account Value is at least $2,000. It is included with a Policy at
no additional cost.
The Owner may request that any rider benefits be canceled at any time. The
rider and any charges therefor, will terminate at the end of the Policy Month
during which a written request was received at the Variable Service Center.
Other Insured Persons Rider - provides fixed benefit term life insurance
coverage on the lives of other individuals that you select. The term insurance
may be converted to a permanent plan of life insurance, subject to the
conditions listed in the rider. If the insured person under this rider is not a
member of your family, certain special tax rules will apply, which this
prospectus briefly describes in "Federal Tax Matters - Income Tax Treatment of
Policy Benefits.
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 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.
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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 credit amounts in your Loan Account
with interest at a minimum annual rate of 4%.
The interest you must pay us on a Policy loan accrues daily and is payable at
the end of each Policy Month. If not paid when due, we will add it as an
additional Policy loan on the first Business Day of the next Policy Month.
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.
Regular Loan Interest. For a Regular Loan, we charge interest at a 6% effective
annual rate.
Preferred Loan Interest. We charge interest on a Preferred Loan at a 4%
effective annual rate. You may qualify for Preferred Loans if your Account
Value, less any then outstanding loans and related interest, on any Policy
Anniversary is at least $10,000. If so, the maximum you can take as Preferred
Loan that year is 15% of your Account Value, less any then outstanding Policy
loans and related interest. If your Policy qualifies for a Preferred Loan on
any Policy Anniversary, we will automatically convert at least part of any
Regular Loan outstanding to a Preferred Loan. This automatic conversion,
however, will be subject to the above-mentioned 15% limit for that Policy year
and, therefore, will also reduce the amount of Preferred Loans that otherwise
would be available to you for that year. A Preferred Loan will also reduce the
amount available as a Regular Loan.
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 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 $100). This will reduce the Account Value and Death Benefit, generally
by the amount withdrawn. If Death Benefit Option A is in effect, a withdrawal
also may reduce your Policy's Face Amount by the amount of the withdrawal. 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 below the minimum Face Amount specified in the
Policy; or
. if the remaining Cash Surrender Value would not be at least (a) $1,000 or (b)
3 times the most recent Monthly Deduction, whichever is greater.
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
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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 95), 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, 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
. 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.
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
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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.
Misstatement of Age or Sex
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.
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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.
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
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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 100% of the amount of premiums paid in the
first Policy Year up to 12 Monthly Minimum Premiums, plus 4% of additional first
year premium payments, plus 3.5% of all premiums received in Policy Years 2
through 5. In addition, Broker/Dealers may receive annual "trail commission"
equivalent to 0.30% of a Policy's Account Value beginning in Policy Year 6, as
well as expense allowances, wholesaler fees, bonuses and training fees.
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 and Chairman, ILona Financial Group, Inc.
Michael J. Corey - 401 East Host Drive. Lake Geneva, WI 53147. He is the Senior
Partner - Global Services Practice Leader, LAI World Wide. Prior to 1999, he was
a Managing Director, Insurance/Professional Services Practice Group and
President, CSG International Inc.
Norman A. Fair - He is also Vice President, Treasurer, & Asst. Sec. ILona
Financial Group, Inc.
Michael R. Ferrari, Texas Christian University, P.O. 29700, Ft. Worth, TX 76129-
2800. 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 President, ILona Financial Group, Inc.; prior to
January, 2000, he was Executive Vice President of ILona Financial Group, Inc.;
and prior to December 1997, he was the President, 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.
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Other Executive Officers
David L. Anders, Senior Vice President, Sales - Prior to November, 1999, he was
Senior Vice President of ARM Financial Group, Inc.
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.
Jeffery K. Hoelzel, Vice President, General Counsel and Secretary - Prior to
October 1999, he was an attorney with Lord, Bissell & Brook in Chicago,
Illinois.
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
Kari Stanway, Vice President. Prior to 1997, she was Senior Consultant for the
Optima Group.
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.
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.
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Acceleration of Death Benefits Rider. Similarly, we believe that accelerated
death benefit payments, if permitted under your Policy 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 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 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.
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.
29
<PAGE>
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.
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.
30
<PAGE>
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 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.
31
<PAGE>
EXPERTS
The consolidated balance sheet of First Variable Life Insurance Company and
subsidiaries as of December 31, 1999 and the related consolidated statements of
income, changes in stockholder's equity, and cash flows for the year then ended
and the statement of assets and liabilities of First Variable Life Insurance
Company - Separate Account VL at December 31, 1999, and the statements of
operations and changes in net assets for each of the periods indicated in the
year then ended, have been included herein in reliance upon the reports of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
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 have
been adversely affected if our computer systems and those of our service
providers did not properly process and calculate date-related information and
data from and after January 1, 2000. We did not experience any problems related
to the Year 2000 issue.
32
<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, 1999. 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
---
Separate Account investment options from the date they actually commenced
operations (March 31, 1997) 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 (.65%).
The tables do not reflect three significant charges that will apply to your
---
Policy: an administrative charge (currently $8.50 per month), cost of insurance
and additional benefit rider charges, and the surrender charge. If these
charges were reflected, the total return figures shown would be lower. For an
example of the effect of the surrender charge, compare the "Cash Surrender
Value" to the corresponding "Account Value" in the hypothetical illustrations on
pages _ __ to ___.
Table A-1 Average Annual Total Return from Portfolio Inception Date
---
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
From
Portfolio and Portfolio Portfolio
Inception Date 1 Yr. 3 Yr. 5 Yr. 10 Yr. Inception
Date
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth - 5/4/95 (1)(4) 79.21% 20.15% N/A N/A 25.22%
- ----------------------------------------------------------------------------------------------------------
VIST World Equity - 6/1088 (2)(4) 54.53% 20.93% 19.56% 11.26% 10.76%
- ----------------------------------------------------------------------------------------------------------
VIST Growth - 5/1/87 (1)(2)(4) 33.73% 29.74% 30.12% 16.75% 16.56%
- ----------------------------------------------------------------------------------------------------------
VIST Matrix Equity - 6/16/88 (2)(3)(4) 13.46% 18.4% 18.04% 12.74% 13.60%
- ----------------------------------------------------------------------------------------------------------
VIST Growth & Income - 5/31/95 (4) 5.63% 14.62% N/A N/A 14.93%
- ----------------------------------------------------------------------------------------------------------
VIST Multiple Strategies - 5/5/87 (2)(4) 27.23% 25.62% 25.15% 15.44% 13.75%
- ----------------------------------------------------------------------------------------------------------
VIST High Income Bond - 6/1/87 (2)(4) 1.22% 5.36% 9.47% 8.79% 8.6%
- ----------------------------------------------------------------------------------------------------------
VIST US Gov. Bond - 5/27/87 (2)(4) .33% 4.32% 6.66% 6.44% 6.95%
- ----------------------------------------------------------------------------------------------------------
FIS Prime Money Fund II - 11/94 (4) 3.98% 4.18% 4.23% 4.06% 3.84%
- ----------------------------------------------------------------------------------------------------------
AIM V.I. Cap. Appreciation (5/5/93) 43.96% 24.46% 24.94% N/A 21.68%
- ----------------------------------------------------------------------------------------------------------
AIM V.I. Growth (5/5/93) 34.59% 31.37% 28.99% N/A 22.28%
- ----------------------------------------------------------------------------------------------------------
ACS V.P. Value (5/1/96) -1.5% 8.78% N/A N/A 10.45%
- ----------------------------------------------------------------------------------------------------------
DAM Equity 500 Index (10/1/97) 19.74% N/A N/A N/A 21.87%
- ----------------------------------------------------------------------------------------------------------
DAM Small Cap (8/25/97) 19.51% N/A N/A N/A 8.72%
- ----------------------------------------------------------------------------------------------------------
TEM International (5/1/92) 22.58% 14.56% 16.38% N/A 14.60%
- ----------------------------------------------------------------------------------------------------------
LA Growth & Income (12/11/89) 16.09% 17.34% 19.9% 15.6% 15.58%
- ----------------------------------------------------------------------------------------------------------
MFS New Discovery Series - Initial(5/1/98) 72.76% N/A N/A N/A 40.26%
- ----------------------------------------------------------------------------------------------------------
MFS Growth Series - Initial (5/1/99) N/A N/A N/A N/A 39.63%
- ----------------------------------------------------------------------------------------------------------
MFS Growth with Income Series - Initial (10/9/95) 6.04% 18.55% N/A N/A 20.47%
- ----------------------------------------------------------------------------------------------------------
MFS New Discovery Series (Service Class shares)/5/ 72.66% N/A N/A N/A 40.16%%
- ----------------------------------------------------------------------------------------------------------
MFS Growth Series (Service Class shares)/5/ N/A N/A N/A N/A 39.53%
- ----------------------------------------------------------------------------------------------------------
MFS Growth with Income Series (Service Class shares)/5/ 5.84% 18.35% N/A N/A 20.27%
- ----------------------------------------------------------------------------------------------------------
SEL Communications & Information (10/4/94)/5/ 85.11% 45.10% 35.42% N/A 34.74%
- ----------------------------------------------------------------------------------------------------------
FMR Contrafund/5/ (1/3/95) 23.45% 25.32% N/A N/A 26.99%
- ----------------------------------------------------------------------------------------------------------
FMR Equity - Income/5/ (10/9/86) 5.55% 14.22% 17.87% 13.77% 13.06%
- ----------------------------------------------------------------------------------------------------------
FMR Growth Opportunities/5/ (1/3/95) 3.48% 18.31% N/A N/A 20.77%
- ----------------------------------------------------------------------------------------------------------
TEM Growth Securities (3/15/94) 20.14% 13.64% 14.66% N/A 13.03%
- ----------------------------------------------------------------------------------------------------------
DAM EAFE Index (8/22/97) 26.9% N/A N/A N/A 16.35%
- ----------------------------------------------------------------------------------------------------------
FIS High Income Bond Fund II (3/1/99) 1.61% 5.45% 9.78% N/A 7.52%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
33
<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 Investment Options 1 Yr. Inception
Date Date
- ------------------------------------------------------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth - (1)(4) 79.21% 37.37 AIM V.I. Capital N/A 65.15%
Appreciation
- ------------------------------------------------------------ -------------------------------------------------------
VIST World Equity - (4) 54.53% 30.56 AIM V.I. Growth N/A 41.04%
- ------------------------------------------------------------ -------------------------------------------------------
VIST Growth - (1)(4) 33.73% 40.95 ACS V.P. Value N/A -12.71%
- ------------------------------------------------------------ -------------------------------------------------------
VIST Matrix Equity - (3)(4) 13.46% 19.12 DAM Equity Index N/A 15.65%
- ------------------------------------------------------------ -------------------------------------------------------
VIST Growth & Income - (4) 5.63% 9.68 DAM Small Cap Index N/A 26.30%
- ------------------------------------------------------------ -------------------------------------------------------
VIST Multiple Strategies - (4) 27.23% 34.03 TEM International N/A 19.14%
- ------------------------------------------------------------ -------------------------------------------------------
VIST High Income Bond - (4) 1.22% 1.11 LA Growth & Income N/A 8.16%
- ------------------------------------------------------------ -------------------------------------------------------
VIST US Gov. Bond - (4) .33 2.19 MFS New Discovery Series N/A 108.54%
(Initial Class shares)
- ------------------------------------------------------------ -------------------------------------------------------
FIS Prime Money Fund II - (4) 3.98 3.89 MFS Growth Series (Initial N/A 64.03%
Class shares)
- ------------------------------------------------------------ -------------------------------------------------------
MFS Growth with Income Series N/A 3.52%
(Initial Class shares)
- ------------------------------------------------------------ -------------------------------------------------------
</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
our, 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.
(5) Initial offering of these classes of funds is expected to take place
shortly after the date of this prospectus. Previous classes had no 12b-1
fee. If the 12b-1 fee had been reflected, returns 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.
34
<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 payment of an annual
premium of $1,275 for a male Age 45 and $2,100 for a male Age 55; and a Face
Amount of $100,000. The males aged 45 and 55 are assumed to be in the
Preferred -standard premium risk class. The tables are first given based on
current (i.e., non-guaranteed) premium load, administrative expense charge, cost
of insurance rates, and mortality and expense risk charge, and the policy
benefit charge and expected Premium Value Bonuses and Cash Value Bonuses
beginning in the 9th Policy Year. The next tables are based on the guaranteed
premium load, administrative expense charge, cost of insurance rates, and
mortality and expense risk charge, and the policy benefit charge and the
guaranteed Premium Value Bonuses beginning in the 9th Policy Year.
The Death Benefits, Cash Surrender Values and Account Values shown in the tables
also reflect an unweighted average of the investment advisory fees and other
operating expenses incurred by the Portfolios that are currently available, at
an annual rate of 0.92% of the average daily net assets of the Portfolios. This
average reflects voluntary "caps" on some of the investment advisory fees. If
the applicable investment adviser discontinued these caps, the values
illustrated on the following pages could be less. (See "Highlights")
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 (1.62%), 4.38% and 10.38% respectively, for the "current" tables, and
(1.82%), 4.18% and 10.18% respectively, for the "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.
35
<PAGE>
MALE ISSUE AGE 45
PREFERRED STANDARD PREMIUM RATE CLASS - $1,275 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
CURRENT POLICY CHARGES AND BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
---------------------------------------------------------------------------
Premiums 0% (1)(2)(3) 6% (1)(2)(3)
----------------------------------- ----------------------------------
End of Accumulated Cash Cash
Policy at 5% Account Surrender Death Account Surrender Death
Year Interest (1) Value Value Benefit Value Value Benefit
---- ------------ ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,339 747 0 100,000 806 9 100,000
2 2,744 1,457 0 100,000 1,621 28 100,000
3 4,220 2,119 526 100,000 2,436 842 100,000
4 5,770 2,748 1,154 100,000 3,262 1,668 100,000
5 7,397 3,331 1,737 100,000 4,088 2,494 100,000
6 9,106 3,859 2,584 100,000 4,903 3,628 100,000
7 10,900 4,333 3,377 100,000 5,708 4,752 100,000
8 12,784 4,755 3,958 100,000 6,504 5,707 100,000
9 14,762 5,191 4,553 100,000 7,356 6,719 100,000
10 16,839 5,553 5,075 100,000 8,180 7,702 100,000
15 28,888 6,094 6,094 100,000 11,636 11,636 100,000
20 44,267 3,670 3,670 100,000 12,922 12,922 100,000
25 63,895 0 0 100,000 9,119 9,119 100,000
30 88,945 0 0 0 0 0 0
<CAPTION>
----------------------------
12% (1)(2)(3)
----------------------------------------
End of Cash
Policy Account Surrender Death
Year Value Value Benefit
---- ----- ----- -------
<S> <C> <C> <C>
1 865 68 100,000
2 1,794 200 100,000
3 2,781 1,187 100,000
4 3,846 2,252 100,000
5 4,984 3,390 100,000
6 6,193 4,918 100,000
7 7,480 6,524 100,000
8 8,857 8,060 100,000
9 10,401 9,763 100,000
10 12,042 11,564 100,000
15 21,971 21,971 100,000
20 35,750 35,750 100,000
25 55,734 55,734 100,000
30 88,847 88,847 100,000
</TABLE>
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(3) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following nonguaranteed factors for Policy Years 9 and after:
<TABLE>
<S> <C>
Premium Value Bonus Percentage: 11% Cash Value Bonus Percentage: Cash Surrender Value less than $25,000: .00%
Cash Surrender Value $25,000 to $50,000: .10%
Cash Surrender Value $50,001 to $100,000: .15%
Cash Surrender Value % $100,001 or more .25%
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATIVE OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
37
<PAGE>
MALE ISSUE AGE 45
PREFERRED STANDARD PREMIUM RATE CLASS - $1,275 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
GUARANTEED POLICY CHARGES and BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
---------------------------------------------------------------------------
Premiums 0% (1)(2)(3) 6% (1)(2)(3)
---------------------------------------------------------------------------
End of Accumulated Cash Cash
Policy at 5% Account Surrender Death Account Surrender Death
Year Interest (1) Value Value Benefit Value Value Benefit
---- ------------ ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,339 834 37 100,000 896 100 100,000
2 2,744 1,608 14 100,000 1,785 191 100,000
3 4,220 2,359 765 100,000 2,701 1,107 100,000
4 5,770 3,064 1,470 100,000 3,623 2,029 100,000
5 7,397 3,770 2,176 100,000 4,599 3,005 100,000
6 9,106 4,465 3,190 100,000 5,618 4,343 100,000
7 10,900 5,151 4,194 100,000 6,684 5,728 100,000
8 12,784 5,815 5,018 100,000 7,787 6,990 100,000
9 14,762 6,575 5,937 100,000 9,049 8,412 100,000
10 16,839 7,248 6,769 100,000 10,293 9,815 100,000
15 28,888 9,675 9,675 100,000 16,605 16,605 100,000
20 44,267 10,661 10,661 100,000 23,233 23,233 100,000
25 63,895 9,441 9,441 100,000 29,838 29,838 100,000
30 88,945 4,020 4,020 0 35,604 35,604 100,000
<CAPTION>
----------------------------
12% (1)(2)(3)
----------------------------------------
End of Cash
Policy Account Surrender Death
Year Value Value Benefit
---- ----- ----- -------
<S> <C> <C> <C>
1 959 163 100,000
2 1,970 376 100,000
3 3,074 1,480 100,000
4 4,257 2,664 100,000
5 5,578 3,984 100,000
6 7,038 5,763 100,000
7 8,651 7,695 100,000
8 10,423 9,626 100,000
9 12,495 11,858 100,000
10 14,711 14,233 100,000
15 29,100 29,100 100,000
20 52,203 52,203 100,000
25 90,988 90,988 105,546
30 157,799 157,799 168,845
</TABLE>
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(3) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following guaranteed factors for Policy Years 9 and after:
<TABLE>
<S> <C>
Premium Value Bonus Percentage: 6% Cash Value Bonus Percentage: .00%
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATIVE OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
38
<PAGE>
MALE ISSUE AGE 55
PREFERRED STANDARD PREMIUM RATE CLASS - $2,100 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
CURRENT POLICY CHARGES and BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
--------------------------------------- ------------------------------------------
Premiums 0% (1)(2)(3) 6% (1)(2)(3)
--------------------------------------- ------------------------------------------
End of Accumulated at Cash Cash
Policy 5% Account Surrender Death Account Surrender Death
Year Interest (1) Value Value Benefit Value Value Benefit
---- ------------ ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,205 1,343 30 100,000 1,445 133 100,000
2 4,520 2,519 0 100,000 2,805 180 100,000
3 6,951 3,591 966 100,000 4,139 1,514 100,000
4 9,504 4,585 1,960 100,000 5,470 2,845 100,000
5 12,184 5,536 2,911 100,000 6,834 4,209 100,000
6 14,998 6,445 4,345 100,000 8,235 6,135 100,000
7 17,953 7,302 5,727 100,000 9,665 8,090 100,000
8 21,056 8,109 6,796 100,000 11,126 9,813 100,000
9 24,314 9,065 8,015 100,000 12,825 11,775 100,000
10 27,734 9,971 9,184 100,000 14,574 13,787 100,000
15 47,581 13,304 13,304 100,000 23,745 23,745 100,000
20 72,910 12,564 12,564 100,000 32,174 32,174 100,000
25 105,238 3,808 3,808 100,000 37,377 37,377 100,000
30 146,498 0 0 0 36,710 36,710 100,000
<CAPTION>
----------------------------
12% (1)(2)(3)
------------------------------------------
End of Cash
Policy Account Surrender Death
Year Value Value Benefit
---- ----- ----- -------
<S> <C> <C> <C>
1 1,548 236 100,000
2 3,105 480 100,000
3 4,736 2,111 100,000
4 6,477 3,852 100,000
5 8,377 5,752 100,000
6 10,455 8,355 100,000
7 12,722 11,147 100,000
8 15,202 13,890 100,000
9 18,133 17,083 100,000
10 21,358 20,571 100,000
15 43,104 43,104 100,000
20 78,982 78,982 100,000
25 142,050 142,050 149,153
30 247,038 247,038 259,390
</TABLE>
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(3) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following guaranteed factors for Policy Years 9 and after:
<TABLE>
<S> <C>
Premium Value Bonus Percentage: 11% Cash Value Bonus Percentage: Cash Surrender Value less than $25,000: .00%
Cash Surrender Value $25,000 to $50,000: .10%
Cash Surrender Value $50,000 to $100,000: .15%
Cash Surrender Value $100,001 or more: .25%
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATIVE OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
39
<PAGE>
MALE ISSUE AGE 55
PREFERRED STANDARD PREMIUM RATE CLASS - $2,100 ANNUAL PREMIUM
$100,000 INITIAL FACE AMOUNT - DEATH BENEFIT OPTION A
GUARANTEED POLICY CHARGES and BONUS FACTORS
<TABLE>
<CAPTION>
Values Based on Assumed Hypothetical Gross Investment Returns of:
--------------------------------------- ------------------------------------------
Premiums 0% (1)(2)(4) 6% (1)(2)(4)
--------------------------------------- ------------------------------------------
End of Accumulated at Cash Cash
Policy 5% Account Surrender Death Account Surrender Death
Year Interest (1) Value Value Benefit Value Value Benefit
---- ------------ ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,205 1,070 0 100,000 1,163 0 100,000
2 4,520 2,046 0 100,000 2,297 0 100,000
3 6,951 2,929 304 100,000 3,403 778 100,000
4 9,504 3,711 1,086 100,000 4,470 1,845 100,000
5 12,184 4,372 1,747 100,000 5,475 2,850 100,000
6 14,998 4,914 2,814 100,000 6,417 4,317 100,000
7 17,953 5,330 3,755 100,000 7,284 5,709 100,000
8 21,056 5,587 4,274 100,000 8,041 6,729 100,000
9 24,314 5,801 4,751 100,000 8,802 7,752 100,000
10 27,734 5,838 5,050 100,000 9,430 8,642 100,000
15 47,581 2,525 2,525 100,000 9,511 9,511 100,000
20 72,910 0 0 0 0 0 0
25 105,238 0 0 0 0 0 0
30 146,498 0 0 0 0 0 0
<CAPTION>
----------------------------
12% (1)(2)(4)
------------------------------------------
End of Cash
Policy Account Surrender Death
Year Value Value Benefit
---- ----- ----- -------
<S> <C> <C> <C>
1 1,256 0 100,000
2 2,561 0 100,000
3 3,922 1,297 100,000
4 5,337 2,712 100,000
5 6,791 4,166 100,000
6 8,291 6,191 100,000
7 9,836 8,261 100,000
8 11,401 10,088 100,000
9 13,115 12,065 100,000
10 14,860 14,073 100,000
15 23,675 23,675 100,000
20 31,118 31,118 100,000
25 31,779 31,779 100,000
30 7,959 7,959 100,000
</TABLE>
(1) Assumes annual premium payments are paid in full at the beginning of each
Policy Year. Values would differ if the amount or frequency of payment
varies.
(2) Zero values in the Death Benefit column indicate Policy lapse in the
absence of sufficient additional premium payments.
(4) Reflects Premium Value Bonuses and Cash Value Bonuses credited under the
following non-guaranteed factors for Policy Years 9 and after:
<TABLE>
<S> <C>
Premium Value Bonus Percentage: 6% Cash Value Bonus Percentage: .00%
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATIVE OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
40
<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
41
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Financial Statements
December 31, 1999
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholder of First Variable
Life Insurance Company and Contract
Owners of Separate Account VL:
We have audited the accompanying statements of assets and liabilities of each of
the nineteen divisions comprising First Variable Life Insurance Company -
Separate Account VL, as of December 31, 1999 and the related statements of
operations and changes in net assets for each of the periods indicated in the
year then ended. These financial statements are the responsibility of the First
Variable Life Insurance Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The accompanying
statements of operations and changes in net assets of First Variable Life
Insurance Company - Separate Account VL for the periods ended December 31, 1998
and 1997, were audited by other auditors whose reports thereon dated March 18,
1999 and January 30, 1998, respectively, expressed unqualified opinions on those
statements.
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,
1999 by correspondence with the transfer agent. 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 positions of the nineteen divisions
comprising First Variable Life Insurance Company - Separate Account VL as of
December 31, 1999 and the results of their operations and changes in their net
assets for each of the periods indicated in the year then ended, in conformity
with generally accepted accounting principles.
March 17, 2000
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Notes to financial statements
December 31, 1999
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 operations and the statements of
changes in net assets of First Variable Life Insurance Company - Separate
Account VL for the year ended December 31, 1998 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 auditing standards generally accepted
in the United States. 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 and 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 results of operations and changes in its net assets
of First Variable Life Insurance Company - Separate Account VL for the year
ended December 31, 1998 and for the period from March 31, 1997 through December
31, 1997 in conformity with accounting principles generally accepted in the
United States.
3
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
Variable Investors Series Trust
--------------------------------------------------------
Federated High
Prime Income Multiple Matrix
Money Growth Bond Strategies Equity
Fund II Division Division Division Division
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in mutual funds at net
asset value (see cost below) $2,568,867 5,329,302 866,663 3,096,291 947,085
Receivable from First Variable Life Insurance Company 150 117 25 - -
---------- --------- ------- --------- -------
Total assets 2,569,017 5,329,419 866,688 3,096,291 947,085
---------- --------- ------- --------- -------
Liabilities:
Payable to First Variable Life Insurance Company - - 163 995 35
---------- --------- ------- --------- -------
Net Assets:
Contracts in accumulation period $2,569,017 5,329,419 866,525 3,095,296 947,050
========== ========= ======= ========= =======
Investments in mutual funds at cost $2,568,867 4,127,651 871,707 2,466,990 849,783
========== ========= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Variable Investors Series Trust
--------------------------------------------------------
U.S.
Government World Growth & Small Cap
Bond Equity Income Growth
Division Division Division Division
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Asset:
Investments in mutual funds at net $537,841 1,379,938 2,699,557 2,361,710
asset value (see cost below)
Receivable from First Variable Life Insurance Company 19 - - -
-------- --------- --------- ---------
Total assets 537,860 1,379,938 2,699,557 2,361,710
-------- --------- --------- ---------
Liabilities:
Payable to First Variable Life Insurance Company - 181 229 330
-------- --------- --------- ---------
Net Assets:
Contracts in accumulation period $537,860 1,379,777 2,699,328 2,361,380
======== ========= ========= =========
Investments in mutual funds at cost $559,380 962,958 2,608,323 1,523,673
======== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
(continued)
2
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Assets and Liabilities, continued
December 31, 1999
<TABLE>
<CAPTION>
Bankers Bankers Lord
AIM American Trust Trust Franklin Abbett
Capital AIM Century Equity Small Cap Templeton Growth &
Assets: Appreciation Growth VP Value Index Index Int'l Income
------------ --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in mutual funds
at net asset value (see cost below) $ 855,683 787,434 131,270 604,771 83,154 223,876 276,330
Receivable from First Variable Life
Insurance Company -- -- -- -- -- -- --
------------ --------- --------- --------- ---------- --------- ---------
Total assets 855,683 787,434 131,270 604,771 83,154 223,876 276,330
------------ --------- --------- --------- ---------- --------- ---------
Liabilities:
Payable to First Variable Life
Insurance Company 57 27 -- 17 7 12 5
------------ --------- --------- --------- ---------- --------- ---------
Net Assets:
Contracts in accumulation period $ 855,626 787,407 131,270 604,754 83,147 223,864 276,325
============ ========= ========= ========= ========== ========= =========
Investments in mutual funds at cost $ 692,921 714,838 135,691 566,121 76,895 204,608 282,696
============ ========= ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
MFS MFS
New MFS Growth &
Assets: Discovery Growth Income
---------- --------- ---------
<S> <C> <C> <C>
Investments in mutual funds
at net asset value (see cost below) $ 1,202,779 375,366 175,333
Receivable from First Variable Life
Insurance Company -- -- --
----------- --------- ---------
Total assets 1,202,779 375,366 175,333
----------- --------- ---------
Liabilities:
Payable to First Variable Life
Insurance Company 122 16 3
----------- --------- ---------
Net Assets:
Contracts in accumulation period $ 1,202,657 375,350 175,330
=========== ========= =========
Investments in mutual funds at cost $ 913,031 323,027 166,449
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Variable Investors Series Trust
-----------------------------------------------------------------------------------
Federated High U.S.
Prime Income Multiple Matrix Government World Growth & Small Cap
Money Growth Bond Strategies Equity Bond Equity Income Growth
Fund II Division Division Division Division Division Division Division Division
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income - dividends $ 44,679 152,557 1,056 62,209 17,887 557 14,884 54,126 -
Expenses:
Risk and administrative charges 7,366 31,977 6,999 17,899 8,109 5,068 8,142 20,464 10,815
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Net investment income (loss) 37,313 120,580 (5,943) 44,310 9,778 (4,511) 6,742 33,662 (10,815)
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) on fund
shares redeemed - 173,816 (15,184) 72,126 90,107 (1,918) (8,790) 46,398 52,814
Net unrealized appreciation
(depreciation) on investments
during the year - 962,384 28,703 470,437 27,164 (8,304) 484,769 21,225 762,445
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Net realized and unrealized
gain (loss) on investments - 1,136,200 13,519 542,563 117,271 (10,222) 475,979 67,623 815,259
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Net increase in net assets
resulting from operations $ 37,313 1,256,780 7,576 586,873 127,049 (14,733) 482,721 101,285 804,444
========= ========= ======== ========== ======== ========== ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
(continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Operations, continued
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Bankers Bankers
AIM American Trust Trust
Capital AIM Century Equity Small Cap
Appreciation/(1)/ Growth/(1)/ VP Value/(1)/ Index/(1)/ Index/(1)/
----------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income - dividends $ 18,462 24,182 - 5,764 3,259
Expenses:
Risk and administrative charges 1,752 1,110 237 1,089 177
----------------- ----------- ------------- ------------ ------------
Net investment income (loss) 16,710 23,072 (237) 4,675 3,082
----------------- ----------- ------------- ------------ ------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed 9,088 5,085 (798) 2,122 737
Net unrealized appreciation (depreciation)
on investments during the year 162,762 72,596 (4,421) 38,649 6,259
----------------- ----------- ------------- ------------ ------------
Net realized and unrealized gain (loss)
on investments 171,850 77,681 (5,219) 40,771 6,996
----------------- ----------- ------------- ------------ ------------
Net increase in net assets
resulting from operations $ 188,560 100,753 (5,456) 45,446 10,078
================= =========== ============= ============ ============
<CAPTION>
Lord
Franklin Abbett MFS MFS
Templeton Growth & New MFS Growth
Int'l/(1)/ Income/(1)/ Discovery/(1)/ Growth/(1)/ & Income/(1)/
------------ ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment income - dividends $ - 19,983 20,653 1,314 -
Expenses:
Risk and administrative charges 310 477 2,204 641 411
------------ ------------ -------------- ----------- -------------
Net investment income (loss) (310) 19,506 18,449 673 (411)
------------ ------------ -------------- ----------- -------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed 413 (60) 54,221 8,414 (910)
Net unrealized appreciation (depreciation)
on investments during the year 19,268 (6,366) 289,747 52,339 8,884
------------ ------------ -------------- ----------- -------------
Net realized and unrealized gain (loss)
on investments 19,681 (6,426) 343,968 60,753 7,974
------------ ------------ -------------- ----------- -------------
Net increase in net assets
resulting from operations $ 19,371 13,080 362,417 61,426 7,563
============ ============ ============== =========== =============
</TABLE>
(1) From commencement of operations, May 1, 1999.
See accompanying notes to financial statements.
5
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Variable Investors Series Trust
-----------------------------------------------------------------------------------
Federated High U.S.
Prime Income Multiple Matrix Government World Growth & Small Cap
Money Growth Bond Strategies Equity Bond Equity Income Growth
Fund II Division Division Division Division Division Division Division Division
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income - dividends $ 7,278 279,822 65,715 74,553 51,886 26,915 62,622 54,802 -
Expenses:
Risk and administrative charges 1,678 20,578 10,849 10,684 8,453 2,724 7,724 18,507 11,421
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Net investment income (loss) 5,600 259,244 54,866 63,869 43,433 24,191 54,898 36,295 (11,421)
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Realized and unrealized gain
(loss) on investments:
Realized gain (loss) on fund
shares redeemed - (6,830) (26,762) 24,546 (33,571) 124 (31,647) 3,233 (79,910)
Net unrealized appreciation
(depreciation) on investments
during the year - 299,094 4,432 186,414 116,810 (8,920) (11,058) 108,532 117,155
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Net realized and unrealized
gain (loss) on investments - 292,264 (22,330) 210,960 83,239 (8,796) (42,705) 111,765 37,245
--------- --------- -------- ---------- -------- ---------- -------- -------- ---------
Net increase in net assets
resulting from operations $ 5,600 551,508 32,536 274,829 126,672 15,395 12,193 148,060 25,824
========= ========= ======== ========== ======== ========== ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Variable Investors Series Trust
-------------------------------------------------------------
Federated High
Prime Income Multiple Matrix
Money Growth Bond Strategies Equity
Fund II/(1)/ Division/(1)/ Division/(1)/ Division/(1)/ Division/(1)/
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investment income - dividends $ 1,324 55,535 47,215 29,289 51,350
Expenses:
Risk and administrative charges 664 5,513 3,913 2,033 1,218
------------ ------------- ------------- ------------- -------------
Net investment income (loss) 660 50,022 43,302 27,256 50,132
------------ ------------- ------------- ------------- -------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed - 6,149 4,237 4,035 1,214
Net unrealized appreciation (depreciation)
on investments during the year - (59,827) (38,178) (27,549) (46,673)
------------ ------------- ------------- ------------- -------------
Net realized and unrealized gain (loss)
on investments - (53,678) (33,941) (23,514) (45,459)
------------ ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations $ 660 (3,656) 9,361 3,742 4,673
============ ============= ============= ============= =============
<CAPTION>
Variable Investors Series Trust
-------------------------------------------------------------
U.S.
Government World Growth & Small Cap
Bond Equity Income Growth
Division/(1)/ Division/(1)/ Division/(1)/ Division/(1)/
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income - dividends $ 6,135 48,451 61,509 18,164
Expenses:
Risk and administrative charges 664 2,723 4,778 3,925
------------- ------------- ------------- -------------
Net investment income (loss) 5,471 45,728 56,731 14,239
------------- ------------- ------------- -------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on fund shares redeemed 115 1,148 9,851 4,242
Net unrealized appreciation (depreciation)
on investments during the year (4,328) (56,711) (38,508) (41,563)
------------- ------------- ------------- -------------
Net realized and unrealized gain (loss)
on investments (4,213) (55,563) (28,657) (37,321)
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations $ 1,258 (9,835) 28,074 (23,082)
============= ============= ============= =============
</TABLE>
/(1)/ Commenced operations on March 31, 1997.
See accompanying notes to financial statements.
7
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<CAPTION>
Variable Investors Series Trust
----------------------------------------------------------------------
Federated High U.S.
Prime Income Multiple Matrix Government World
Money Growth Bond Strategies Equity Bond Equity
Fund II Division Division Division Division Division Division
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 37,313 120,580 (5,943) 44,310 9,778 (4,511) 6,742
Realized gain (loss) on fund
shares redeemed -- 173,816 (15,184) 72,126 90,107 (1,918) (8,790)
Net unrealized appreciation
(depreciation) on investments
during the year -- 962,384 28,703 470,437 27,164 (8,304) 484,769
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations 37,313 1,256,780 7,576 586,873 127,049 (14,733) 482,721
---------- ---------- ---------- ---------- ---------- ---------- ----------
From contract owner transactions:
Net proceeds from sale of
accumulated units 2,178,938 1,872,594 287,234 1,439,854 383,574 132,520 219,476
Policy contract charges (57,986) (154,862) (23,223) (78,283) (46,124) (42,211) (35,328)
Cost of accumulation units
terminated and exchanged (9,211) (159,996) (158,212) (165,432) (723,802) (8,290) (109,769)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets from contract owner
transactions 2,111,741 1,557,736 105,799 1,196,139 (386,352) 82,019 74,379
---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets 2,149,054 2,814,516 113,375 1,783,012 (259,303) 67,286 557,100
Net assets at beginning of year 419,963 2,514,903 753,150 1,312,284 1,206,353 470,574 822,677
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of year $2,569,017 5,329,419 866,525 3,095,296 947,050 537,860 1,379,777
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Variable Investors Series Trust
-------------------------------
Growth Small
& Cap.
Income Growth
Division Division
---------- ----------
<S> <C> <C>
Operations:
Net investment income $ 33,662 (10,815)
Realized gain (loss) on fund
shares redeemed 46,398 52,814
Net unrealized appreciation
(depreciation) on investments
during the year 21,225 762,445
--------- ----------
Net increase (decrease) in
net assets resulting from
operations 101,285 804,444
--------- ----------
From contract owner transactions:
Net proceeds from sale of
accumulated units 793,471 235,042
--------- ----------
Policy contract charges (87,844) (60,477)
Cost of accumulation units
terminated and exchanged (105,075) (168,906)
--------- ----------
Increase (decrease) in net
assets from contract owner
transactions 600,552 5,659
--------- ----------
Increase (decrease) in net
assets 701,837 810,103
Net assets at beginning of year 1,997,491 1,551,277
--------- ----------
Net assets at end of year $2,699,328 2,361,380
========== ==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL
Statements of Changes in Net Assets, continued
Year ended December 31, 1999
<TABLE>
<CAPTION>
Bankers Bankers
AIM American Trust Trust
Capital AIM Century Equity Small Cap
Appreciation/(1)/ Growth/(1)/ VP Value/(1)/ Index/(1)/ Index/(1)/
----------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 16,710 23,072 (237) 4,675 3,082
Realized gain (loss) on fund shares redeemed 9,088 5,085 (798) 2,122 737
Net unrealized appreciation (depreciation)
on investments during the year 162,762 72,596 (4,421) 38,649 6,259
---------------- ----------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations 188,560 100,753 (5,456) 45,446 10,078
---------------- ----------- ------------- ------------ ------------
From contract owner transactions:
Net proceeds from sale of accumulated units 690,836 715,287 144,669 589,275 76,014
Policy contract charges (10,764) (15,321) (3,720) (12,584) (2,932)
Cost of accumulation units terminated
and exchanged (13,006) (13,312) (4,223) (17,383) (13)
---------------- ----------- ------------- ------------ ------------
Increase (decrease) in net assets
from contract owner transactions 667,066 686,654 136,726 559,308 73,069
---------------- ----------- ------------- ------------ ------------
Increase (decrease) in net assets 855,626 787,407 131,270 604,754 83,147
Net assets at beginning of year - - - - -
---------------- ----------- ------------- ------------ ------------
Net assets at end of year $ 855,626 787,407 131,270 604,754 83,147
================= =========== ============= ============ ============
<CAPTION>
Lord
Franklin Abbett MFS MFS
Templeton Growth & New MFS Growth
Int'l./(1)/ Income/(1)/ Discovery/(1)/ Growth/(1)/ & Income/(1)/
------------ ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ (310) 19,506 18,449 673 (411)
Realized gain (loss) on fund shares redeemed 413 (60) 54,221 8,414 (910)
Net unrealized appreciation (depreciation)
on investments during the year 19,268 (6,366) 289,747 52,339 8,884
------------ ------------ -------------- ----------- -------------
Net increase (decrease) in net assets
resulting from operations 19,371 13,080 362,417 61,426 7,563
------------ ------------ -------------- ----------- -------------
From contract owner transactions:
Net proceeds from sale of accumulated units 216,441 275,012 1,021,413 321,047 179,818
Policy contract charges (5,579) (5,410) (12,314) (6,982) (7,005)
Cost of accumulation units terminated
and exchanged (6,369) (6,357) (168,859) (141) (5,046)
------------ ------------ -------------- ----------- -------------
Increase (decrease) in net assets
from contract owner transactions 204,493 263,245 840,240 313,924 167,767
------------ ------------ -------------- ----------- -------------
Increase (decrease) in net assets 223,864 276,325 1,202,657 375,350 175,330
Net assets at beginning of year - - - - -
------------ ------------ -------------- ----------- -------------
Net assets at end of year $ 223,864 276,325 1,202,657 375,350 175,330
============ ============ ============== =========== =============
</TABLE>
(1) From commencement of operations, May 1, 1999.
See accompanying notes to financial statements.
9
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
Variable Investors Series Trust
----------------------------------------------------------------------
Federated High U.S.
Prime Income Multiple Matrix Government World
Money Growth Bond Strategies Equity Bond Equity
Fund II Division Division Division Division Division Division
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 5,600 259,244 54,866 63,869 43,433 24,191 54,898
Realized gain (loss) on fund
shares redeemed -- (6,830) (26,762) 24,546 (33,571) 124 (31,647)
Net unrealized appreciation
(depreciation) on investments
during the year -- 299,094 4,432 186,414 116,810 (8,920) (11,058)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations 5,600 551,508 32,536 274,829 126,672 15,395 12,193
---------- ---------- ---------- ---------- ---------- ---------- ----------
From contract owner transactions:
Net proceeds from sale of
accumulated units 358,835 1,225,672 466,386 750,223 853,105 352,694 480,470
Cost of accumulation units
terminated and exchanged (2,727) (91,912) (521,331) (114,836) (21,299) (3,780) (49,317)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets from contract owner
transactions 356,108 1,133,760 (54,945) 635,387 831,806 348,914 431,153
---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets 361,708 1,685,268 (22,409) 910,216 958,478 364,309 443,346
Net assets at beginning of year 58,255 829,635 775,559 402,068 247,875 106,265 379,331
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of year $ 419,963 2,514,903 753,150 1,312,284 1,206,353 470,574 822,677
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Variable Investors Series Trust
-------------------------------
Growth Small
and Cap.
Income Growth
Division Division
---------- ----------
<S> <C> <C>
Operations:
Net investment income $ 36,295 (11,421)
Realized gain (loss) on fund
shares redeemed 3,233 (79,910)
Net unrealized appreciation
(depreciation) on investments
during the year 108,532 117,155
---------- ---------
Net increase (decrease) in
net assets resulting from
operations 148,060 25,824
---------- ---------
From contract owner transactions:
Net proceeds from sale of
accumulated units 1,107,293 1,040,477
Cost of accumulation units
terminated and exchanged (84,267) (109,741)
---------- ---------
Increase (decrease) in net
assets from contract owner
transactions 1,023,026 940,736
---------- ---------
Increase (decrease) in net
assets 1,171,086 956,560
Net assets at beginning of year 826,405 594,717
---------- ---------
Net assets at end of year $1,997,491 1,551,277
========== =========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Statements of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
Variable Investors Series Trust
-------------------------------------------------------------------------------------------
Federated High U.S.
Prime Income Multiple Matrix Government
Money Growth Bond Strategies Equity Bond
Fund II/(1)/ Division/(1)/ Division/(1)/ Division/(1)/ Division/(1)/ Division/(1)/
------------ -------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 660 50,022 43,302 27,256 50,132 5,471
Realized gain (loss) on fund
shares redeemed -- 6,149 4,237 4,035 1,214 115
Net unrealized appreciation
(depreciation) on investments
during the year -- (59,827) (38,178) (27,549) (46,673) (4,328)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations 660 (3,656) 9,361 3,742 4,673 1,258
---------- ---------- ---------- ---------- ---------- ----------
From contract owner transactions:
Net proceeds from sale of
accumulated units 225,761 725,575 786,740 431,203 237,690 86,790
Cost of accumulation units
terminated and exchanged (168,166) (107,716) (20,542) (32,877) (5,512) (18,217)
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets from contract owner
transactions 57,595 833,291 766,198 398,326 243,202 105,007
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets 58,255 829,635 775,559 402,068 247,875 106,265
Net assets at beginning of year - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of year $ 58,255 829,635 775,559 402,068 247,875 106,265
========== ========== ========== ========== ========== ==========
<CAPTION>
Variable Investors Series Trust
--------------------------------------------------
Growth Small
World and Cap
Equity Income Growth
Division/(1)/ Division/(1)/ Division/(1)/
-------------- -------------- --------------
<S> <C> <C> <C>
Operations:
Net investment income $ 45,728 56,731 14,239
Realized gain (loss) on fund
shares redeemed 1,148 9,851 4,242
Net unrealized appreciation
(depreciation) on investments
during the year (56,711) (38,508) (41,563)
-------------- -------------- --------------
Net increase (decrease) in
net assets resulting from
operations (9,835) 28,074 (23,082)
-------------- -------------- --------------
From contract owner transactions:
Net proceeds from sale of
accumulated units 414,940 808,742 487,032
Cost of accumulation units
terminated and exchanged (25,774) (10,411) 130,767
-------------- -------------- --------------
Increase (decrease) in net
assets from contract owner
transactions 389,166 798,331 617,799
-------------- -------------- --------------
Increase (decrease) in net
assets 379,331 826,405 594,717
Net assets at beginning of year - - -
-------------- -------------- --------------
Net assets at end of year $ 379,331 826,405 594,717
============== ============== ==============
</TABLE>
(1) Commenced operations on March 31, 1997.
See accompanying notes to financial statements.
11
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Notes to Financial Statements
December 31, 1999
(1) Organization
First Variable Life Insurance Company - 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 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 eleven investment divisions are invested in the Federated
Prime Money Fund II (Federated), AIM Capital Appreciation, AIM Growth,
American Century VP Value, Bankers Trust Equity Index, Bankers Trust Small
Capital Index, Franklin Templeton International, Lord Abbett Growth and
Income, MFS New Discovery, MFS Growth, and MFS Growth and Income, all of
which, are open-end management investment companies. 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 ILona Financial Group,
Inc. (ILona) (previously Irish Life of North America, Inc.) ILona is a
subsidiary of Irish Life, plc located in Dublin, Ireland. During 1999 Irish
Life plc merged with Irish Permanent plc to form Irish Life & Permanent
plc. 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 Fund's investments in the corresponding series of mutual funds are
stated at the net asset values per share of the respective series,
which approximates fair value. 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 mutual
funds are reinvested in additional shares of the respective mutual
funds and are recorded as income by the Fund on the ex-dividend date.
Federal Income Taxes
For Federal income tax purposes, operations of the Fund are combined
with those of First Variable Life, which is taxed as a life insurance
company. First Variable Life anticipates no tax liability resulting
from the operations of the Fund. Therefore, no provision for income
taxes has been charged against the Fund.
12
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Notes to Financial Statements
December 31, 1999
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.
Other
Certain 1998 and 1997 information has been restated to conform to the
1999 presentation.
(3) Investments
The following table presents selected data for investments in each of the
divisions of the Fund at December 31, 1999:
<TABLE>
<CAPTION>
Number of Net asset
shares Cost value
--------- ---------- ----------
<S> <C> <C> <C>
Federated Prime Money Fund II 2,568,867 $2,568,867 $2,568,867
Growth Division 100,507 4,127,651 5,329,302
High Income Bond Division 92,978 871,707 866,663
Multiple Strategies Division 145,059 2,466,990 3,096,291
Matrix Equity Division 51,710 849,783 947,085
U.S. Government Bond Division 53,153 559,380 537,841
World Equity Division 66,201 962,958 1,379,938
Growth & Income Division 163,227 2,608,323 2,699,557
Small Cap Growth Division 86,623 1,523,673 2,361,710
AIM Capital Appreciation 24,050 692,921 855,683
AIM Growth 24,417 714,838 787,434
American Century VP Value 22,062 135,691 131,270
Bankers Trust Equity Index 39,840 566,121 604,771
Bankers Trust Small Cap Index 7,162 76,895 83,154
Franklin Templeton Int'l 10,116 204,608 223,876
Lord Abbett Growth & Income 12,470 282,696 276,330
MFS New Discovery 69,646 913,031 1,202,779
MFS Growth 26,908 323,027 375,366
MFS Growth & Income 8,228 166,449 175,333
========= ========== ==========
</TABLE>
13
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Notes to Financial Statements
December 31, 1999
(4) Net Assets
Variable life net assets at December 31, 1999 consists of the following:
<TABLE>
<CAPTION>
Accumulation Accumulation Net 1999 Rate of
units unit value assets return
<S> <C> <C> <C> <C>
Cap One Pay policies:
Federated Prime Money Fund II 55,206 $11.116782 $ 613,714 3.67%
Growth Division 158,933 21.923447 3,484,367 33.33
High Income Bond Division 59,299 11.422046 677,310 0.92
Multiple Strategies Division 102,569 19.880965 2,039,171 26.85
Matrix Equity Division 35,655 16.677953 594,645 13.12
U.S. Government Bond Division 42,493 11.354149 482,472 -2.78
World Equity Division 60,238 17.826152 1,073,813 54.07
Growth & Income Division 131,837 14.520392 1,914,324 5.32
Small Cap Growth Division 64,285 20.678973 1,329,342 78.68
AIM Capital Appreciation 25,131 13.980501 351,341 39.81*
AIM Growth 18,665 12.575014 234,717 25.75*
American Century VP Value 3,486 9.112691 31,770 -8.87*
Bankers Trust Equity Index 22,820 11.006379 251,164 10.06*
Bankers Trust Small Cap Index 688 11.677130 8,032 16.77*
Franklin Templeton Int'l 5,699 11.228600 63,991 12.29*
Lord Abbett Growth & Income 4,841 10.523052 50,938 5.23*
MFS New Discovery 33,618 16.350363 549,672 63.50*
MFS Growth 3,208 13.916482 44,650 39.16*
MFS Growth & Income 3,363 10.217848 34,361 2.18*
Cap Solutions policies:
Federated Prime Money Fund II 182,575 10.709584 1,955,303 3.98
Growth Division 99,653 18.514811 1,845,052 33.73
High Income Bond Division 18,551 10.199465 189,215 1.22
Multiple Strategies Division 62,435 16.915603 1,056,125 27.23
Matrix Equity Division 25,746 13.687656 352,405 13.46
U.S. Government Bond Division 5,327 10.397050 55,388 0.33
World Equity Division 18,960 16.137684 305,964 54.53
Growth & Income Division 66,512 11.802510 785,004 5.63
Small Cap Growth Division 58,375 17.679500 1,032,038 79.21
AIM Capital Appreciation 36,010 14.003959 504,285 40.04*
AIM Growth 43,878 12.596124 552,690 25.96*
American Century VP Value 10,900 9.128008 99,500 -8.72*
Bankers Trust Equity Index 32,072 11.024864 353,590 10.25*
Bankers Trust Small Cap Index 6,422 11.696730 75,115 16.97*
Franklin Templeton Int'l 14,214 11.247443 159,873 12.47*
Lord Abbett Growth & Income 21,382 10.540728 225,387 5.41*
MFS New Discovery 39,870 16.377763 652,985 63.78*
MFS Growth 23,723 13.939816 330,700 39.40*
MFS Growth & Income 13,773 10.235016 140,969 2.35*
======= ========== ========== ======
</TABLE>
* Returns for periods less than one year are not annualized
14
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Notes to Financial Statements
December 31, 1999
(5) Purchases and Sales of Securities
Cost of purchases and proceeds from sales of each mutual fund during the
year ended December 31, 1999 are shown below:
<TABLE>
<CAPTION>
Proceeds
Purchases from sales
--------- ----------
<S> <C> <C>
Federated Prime Money Fund II $3,348,637 1,199,732
Growth Division 2,893,801 1,215,602
High Income Bond Division 352,220 252,225
Multiple Strategies Division 1,917,645 575,572
Matrix Equity Division 480,942 856,545
U.S. Government Bond Division 315,729 238,252
World Equity Division 322,936 208,535
Growth & Income Division 1,174,353 539,897
Small Cap Growth Division 1,238,484 1,195,986
AIM Capital Appreciation 779,633 95,801
AIM Growth 759,904 50,151
American Century VP Value 156,333 19,844
Bankers Trust Equity Index 691,148 127,149
Bankers Trust Small Cap Index 92,485 16,328
Franklin Templeton Int'l 232,938 28,743
Lord Abbett Growth & Income 296,917 14,162
MFS New Discovery 1,219,551 360,739
MFS Growth 417,221 102,607
MFS Growth & Income 210,901 43,542
========== =========
</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 .65% for mortality and expense
risks. Total charges to the Fund for the year ended December 31, 1999 were
$99,090 and $26,157 for Cap One Pay policies and Cap Solutions policies,
respectively.
(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.
15
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT VL
Notes to Financial Statements
December 31, 1999
(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 have been adversely affected if its computer systems
and those of its service providers did not properly process and calculate
date-related information and data from and after January 1, 2000. The
Company did not experience any problems related to the year 2000 issue.
16
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholder
First Variable Life Insurance Company:
We have audited the accompanying consolidated balance sheet of First Variable
Life Insurance Company and subsidiaries (the Company) as of December 31, 1999
and the related consolidated statements of income, changes in stockholder's
equity, and cash flows for the year then ended. 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 audit. The accompanying
financial statements of First Variable Life Insurance Company and subsidiaries
as of December 31, 1998 and for each of the two years in the period ended
December 31, 1998 were audited by other auditors whose report thereon dated
February 2, 1999 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 and subsidiaries as of December 31, 1999 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1999 in conformity with generally accepted accounting principles.
March 10, 2000
<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
The Board of Directors and Stockholder
First Variable Life Insurance Company
We have audited the accompanying consolidated balance sheet of First Variable
Life Insurance Company as of December 31, 1998, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the two 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 auditing standards generally accepted
in the United States. Those standards required 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 the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
Assets 1999 1998
----------- -----------
<S> <C> <C>
Investments:
Fixed maturities - available-for-sale, at fair value
(amortized cost: 1999 - $158,248; 1998 - $245,795) $ 156,056 264,741
Option contracts 2,939 2,279
Equity securities - at fair value
(cost: $684 in 1999 and 1998) 12 173
Policy loans 965 606
----------- -----------
Total investments 159,972 267,799
Cash and cash equivalents 3,944 3,353
Accrued investment income 3,003 4,878
Deferred policy acquisition costs 15,912 10,481
Value of insurance in force acquired 11,605 15,089
Property and equipment, less allowance for depreciation
of $1,106 in 1999 and $836 in 1998 1,023 574
Goodwill, less accumulated amortization of $767
in 1999 and $621 in 1998 2,156 2,302
Other assets 617 659
Assets held in separate accounts 304,341 266,257
----------- -----------
Total $ 502,573 571,392
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Future policy benefits for annuity and life products $ 119,252 206,069
Unearned revenue reserve 213 278
Supplementary contracts without life contingencies 20,831 22,955
Claim liability 66 -
Deferred income tax liability 111 5,850
Due to affiliates 303 139
Other liabilities 1,992 2,149
Liabilities related to separate accounts 304,341 266,257
----------- -----------
Total liabilities 447,109 503,697
----------- -----------
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 2,500
Additional paid-in capital 53,104 53,104
Accumulated other comprehensive (loss) income (909) 8,195
Retained earnings 769 3,896
----------- -----------
Total stockholder's equity 55,464 67,695
----------- -----------
Total liabilities and stockholder's equity $ 502,573 571,392
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Annuity and life product charges $ 4,767 4,026 3,141
Reinsurance premium (33) -- --
Net investment income 15,108 22,295 22,597
Realized gains on investments 7,209 2,723 1,227
Other income 3,940 1,576 1,368
---------- ---------- ----------
Total revenues 30,991 30,620 28,333
---------- ---------- ----------
Benefits and expenses:
Annuity and life benefits 10,208 15,643 14,856
Underwriting, acquisition, and insurance
expenses 9,758 9,828 8,313
Amortization of value of insurance in
force acquired and deferred policy
acquisition costs, net 13,030 3,473 1,602
Management fee paid to parent 589 480 480
Other expenses 1,491 1,469 2,610
---------- ---------- ----------
Total benefits and expenses 35,076 30,893 27,861
---------- ---------- ----------
(Loss) income before Federal income
tax (benefit) expense (4,085) (273) 472
Federal income tax (benefit) expense:
Current tax (4) 12 --
Deferred tax (954) (394) 153
---------- ---------- ----------
Total Federal income tax (benefit) expense (958) (382) 153
---------- ---------- ----------
Net (loss) income $(3,127) 109 319
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Capital paid-in comprehensive Retained stockholder's
stock capital income (loss) earnings equity
------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2,500 53,104 7,324 3,468 66,396
Net income - - - 319 319
Net unrealized investment
gain, net of reclassification
adjustment - - 1,742 - 1,742
------- ---------- ------------- -------- -------------
Comprehensive income 2,061
-------------
Balance at December 31, 1997 2,500 53,104 9,066 3,787 68,457
Net income - - - 109 109
Net unrealized investment
loss, net of reclassification
adjustment - - (871) - (871)
------- ---------- ------------- -------- -------------
Comprehensive loss (762)
-------------
Balance at December 31, 1998 2,500 53,104 8,195 3,896 67,695
Net loss - - - (3,127) (3,127)
Net unrealized investment
loss, net of reclassification
adjustment - - (9,104) - (9,104)
------- ---------- ------------- -------- -------------
Comprehensive loss (12,231)
-------------
Balance at December 31, 1999 $ 2,500 53,104 (909) 769 55,464
======= ========== ============= ======== =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net (loss) income $ (3,127) 109 319
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Adjustments related to interest-
sensitive products:
Annuity and life benefits 10,159 15,643 14,856
Annuity product charges (4,767) (4,026) (3,141)
Realized gains on investments (7,209) (2,723) (1,227)
Policy acquisition costs deferred (7,492) (3,665) (3,208)
Amortization of deferred policy
acquisition costs 4,151 912 594
Provision for depreciation and
other amortization 9,244 2,154 937
Provision for income taxes (1,061) (382) 153
Other 1,955 482 3,560
--------- ------- -------
Net cash provided by operating
activities 1,853 8,504 12,843
--------- ------- -------
Investing activities:
Sale, maturity, or repayment of fixed
maturity investments 111,503 61,253 24,657
Acquisition of fixed maturities (16,696) (29,074) (19,142)
Acquisition of option contracts (660) (1,223) (963)
Policy loans and other (1,078) (840) (267)
--------- ------- -------
Net cash provided by investing
activities 93,069 30,116 4,285
--------- ------- -------
Financing and other miscellaneous activities:
Receipts from interest-sensitive products
credited to policyholder account
balances 72,176 58,317 64,181
Return of policyholder account balances
on interest-sensitive products (166,507) (96,613) (80,713)
--------- ------- -------
Net cash used in financing
and other miscellaneous
activities (94,331) (38,296) (16,532)
--------- ------- -------
Net increase in cash and
cash equivalents 591 324 596
Cash and cash equivalents at beginning of year 3,353 3,029 2,433
--------- ------- -------
Cash and cash equivalents at end of year $ 3,944 3,353 3,029
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 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
ILona Financial Group, Inc. (ILona) (previously Irish Life of North
America, Inc.). ILona is a subsidiary of Irish Life plc located in Dublin,
Ireland. During 1999 Irish Life plc merged with Irish Permanent plc to form
Irish Life & Permanent plc.
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 changes in their intrinsic value resulting from
movements in the S&P 500 index. Changes in the intrinsic value are
credited to investment income.
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 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.
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
6 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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.
For variable universal life insurance and investment products, these costs
are being amortized generally in proportion to expected gross profits from
surrender charges and investment, mortality, and expense margins. That
amortization is adjusted retrospectively when estimates of current or
future gross profits (including the impact of investment gains and losses)
to be realized from a group of products are revised.
Property and Equipment
Property and equipment are reported at cost, less allowances for
depreciation. Depreciation expense is computed primarily using the
straight-line method over the estimated useful lives of the assets.
Goodwill
Goodwill represents the excess of the fair value of assets exchanged over
the net assets acquired at the date the Company was acquired by ILona.
Goodwill is being amortized on a straight-line basis over a period of
twenty years.
The carrying value of goodwill is regularly reviewed for indication 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 10% in
1999, and 3.0% to 7.0% in 1998.
7 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Deferred Income Taxes
Deferred income taxes or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax
expenses or credits are based on the changes in the related asset or
liability from period to period.
Separate Accounts
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately
administered, principally for the benefit of certain policyholders who bear
the investment risk. The separate account assets and liabilities are
carried at fair value. Revenues and expenses related to the separate
account assets and liabilities, to the extent of benefits paid or provided
to the separate account policyholders, are excluded from the amounts
reported in the accompanying consolidated statements of income.
Recognition of Premium Revenues and Costs
Revenues for annuity and variable universal life products consist of policy
charges for the cost of insurance, administration charges, and surrender
charges assessed against policyholder account balances during the period.
Expenses related to these products include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances.
Approximately 60% of the direct business written (as measured by premiums
received) during the period ended December 31, 1999 was written through two
broker dealers. Approximately 35% and 42% of the direct business written
during the periods ended December 31 1998 and 1997, respectively, were
written through three broker dealers. 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.
8 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 has
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.
Pending Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivatives Instruments and for Hedging
Activities, effective for years beginning after June 15, 1999. SFAS
No. 133 requires all derivatives to be recorded on the balance sheet
at estimated fair value and it will broaden the definition of
derivative instruments to include all classes of financial assets and
liabilities. It will also require separate disclosure of identifiable
derivative instruments embedded in hybrid securities. The change in
fair value is to be recorded each period either in current earnings or
other comprehensive income, depending on whether a derivative is
designed as part of a hedge transaction and, if it is, on the type of
hedge transaction.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
SFAS No. 133. SFAS No. 137 defers for one year the effective date of
SFAS 133. The Company does not anticipate any material impact of
adopting SFAS No. 133.
Reclassification
Certain reclassifications have been made to the 1998 and 1997
financial statements to conform to the 1999 presentation.
(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.
9 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Fixed-Maturity Securities: Fair values of 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 Contacts: The fair values for option contracts are based on
settlement values and quoted market prices of comparable instruments.
Similar characteristics are aggregated for the purpose 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, 1999 and 1998, the
interest rate related to the outstanding policy loans ranges between
4% and 6%.
Cash and Cash Equivalents: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate their
fair value.
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
policyholder account value. The Company is not required to and has not
estimated fair value of its liabilities under other contracts.
10 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
value value value value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(In thousands)
Assets:
Fixed maturities -
available-for-sale $ 156,056 156,056 264,741 264,741
Option contracts 2,939 2,939 2,279 2,279
Equity securities 12 12 173 173
Policy loans 965 965 606 606
Cash and cash equivalents 3,944 3,944 3,353 3,353
Assets held in separate
accounts 304,341 304,341 266,257 266,257
=============== =============== =============== ===============
Liabilities:
Future policy benefits for
annuity and life products $ 119,252 119,252 206,069 206,069
Supplementary contracts
without life contingencies 20,831 20,831 22,955 22,955
Liabilities related to separate
accounts 304,341 304,341 266,257 266,257
=============== =============== =============== ===============
</TABLE>
(Continued)
11
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(3) Investments
Fixed Maturities and Equity Securities
The following tables contain amortized costs and fair value information on
fixed maturities (bonds) and equity securities (commons stocks) at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------
Cost or Gross Gross
amortized unrealized unrealized Fair
cost gains losses value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
(In thousands)
Fixed maturities - available-for-sale:
United States government
and agencies:
Mortgage and asset-
backed securities $ 15,278 627 160 15,745
Other 3,943 40 53 3,930
State, municipal, and
other governments 2,001 9 -- 2,010
Public utilities 29,233 819 484 29,568
Industrial and miscellaneous 107,793 1,124 4,114 104,803
--------------- -------------- -------------- ---------------
Total fixed maturities -
available-for-sale $ 158,248 2,619 4,811 156,056
=============== ============== ============== ===============
Equity securities $ 684 -- 672 12
=============== ============== ============== ===============
</TABLE>
(Continued)
12
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------
Cost or Gross Gross
amortized unrealized unrealized Fair
cost gains losses value
--------------- -------------- -------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturities - available-for-sale:
United States government
and agencies:
Mortgage and asset-
backed securities $ 996 15 -- 1,011
Other 20,025 1,717 9 21,733
State, municipal, and
other governments 3,987 252 -- 4,239
Public utilities 59,463 7,622 7 67,078
Industrial and miscellaneous 161,324 10,041 685 170,680
--------------- -------------- -------------- ---------------
Total fixed maturities -
available-for-sale $ 245,795 19,647 701 264,741
=============== ============== ============== ===============
Equity securities $ 684 -- 511 173
=============== ============== ============== ===============
</TABLE>
The amortized cost and fair value of the Company's portfolio of fixed-maturity
securities at December 31, 1999, 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
--------------- ---------------
(In thousands)
<S> <C> <C>
Due in one year or less $ 8,183 8,209
Due after one year through five years 69,810 68,624
Due after five years through ten years 27,539 25,722
Due after ten years 37,438 37,756
Mortgage and asset-backed securities 15,278 15,745
--------------- ---------------
$ 158,248 156,056
=============== ===============
</TABLE>
(Continued)
13
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 reduced by 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,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
(In thousands)
Unrealized (loss) gain on fixed-maturity and equity securities
available-for-sale $ (2,864) 18,435
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs 518 (1,572)
Value of insurance in force acquired 948 (4,446)
Deferred income tax liability 489 (4,222)
-------------- --------------
Net unrealized investment (loss) gain $ (909) 8,195
============== ==============
</TABLE>
Net Investment Income
Components of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Income from:
Fixed maturities $ 14,473 21,181 22,183
Cash and cash equivalents 172 155 225
Option contracts 660 1,118 408
Policy loans 33 37 --
Other 8 -- --
-------------- -------------- --------------
15,346 22,491 22,816
Less investment expenses (238) (196) (219)
-------------- -------------- --------------
Net investment income $ 15,108 22,295 22,597
============== ============== ==============
</TABLE>
14 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Realized and Change in 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,
----------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Realized gain -
Fixed maturities $ 7,209 2,723 1,227
=============== ============== ==============
Change in unrealized:
Fixed maturities (21,138) (1,576) 4,632
Equity securities (161) (652) 134
--------------- -------------- --------------
Change in unrealized (loss)
gain on investments $ (21,299) (2,228) 4,766
=============== ============== ==============
</TABLE>
(Continued)
15
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
An analysis of sales, maturities, and principal repayments of the Company's
fixed maturities portfolio for the years ended December 31, 1999, 1998, and 1997
is as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
Gross Gross
Amortized realized realized
cost gains losses Proceeds
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
(In thousands)
Scheduled principal repayments and calls $ 28,387 2,051 4 30,434
Sales 75,907 5,431 269 81,069
-------------- ------------ ------------ --------------
$ 104,294 7,482 273 111,503
============== ============ ============ ==============
1998
----------------------------------------------------------------
Gross Gross
Amortized realized realized
cost gains losses Proceeds
-------------- ------------ ------------ --------------
(In thousands)
Scheduled principal repayments and calls $ 29,801 909 1 30,709
Sales 28,729 1,861 46 30,544
-------------- ------------ ------------ --------------
$ 58,530 2,770 47 61,253
============== ============ ============ ==============
1997
----------------------------------------------------------------
Gross Gross
Amortized realized realized
cost gains losses Proceeds
-------------- ------------ ------------ --------------
(In thousands)
Scheduled principal repayments and calls $ 11,636 447 -- 12,083
Sales 11,795 851 72 12,574
-------------- ------------ ------------ --------------
$ 23,431 1,298 72 24,657
============== ============ ============ ==============
</TABLE>
Income taxes during the years ended December 31, 1999, 1998, and 1997 include a
provision of $1,613,000, $926,000, and $416,000, respectively, for the tax
effect of realized gains.
16 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Other
At December 31, 1999 and 1998, fixed maturities with a carrying value of
$8,017,000 and $8,894,000, respectively, 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, 1999.
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.
Concentrations of Credit Risk
The Company's investment in public utility bonds at December 31, 1999
represents 18% of total investments and 6% of total assets. The holdings of
public utility bonds are widely diversified and all issues met the
Company'' investment policies and credit standards when purchased.
17 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(4) Comprehensive Income
A summary of the net unrealized gain (loss) recognized in other
comprehensive income is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Other comprehensive income:
Net unrealized (loss) gain arising during
the year, net of taxes of $5,662,
($166), and ($2,020), respectively $ (10,926) 315 3,970
Reclassification adjustment, net of taxes
of $1,608, $926, and $416, respectively (3,103) (1,797) (811)
-------------- -------------- --------------
(14,029) (1,482) 3,159
-------------- -------------- --------------
Adjustments:
Deferred policy acquisition costs, net
of taxes of $715, $70, and
($195) respectively 1,375 138 (385)
Value of insurance in force acquired,
net of taxes of $1,844, $238,
and ($525), respectively 3,550 473 (1,032)
-------------- -------------- --------------
4,925 611 (1,417)
-------------- -------------- --------------
Net unrealized (loss) gain recognized
in other comprehensive income $ (9,104) (871) 1,742
============== ============== ==============
</TABLE>
18 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(5) 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, 1999,
1998, and 1997 is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Excluding impact on net unrealized investment gains and
losses:
Balance at beginning of year $ 19,535 22,096 23,094
Accretion of interest during the year 1,289 1,457 1,582
Amortization of asset (10,167) (4,018) (2,580)
-------------- -------------- --------------
Balance prior to impact of net unrealized investment
gains and losses 10,657 19,535 22,096
Impact of net unrealized investment losses and gains 948 (4,446) (5,157)
-------------- -------------- --------------
Balance at end of year $ 11,605 15,089 16,939
============== ============== ==============
</TABLE>
During the year ended December 31, 1999, the amortization of value of
insurance in force acquired was increased by $3,900,000 due to gains
realized on securities sold supporting the acquired block of business. The
interest crediting rate applied to the value of insurance in force is 6.6%
in 1999 and 1998 and 6.9% in 1997. Amortization of the value of insurance
in force acquired for the next five years ending December 31 is expected to
be as follows: 2000 - $898,000; 2001 - $903,000; 2002 - $788,000; 2003 -
$774,000; and 2004 - $718,000.
19 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(6) Deferred Policy Acquisition Costs
Deferred policy acquisition costs is an asset which represents the deferral
of costs which vary with and directly relate to the production of new
business. An analysis of deferred acquisition costs for the years ended
December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Excluding impact on net unrealized investment gains and
losses:
Balance at beginning of year $ 12,053 9,300 6,686
Capitalization's during the year 7,492 3,665 3,208
Net amortization of asset (4,151) (912) (594)
-------------- -------------- --------------
Balance prior to impact of net unrealized investment
gains and losses 15,394 12,053 9,300
Impact of net unrealized investment losses and gains 518 (1,572) (1,780)
-------------- -------------- --------------
Balance at end of year $ 15,912 10,481 7,520
============== ============== ==============
</TABLE>
During the year ended December 31, 1999, the amortization of deferred
policy acquisition costs was increased by $200,000 due to gains realized on
securities sold supporting the acquired block of business. The amortization
period is the remaining life of the policies, which is estimated to be 20
years from the date of original policy issue.
20 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(7) Federal Income Taxes
The Company and its subsidiaries each file separate federal income tax
returns. Income tax (benefit) expense is included in the consolidated
financial statements as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
(In thousands)
Income tax (benefit) expense in consolidated statements
of income on income before income tax (benefit)
expense $ (958) (382) 153
Tax (benefit) expense in consolidated statements of
changes in stockholder's equity -
Amounts attributable to change in accumulated
other comprehensive income during year -
deferred (4,711) (438) 887
------------- ------------- -------------
$ (5,669) (820) 1,040
============= ============= =============
</TABLE>
The effective tax rate on income (loss) before income tax (benefit) expense
is different from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
(In thousands)
(Loss) income before income tax (benefit) expense $ (4,085) (273) 472
============= ============ ============
Income tax (benefit) expense at federal statutory rate
(35% 1999, 34% 1998 and 1997) (1,430) (93) 160
Tax effect increase (decrease) of - other 472 (289) (7)
------------- ------------ ------------
Income tax (benefit) expense $ (958) (382) 153
============= ============ ============
</TABLE>
21 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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. The tax
effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 2,958 2,342
Operating loss carryforwards 1,092 2,406
Unrealized depreciation on investments 202 --
Value of insurance in force acquired 188 --
Other 216 163
---------------- ----------------
4,656 4,911
---------------- ----------------
Deferred tax liabilities:
Unrealized appreciation on investments -- (5,031)
Deferred policy acquisition costs (4,320) (3,247)
Value of insurance in force acquired -- (2,090)
Other (447) (393)
---------------- ----------------
(4,767) (10,761)
---------------- ----------------
Net deferred tax liability $ (111) (5,850)
================ ================
</TABLE>
Based upon the Company's historical earnings, future expectations of
adjusted taxable income, as well as reversing gross deferred tax
liabilities, the Company believes it is more likely than not that gross
deferred tax assets will be fully realized and that a valuation allowance
with respect to the realization of the total gross deferred tax assets is
not necessary.
The Company has Federal net operating loss carryforwards reportable on its
Federal tax return aggregating $3,119,000 at December 31, 1999 which expire
from 2009 to 2012. The Company has a Federal income tax recoverable amount
at December 31, 1999 of $20,000.
(8) 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. Contributions made
to the plan during the years ended December 31, 1999, 1998, and 1997 were
not significant.
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
22 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(with a maximum contribution of $10,000 in 1999) 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 $87,000,
$77,000, and $37,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
The Company also has certain other benefit and incentive plans. These plans
are considered immaterial to the consolidated financial statements.
(9) Stockholder's Equity - Statutory Limitations on Dividend
The ability of the Company to pay dividends to ILona is restricted due to
the fact that prior approval of insurance regulatory authorities is
normally required for payment of dividends to the stockholder which exceed
an annual limitation. During 2000, this annual limitation aggregates to
$2.857,000; 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 ($24,000,000 at December 31, 1999)
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 income (loss) for the Company, as determined in accordance with
statutory accounting practices, was $222,000, ($2,466,000), and
($1,240,000) for the years ended December 31, 1999, 1998, and 1997,
respectively. Total statutory capital and surplus was $31,068,000 at
December 31, 1999 and $30,451,000 at December 31, 1998.
(10) Commitments and Contingencies
The Company leases it home office space and certain other equipment under
operating leases which run through 2002. 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 1999 and
1998. During the years ended December 31, 1999, 1998, and 1997, rent
expense totaled $387,000, $361,000, and $228,000, respectively. At December
31, 1999 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
--------------
(In thousands)
2000 $665
2001 302
----
$967
====
The Company is periodically subject to various lawsuits which arise in the
ordinary course of business. At December 31, 1999 the Company was not
involved in any such litigation.
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
23 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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.
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," which requires the accrual of guaranty
fund assessments. SOP 97-3 is effective beginning January 1, 1999. The
Company has recorded a liability of $165,000 at December 31, 1999 for
future payments of guarantee assessments, Which was charged to
underwriting, acquisition, and insurance expenses in the consolidated
statements of income.
(11) 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 $589,000 and $480,000 in 1999 and 1998, respectively. 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 1999, 1998, and 1997 by the Company pursuant
to this agreement were $684,000, $506,000, and $504,000, respectively.
24 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(12) Transfer of Block of Business
In 1999, the Company transferred a block of its deferred annuity business
relating to the State of Arkansas Deferred Compensation Plan. Fixed
reserves of $74,205,000 were transferred to AUSA Life, and bonds with a
book value of $70,647,000 were sold to fund this transfer. Separate account
assets and liabilities totaling $41,117,000 were also transferred to AUSA
Life.
The effect on the consolidated statements of income from this transaction
is as follows:
Year Ended
December 31,
1999
----------------
(In thousands)
Revenues:
Realized gains on investments $ 4,978
Other income 2,206
--------
Total revenues 7,184
Benefits and expenses:
Amortization of value of insurance
in force acquired and deferred
policy acquisition costs 4,100
--------
Income before income tax expense 3,084
Income tax expense 1,079
--------
Net income $ 2,005
========
(13) 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 employee 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.
(14) Year 2000 Issue (Unaudited)
Like other financial and business organizations around the world, the
Company could have been adversely affected if its computer systems and
those of its service providers did not properly process and calculate date-
related information and data from and after January 1, 2000. The Company
did not experience any problems related to the year 2000 issue.
25
<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.
42
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference Sheet.
The prospectus consisting of 32 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.
Written consents of the following persons:
Martin Sheerin (See Exhibit 6)
KPMG, LLP (See Exhibit 7)
Ernst & Young LLP (See Exhibit 7)
The following exhibits:
1.A (1) Resolution of the Board of Directors of the Company authorizing
the establishment of the Separate Account.*
(2) Not Applicable.
(3) (a) Underwriting Agreement.* *
(b) Broker-Dealer Agreement.* *
(c) Form of Sales Agreement.* * *
(4) Not Applicable.
(5) Specimen Variable Life Insurance Policy.* * *
(6) (a) Articles of Incorporation of First Variable Life Insurance
Company ****
(b) By-Laws of First Variable Life Insurance Company.* *
(7) Not Applicable.
(8) (a) Form of Participation Agreement with Variable Investors Series
Trust.* *
Form of Fund Participation Agreements with Aim Variable Insurance
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. ###
(b) Form of Fund Participation Agreements with Fidelity Variable
Insurance Products Fund;
Fidelity Variable Insurance Products Fund; Fidelity Variable
Insurance Products Funds II;
Fidelity Variable Insurance Products Funds III; and Seligman
Portfolios, Inc. *****
(9) Not Applicable.
43
<PAGE>
(10) Specimen Flexible Premium Variable Life Insurance Application. #
2. Opinion and consent of Vice President, General Counsel & Secretary,
as to securities being registered. #
3. Not Applicable.
4. Not Applicable
5. Not Applicable
6. Opinion and consent of Actuary. # #
7. Consent of Ernst & Young LLP, Independent Auditors. # #
Consent of KPMG, LLP, Independent Auditors # #
8. Powers of Attorney. # # # of the following individuals appointing
John M. Soukup their attorney-in-fact to act for them in their
capacities as Directors of the Company or otherwise, to do all things
necessary to comply with the provisions and intent of the Securities
Act of 1933 and the Investment Company Act of 1940 with respect to
variable life insurance policies and variable annuity contracts:
Ronald M. Butkiewicz Shane W. Gleeson Kenneth R. Meyer
Michael J. Corey Philip R. O'Connor
Michael R. Ferrari Jeff S. Liebmann
* 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 the Registrant's Post-Effective
Amendment No. 4 to the Form N-4 Registration Statement (Registration
No. 33-36738) filed electronically with the Securities and Exchange
Commission on or about April 27, 1998.
***** Incorporated by Reference to the Registrant's Post-Effective
Amendment No. 5 to the Form N-4 Registration Statement (Registration
No. 333-12197) filed electronically with the Securities and Exchange
Commission on or about April 28, 2000.
# 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.
44
<PAGE>
### 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 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)
45
<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, 2000.
First Variable Life Insurance Company
_____________________________________
John M. Soukup
President
ATTEST:
___________________________
Jeffery K. Hoelzel
Secretary
46
<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 27/th/
day of April, 2000.
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/Jeffery K. Hoelzel
- --------------------
___________________________
Jeffery K. Hoelzel
Secretary
47
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities with First Variable Life Insurance Company,
on the 27/th/ day of April, 2000.
PRINCIPAL EXECUTIVE OFFICER
___________________________________
John M. Soukup
President
PRINCIPAL ACCOUNTING OFFICER
___________________________________
Christopher S. Harden
Vice President & Treasurer
DIRECTORS
___________________________________
Ronald M. Butkiewicz
___________________________________
Michael J. Corey*
___________________________________
Norman A. Fair
___________________________________
Michael R. Ferrari*
___________________________________
Shane W. Gleeson
___________________________________
Jeff S. Liebmann*
___________________________________
Kenneth R. Meyer*
___________________________________
Philip R. O'Connor*
___________________________________
Clark A. Ramsey
___________________________________
John M. Soukup
*By: ___________________________
John M. Soukup
Attorney-in-Fact
48
<PAGE>
Exhibit 6
Opinion and Consent of Actuary
49
<PAGE>
Exhibit 6.
[LOGO]
April 27, 2000
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. 333-19193)
Gentlemen:
In my capacity as Actuary of First Variable Life Insurance Company, I have
provided actuarial advice concerning:
. The preparation of the captioned registration statement ("Registration
Statement") on Form S-6 filed by First Variable Life Insurance Company and
its Separate Account VL with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to the variable universal life
insurance contract ("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, 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 prospectus 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
50
<PAGE>
Exhibit 7
Consent of Ernst & Young LLP, Independent Auditors
We consent 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--Separate Account VL, in Post Effective Amendment No. 3 to the
Registration Statement (Form S-6 No. 333-19193) and the related Prospectus of
First Variable Life Insurance Company.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Chicago, Illinois
April 24, 2000
51
<PAGE>
Exhibit 7
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports on the consolidated financial statements of
First Variable Life Insurance Company dated March 10, 2000, and on the financial
statements of the sub-accounts of First Variable Life Insurance Company -
Separate Account VL dated March 17, 2000, and to the reference to our firm under
the heading "Experts" in the Post-Effective Amendment No. 3 to the Registration
Statement (Form S-6, No. 333-19193) of Capital Solutions VUL.
KPMG LLP
Chicago, Illinois
April 24, 2000
52
