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Registration No. 333-05053
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-6
Post-Effective Amendment No. 4
to
Registration Statement
Under
SECURITIES ACT OF 1933
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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)
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Jeffery K. Hoelzel Copy To:
Vice President, General Counsel & Secretary Thomas C. Lauerman
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)
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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.
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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 practible 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 INVESTMENTS 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 Fund, 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, 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 Amounts, Immediate Loan Repayment, THE POLICIES
22, 23, 24 Inapplicable
25 FIRST VARIABLE LIFE INSURANCE COMPANY
26 Inapplicable
27 FIRST VARIABLE LIFE INSURANCE COMPANY
28 OUR MANAGEMENT
29 FIRST VARIABLE LIFE INSURANCE COMPANY
30, 31, 32, 33, 34 Inapplicable
35 STATE REGULATION
36 Inapplicable
37 Inapplicable
38, 39, 40, 41 (a) DISTRIBUTION AND OTHER AGREEMENTS, FIRST VARIABLE LIFE INSURANCE COMPANY
41 (b), 41 (c), 42, 43 Inapplicable
44 DETERMINATION OF ACCOUNT VALUE
45 Inapplicable
46 SURRENDER AND WITHDRAWALS; Surrender; Withdrawals
47, 48, 49, 50 Inapplicable
51 POLICY BENEFITS AND VALUES
52 DEATH BENEFIT AMOUNTS, Face Amount and Guideline Single Premium, Face Amount and Additional Premium
Payments
53 (a) FEDERAL TAX MATTERS
53 (b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 APPENDIX C: FINANCIAL STATEMENTS
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<PAGE>
Prospectus May 1, 2000
CAPITAL ONE PAY VL
MODIFIED SINGLE 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;
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2122 York Road P.O. Box 1317 4200 University Avenue
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. The
Policy requires an initial premium payment of at least $10,000 and, subject to
certain restrictions, you may also make additional premium payments under the
Policy.
Generally, we determine the death benefit amount under the Policy on the Policy
Date by treating the initial premium as equal to 100% of the "guideline single
premium." After the Policy Date, we determine the death benefit amount monthly
based on the Account Value at that time multiplied by the applicable death
benefit factor shown in the Policy. We guarantee that the initial death benefit
amount will remain in force for a minimum period as long as you pay the initial
premium and take no withdrawals or loans of Account Value. The initial death
benefit amount is the Face Amount shown in the Policy when issued. The minimum
guarantee period is the later of the 10th Contract Anniversary or the Insured's
65th birthday.
You may allocate your payments and your Policy's Account Value among 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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Mutual Fund Portfolio Mutual Fund Portfolio
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AIM Variable . V.I. Capital Appreciation MFS Variable . Growth Series (Initial
Insurance Funds, . V.I. Growth Insurance Trust Class shares - not available for
Inc. ("AIM") ("MFS") 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)
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American Century . V.P. Value Lord Abbett Series . Growth & Income
Variable Fund Inc. ("LA")
Portfolios, Inc.
("ACS")
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Deutsche Asset . EAFE Index Segliman Portfolios, . Communications & Information
Management VIT . Equity 500 Index Inc.
Funds ("DAM") . Small Cap Index ("SEL")
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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)
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Fidelity Variable . Contrafund Variable Investors . Small Cap Growth
Insurance Products seeks growth with income Series Trust ("VIST") . World Equity **
Funds Insurance . Equity - Income . Growth
Products ("FMR") . 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
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* 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.
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TABLE OF CONTENTS
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
WITHDRAWAL CHARGES
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
Grace Period
ALLOCATION OF PREMIUMS
TELEPHONE TRANSACTIONS
POLICY BENEFITS AND VALUES
DEATH BENEFIT
DEATH BENEFIT AMOUNT
Face Amount and Guideline Single Premium
Face Amount and Additional Premium Payments
ADDITIONAL BENEFIT RIDER
DETERMINATION OF ACCOUNT VALUE
POLICY LOANS
Preferred Loan Amounts
Immediate Loan Repayment
SURRENDER AND WITHDRAWALS
Surrender
Withdrawals
MATURITY PROCEEDS
LAPSE AND REINSTATEMENT
PAYMENT OF PROCEEDS
TAX WITHHOLDING
PAYOUT OPTIONS
Annuitization Bonus
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
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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
Beneficiary
Changes and Assignments
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 a Modified
Endowment Contract
Taxation of Pre-Death Distributions from a Policy that is not a Modified
Endowment Contract ("MEC")
DIVERSIFICATION REQUIREMENTS
ADVERTISING PRACTICES
LEGAL MATTERS
STATE REGULATION
LEGAL PROCEEDINGS
COUNSEL
EXPERTS
REGISTRATION STATEMENT
YEAR 2000 ISSUES
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
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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, the initial
premium and cost of insurance charges will vary by the premium rate class
assigned the Insured. On the date of this prospectus, we use Smoker and Non-
Smoker premium rate classes that will differ based on the sex of the Insured.
These classes are further sub-divided into "standard" and "substandard"
insurance classes. Charges are generally higher for substandard insurance
classes.
HIGHLIGHTS
These highlights discuss certain important aspects of the Policy. The rest of
this prospectus explains these and other aspects in greater detail. You should
be sure to read the prospectus and the prospectuses of the Funds for more
complete information.
How do investment results affect a Policy?
You invest the Account Value under your Policy in one or more of the investment
options we offer. Your Account Value increases or decreases by the amount of any
positive or negative return it earns in those options. Your Account Value also
will decrease by the amount of all charges and deductions we make under your
Policy. The Death Benefit we pay under your Policy when the Insured dies can
also vary as a result of the investment results achieved for your Account Value.
Account Value invested in our Separate Account investment options is not
guaranteed, and you bear the entire investment risk under those options.
Account Value allocated to our Fixed Account, however, is provided with our
guarantees of principal and a minimum 3% rate of interest on an annual basis.
(Similar guarantees apply to an amount of your Account Value that equals any
Policy loans that you take out.)
How much can I (or must I) invest in a Policy?
You must pay the initial premium specified in the Policy for it to take effect.
Payment of the initial premium specified in the Policy guarantees that the
Policy will remain in force, unless you take a withdrawal or loan (including
transfers of loans) of Account Value, for a minimum guarantee period. The
minimum period is the later of the 10th Contract Anniversary or the Insured's
65th birthday.
The Policy is primarily intended to be a single premium Policy, but permits
additional premium payments to be paid under limited circumstances. For example,
additional premiums may be paid to keep the Policy in force after the minimum
guarantee period, or for an amount limited to the lesser of 5% of the initial
premium or $5,000. We will not permit you to pay so much premium that your
Policy would fail to meet the definitions of a life insurance contract under the
Internal Revenue Code ("Code").
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Will I have access to my Account Value?
You may borrow up to 90% of your Policy's Cash Surrender Value, subject to
certain limitations. (Cash Surrender Value is your Account Value less any loan,
less any accrued loan interest, and less any applicable Surrender Charges.) You
may surrender (i.e., cancel) your Policy at any time and we will pay you the
Cash Surrender Value. Subject to certain limits, you also may make a partial
withdrawal of your Cash Surrender Value. Withdrawals will, however, cause a
reduction in your Policy's death benefit amount.
What general income tax consequences will I have from owning a Policy?
The Policy is generally designed to be a "modified endowment contract" for
federal income tax purposes. Under current federal income tax law, any pre-death
distributions from a modified endowment contract, or "MEC," including loans,
assignments, partial withdrawals and surrenders, will be included in your
taxable income on an income first basis, and a 10% penalty tax will be imposed
on any such income distributed before you attain age 59-1/2.
Under current federal tax law, you generally do not pay income tax on increases
in your Account Value unless and until there is a distribution. A complete
surrender of the Policy will, and a partial withdrawal may, be included in your
gross income to the extent that the distribution exceeds your investment in the
Policy. Additional amounts may be taxable if a partial surrender during the
first 15 Policy Years results in or is necessitated by a reduction in benefits.
Death Benefit Proceeds paid to the Beneficiary under the Policy are generally
not subject to federal income tax.
Please review the FEDERAL TAX MATTERS section of this prospectus for additional
information. We may make any change in a Policy or take any other action in
order to comply with applicable state and federal law, including all tax law
requirements for treatment as life insurance.
How much do we pay the Policy's Beneficiary when the Insured person dies?
Upon the death of the Insured, we will pay the Death Benefit Proceeds to the
Beneficiary. The Death Benefit Proceeds are:
. the current death benefit amount,
. minus any outstanding Policy loans and interest thereon, and
. minus any due and unpaid monthly deductions and charges under your Policy.
The Beneficiary may receive the proceeds in a lump sum or in the form of one of
our annuity payout options.
What are the charges and deductions under a Policy?
The Policy is subject to the following charges and deductions:
Monthly Deductions - composed of the following:
. administrative charge - at an annualized rate of .40% of Account Value;
. maintenance fee - $2.50 if Account Value is less than $100,000;
. cost of insurance - at an annualized rate of .40% of Account Value for the
first 10 Contract Years and then at an annualized rate of .55% of Account
Value, based on the Company's current scale, which is not guaranteed; and
. distribution, premium tax and federal tax charges for the first ten Contract
Years, at an annualized rate of .65% of Account Value (.20% on an annual
basis for distribution expenses; .25% on an annual basis for premium tax
expenses; and .20% on an annual basis for federal tax expense).
Daily Deductions - the charge currently equals an annual rate of 0.90% (which we
may increase to not more than 1.20%) of the daily net assets in each Separate
Account Investment Option.
Withdrawal Charge - will be assessed during the first 9 Policy Years upon
withdrawals of Account Value, or if the Account Value is applied to an optional
annuity payment option. The withdrawal charge decreases from 9.75% of premiums
to 0% at the end of the ninth Contract Year. It is composed of a Sales Charge of
up to 7.5% of premium(s) and an Unreimbursed Premium Tax Charge of up to 2.25%
of premiums No Withdrawal Charges will be taken on a partial withdrawal in any
Contract Year unless the amount withdrawn exceeds the annual Free Withdrawal
Amount. The annual Free Withdrawal Amount is equal to 15% of the premium
payment(s) that have been made. (These 15% withdrawals do not reduce premium
payments for purposes of computing the Withdrawal Charges.)
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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:
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Annual Fund Expenses After Expense Reimbursements
Management 12b-1 Other Operating Total
Mutual Fund Portfolio Fees Fees Expenses 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.
<PAGE>
Other Expenses - we also have the right to begin making the following additional
charges under the Policies (which we have decided not to impose for now):
Transaction Fees - currently none, guaranteed not to exceed $10 for each
transfer among Investment Options that you make in excess of twelve transfers
per Policy Year.
Tax Charge - currently none, but we reserve the right to impose charges for
other taxes that may be payable and are attributable to the Policies in the
future.
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 the
Funds.
We may add other investment options to the Policies that, in turn, may be
invested in other Portfolios of the Funds, or in portfolios of other mutual
funds. We may restrict these other investment options to customers of specified
distributors.
Performance Information
Appendix A to this prospectus sets out the performance record of each portfolio
that you can select as an investment option.
YOUR INVESTMENT OPTIONS
The Available Options
You may allocate your premium payments and existing Account Value to one or more
of our Separate Account investment options and/or to our Fixed Account. The
currently available Portfolios for our Separate Account investment options are
listed on the cover page of this prospectus. More information, including a
discussion of potential risks, appears in the current prospectuses for the
Funds, which accompany this prospectus. (The prospectuses for the Funds may also
describe other portfolios that are not available under a Policy.) You should
read this prospectus and the prospectuses for the Funds carefully before
investing in any Separate Account investment option.
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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, than the
investment results of similar funds will compare 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 affiliates 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) $1,000 or (b) your entire interest in the applicable investment
option. You should mail, fax or express written transfer requests to our
Variable Service Center shown on the front cover of this prospectus. You can
also request a transfer by phoning 1-800-228-1035.
Transfer requests must clearly specify the amount to be transferred and the
investment options affected. All transfer requests made at the same time for
Separate Account investment options will be treated as a single request. The
transfer will be effective at the prices we next compute after we receive the
transfer request at our Variable Service Center.
You may transfer Account Value from the Fixed Account to other investment
options only by request within 30 days of a Policy Anniversary, and you may not
transfer the entire Account Value in the Fixed Account in less than 4 Policy
Years. For example, transfers from the Fixed Account during the first Policy
Year cannot total more than 25% of the Fixed Account Value on the Policy Date.
After the first Policy Year, your transfers from the Fixed Account during a
Policy Year may not exceed the greater of:
. 25% of your Fixed Account Value on the immediately preceding Policy
Anniversary; or
. 100% of your Fixed Account Value transferred to other investment options
during the immediately preceding Policy Year.
We can impose a transaction fee if you make more than 12 "free" transfers in a
Policy Year, but currently, do not do so.
Automatic Transfer Programs - You can participate in automatic transfer
arrangements, including dollar cost averaging and asset rebalancing programs.
You initiate these programs by making a written or telephone request to our
Variable Service Center shown on the front cover of this prospectus. We make the
automatic transfers on the last business day of whichever of the
<PAGE>
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 or redemption of shares of one or more of the Portfolios is to
be restricted because of excessive trading; or
. a specific transfer or group of transfers is deemed to have a detrimental
effect on Policy Account Value or Portfolio share prices.
We may also at any time suspend or cancel acceptance of third party transfer
requests on behalf of a Policyowner; or restrict the Investment Options that
will be available for such transfers. Notice will be provided to the third party
in advance of the restrictions. We will not impose any restrictions, however, if
we have received satisfactory evidence that:
. you have appointed the third party to act on your behalf for all financial
affairs; or
. a court of competent jurisdiction has appointed the third party to act on
your behalf.
We also reserve the right at any time and without prior notice to otherwise
modify, suspend or terminate the transfer privileges.
Automatic Transfers of Small Accounts. We reserve the right, subject to any
applicable law, to transfer Account Value from any investment option if less
than $250, to the investment option with the greatest Account Value.
Mixed and Shared Funding
We buy shares of the Funds for the Separate Account in connection with the
Policies, and for allocation to separate accounts funding variable annuity
policies and other variable life insurance policies issued by us. The Funds
offer shares to other insurance companies and to other separate accounts, either
affiliated or unaffiliated with us, for the same purpose. In the future, it may
<PAGE>
conceivably become disadvantageous for variable life insurance separate accounts
and variable annuity separate accounts to invest in one or more of the Funds'
Portfolios simultaneously, if the interests of variable life insurance and
variable annuity policy owners differ. The boards of trustees of the Funds
investing in those Portfolios intend to monitor events to identify any material
irreconcilable conflicts that may arise and to determine what action, if any,
they or the insurance companies should take in response.
MORE ABOUT CHARGES AND DEDUCTIONS
Monthly Deductions
On the first day of each Policy Month we make a Monthly Deduction from each
Policy's Account Value. We make the deduction from your investment options in
proportion to the amount of your Account Value in each (i.e., on a "pro-rata
basis") or by any other method you select and we approve.
For example, we will permit you to have deductions first taken from one or more
preselected investment options. You may also request deductions to first be
taken from the investment option that has the best investment performance over
the prior Policy Month.
The Monthly Deductions include the following charges:
Maintenance Fee. The monthly maintenance fee is $2.50 for a Contract with less
than $100,000 in Account Value and helps compensate us for our expenses in
administering the Policies.
Cost of Insurance. This is a charge for the cost of providing life insurance
coverage for the Insured. This charge is guaranteed not to exceed the maximum
cost of insurance charge determined on the basis of the mortality table
guaranteed in the Contract, calculated, for standard risk Insureds, using the
1980 Commissioner's Standard Ordinary Mortality tables, Age Last Birthday ("1980
CSO"). These mortality tables are sex distinct and the guaranteed cost of
insurance charge may vary by the attained age, sex and underwriting class of the
Insured. The maximum cost of insurance charge for substandard risk Insureds are
based on multiples or additives to the guaranteed standard rates established by
the 1980 CSO.
Currently, a cost of insurance charge is taken that is not more than the maximum
cost of insurance charge where an Insured is determined by the Company to be a
standard nonsmoker underwriting risk. This monthly charge is equal to an
effective annual rate of 0.40% of Account Value and is not guaranteed. For
Contract Years 11 and later, this monthly charge is anticipated to be increased
to an annual effective rate of 0.55% of Account Value.
Other Monthly Charges. We calculate these charges as a percentage of your
Policy's net assets in each investment option. An Administrative Charge is made
at an effective rate that is equal, on an annual basis, to 0.40% of Account
Value to help compensate us for our expenses in administering the Policies and
the Separate Account. A Distribution Charge is made during the first 10 Policy
Years at an effective rate that is equal, on an annual basis, to 0.20% of
Account Value. A Premium Tax Charge is made during the first 10 Policy Years at
an effective rate that is equal, on an annual basis, to 0.25% of Account Value.
(This charge is made to offset the average premium tax we expect to pay to
various states and local jurisdictions, although it will not necessarily equal
the premium taxes we paid with respect to a particular Policy.) A Federal Tax
Charge is made at an effective rate that is equal, on an annual basis, to 0.20%
of Account Value during the first 10 Policy Years to help compensate us for the
increase in our federal tax liability from the application of Section 848 of the
Code.
Daily Deductions
Each Business Day, we deduct a mortality and expense risk charge that we
calculate as a percentage of your Policy's net assets in each Separate Account
investment option. The charge is currently 0.90%, on an annual basis. This
charge helps compensate us for assuming mortality and expense risks under the
Policies.
Withdrawal Charges
During the first 9 Policy Years, we may assess a withdrawal charge if you
surrender your Policy, withdraw Account Value, or apply Account Value to an
optional annuity payment option.
The withdrawal charge consists of two separate components, one for a sales
charge and one for an unreimbursed premium tax charge, that are stated
separately in your Policy. Overall, we determine the withdrawal charge by
applying the percentages
<PAGE>
shown in the table below to the purchase payments we deem withdrawn, surrendered
or applied to an optional annuity payment. Purchase payments are deemed
withdrawn or surrendered in the order in which they are made. We take withdrawal
charges from your investment options on a pro-rata basis, or by any other method
you select and we approve.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Withdrawal Charge - as a percentage of purchase
payments:
<S> <C>
Policy Year 1 9.75%
Policy Year 2 9.5%
Policy Year 3 9%
Policy Year 4 8%
Policy Year 5 7%
Policy Year 6 6%
Policy Year 7 5%
Policy Year 8 4%
Policy Year 9 3%
Policy Year 10+ NONE
- ---------------------------------------------------------
</TABLE>
Free Withdrawal Amount. We will not assess a withdrawal charge on a withdrawal
of Account Value until the amount withdrawn for that Policy Year exceeds a "free
withdrawal amount" equal to 15% of your purchase payments, less amounts taken as
loans that year.
The 15% withdrawals do not reduce purchase payments for purposes of computing
the withdrawal charge. The charge will continue to apply to the amount withdrawn
or surrendered during any of the first 9 Policy Years that exceeds 15% of
Purchase Payments. The unused portion of the "free withdrawal amount" for one
Contract Year does not carry over to the next Contract Year.
The free withdrawal amount is not available withdrawal requests that would
result in less than $1,000 of remaining Account Value.
Waiver of Withdrawal Charges. We will waive the withdrawal charges:
. after the first Contract Year and subject to state availability, if the
Insured or the Insured's spouse is confined in an approved nursing home for
90 days;
. if any Death Benefits are paid; or
. if the Account Value is applied after five Contract Years to an optional
annuity payment option.
To qualify for a waiver of the Withdrawal Charges based upon confinement in a
qualified nursing home, the Insured or the Insured's spouse must never have been
confined in a qualifying nursing home on or before the date your application for
the Policy was signed. We may require evidence satisfactory to us for any of
these conditions. You should review your Policy carefully for a complete
description of these waivers.
Fund Expenses
Our Separate Account purchases shares of the Portfolios of the Funds at net
asset value, which reflects investment management fees, other operating expenses
and any expense reimbursement paid by an investment adviser to the applicable
Portfolio. (See "Highlights -- Fund Expenses.")
Other Charges and Deductions (Not Currently Charged)
We do not currently make the charges referred to after the caption "Tax Charge"
in the "Highlights" segment of this prospectus. We reserve the right to do so,
however.
Special Service Fees. We do not charge you for special services, such as
additional reports, dollar cost averaging, and asset rebalancing. Although we do
not currently intend to do so, we reserve the right to charge you for these
special services.
<PAGE>
Elimination, Reduction or Refund of Charges and Deductions; Increases in Bonuses
We may eliminate, reduce, or refund any charges and deductions on a Policy when
sales of Policies are made to certain individuals or to group and sponsored
arrangements. We will do this when we expect savings of sales, administration or
other expenses, or in a reduction in the level of risks we expect to assume
under the Policies. (This prospectus describes such groups under "Group and
Sponsored Arrangements" below.) We determine any such adjustment to charges and
deductions after examination of relevant factors such as:
. the size and type of group, because large numbers of Policies tend to lower
our per-Policy expenses;
. the total amount of premium payments to be received, because certain expenses
tend to be a smaller percentage of larger premium payments;
. any prior or existing relationship we have with the purchaser, because of the
likelihood of reduced marketing and implementation expenses;
. other circumstances, of which we are not presently aware, which could result
in reduced expenses; and
. after a Policy is issued, if we anticipate expenses for later Policy Years
that are lower than initially projected.
We also may eliminate, reduce or refund charges and deductions when we issue a
Policy to an officer, director, employee or agent of ours or any of our
affiliates. We do not, however, guarantee any adjustment in charges and
deductions, and any adjustment may vary by group.
All adjustments will be made under our uniform administrative rules then in
effect. In no event will adjustments to charges, or deductions be permitted if
the adjustment would be unfairly discriminatory to any person.
Group and Sponsored Arrangements. Group arrangements include those in which a
trustee, employer, association or similar entity purchases individual Policies
covering a group of individuals on a group basis. An example of such an
arrangement is a non-tax qualified deferred compensation plan. Sponsored
arrangements include those in which an employer, an association or similar
entity permits the Company to offer Policies to its employees or members on an
individual basis.
Gender-Neutral Policies. In 1983, the United States Supreme Court decided in
Arizona Governing Committee v. Norris that certain insurance contracts may not
be used to fund certain employee benefit programs where the contracts provided
values and benefits that varied with the gender of the insured person. We may
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 transfer rights under the Policies or reduce the amount of our asset-based
fee revenues below what we anticipate); sales risks (such as the risk that we
sell fewer Policies and receive lower net revenue than we expect, thereby
depriving us of expected economies of scale); regulatory risks (such as the risk
that tax or other regulations may be changed in ways adverse to issuers of
variable life insurance policies); and expense risks (such as the risk that the
costs of administrative services that we must provide will exceed what we
currently project).
If, as expected, the charges that we collect from the Policies exceed our total
costs in connection with the Policies, we will earn a profit. Otherwise we will
incur a loss. We have set the current and maximum rates of certain of our
charges with reference to estimates of the amount of specific types of expenses
or risks that we will incur. In some cases, this prospectus identifies such
expenses or risks in the name of the charge: e.g., the administrative charge,
distribution charge, cost of insurance charge, and mortality and expense risk
charge. However, the fact that any charge bears the name of a particular expense
or risk does not mean
<PAGE>
that the amount we collect from that charge will never be more than the amount
of such expense or risk, or that we may not also be compensated for such expense
or risk out of any other charges we may deduct under the terms of the Policies.
THE POLICIES
Application and Issuance of a Policy
If you wish to purchase a Policy, you must submit an application to our Variable
Service Center. You select:
. The initial premium you intend to pay; and
. The initial death benefit ("Face Amount") of the Policy; and
. The investment options to which we will allocate your premium.
We will review an application under our underwriting rules, and we may request
additional information or reject the application. Applicants between the ages of
0 and 80 are eligible for simplified underwriting without a medical examination
under our current underwriting rules, which are subject to change. We generally
will not issue Policies to insure persons older than age 85; nor will we
generally issue Policies to employee benefit plans qualified under Section 401
of the Internal Revenue Code. If we decline an application, we will refund any
premium payment made.
If we issue the Policy, Monthly Deductions will begin as of the Policy Date. If
you make a premium payment with the application, the Policy Date generally will
be the date we approve the application. If you instead pay the initial premium
upon delivery of the Policy, the Policy Date generally will be five days after
we issue the Policy.
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed. In that
case, even though Monthly Deductions begin earlier, backdating may be
advantageous, for example, to obtain a lower cost of insurance rate, based on a
lower Age of the insured person.
"Free Look Right." You have the right to review your Policy during an initial
inspection period specified in the Policy and, if dissatisfied, to return it to
us or to the agent through whom you purchased it. We will refund the Account
Value, any Monthly Deductions, and any other charge we assessed on a Policy that
is returned during the permitted period, unless a different amount is required
by state law. The "free look" period is typically 10 days from your receipt of a
Policy, but may be greater depending on state requirements.
Premiums
The Policy is designed for a large single premium (minimum $10,000) to be paid
by you on or before the Policy Date, with a limited ability to make additional
premium payments. Additional premium payments under the Policy are permitted
under the following circumstances:
. an additional premium payment is required to keep the Policy in force after
the minimum guarantee period; or
. an additional premium is paid equal to the lesser of 5% of the initial
premium or $5,000.
We may require that any Policy loans be repaid prior to accepting any additional
premium payments, and require evidence of insurability on the Insured before
accepting an additional premium in excess of the permitted amounts.
The minimum death benefit guarantee period begins on the Policy Date and ends on
the earliest of:
. the 10th Policy Anniversary;
. the Insured's Age 65;
. the date you first make a withdrawal of Account Value; or
. the date you first take a Policy loan including a transferred loan (There is
no minimum death benefit guarantee period if your Policy is issued subject to
a Policy loan.)
Grace Period. After the end of your Policy's minimum guarantee period, your
Policy will enter a grace period on the first Business Day of any Policy Month
on which your Policy Cash Surrender Value will not cover the current Monthly
Deduction and accrued interest on any Policy loans you have taken.
<PAGE>
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 1-800-845-0.89. 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.
POLICY BENEFITS AND VALUES
Death Benefit
If we receive proof that the Insured died while the Policy was in force, we will
pay the Death Benefit Proceeds to the Beneficiary. You may elect for the Death
Benefit Proceeds to be paid in a single sum or under one of our other Payout
Options before the death of the Insured. If no such election is in effect at the
death of the Insured, the Beneficiary may make the election during a 60-day
period following our receipt of proof of death. We will hold up payment of the
Death Benefit Proceeds in the meantime.
Death Benefit Amount
The death benefit amount under a Policy is the greater of:
. the Face Amount or
. the Account Value times the applicable percentage shown in the Minimum Death
Benefit table on the next page.
<PAGE>
The initial death benefit amount on the Policy Date is generally equal to the
Face Amount. The death benefit amount is reviewed each Policy Month, based on
the Account Value at the beginning of that Policy Month. We determine the final
death benefit amount on the date we receive proof of the Insured's death.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
MINIMUM DEATH BENEFIT
- -----------------------------------------------------------
Age Percentage of Age Percentage of
Account Value Account Value
- -----------------------------------------------------------
<S> <C> <C> <C>
40 or less 250
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75-90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
60 130 95 or older 100
- -----------------------------------------------------------
</TABLE>
Face Amount and Guideline Single Premium - The Face Amount on the Policy Date is
determined by treating the initial premium as a "guideline single premium." The
"guideline single premium" is an amount necessary to keep the Policy in force
until the Maturity Date, using the Policy's guaranteed charges, and assuming a
6% net investment return and other assumptions and calculations required by the
Code for a Policy to qualify as life insurance contract under what is commonly
referred to as the "guideline premium test." The "guideline single premium" will
vary by the Insured's age on the Policy Date, sex and underwriting risk class.
This will generally result in the same initial premium providing a Face Amount
that is higher for non-smokers than smokers, and a higher Face Amount for
females than for males.
Face Amount and Additional Premium Payments. Additional premium payments may
result in an increase in Death Benefit by an amount sufficient to permit a
Policy to remain within the definition of a "life insurance contract" under Code
section 7702. We may require additional evidence of the insurability of the
Insured before accepting the additional payments.
Additional Benefit Rider
Subject to regulatory approval in your local area, an Acceleration of Death
Benefit Rider is included in a Policy. The rider permits you to receive an
advance of the Death Benefit when the Insured person has a terminal illness with
a life expectancy of less than 12 months (all as defined in the rider).
We compute the maximum amount of advance under a formula set forth in the rider.
In no event will we advance more that $50,000, however. Amounts advanced under
the rider generally will be considered Death Benefits for federal income tax
purposes. (See "Federal Tax Matters - Income Tax Treatment of Policy Benefits.")
We do not charge for this rider. For more complete information about the rider
and its availability, you should consult your sales representative or request a
copy of the form of the rider.
<PAGE>
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.
Policy Loans
We will lend you up to 90% of your Policy's Cash Surrender Value at any time
after the initial free-look period. You may request a Policy loan by submitting
a request in writing or by telephone to our Variable Service Center shown on the
front cover of this prospectus. (See "Telephone Transactions.")
Each loan must be at least $1,000. We will automatically transfer Account Value
equal to the amounts you borrow to your Policy's Loan Account from the other
investment options you are then using. We will make the transfer in proportion
to the Account Value in each, unless you request a different allocation and we
agree. We credit amounts in your Loan Account with interest at a minimum annual
rate of 3%.
The interest you must pay us on a Policy loan accrues daily at an annual loan
interest rate of 5% and is payable on each Policy Anniversary. If not paid when
due, we will add it as an additional Policy loan and transfer additional Account
Value to your Loan Account. A loan repayment increases your Account Value in
your Policy's other investment options on a dollar-for-dollar basis.
Unless you request otherwise, loans and loan repayments are attributed to the
Separate Account Investment Options and the Fixed Account in proportion to the
Account Value in each. We may disapprove any such request, however. You must
designate any loan repayment as such. Otherwise, we will treat the payment as a
premium payment.
Preferred Loan Amounts. On the date of this prospectus, we credit interest on
preferred loan amounts at an annual effective rate of 5%.
Immediate Loan Repayment. If, on the first Business Day of a Policy Month, the
Account Value less the Withdrawal Charge is not sufficient to pay the Monthly
Deduction, any loan interest then due and unpaid, and any other Policy charges,
you must make a loan 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
<PAGE>
writing, except that we will accept telephone requests that apply to only part
of the Cash Surrender Value. Our liability to pay the Death Benefit proceeds
ends when you surrender your Policy.
Withdrawals. You may withdraw a portion of the Policy's Cash Surrender Value
(minimum $1,000). This will reduce the Account Value and cause a proportionate
reduction in the Policy's Face Amount and death benefit. A requested withdrawal
requires our consent, however:
. if the Death Benefit would be reduced below that required to qualify the
Policy as life insurance; or
. if the remaining Account Value would be less than $1,000.
We will take any withdrawals from your Policy's investment options on a pro-rata
basis, unless you make a request in writing in advance for a different method.
We reserve the right to approve or disapprove any such request.
Maturity Proceeds
If the Insured is living on the Policy's "Maturity Date" (the Policy anniversary
of the Policy Date on which the Insured's Age is 100), we will pay the Cash
Surrender Value. In such case, the Policy will terminate and we will have no
further obligations under it. We will calculate the Cash Surrender Value for
this purpose as of the Maturity Date, although we may defer paying such amount
to you until you return your Policy to us.
Lapse and Reinstatement
If your Policy lapses following a 61-day grace period, you may still, within 3
years thereafter, request that we reinstate the Policy. You would need to
provide us with satisfactory evidence, however, that the Insured is still
insurable and pay certain amounts specified in the Policy.
Any reinstatement will be effective on the first Business Day of the first
Policy Month that begins on or after we approve reinstatement. The values and
terms and conditions of the reinstated Policy will be in accordance with our
administrative procedures.
Payment of Proceeds
We ordinarily will pay any Cash Surrender Value, Death Benefit Proceeds, or loan
proceeds from the Separate Account Investment Options, and begin Payout Options
funded through Separate Account investment options, within seven days after
receipt by our Variable Service Center of a request, or proof of death of the
insured persons, and all other required elections and documentation in a form
satisfactory to us. However, we may delay payment or transfers from a Separate
Account investment option in certain circumstances. (See "Suspension of Payments
and Transfers.") We may also delay payment if we contest the Policy. We will pay
interest on Death Benefit Proceeds from the date they become payable to the date
they are paid in one sum or, if a Payout Option is selected, to the effective
date of the option.
Tax Withholding
All distributions from your Policy, or portions thereof, which are included in
your gross income are subject to federal income tax withholding. We will
withhold federal taxes at the rate of 10% from each distribution. However, you
may elect not to have taxes withheld or to have taxes withheld at a different
rate.
Payout Options
Payout Options provide a series of payments in lieu of a single sum payment by
us. You may elect a Payout Option:
. for all or part of the Cash Surrender Value payable when you make a
withdrawal or surrender the Policy; or
. 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.
<PAGE>
Annuitization Bonus. We will increase your Account Value by an "Annuitization
Bonus" when Cash Surrender Value or the Death Benefit Proceeds are applied to a
Payout Option. The increase will be based on your Account Value at the end of
the Business Day immediately preceding the date the initial Payout Option amount
is determined.
We determine the Annuitization Bonus rate for a Policy at the time of issue, but
the Bonus may be modified, reduced or eliminated for subsequently issued
Policies. On the date of this prospectus, the Annuitization Bonus rate is 3% of
Account Value. We will pro-rate any increase among your Policy's investment
options on the Annuity Date.
You may select the following Payout Options or any other Payout Option
acceptable to us:
Option A - Life Annuity. Equal monthly payments during the life of the payee.
Option B - Life Annuity with Period Certain Of 120 Months. Equal monthly
payments during the lifetime of the payee, but for no less than 120 months.
Option C - Fixed Payments for A Period Certain. Equal monthly payments for any
specified period (at least five years but not exceeding thirty years), as
selected by you.
Option D - Death Benefit Proceeds Remaining With Us. The Death Benefit Proceeds
will remain in our Fixed Account and be credited with interest at an effective
annual rate of not less than 3%. The Payee may make full and partial
withdrawals at any time with no Surrender Charge.
Each payment under Payment Options A, B, or C will be at least equal the amounts
calculated based on the annuity tables contained in your Policy. If the payee
dies during a period certain (Payout Options B or C), any remaining payments
will be made to the estate of the Payee. The estate may elect to have the
commuted value of the remaining payments paid in a single sum instead. We will
determine the commuted value by discounting the remaining payments at its then
current interest rate used for commutation.
Tax Impact. Whether a Payout Option is chosen may have tax consequences for you
or your Beneficiary. In addition, under current federal income tax rules, the
annuitization bonus is deemed "income" on a Policy. Therefore, you should
consult a qualified tax adviser before deciding whether to elect one or more
Payout Options.
Right to Exchange for a Fixed Benefit Policy
During the first 24 Policy Months, if your Policy has not lapsed, you have an
unconditional right to transfer all of your Account Value in the Separate
Account investment option to the Fixed Account without any transaction charge.
OTHER PROVISIONS OF THE POLICY
Suicide Exclusion
If suicide of the Insured occurs within two years from the Policy Date (or less
if required by state law), we will limit the Death Benefit to your Policy's Cash
Surrender Value.
Representations and Contestability
Generally, we can challenge the validity of your Policy for two years from the
Policy Date, based on any misrepresentations made in your application to us. We
can challenge an increase in benefits requiring evidence of insurability for two
years from the date of the increase. We can challenge a reinstatement of the
Policy until reinstatement has been in force for two years from its effective
date. However, the two-year time limits on our right to challenge all or part of
the Policy do not apply if the Insured dies within the two-year period.
Misstatement of Age or Sex
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.
<PAGE>
Owner and Beneficiary
The Policy application names the Policy owner, who in turn may name a new owner.
At the death of the owner, his or her estate will become the owner, unless he or
she has named a successor owner. Because the owner has the authority to exercise
most rights under a Policy, this prospectus generally refers to the owner when
it refers to "you" or "your". The owner's rights as such terminate when the
Insured dies. If two or more people are named as owners, we will generally
assume that one owner has the authority to act for all owners. However, we may
require the consent of all owners for certain transactions under the Policy,
such as an election to exchange the Policy for a fixed benefit policy.
Beneficiary. The Policy application also names the Beneficiary under the Policy
and any contingent Beneficiary. You may change the Beneficiary of the Policy
(other than an irrevocably named Beneficiary) at any time before the death of
the Insured. The Beneficiary has no rights under the Policy until the death of
the Insured and must survive that insured person in order to receive the Death
Benefit Proceeds. If no named Beneficiary is alive when the Insured dies, we
will pay the proceeds to the owner.
Changes and Assignments. A change of owner or Beneficiary requires a written
request satisfactory to us that is dated and signed by all of the owners. The
change will take effect on the date it is signed, but is subject to all payments
made and actions taken by us under the Policy before we receive the request at
our Variable Service Center.
Assignments
The owner may assign (transfer) the owner's rights in a Policy to someone else.
An absolute assignment of the Policy designates the assignee as owner and
Beneficiary. A collateral assignment of the Policy does not change the owner or
Beneficiary, but their rights will be subject to the terms of the assignment.
All collateral assignees of record must consent to any full surrender or partial
withdrawals. An assignment requires a written request signed by all of the
Policy's owners. An assignment will take effect only when we record it at our
Variable Service Center. We have no responsibility for any assignment not
submitted for recording; nor for the sufficiency or validity of any assignment.
Unfavorable tax consequences, including recognition of taxable income and the
loss of income tax-free treatment for any death benefit payable to the
Beneficiary may result from transferring ownership or making an assignment.
Therefore, you should consult with a qualified tax adviser before doing so.
Reports and Records
We will mail to your last known address of record an annual statement showing
your Policy's current Account Values, transactions since the last statement,
Policy loan information, and any other information required by federal or state
laws or regulations.
We will also send you annual and semi-annual reports containing the financial
statements of the Portfolios you are using.
In addition, you will receive statements of significant transactions, such as
changes in the Death Benefit, transfers among investment options, premium
payments, Policy loans, Policy loan principal, Policy loan repayments, and
Policy reinstatement or termination.
Voting Rights
We will vote the shares of the Portfolios held by the Separate Account at
regular or special meetings of the Portfolio's shareholders in accordance with
instructions received from you and other owners having the voting interest in
the affected Portfolio(s). We compute the number of votes that an owner has
the right to instruct for a particular Portfolio by dividing the owner's Account
Value in that Portfolio by that Portfolio's net asset value per share. We will
vote a Portfolio's shares held in our Separate Account for which we do not
receive instructions, as well as shares held in our Separate Account that are
not attributable to owners in the same proportion as we vote that Portfolio's
shares held in the Separate Account for which we have received instructions.
We may disregard voting instructions under limited circumstances prescribed by
SEC rule. We will include a summary of any such action and the reasons for it
in the next semiannual report to owners.
<PAGE>
Suspension of Payments and Transfers
Under certain circumstances, we may suspend or postpone transactions that
pertain to a Separate Account investment option under your Policy. These
include payment of Death Benefit Proceeds or Maturity Value, payment for
surrenders, withdrawals and Policy loans, or transfers, purchase payments and
loan repayments for any period when:
. the New York Stock Exchange is closed for regular trading;
. regular trading on the New York Stock Exchange is restricted by the SEC;
. an emergency exists as a result of which disposition of securities held in
the applicable Separate Account investment options is not reasonably
practicable or it is not reasonably practicable to determine the value of
such option's net assets; or
. the SEC, by order, permits such suspension during any other period.
We also may defer payment for a surrender, withdrawal or Policy loan, or
transfer from the Fixed Account, for the period permitted by law but not for
more than six months after we receive your written request. We will pay interest
to the extent provided under state insurance law on payments that are delayed.
Also, we may defer payment of any amount attributable to a check you have given
us in order to allow a reasonable time (not to exceed 15 days) for the check to
clear the banking system.
Nonparticipation in Our Dividends
The Policies are "nonparticipating". This means that they do not participate in
(or receive) any dividend we pay or distribution of our surplus.
DISTRIBUTION AND OTHER AGREEMENTS
First Variable Capital Services, Inc. ("FVCS"), 2122 York Road, Oak Brook,
Illinois 60523, acts as distributor of the Policies. FVCS, our wholly owned
subsidiary, was incorporated in Arkansas on July 26, 1991. It is registered
with the SEC as a broker/dealer under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc., FVCS offers
the Policies on a continuous basis.
FVCS and we have agreements with various broker/dealers under which their
registered representatives, who are also licensed insurance agents, will sell
the Policies. The commissions payable to a broker/dealer for sales of a Policy
may vary with the sales agreement. However, we do not expect that, on an
aggregate basis they will exceed 8.50% of the first year premium payment.
Broker/Dealers may also receive expense allowances, wholesaler fees, bonuses and
training fees.
FVCS and we may permit specific broker/dealers to sell versions of the Policies
that contain specific investment options that are not available through other
broker/dealers. FVCS and we may pay a different level of compensation for sales
of different versions of the Policies.
Under a Services Agreement with FVCS, we perform insurance underwriting,
issuance and other administrative services for our variable life insurance
policies, including the Policies.
The Company serves as the custodian of the assets of the Separate Account.
OUR MANAGEMENT
Here is a list of our directors and executive officers and their principal
business experience during the past five years. Unless otherwise noted, our
directors are located at 2211 York Road, Suite 202, Oak Brook, Illinois 60523
and all our executive officers are located at 2122 York Road, Suite 300, Oak
Brook, Illinois 60523.
<PAGE>
Directors
Ronald M. Butkiewicz, Chairman, ILona Financial Group, Inc.
Michael J. Corey--401 East Host Drive. Lake Geneva, WI 53147. He is the
Senior Partner-Global Services Practice Lender, LAI Worldwide. 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. Box 297080, Ft. Worth, TX
76219-2800. 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.
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.
<PAGE>
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.
Acceleration of Death Benefits Rider. Similarly, we believe that accelerated
death benefit payments, if permitted under your Policies because of the terminal
illness of the Insured, in most cases will not constitute taxable income for
you. Such payments may be taxable income to you, however, if:
. you are not an insured person; or
. you have an insurable interest in either of the insured persons' lives because
that insured person is a director, officer or employee of yours or is
otherwise financially interested in any trade or business carried on by you.
Modified Endowment Contracts. The Code contains provisions affecting certain
life insurance policies that the Code refers to as "modified endowment
contracts."
Modified endowment contracts result when cumulative premiums paid under a Policy
at any time during the first seven Policy Years exceed the sum of the premiums
that would have been paid by then if the Policy provided for paid up future
benefits after the payment of seven level annual premiums ("seven-pay test").
The amount of premiums payable under the seven-pay test is calculated based upon
certain assumptions regarding the policy's earnings and the use of a reasonable
mortality charge. Riders to a Policy are considered part of the Policy for
purposes of applying the seven-pay test.
Whenever there is a "material change" under a Policy, the Policy generally will
be:
. treated as a new Policy for purposes of determining whether it is a modified
endowment; and
. subjected to a new seven-pay test.
<PAGE>
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 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.
<PAGE>
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.
Diversification Requirements
The Internal Revenue Code provides that a variable life insurance policy will
not be treated as a life insurance contract under the Code for any period (and
any subsequent period) for which the related investments are not adequately
diversified. We intend that all Portfolios of the Funds in which your Policy
may invest will comply with the diversification requirements. If your Policy
did not qualify as life insurance, you would be subject to immediate taxation on
the increases in your Policy's Account Value, plus the cost of insurance
protection under your Policy. This treatment would apply for the period of non-
compliance and subsequently, unless and until we are able to settle the matter
with the Internal Revenue Service. We have no legal obligation to seek or
agree to any such settlement, however.
The amount of investment control which you may exercise under a Policy differs
in some respects from the situation addressed in published rulings issued by the
Internal Revenue Service in which it held that variable life insurance policy
owners were not deemed, for federal income tax purposes, to own the related
assets held in a separate account by the issuing insurance company. It is
possible that these differences, such as your ability to transfer among
investment choices or the number and type of investment choices available, would
cause you to be taxed as if you were the owner of the Portfolio shares that are
attributable to your Policy. In that case, you would be liable for income tax
on an allocable portion of any current income and gains realized by the Separate
Account, even though you have received no distribution of those amounts.
In the event any forthcoming guidance or ruling by federal income tax
authorities sets forth a new position, such guidance or ruling will generally be
applied only prospectively. However, if such ruling or guidance was not
considered to set forth a new position, it may, result in your being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, we reserve the right to modify your Policy
in an attempt to maintain its intended tax treatment.
ADVERTISING PRACTICES
From time to time, articles discussing the Separate Account's investment
experience, performance rankings and other characteristics may appear in
national publications. Some or all of these publishers or ranking services
(including, but not limited to, Lipper Analytical Services Inc. and Morningstar,
Inc.) may publish their own rankings or performance reviews of variable contract
separate accounts, including the Separate Account. We may use references to,
reprints, or portions of reprints of such articles or rankings as sales
literature or advertising material. We may also use rankings that indicate the
names of other variable policy separate accounts and their investment
experience.
We, the Funds, or other parties may develop articles and releases about the
following matters in relation to the Separate Account, the Funds or individual
Portfolios: asset levels, and sales volumes, statistics and analyses of industry
sales volume and asset levels, or other characteristics. Our promotional
material for the Policies and Separate Accounts can refer to, or be a reprint
of, such articles and releases. Such literature may refer to personnel of an
adviser or sub-advisers who have investment management responsibility, and their
investment style. The reference may allude to or include excerpts from articles
appearing in the media.
<PAGE>
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.
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 said 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.
<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 to fund variable life insurance policies. Both tables reflect the
total of the income generated by the Portfolio shown, less total Portfolio
operating expenses, plus or minus realized or unrealized capital gains and
losses, and less the deductions for the Policies' mortality and expense risk
charge (.90% per annum).
The tables do not reflect several significant charges that will apply to your
Policy: cost of insurance charges, an administrative charge (.40% per annum), a
maintenance fee ($2.50 per month if Account Value is less than $100,000), the
distribution, premium tax and federal tax charges for the first 10 Policy years
(.65% per annum) and the withdrawal charge. If these charges were reflected, the
total return figures shown would be lower. For an example of the effect of the
deduction of the 10 year charges and the surrender charge, compare the "Cash
Surrender Value" to the corresponding "Account Value" in the hypothetical
illustrations on pages to .
Table A-1 Average Annual Total Return from Portfolio Inception Date
<TABLE>
<CAPTION>
Portfolio and Portfolio From Portfolio
Inception Date 1 Yr. 3 Yr. 5 Yr. 10 Yr. Inception Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth - 5/4/95 (1)(4) 78.68% 19.9% N/A N/A 24.97%
- --------------------------------------------------------------------------------------------------------------
VIST World Equity - 6/10/88 (2)(4) 54.07% 20.68% 19.31% 11.01% 10.51%
- --------------------------------------------------------------------------------------------------------------
VIST Growth - 5/1/87 (1)(2)(4) 33.33% 29.49% 29.87% 16.5% 16.31%
- --------------------------------------------------------------------------------------------------------------
VIST Matrix Equity - 6/16/88 (2)(3)(4) 13.12% 18.15% 17.79% 12.49% 13.35%
- --------------------------------------------------------------------------------------------------------------
VIST Growth & Income - 5/31/95 (4) 5.32% 14.37% N/A N/A 14.68%
- --------------------------------------------------------------------------------------------------------------
VIST Multiple Strategies - 5/5/87 (2)(4) 26.85% 25.37% 24.9% 15.19% 13.5%
- --------------------------------------------------------------------------------------------------------------
VIST High Income Bond - 6/1/87 (2)(4) 0.92% 5.11% 9.22% 8.54% 8.35%
- --------------------------------------------------------------------------------------------------------------
VIST US Gov. Bond - 5/27/87 (2)(4) -2.78% 4.07% 6.41% 6.19% 6.7%
- --------------------------------------------------------------------------------------------------------------
FIS Prime Money Fund II - 11/94 (4) 3.67% 3.93% 3.98% 3.81% 3.59%
- --------------------------------------------------------------------------------------------------------------
AIM V.I. Cap. Appreciation (5/5/93) 43.71% 24.21% 24.69% N/A 21.43%
- --------------------------------------------------------------------------------------------------------------
AIM V.I. Growth (5/5/93) 34.34% 31.12% 28.74% N/A 22.03%
- --------------------------------------------------------------------------------------------------------------
ACS V.P. Value (5/1/96) -1.75% 8.53% N/A N/A 10.2%
- --------------------------------------------------------------------------------------------------------------
DAM Equity 500 Index (10/1/97) 19.49% N/A N/A N/A 21.62%
- --------------------------------------------------------------------------------------------------------------
DAM Small Cap (8/25/97) 19.26% N/A N/A N/A 8.47%
- --------------------------------------------------------------------------------------------------------------
TEM International (5/1/97) 22.33% 14.31% 16.13% N/A 14.35%
- --------------------------------------------------------------------------------------------------------------
LA Growth & Income (12/11/89) 15.84% 17.09% 19.65% 15.35% 15.33%
- --------------------------------------------------------------------------------------------------------------
MFS New Discovery Series (Initial Class) (5/1/98) 72.51% N/A N/A N/A 40.01%
- --------------------------------------------------------------------------------------------------------------
MFS Growth Series (Initial Class) (5/1/99) N/A N/A N/A N/A 39.49%
- --------------------------------------------------------------------------------------------------------------
MFS Growth & Income Series (Initial Class) (10/9/95) 5.79% 18.3% N/A N/A 20.22%
- --------------------------------------------------------------------------------------------------------------
MFS New Discovery Series (Service Class)/5/ 72.41% N/A N/A N/A 39.91%
- --------------------------------------------------------------------------------------------------------------
MFS Growth Series (Service Class)/5/ N/A N/A N/A N/A 39.39%
- --------------------------------------------------------------------------------------------------------------
MFS Growth w/Income Series (Service Class)/5/ 5.59% 18.11% N/A N/A 20.02%
- --------------------------------------------------------------------------------------------------------------
SEL Communications & Information/5/ (10/4/94) 84.91% 44.90% 35.22% N/A 34.54%
- --------------------------------------------------------------------------------------------------------------
FMR Contrafund/5/ (1/3/95) 23.25% 25.12% N/A N/A 26.79%
- --------------------------------------------------------------------------------------------------------------
FMR Equity - Income/5/ (10/9/86) 5.35% 14.02% 17.67% 13.57% 12.86%
- --------------------------------------------------------------------------------------------------------------
FMR Growth Opportunities/5/ (1/3/95) 3.28% 18.11% N/A N/A 20.57%
- --------------------------------------------------------------------------------------------------------------
TEM Growth Securities (3/15/94) 19.94% 13.44% 14.46% N/A 12.83%
- --------------------------------------------------------------------------------------------------------------
DAM EAFE (8/22/97) 26.7% N/A N/A N/A 16.15%
- --------------------------------------------------------------------------------------------------------------
FIS High Income Bond Fund II (3/1/94) 1.41% 5.25% 9.58% N/A 7.32%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table A-2 Annualized Total Return from the Separate Account Investment Options'
Inception Date (March 31, 1997)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Separate Account From Separate Account From
Investment Options 1 Yr. Inception Investment Options 1 Yr. Inception
Date Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth - (1)(4) 78.68% 30.2% AIM Capital Appreciation N/A 64.74%
- -------------------------------------------------------------------------------------------------------------------------
VIST World Equity - (4) 54.07% 23.36% AIM Growth N/A 40.68%
- -------------------------------------------------------------------------------------------------------------------------
VIST Growth - (1)(4) 33.33% 32.99% ACS V.P. Value N/A -12.93%
- -------------------------------------------------------------------------------------------------------------------------
VIST Matrix Equity - (3)(4) 13.12% 20.41% DAM Equity 500 Index N/A 15.36%
- -------------------------------------------------------------------------------------------------------------------------
VIST Growth & Income - (4) 5.32% 14.51% DAM Small Cap N/A 25.98%
- -------------------------------------------------------------------------------------------------------------------------
VIST Multiple Strategies - (4) 26.85% 28.35% TEM International N/A 18.84%
- -------------------------------------------------------------------------------------------------------------------------
VIST High Income Bond - (4) 0.92% 4.95% LA Growth & Income N/A 7.89%
- -------------------------------------------------------------------------------------------------------------------------
VIST US Gov. Bond - (4) -2.78% 4.72% MFS New Discovery Series (Initial N/A 108.02%
Class Shares)
- -------------------------------------------------------------------------------------------------------------------------
FIS Prime Money Fund II - (4) 3.67% 3.92% MFS Growth Series (Initial Class N/A 63.62%
Shares)
- -------------------------------------------------------------------------------------------------------------------------
MFS Growth w/Income Series N/A 3.26%
(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
ours, became the investment advisor. Prior to that date, results were
achieved by former investment advisers.
(3) Prior to May 1, 1997, the VIST Matrix Equity Portfolio was named the VIST
"Tilt Utility Portfolio" and had different investment policies. The name
and objective of the corresponding Separate Account investment option also
differed.
(4) Performance information reflects any fee waivers and expense reimbursements
with respect to the Portfolios. Absent such waivers or reimbursements, the
performance shown would have been lower.
(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.
<PAGE>
APPENDIX: B
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES,
CASH SURRENDER VALUES AND ACCUMULATED VALUE OF PREMIUMS
The tables in this Appendix B show how a Policy's Death Benefit, Cash Surrender
Value and Account Value could change over an extended period of time, assuming
constant gross annual rates of return for the Separate Account of 0%, 6% and
12%. ("Gross return" for this purpose means the assumed rate of return the
underlying Portfolio has earned before deducting any of its expenses or any
Policy Charges and deductions). The tables are based on an initial premium of
$30,000 to provide insurance coverage on females aged 55 and males aged 65. The
insureds are assumed to be in the nonsmoker standard risk classification. The
first version of each of the tables assumes our current (i.e., non-guaranteed)
rates for the cost of insurance charge, and other charges we make under a Policy
on a daily or monthly basis. The next table is based on our contractually
guaranteed rates for those items.
The Death Benefits, Cash Surrender Values and Account Values shown in the tables
also reflect an unweighted average of the investment advisory fees and other
operating expenses incurred by the Portfolios that were available to Contract
Owners on December 31, 1998, at an annual rate of 0.97% of the average daily
net assets of the Portfolios. This average reflects a voluntary "caps" on the
investment advisory fees. If the investment adviser discontinued these caps, the
values illustrated on the following pages could be less. (See "Highlights"). If
the unweighted average included investment options first available on May 1,
1999, to average of the investment advisory fee, and other operating expenses
insured by the Portfolios would be less and the values illustrated on the
following pages would be more.
Taking account of the charges for mortality and expense risks and administrative
expense in the Separate Account and the average investment advisory fee and
operating expenses of the Portfolios, the gross current annual rates of return
of 0%, 6% and 12% correspond to net investment experience at constant annual
rates of 1.87%, 4.13% and 10.13% and -2.02%, 3.98% and 9.98%, respectively for
the "current" and "guaranteed" tables. The tables do not reflect any tax charges
attributable to the Separate Account since we currently make no such charges. If
we impose any such charges in the future, the gross annual rate of return would
have to exceed the rates shown by an amount sufficient to cover the tax charges,
in order to produce the Death Benefits, Cash Surrender Values and Account Values
illustrated.
The second column of each table shows the amount that would accumulate if you
instead invested your assumed premiums to earn interest, after taxes of 5% per
year, compounded annually.
<PAGE>
$30,000 INITIAL PREMIUM
$96,753 SPECIFIED AMOUNT
------
FEMALE NONSMOKER: AGE 55
CURRENT RATES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
---------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
of PAID PLUS ---------------------------------------------------------------------------------------------------------
Contract INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5 % Value Value Benefit Value Value Benefit Value Value Benefit
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,985 26,060 97,565 30,759 27,834 97,565 32,532 29,607 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
2 33,075 28,004 25,154 97,565 31,537 28,687 97,565 35,280 32,430 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
3 34,729 27,055 24,355 97,565 32,336 29,636 97,565 38,262 35,562 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
4 36,465 26,137 23,737 97,565 33,156 30,756 97,565 41,500 39,100 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
5 38,288 25,250 23,150 97,565 33,998 31,898 97,565 45,014 42,914 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
6 40,202 24,391 22,591 97,565 34,861 33,061 97,565 48,829 47,029 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
7 42,212 23,561 22,061 97,565 35,748 34,248 97,565 52,969 51,469 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
8 44,323 22,758 21,558 97,565 36,658 35,458 97,565 57,463 56,263 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
9 46,539 21,981 21,081 97,565 37,591 36,691 97,565 62,341 61,441 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
10 48,866 21,230 21,230 97,565 38,550 38,550 97,565 67,636 67,636 97,565
- ---------------------------------------------------------------------------------------------------------------------------------
15 62,366 18,281 18,281 97,565 44,842 44,842 97,565 104,313 104,313 111,898
- ---------------------------------------------------------------------------------------------------------------------------------
20 79,596 15,723 15,723 97,565 52,189 52,189 97,565 161,150 161,150 172,430
- ---------------------------------------------------------------------------------------------------------------------------------
25 101,588 13,503 13,503 97,565 60,766 60,766 97,565 248,955 248,955 261,403
- ---------------------------------------------------------------------------------------------------------------------------------
30 129,654 11,577 11,577 97,565 70,780 70,780 97,565 384,602 384,602 403,832
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
<PAGE>
$30,000 INITIAL PREMIUM
$96,753 SPECIFIED AMOUNT
------
FEMALE NONSMOKER: AGE 55
GUARANTEED RATES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
of PAID PLUS ------------------------------------------------------------------------------------------------------
Contract INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,588 25,663 97,565 30,359 27,434 97,565 32,131 29,206 97,565
- -------------------------------------------------------------------------------------------------------------------------------
2 33,075 27,179 24,329 97,565 30,698 27,848 97,565 34,430 31,580 97,565
- -------------------------------------------------------------------------------------------------------------------------------
3 34,729 25,772 23,072 97,565 31,016 28,316 97,565 36,914 34,214 97,565
- -------------------------------------------------------------------------------------------------------------------------------
4 36,465 24,374 21,974 97,565 31,321 28,921 97,565 39,611 37,211 97,565
- -------------------------------------------------------------------------------------------------------------------------------
5 38,288 22,967 20,867 97,565 31,596 29,496 97,565 42,530 40,430 97,565
- -------------------------------------------------------------------------------------------------------------------------------
6 40,202 21,550 19,750 97,565 31,841 30,041 97,565 45,694 43,894 97,565
- -------------------------------------------------------------------------------------------------------------------------------
7 42,212 20,110 18,610 97,565 32,047 30,547 97,565 49,126 47,626 97,565
- -------------------------------------------------------------------------------------------------------------------------------
8 44,323 18,639 17,439 97,565 32,204 31,004 97,565 52,851 51,651 97,565
- -------------------------------------------------------------------------------------------------------------------------------
9 46,539 17,106 16,854 97,565 32,289 31,389 97,565 56,888 55,988 97,565
- -------------------------------------------------------------------------------------------------------------------------------
10 48,866 15,498 16,206 97,565 32,288 32,288 97,565 61,273 61,273 97,565
- -------------------------------------------------------------------------------------------------------------------------------
15 62,366 6,470 15,498 97,565 31,964 31,964 97,565 93,336 93,336 97,565
- -------------------------------------------------------------------------------------------------------------------------------
20 79,596 0 6,470 0 27,379 27,379 97,565 144,065 144,065 97,565
- -------------------------------------------------------------------------------------------------------------------------------
25 101,588 0 0 0 11,226 11,226 97,565 202,990 222,990 97,565
- -------------------------------------------------------------------------------------------------------------------------------
30 129,654 0 0 0 0 0 0 342,060 342,060 97,565
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS, PREVAILING RATES
AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
$30,000 INITIAL PREMIUM
$58,176 SPECIFIED AMOUNT
------
MALE NONSMOKER: AGE 65
CURRENT RATES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
HYPOTHETICAL GROSS INVESTMENT RETURN
-------------------------------------------------------------------------------------------------------
End PREMIUM 0% 6% 12%
of PAID PLUS --------------------------------------------------------------------------------------------------------
Contract INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 31,500 28,985 26,060 58,178 30,759 27,834 58,178 32,532 29,607 58,178
- --------------------------------------------------------------------------------------------------------------------------------
2 33,075 28,004 25,154 58,178 31,537 28,687 58,178 35,280 32,430 58,178
- --------------------------------------------------------------------------------------------------------------------------------
3 34,729 27,055 24,355 58,178 32,336 29,636 58,178 38,262 35,562 58,178
- --------------------------------------------------------------------------------------------------------------------------------
4 36,465 26,137 23,737 58,178 33,156 30,756 58,178 41,500 39,100 58,178
- --------------------------------------------------------------------------------------------------------------------------------
5 38,288 25,250 23,150 58,178 33,998 31,898 58,178 45,014 42,914 58,178
- --------------------------------------------------------------------------------------------------------------------------------
6 40,202 24,391 22,591 58,178 34,861 33,061 58,178 48,829 47,029 58,178
- --------------------------------------------------------------------------------------------------------------------------------
7 42,212 23,561 22,061 58,178 35,748 34,248 58,178 52,969 51,469 59,855
- --------------------------------------------------------------------------------------------------------------------------------
8 44,323 22,758 21,588 58,178 36,658 35,458 58,178 57,463 56,263 63,784
- --------------------------------------------------------------------------------------------------------------------------------
9 46,539 21,981 21,081 58,178 37,591 36,691 58,178 62,341 61,441 67,952
- --------------------------------------------------------------------------------------------------------------------------------
10 48,866 21,230 21,230 58,178 38,550 38,550 58,178 67,636 67,636 72,371
- --------------------------------------------------------------------------------------------------------------------------------
15 62,366 18,281 18,281 58,178 44,842 44,842 58,178 104,313 104,313 109,529
- --------------------------------------------------------------------------------------------------------------------------------
20 79,596 15,723 15,723 58,178 52,189 52,189 58,178 161,150 161,150 169,207
- --------------------------------------------------------------------------------------------------------------------------------
25 101,588 13,503 13,503 58,178 60,766 60,766 63,805 248,955 248,955 261,403
- --------------------------------------------------------------------------------------------------------------------------------
30 129,654 11,577 11,577 58,178 70,780 70,780 71,488 384,602 384,602 388,448
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING INVESTMENT
ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS, PREVAILING RATES
AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR INDIVIDUAL CONTRACT
YEARS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
$30,000 INITIAL PREMIUM
$58,176 SPECIFIED AMOUNT
------
MALE NONSMOKER: AGE 65
GUARANTEED RATES
<TABLE>
<CAPTION>
HYPOTHETICAL GROSS INVESTMENT RETURN
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
End PREMIUM 0% 6% 12%
of PAID PLUS ------------------------------------------------------------------------------------------
Contract INTEREST Account Surr. Death Account Surr. Death Account Surr. Death
Year AT 5% Value Value Benefit Value Value Benefit Value Value Benefit
====================================================================================================================
1 31,500 28,381 25,456 58,178 30,159 27,234 58,178 31,938 29,013 58,178
- --------------------------------------------------------------------------------------------------------------------
2 33,075 26,706 23,856 58,178 30,258 27,408 58,178 34,028 31,178 58,178
- --------------------------------------------------------------------------------------------------------------------
3 34,729 24,963 22,263 58,178 30,290 27,590 58,178 36,294 33,594 58,178
- --------------------------------------------------------------------------------------------------------------------
4 36,465 23,136 20,736 58,178 20,245 27,845 58,178 28,765 36,365 58,178
- --------------------------------------------------------------------------------------------------------------------
5 38,288 21,202 19,102 58,178 30,108 28,008 58,178 41,473 39,373 58,178
- --------------------------------------------------------------------------------------------------------------------
6 40,202 19,136 17,336 58,178 29,861 28,061 58,178 44,458 42,658 58,178
- --------------------------------------------------------------------------------------------------------------------
7 42,212 16,902 15,402 58,178 29,483 27,983 58,178 47,772 46,272 58,178
- --------------------------------------------------------------------------------------------------------------------
8 44,323 14,458 13,258 58,178 28,942 27,742 58,178 51,480 50,280 58,178
- --------------------------------------------------------------------------------------------------------------------
9 46,539 11,751 10,851 58,178 28,203 27,303 58,178 55,642 54,742 60,650
- --------------------------------------------------------------------------------------------------------------------
10 48,866 8,719 8,719 58,178 27,224 27,224 58,178 60,214 60,214 64,429
- --------------------------------------------------------------------------------------------------------------------
15 62,366 0 0 0 17,756 17,756 58,178 92,453 92,453 97,076
- --------------------------------------------------------------------------------------------------------------------
20 79,596 0 0 0 0 0 0 140,711 140,711 147,746
- --------------------------------------------------------------------------------------------------------------------
25 101,588 0 0 0 0 0 0 210,889 210,889 221,433
- --------------------------------------------------------------------------------------------------------------------
30 129,654 0 0 0 0 0 0 318,969 318,969 322,159
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED REPRESENTATIVE OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING ECONOMIC CONDITIONS,
PREVAILING RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND ACCOUNT VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES AVERAGED 0%, 6% AND 12%
OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
<PAGE>
APPENDIX C: FINANCIAL STATEMENTS
The financial statements of First Variable Life Insurance Company contained in
this prospectus should be considered to bear only upon our ability to meet our
obligations under the Policies. They should not be considered as bearing upon
the investment experience of the Separate Account.
The following financial statements are included in this Appendix:
First Variable Life Insurance Company Separate Account VL
First Variable Life Insurance Company
<PAGE>
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.
<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) (a) Specimen Variable Life Insurance Contract.*
(b) Specimen Accelerated Death Benefit Endorsement.#
(c) Specimen Extended Death Benefit Rider#
(6) (a) Articles of Incorporation of First Variable Life Insurance
Company. ###
(b) By-Laws of First Variable Life Insurance Company.***
(7) Not Applicable.
(8) (a) Form of Fund Participation Agreement with Variable Investors
Series ### Trust; Form of Participation Agreements with AIM
Variable Insurance Funds, Inc., et al; American Century
Investment Management, Inc.; Deutsche Asset Management VIT
Funds (formerly known as BT Insurance Funds, et al); Federated
Insurance Series; 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 Agreement with Fidelity Variable
Insurance Products Fund; Fidelity Variable Insurance Products
Funds II; Fidelity Variable Insurance Products Funds III; and
Seligman Portfolios, Inc.****
<PAGE>
(9) Not Applicable.
(10) Specimen Single Premium Variable Life Insurance Application.*
2. Opinion and consent of , Vice President, General Counsel
and Secretary of First Variable Life Insurance Company 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, Independents 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 Philip R. O'Connor
Michael J. Corey Jeff S. Liebmann
Michael R. Ferrari Kenneth R. Meyer
<TABLE>
<CAPTION>
<S> <C>
* 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 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.
### Incorporated by reference to Post-Effective Amendment No. 1 to the Form S-6 Registration Statement of First Variable
Life Insurance Company Separate Account VL, filed electronically with the Securities and Exchange Commission on or
about April 27, 1998 (File No. 333-19193).
#### Incorporated herein by reference to Pre-Effective Amendment No. 4 to the Form N-4 Registration Statement of First
Variable Life Insurance Company and First Variable Annuity Fund E, Filed electronically with the Securities and
Exchange Commission on or about April 27,1999 (File No. 333-12197).
</TABLE>
<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. 4 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
By: /s/ John M. Soukup
-----------------------------
John M. Soukup
President
ATTEST:
/s/ Jeffery K. Hoelzel
- ----------------------
Jeffery K. Hoelzel
Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Separate Account VL of First Variable Life Insurance Company, certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
Registration Statement and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, on the 27th
day of April, 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
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities with First Variable Life Insurance Company,
on the 27th day of April, 2000.
PRINCIPAL EXECUTIVE OFFICER
s/John M. Soukup
- -----------------------
John M. Soukup
President
PRINCIPAL ACCOUNTING OFFICER
s/Christopher S. Harden
- -----------------------
Christopher S. Harden
Vice President & Treasurer
DIRECTORS
s/Ronald M. Butkiewicz
- -----------------------
Ronald M. Butkiewicz
s/Michael J. Corey
- -----------------------
Michael J. Corey*
s/Norman A. Fair
- -----------------------
Norman A. Fair
s/Michael R. Ferrari
- -----------------------
Michael R. Ferrari*
s/Shane W. Gleeson
- -----------------------
Shane W. Gleeson
s/Jeff S. Liebmann
- -----------------------
Jeff S. Liebmann*
s/Kenneth R. Meyer
- -----------------------
Kenneth R. Meyer*
s/Philip R. O'Connor
- -----------------------
Philip R. O'Connor*
s/Clark A. Ramsey
- ----------------------- *By: s/John M. Soukup
Clark A. Ramsey ------------------------
John M. Soukup
s/John M. Soukup Attorney-in-Fact
- -----------------------
John M. Soukup
<PAGE>
Exhibit 6
Opinion and Consent of Actuary
<PAGE>
Exhibit 6.
[LOGO OF FIRST VARIABLE LIFE INSURANCE COMPANY]
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. 333-05053)
Gentlemen:
In my capacity as Actuary of First Variable Life Insurance Company, I have
provided actuarial advice concerning:
. The preparation of the captioned registration statement (Registration
Statement") on Form S-6 filed by First Variable Life Insurance Company and
its Separate Account VL with the Securities and Exchange Commission under
the Securities Act of 1933 with respect to the variable universal life
insurance 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, and are consistent with the
provisions of the Contract. The rate structure of the Contract overall has
not been designed so as to make the relationship between premiums and
benefits, as shown in the illustrations included, appear more favorable to
prospective buyers than other illustrations which could have been provided
at other combinations of ages, sex of the insured, death benefit option and
amount, premium class and premium amounts.
2. All other numerical examples shown in the 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,
Martin Sheerin FSA, MAAA
<PAGE>
Exhibit 7
Consent of Ernst & Young LLP, Independent Auditors
We consent to the use of our reports dated February 2, 1999 with respect with
respect to the consolidated financial statements of First Variable Life
Insurance Company, and March 18, 1999 with respect to the financial statements
of First Variable Life Insurance Company - First Variable Annuity Fund E, in
Post-Effective Amendment No. 4 to the Registration Statement (Form S-6 No.
333-05053) and the related Prospectus of First Variable Life Insurance Company.
ERNST & YOUNG LLP
Chicago, Illinois
April 24, 2000
<PAGE>
Exhibit 7
CONSENTS 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. 4 to Registration
Statement (Form S-6, No. 333-05053) of Capital One Pay VL.
KPMG LLP
Chicago, Illinois
April 24, 2000
