File Nos. 2-30164
811-1680
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 41 [X]
------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 41 [X]
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FIRST VARIABLE ANNUITY FUND A
-----------------------------
(Exact Name of Registrant)
FIRST VARIABLE LIFE INSURANCE COMPANY
-------------------------------------
(Name of Depositor)
10 Post Office Square 12th Floor
Boston, MA 02109
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's telephone number including area code: (617) 457-6700
Name and Address of Agent for Service
-------------------------------------
Arnold R. Bergman
Vice President - Legal and Administration
First Variable Life Insurance Company
10 Post Office Square, 12th Floor
Boston, MA 02109
Copies to:
Lynn K. Stone, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1996 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a) (1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485.
<PAGE>
If appropriate, check the following:
_____This Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed a Rule 24f-2 Notice for its recent fiscal year on or
about February 26, 1996.
<PAGE>
FIRST VARIABLE ANNUITY FUND A
CROSS REFERENCE SHEET
(Pursuant to Rule 495(a))
<TABLE>
<CAPTION>
Item No. in
Form N-4 Location
- -------- --------
PART A
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<S> <C> <C>
Item 1. Cover Page...........................................................Cover Page
Item 2. Definitions..........................................................Definitions
Item 3. Synopsis Prospectus Summary;
Expense Information
Item 4. Condensed Financial Information Expense Information
Item 5. General Description of Registrant,
Depositors and Portfolio Companies The Company; Fund A
and the Investment Options
Item 6. Deductions Deductions and Expenses
of the Policies; Fund A
and the Investment Options
Item 7. General Description of Variable
Annuity Contracts......... The Policies
Item 8. Annuity Period............ Annuity Period
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Accumulation Period
Item 11. Redemptions...........................................................Accumulation Period
Item 12. Taxes Federal Tax
......................................................................Considerations
Item 13. Legal Proceedings.....................................................Legal Proceedings
Item 14. Table of Contents of Statement of
Additional Information................................................Table of Contents of
Statement of Additional
Information
<PAGE>
PART B
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Page Two
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Item 15. Cover Page............................................................Cover Page
Item 16. Table of Contents.....................................................Table of Contents
Item 17. General Information and History.......................................General Information and
......................................................................History
Item 18. Services..............................................................Independent Auditors;
......................................................................Custody of Assets;
......................................................................Service Agreement
Item 19 Purchase of Securities Being Offered..................................The Policies (Part A)
Item 20 Underwriters..........................................................Underwriter
Item 21 Calculation of Performance Data.......................................Not Applicable
Item 22. Annuity Payment.......................................................Annuity Period (Part A)
Item 23. Financial Statements Financial Statements
</TABLE>
PART C
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Information required to included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
<PAGE>
[GRAPHIC] FIRST
VARIABLE
LIFE
INSURANCE
COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES
FUNDED IN
FIRST VARIABLE ANNUITY FUND A
PROSPECTUS
Dated: May 1, 1996
---------
The variable annuity policies ( "the Policies") issued by First
Variable Life Insurance Company (the "Company") and described in this Prospectus
are designed to provide annuity income benefits to (i) individuals who want an
annuity policy outside the scope of an employer-sponsored plan or an individual
retirement annuity, (ii) employees covered under employer pension,
profit-sharing, annuity and certain deferred compensation plans qualified under
the Internal Revenue Code (the "Code") or (iii) individuals through an
individual retirement annuity described in Section 408(b) of the Code.
This Prospectus sets forth concisely the information that an investor
should know before investing. It should be read in its entirety and retained for
future reference. Certain additional information is found in the Statement of
Additional Information, dated the same date as this Prospectus, which is
incorporated herein by reference. The Table of Contents of the Statement of
Additional Information is set forth on page __ of this Prospectus. To obtain
without cost a copy of the Statement of Additional Information, write or call
the Company at 323 Center Street, Suite 1200, The Tower Building, Little Rock,
AR 72201, (501) 374-4800.
The Owner will generally have 10 days from receipt of the Policy in
which the Policy may be returned by delivering or mailing it to the Company.
Certain states may permit the Owner more than 10 days to return the Policy.
Within seven days of receipt of the Policy and a written notice by the Owner,
the Company will issue a refund. Unless applicable law requires a refund equal
to the Purchase Payment, the Company will refund the Purchase Payment plus any
increase or minus any decrease in Accumulation Value of the Policy attributable
to the Purchase Payment without the payment of any Termination Charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT SHOULD BE
ACCOMPANIED BY CURRENT PROSPECTUSES OF THE AVAILABLE INVESTMENT OPTIONS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS..................................................................................................
INVESTMENT OPTION ANNUAL EXPENSES..............................................................
EXPENSE INFORMATION..........................................................................................
CONDENSED FINANCIAL INFORMATION..............................................................................
PROSPECTUS SUMMARY...........................................................................................
Types of Policies......................................................................................
Sales Charge, Policy Issue Fee, Purchase Payment Processing Fee and Termination Charge.................
Other Charges..........................................................................................
The Trust..............................................................................................
THE COMPANY, FUND A AND THE INVESTMENT OPTIONS...............................................................
The Company............................................................................................
Fund A.................................................................................................
Variable Investors Series Trust........................................................................
Federated Insurance Series
Proposed Subsitution of Cash Management Portfolio Shares
Voting Rights..........................................................................................
Substitution of Other Securities.......................................................................
THE POLICIES.................................................................................................
Immediate Policies.....................................................................................
Deferred Policies......................................................................................
DEDUCTIONS AND EXPENSES OF THE POLICIES, FUND A AND THE INVESTMENT OPTIONS...................................
Charges to the Policies................................................................................
Charges to Fund A......................................................................................
Charges to the Investment Options......................................................................
ACCUMULATION PERIOD..........................................................................................
Free Look Right
Delayed Investment Start Date
Purchase Payment Amounts...............................................................................
When an Accumulation Unit is Valued....................................................................
Crediting Accumulation Units...........................................................................
Accumulation Unit Value................................................................................
Exchange of Variable Accumulation Units................................................................
Determination of Accumulation Unit Values Upon Exchange................................................
Net Investment Factor..................................................................................
Accumulation Value.....................................................................................
Withdrawal Prior to Annuity Commencement Date..........................................................
Certain Administrative Procedures......................................................................
ANNUITY PERIOD...............................................................................................
General................................................................................................
Assumed Investment Rate................................................................................
Election and Effective Date of Election................................................................
Fixed Annuity..........................................................................................
Variable Annuity.......................................................................................
Variable Annuity Unit Value............................................................................
Exchange of Variable Annuity Units.....................................................................
Annuity Options........................................................................................
Misstatement of Age or Sex.............................................................................
Commutation............................................................................................
DEATH BENEFIT................................................................................................
Death Benefit Provided by the Policy...................................................................
<PAGE>
Election and Effective Date of Election................................................................
Amounts Payable on Death of Payee After Annuity Commencement Date......................................
Payment of Death Benefit...............................................................................
Amount of Death Benefit................................................................................
DEFERMENT....................................................................................................
RETIREMENT PLAN CONDITIONS...................................................................................
OWNERSHIP PROVISIONS.........................................................................................
Owner..................................................................................................
Change of Ownership....................................................................................
Assignment.............................................................................................
BENEFICIARY DESIGNATIONS.....................................................................................
OTHER CHANGES IN THE POLICY..................................................................................
FEDERAL TAX CONSIDERATIONS...................................................................................
General................................................................................................
Diversification........................................................................................
Policies Owned by Other Than Natural Persons
Multiple Policies......................................................................................
Tax Treatment of Assignments...........................................................................
Income Tax Withholding.................................................................................
Tax Treatment of Withdrawals - Non-Qualified Policies..................................................
Qualified Plans........................................................................................
Tax Treatment of Withdrawals - Qualified Policies......................................................
Tax-Sheltered Annuities - Withdrawal Limitations.......................................................
Tax Advice and Other Taxes.............................................................................
DISTRIBUTION OF VARIABLE ANNUITY POLICIES....................................................................
LEGAL PROCEEDINGS............................................................................................
PERIODIC REPORTS.............................................................................................
STATE REGULATION.............................................................................................
RESERVATION OF RIGHTS........................................................................................
PRIOR POLICIES...............................................................................................
INQUIRIES....................................................................................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.....................................................
</TABLE>
DEFINITIONS
Accumulation Period: The period during which Purchase Payments may be made prior
to the Annuity Commencement Date.
Accumulation Unit: A unit of measure used in the calculation of the Accumulation
Value of each Investment Division in Fund A that, in turn, is used in the
calculation of the Accumulation Value of a Policy.
Accumulation Value: The value of an Owner's interest in Fund A.
Adjusted Value: The dollar amount applied under one of the Annuity Options. The
Adjusted Value of a Policy is equal to the Accumulation Value of a Policy
determined at the end of the Valuation Period which ends immediately preceding
the Annuity Commencement Date, minus the sum of any applicable taxes not
previously deducted.
Annuitant: The person named in the application and on whose life the first
Annuity Payment is to be made.
Annuitant's Beneficiary: The person, persons or entity named in the Company's
records to receive any death benefits on the Annuitant's death. The Annuitant's
Beneficiary is as specified in the application, unless changed.
<PAGE>
Annuity Commencement Date: The first day of the period for which the first
Annuity Payment is to be made. It is the date specified in the application,
unless changed.
Annuity Option: The method for making Annuity Payments. The Annuity Option is as
specified in the application, unless changed.
Annuity Payments: Payments made by the Company to the Payee during the Annuity
Period.
Annuity Period: The period after the Annuity Commencement Date during which
Annuity Payments are made.
Annuity Unit: A unit of measure used in the calculation of the amount of each
Variable Annuity Payment from each Investment Division.
Federated Series: Federated Insurance Series, an open-end, series management
investment company registered under the Investment Company Act of 1940, as
amended.
Fixed Annuity: An annuity with payments which do not vary with the investment
experience of any separate account of the Company.
Fund A: The separate account established by the Company to receive and invest
the Net Purchase Payments made under the Policies.
Investment Division: Fund A is divided into Investment Divisions. Each
Investment Division invests in a designated Investment Option or a Portfolio of
an Investment Option.
Investment Option: An investment entity which can be selected by the Owner to be
an underlying investment of the Policy.
Issue Date: The date on which the Policy becomes effective.
Net Purchase Payment: A Purchase Payment, less the Policy Issue Fee and any
applicable taxes.
Non-Qualified Policy: A Policy that does not meet the requirements of Sections
401, 403, 408 or 457 of the Internal Revenue Code.
Owner: The person, persons or entity entitled to the ownership rights stated in
a Policy and in whose name a Policy is issued. The Annuitant is the Owner unless
another Owner is named in the application. If a Policy is owned jointly, rights
and privileges under a Policy must be exercised by each Owner. Even if another
Owner is named in the application, the Annuitant becomes the Owner on the
Annuity Commencement Date. When the Owner and the Annuitant are the same person,
any death benefit payable will be paid to the Annuitant's Beneficiary.
Owner's Beneficiary: The person, persons or entity named to become the new Owner
if an Owner dies prior to the Annuity Commencement Date and who will receive the
death benefit set forth in a Policy upon the death of an Owner prior to the
Annuity Commencement Date; provided, however, that if such person is an Owner's
spouse, the spouse may keep the Policy in force and will become the Owner
pursuant to the terms of the Policy.
Payee: The recipient of Annuity Payments under a Policy either during the
Annuity Period or as a death benefit prior to the Annuity Commencement Date.
Policy Issue Fee: A fee of $25 paid to the Company from the initial Purchase
Payment made in connection with Separately Administered Plans to reimburse the
Company for a portion of administrative expenses incurred in issuing the Policy.
Policy Year: The first Policy Year shall be the period of 12 months from the
Issue Date. Subsequent Policy Years shall end on the same date in each
succeeding year.
Portfolio: A segment of an Investment Option which constitutes a separate and
distinct class of shares. It is sometimes referred to as a Fund.
Purchase Payment: An amount paid to the Company to provide benefits under a
Policy.
<PAGE>
Purchase Payment Processing Fee: A fee of $5 paid to the Company from subsequent
Purchase Payments after the initial investment in a Policy issued in connection
with a Separately Administered Plan to reimburse the Company for some of its
administrative expenses incurred in connection with processing subsequent
investments in such Policies.
Qualified Policy: A Policy used in connection with a retirement plan that meets
the requirements of Sections 401, 403, 408 or 457 of the Internal Revenue Code.
Sales Charge: A charge imposed against the Purchase Payment for all Policies
except those issued in connection with Separately Administered Plans to
reimburse the Company for its expenses related to distributing the Policies.
Separately Administered Plan: Individual retirement plans created pursuant to
the provisions of the Self-Employed Individual Retirement Act of 1962 (H.R. 10
Plans) or Section 401 of the Code which meet all of the following criteria: (1)
purchases of the Policies involve little or no selling effort on the part of the
distributor of the Policies; (2) all legal, accounting, actuarial,
administrative and reporting services required by such plans for purposes of
compliance with the Employee Retirement Income Security Act of 1974 ("ERISA")
are provided by persons other than Fund A or the Company; (3) persons providing
such services are in no way compensated by sales commissions from Fund A, the
Company or the distributor of the Policies; and (4) the person responsible for
the plan's compliance with ERISA provides the Company annually with a letter of
assurance that all required plan services will be provided by persons other than
Fund A, the Company or the distributor of the Policies and that Fund A, the
Company and the distributor of the Policies have not provided any services to
the plan.
Service Center: The Company's administrative service center for the Policies at
Post Office Box 419806, Kansas City, MO 64141-6806, (800) 544-0086. The Company
may establish additional service centers for the Policies and/or other policies
it issues.
Termination Charge: A charge applied against a Policy's Accumulation Value to
reimburse the Company for administrative expenses incurred in connection with
the termination of certain types of Policies.
Trust: Variable Investors Series Trust, an open-end, series management
investment company registered under the Investment Company Act of 1940, as
amended.
Valuation Period: Each business day together with any non-business days before
such business day. A business day is any day the New York Stock Exchange is open
for trading or any day in which the Securities and Exchange Commission requires
that shares of an Investment Option be valued.
Variable Annuity: An annuity with payments which vary as to dollar amount in
relation to the investment performance of Investment Divisions into which the
Adjusted Value is allocated from time to time.
VARIABLE INVESTORS SERIES TRUST ANNUAL EXPENSES
(as a percentage of average net assets of the Portfolio)
<TABLE>
<CAPTION>
High U.S.
Cash Common Income World Multiple Tilt Government Growth & Small
Management Stock Bond Equity Strategies Utility Bond Income Cap
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio** Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .50% .70% .70% .70% .70% .65% .60% .75% .85%
Other Operating
Expenses
(after expense
reimbursement -
see below)* .25% .47% .50% .50% .50% .50% .25% .50% .50%
------------- ---------- --------- --------- ---------- --------- ------------ --------- ----------
Total Trust .75% 1.17% 1.20% 1.20% 1.20% 1.15% .85% 1.25% 1.35%
Annual Expenses*
</TABLE>
* First Variable Advisory Services Corp. ("Investment Adviser") has agreed
through April 1, 1997 to reimburse Variable Investors Series Trust for all
operating expenses (exclusive of management fees) in excess of .50% of a
Portfolio's average net assets (.25% in the case of the Cash Management
Portfolio and the U.S. Government Bond Portfolio). Had the Investment Adviser
not reimbursed expenses of the Portfolios, for the year ended December 31, 1995,
the Total Trust Annual Expenses were 1.72% for the Cash Management Portfolio;
1.19% for the Common Stock Portfolio; 2.04% for the High Income Bond Portfolio;
1.33% for the Multiple Strategies Portfolio; 1.51% for the Tilt Utility
Portfolio; 1.59% for the U.S. Government Bond Portfolio; and 1.67% for the World
Equity Portfolio.
** Prior to April 1, 1994, the Tilt Utility Portfolio was known as the Equity
Income Portfolio and had different investment objectives, policies and
restrictions.
<PAGE>
FEDERATED INSURANCE SERIES ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Fund)
Prime
Money
Fund II
Management Fees....................... .50%
Other Operating Expenses.............. .30%
---
Total Trust Annual Expenses........... .80%
EXPENSE INFORMATION
The purpose of these tables is to assist investors in understanding the
various costs and expenses that investors in the Policies bear directly and
indirectly. All expenses for Fund A and for the Investment Options are based on
expenses incurred during the fiscal year ended December 31, 1995. In addition,
premium taxes may be imposed by various jurisdictions and are not reflected in
the tables. The Examples should not be considered representations of past or
future expenses or returns, and actual expenses or returns may be greater or
less than those shown. For more information, see "DEDUCTIONS AND EXPENSES OF THE
POLICIES, FUND A AND THE INVESTMENT OPTIONS" and "ACCUMULATION PERIOD" in the
Prospectus, and also see the prospectuses for the Investment Options.
Qualified Plans (other than the State of Arkansas Deferred
Compensation Plan or Separately Administered Plans)
All Investment Options
Contract Owner Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of Purchase Payments) 5%
Deferred Sales Load.............................................. NONE
Surrender Fee.................................................... NONE
Exchange Fee..................................................... NONE
Separate Account (Fund A) Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees.................................. 1.00%
-----
Total Fund A Annual Expenses..................................... 1.00%
<PAGE>
Examples
You would pay the following expenses on a $1,000 investment at the end
of the applicable time period, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
Investment Option 1 Yr 3 Yrs 5 Yrs 10 Yrs
----------------- ---- ----- ----- ------
<S> <C> <C> <C> <C>
Cash Management.................................... $67 $103 $141 $247
U.S. Government Bond............................... $68 $106 $146 $258
High Income Bond................................... $71 $116 $163 $293
Tilt Utility....................................... $71 $115 $161 $288
World Equity....................................... $71 $116 $163 $293
Common Stock....................................... $71 $115 $162 $290
Multiple Strategies................................ $71 $116 $163 $293
Growth & Income.................................... $72 $118 $166 $298
Small Cap.......................................... $73 $120 $171 $307
Prime Money Fund II................................ $68 $104 $143 $252
</TABLE>
State of Arkansas Deferred Compensation Plan
All Investment Options
Contract Owner Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of Purchase Payments)............................... NONE*
Deferred Sales Load................................................... NONE
Surrender Fee (as a percentage of amount surrendered)................. NONE**
Exchange Fee.......................................................... NONE
Separate Account (Fund A) Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees....................................... 1.00%
----
Total Fund A Annual Expenses.......................................... 1.00%
----
- -----
* This charge is NOT currently imposed, but Company reserves the
right to impose a 2.5% maximum sales load. See "DEDUCTIONS AND
EXPENSES OF THE POLICIES, FUND A AND THE INVESTMENT OPTIONS."
** A Termination Charge of 2% of the Accumulation Value of a Policy
attributable to Purchase Payments made prior to July 1, 1991 will be
imposed in the event that the State of Arkansas terminates the Arkansas
Deferred Compensation Plan or partially or wholly transfers the
Accumulation Value of the Policies issued under the Plan to a funding
medium not issued or maintained by the Company or its affiliates, or if
a withdrawal is for reasons other than death, disability, financial
hardship, employment termination, retirement or transfer to specified
plans.
<PAGE>
Separately Administered Plans
All Investment Options
Contract Owner Transaction Expenses
Maximum Sales Load Imposed on Purchases............................. NONE
Deferred Sales Load................................................. NONE
Surrender Fee (as a percentage of amount surrendered)............... NONE*
Exchange Fee........................................................ NONE
Purchase Payment Processing Fee..................................... NONE**
Separate Account (Fund A) Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees..................................... 1.00%
----
Total Fund A Annual Expenses........................................ 1.00%
- -----
* A Termination Charge of 2% of the Accumulation Value of a Policy will
be imposed if the Owner of a Separately Administered Plan transfers the
Accumulation Value of such Separately Administered Plan to a funding
medium not issued or maintained by the Company or its affiliates.
** No processing fee is currently imposed, but the Company reserves the
right to impose a $5 Processing fee on each Purchase Payment, after the
initial Purchase Payment that may be received in connection with
Policies for Separately Administered Plans.
Examples
You would pay the following expenses on a $1,000 investment at the end
of the applicable time period, assuming 5% annual return on assets:
Investment Option 1 Yr 3 Yrs 5 Yrs 10 Yrs
----------------- ---- ----- ----- ------
Cash Management................... $18 $56 $ 96 $208
U.S. Government Bond.............. $19 $59 $101 $218
High Income Bond.................. $23 $70 $119 $255
Tilt Utility...................... $22 $68 $117 $250
World Equity...................... $23 $70 $119 $255
Common Stock...................... $22 $69 $118 $252
Multiple Strategies............... $23 $70 $119 $255
Growth & Income................... $23 $71 $122 $261
Small Cap......................... $24 $74 $127 $271
Prime Money Fund II............... $18 $57 $ 98 $213
<PAGE>
All Other Plans
All Investment Options
Contract Owner Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of Purchase Payments)..................... 7.00%
Deferred Sales Load........................................ NONE
Surrender Fee.............................................. NONE
Exchange Fee............................................... NONE
Separate Account (Fund A) Annual Expenses
(as a percentage of average account values)................
Mortality and Expense Risk Fees............................ 1.00%
Total Fund A Annual Expenses............................... 1.00%
Examples
You would pay the following expenses on a $1,000 investment at the end
of the applicable time period, assuming 5% annual return on assets:
Investment Option 1 Yr 3 Yrs 5 Yrs 10 Yrs
----------------- ---- ----- ----- ------
Cash Management......................... $87 $122 $159 $263
U.S. Government Bond.................... $88 $125 $164 $273
High Income Bond........................ $91 $135 $181 $308
Tilt Utility............................ $90 $133 $178 $303
World Equity............................ $91 $135 $181 $308
Common Stock............................ $91 $134 $179 $305
Multiple Strategies..................... $91 $135 $181 $308
Growth & Income......................... $91 $136 $183 $312
Small Cap............................... $92 $139 $188 $322
Prime Money Fund II..................... $87 $123 $161 $268
<PAGE>
FIRST VARIABLE ANNUITY FUND A CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
The following condensed financial information is derived from the
financial statements of Fund A. The information should be read in conjunction
with the financial statements, related notes and other financial information
for Fund A included in the Statement of Additional Information. The financial
statements and report of independent accountants of the Company are also
contained in the Statement of Additional Information.
<TABLE>
<CAPTION>
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Management Division
Beginning of Period $14.05 $13.69 $13.49 $13.20 $12.62 $11.82 $10.96
End of Period $14.67 $14.05 $13.69 $13.49 $13.20 $12.62 $11.82
No. of Accum. Units
Outstanding 59,872 61,727 56,746 67,192 76,051 133,920 118,874
U.S. Government Bond
Division
Beginning of Period $16.27 $16.89 $15.60 $14.84 $13.07 $12.26 $10.87
End of Period $19.36 $16.27 $16.89 $15.60 $14.84 $13.07 $12.26
No. of Accum. Units
Outstanding 106,089 147,431 149,397 157,098 222,283 206,325 210,125
High Income Bond
Division
Beginning of Period $17.44 $18.95 $16.66 $14.54 $11.57 $12.06 $11.13
End of Period $20.54 $17.44 $18.95 $16.66 $14.54 $11.57 $12.06
No. of Accum. Units
Outstanding 12,200 11,637 10,310 8,164 4,639 9,693 9,301
</TABLE>
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
1988 1987 1986
---- ---- ----
<S> <C> <C> <C>
Cash Management Division
Beginning of Period $10.32 $10.00
End of Period $10.96 $10.32 N/A
No. of Accum. Units
Outstanding 100,546 122,600
U.S. Government Bond
Division
Beginning of Period $10.33 $10.00
End of Period $10.87 $10.33 N/A
No. of Accum. Units
Outstanding 165,729 98,820
High Income Bond
Division
Beginning of Period $10.04 $10.00
End of Period $11.13 $10.04 N/A
No. of Accum. Units
Outstanding 7,843 14,189
</TABLE>
- -------
*Since December 31, 1988, the investment policies of the U.S. Government Bond
Portfolio (formerly, the U.S. Government and High Quality Bond Portfolio) have
been changed. In addition, the High Yield Bond Portfolio has changed its name to
the High Income Bond Portfolio. See the prospectus for the Trust.
<PAGE>
FIRST VARIABLE ANNUITY FUND A CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES (continued)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Multiple Strategies
Division
Beginning of Period $16.12 $16.94 $15.49 $15.09 $12.35 $12.02 $9.97
End of Period $21.11 $16.12 $16.94 $15.49 $15.09 $12.35 $12.02
No. of Accum. Units 85,904 100,018 109,462
Outstanding 56,510 81,067 89,213 88,222
World Equity Division
Beginning of Period $13.45 $12.35 $10.63 $10.94 $10.23 $11.54 $9.98
End of Period $16.55 $13.45 $12.35 $10.63 $10.94 $10.23 $11.54
No. of Accum. Units
Outstanding 41,403 35,011 25,001 14,564 7,083 1,548 301
Tilt Utility Division*
Beginning of Period $19.45 $19.86 $17.01 $17.00 $13.23 $13.72 $10.93
End of Period $25.70 $19.45 $19.86 $17.01 $17.00 $13.23 $13.72
No. of Accum. Units
Outstanding 16,335 13,606 12,418 9,731 5,381 2,470 574
Common Stock Division
Beginning of Period $127.79 $130.10 $120.46 $131.71 $99.00 $103.81 $77.82
End of Period $173.49 $127.79 $130.10 $120.46 $131.71 $99.00 $103.81
No. of Accum.Units
Outstanding 134,326 141,689 158,790 184,141 191,183 204,689 219,043
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
1988 1987 1986
---- ---- ----
<S> <C> <C> <C>
Multiple Strategies
Division
Beginning of Period $9.33 $10.00
End of Period $9.97 $9.33 N/A
No. of Accum. Units 158,845 255,283
Outstanding
World Equity Division
Beginning of Period $10.00
End of Period $9.98 N/A N/A
No. of Accum. Units
Outstanding 15
Tilt Utility Division*
Beginning of Period $10.00
End of Period $10.93 N/A N/A
No. of Accum. Units
Outstanding 18
Common Stock Division
Beginning of Period $67.30 $66.04 $63.52
End of Period $77.82 $67.30 $66.04
No. of Accum.Units
Outstanding 241,500 248,378 559,738
</TABLE>
*Prior to April 1, 1994, the Tilt Utility Division was known as the Equity
Income Division and had different investment objectives, policies, and
restrictions.
<PAGE>
FIRST VARIABLE ANNUITY FUND A CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES (continued)
<TABLE>
<CAPTION>
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
6/30/92 1991 1990 1989 1988 1987
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Real Estate Investment Division*
Beginning of Period............................... $11.65 $8.82 $10.66 $10.22 $9.24 $10.00
End of Period $11.51 $11.65 $8.82 $10.66 $10.22 $9.24
No. of Accum. Units Outstanding................... 0 26,852 26,832 26,517 25,309 19,767
Natural Resources Division*
Beginning of Period............................... $12.00 $11.98 $12.99 $10.00 $10.00
End of Period..................................... $11.53 $12.00 $11.98 $12.99 $10.00 N/A
No. of Accum. Units Outstanding................... 0 1,347 656 156 0
World Bond Division*
Beginning of Period............................... $13.23 $11.73 $10.62 $10.00 $10.00
End of Period..................................... $13.28 $13.23 $11.73 $10.62 $10.00 N/A
No. of Accum. Units Outstanding................... 0 4,336 638 147 0
Aggressive Growth Division*
Beginning of Period.............................. $13.98 $10.95 $13.41 $10.68 $10.00
End of Period..................................... $11.89 $13.98 $10.95 $13.41 $10.68 N/A
No. of Accum. Units Outstanding................... 0 13,840 13,647 10,863 257
</TABLE>
- -----
*On June 29, 1992, the Real Estate Investment, Natural Resources, Aggressive
Growth and World Bond Investment Divisions of Fund A, and the corresponding
Portfolios of the Trust were terminated, based primarily on their small size and
the limited prospect for growth in the foreseeable future. Investments in these
four Investment Divisions were transferred into the remaining Investment
Divisions.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF SOME OF THE IMPORTANT FEATURES OF THE
POLICIES DESCRIBED IN THE PROSPECTUS. THE SUMMARY DOES NOT PROVIDE A FULL
DESCRIPTION OF THE POLICIES. THE ENTIRE PROSPECTUS SHOULD BE READ FOR THAT
PURPOSE. YOU MAY FIND IT HELPFUL TO REREAD THIS SUMMARY AFTER READING THE
PROSPECTUS.
Types of Policies
This Prospectus describes Variable Annuity Policies. Policies are
either flexible Purchase Payment deferred annuity Policies ("Deferred Policies")
or single Purchase Payment immediate annuity Policies ("Immediate Policies").
Depending on the tax treatment afforded a Policy, all Policies are either
Qualified Policies or Non-Qualified Policies. For information concerning
taxation of the Company, Fund A, the Policies and investors, see "FEDERAL TAX
CONSIDERATIONS." For information concerning the Company, see "THE COMPANY."
Sales Charge, Policy Issue Fee, Purchase Payment Processing Fee and Termination
Charge
The net amount invested in a Policy after deduction of any Sales
Charge, Policy Issue Fee, Purchase Payment Processing Fee, and any applicable
taxes described below, may be allocated to Fund A, a separate account of the
Company. Each initial Net Purchase Payment for a Policy will be allocated to the
Investment Division(s) of Fund A as specified by the Owner in the application.
For all subsequent Net Purchase Payments, each Net Purchase Payment will be
allocated to the Investment Division(s) as may then be specified by the Owner.
Such net amounts are then invested by the Company in shares of the Investment
Options at net asset value. The value of the Policy before the date Annuity
Payments begin, and the amount of monthly variable annuity benefits payable
under the Policy thereafter, will increase or decrease depending upon the
investment performance of the Investment Options in which the assets of the
Investment Divisions are invested.
Owners have the right to return a Contract according to the terms of its
"free-look" right. The Company reserves the right to delay initial investment of
Purchase Payments in the Portfolios in certain instances, but it does not
currently do so. See "ACCUMULATION PERIOD."
A Sales Charge of 5% (5.26% of the net amount invested) is deducted
from the Purchase Payment for Policies issued in connection with Qualified Plans
(other than the State of Arkansas Deferred Compensation Plan or Separately
Administered Plans). The Sales Charge assessed against Policies issued in
connection with the State of Arkansas Deferred Compensation Plan is a maximum of
2.5% (2.56% of the net amount invested). The Company does not currently impose
this Sales Charge, and no Sales Charge is deducted in the case of Policies
issued for Separately Administered Plans. In all other circumstances a Sales
Charge of 7.0% (7.53% of the net amount invested) is deducted from all amounts
invested.
During the Accumulation Period, the Owner may make a total or partial
withdrawal from the Policy. However, a Termination Charge of 2% of the
Accumulation Value of such Policy will be imposed if the Owner of a Separately
Administered Plan transfers the Accumulation Value of such Separately
Administered Plan to any funding medium which is not issued or maintained by the
Company or its affiliates. A Termination Charge of 2% of the Accumulation Value
attributable to Purchase Payments made prior to July 1, 1991 will be imposed in
the event the State of Arkansas terminates the Plan or partially or wholly
transfers the Accumulation Value of the Policies issued under the Plan to a
funding medium not issued or maintained by the Company or its affiliates. This
Termination Charge will not be imposed on any Accumulation Value attributable to
Purchase Payments made on and after July 1, 1991. A Termination Charge of 2%
will be imposed in the event of partial or total withdrawals made by individuals
from Policies issued under the State of Arkansas Deferred Compensation Plan
unless such partial or total withdrawals are due to death, disability, financial
hardship, employment termination, retirement or transfer of funds to another
Plan (other than another Plan offered by the State of Arkansas) which complies
with Section 457 of the Internal Revenue Code. The Termination Charge reimburses
the Company for some of its expenses related to distributing the Policies. Such
withdrawals could have federal tax consequences that should be considered
carefully. See "FEDERAL TAX CONSIDERATIONS." Once Annuity Payments begin, an
Annuitant cannot thereafter make any withdrawals from the Policy.
<PAGE>
Although it does not do so currently, the Company may, in the future,
impose two other charges against Policies issued for Separately Administered
Plans. First, a $25 Policy Issue Fee may be deducted from the initial Purchase
Payment and, in addition, a $5 Purchase Payment Processing Fee may be assessed
against each subsequent payment after the initial investment. Both the Policy
Issue Fee and the Purchase Payment Processing Fee would, if imposed, cover a
portion of the administrative expenses of the Company incurred in issuing
Policies and processing additional payments for Separately Administered Plans.
Other Charges
Other charges are made daily against the assets of Fund A and the
Investment Options. Charges are made against each Fund A Division at an
aggregate rate of not more than 1.0% per annum for the assumption by the Company
of mortality and expense risks. Each Portfolio pays monthly investment advisory
fees to its investment adviser based on each Portfolio's average net assets. The
Investment Options also have direct expenses, such as legal, audit, custodial,
share registration and printing expenses, which may be considered to be an
indirect charge against assets. See the prospectus for the Trust. and Federated
Series
The Trust
The Trust was organized to serve as the investment medium of Fund A and
related separate accounts of the Company and other insurance companies. For a
discussion of the Trust's policies with respect to its potentially serving as
the funding vehicle for both variable annuity policies and variable life
insurance policies, see the prospectus of the Trust. The Trust does not sell its
shares to the public, but reserves the right to do so at some future date. It is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, management investment company. The Trust currently offers
shares of beneficial interest in nine separate Portfolios each of which
represents the entire interest in a separate portfolio of investments and which
has the investment objectives, policies and restrictions described in the
prospectus for the Trust.
Taxes
There is a ten percent (10%) federal income tax pensalty that may be
applied to the income portion of any distribution from the Policies. However,
the penalty is not imposed under certain circumstances. See "Tax Considerations
- - Tax Treatment of Withdrawals--Non-Qualified Policies" and "Tax Treatment of
Withdrawals-Qualified Policies."
THE COMPANY, FUND A, AND THE INVESTMENT OPTIONS
The Company
First Variable Life Insurance Company (the "Company") is a stock life
insurance company which was organized under the laws of the State of Arkansas in
1968. The Company is principally engaged in the annuity business. The Company is
licensed in 49 states, the District of Columbia and U.S. Virgin Islands. The
Company is a wholly-owned subsidiary of Irish Life of North America, Inc.
("ILoNA") which in turn is beneficially owned by Irish Life plc. ("Irish Life").
ILoNA also owns Interstate Assurance Company ("Interstate") of Des Moines, Iowa.
Irish Life was formed in 1939 through a consolidation of a number of Irish and
British Life offices transacting business in Ireland. In terms of assets, Irish
Life controls over 50% of the Irish domestic market. As Ireland's leading
institutional investor, it owns in excess of 10% of the leading Irish publicly
traded stocks. Irish Life, through its international subsidiaries, conducts
business in Ireland, the United Kingdom, the United States and France. As of the
end of 1995 the Irish Life consolidated group had in excess of $11 billion in
assets. ILoNA is a Delaware corporation, incorporated as Carrig International,
Inc. in 1986, which is the holding company of Interstate and the Company.
The Company has an A- (Excellent) rating from A.M. Best, an independent
firm that analyzes insurance carriers and an AA (Double A) rating from Duff &
Phelps Credit Rating Company and an AA- (Double A minus) rating from Standard &
Poor's on claims paying ability. The A.M. Best rating is assigned to companies
that have a strong ability to meet their obligations to policyholders over a
long period of time. The financial strength of the Company may be relevant with
respect to the Company's ability to satisfy its general account obligations
under the Policies.
<PAGE>
The Company may publish in advertisements and reports to Owners, the
ratings and other information assigned it by one or more independent rating
services. Further, the Company may publish charts and other information
concerning dollar cost averaging, tax-deference and other investment methods.
Fund A
The Board of Directors of the Company authorized the creation of Fund A on
July 1, 1968 in accordance with the Arkansas Insurance Code. Fund A is
registered as a unit investment trust under the 1940 Act and meets the
definition of a "separate account" under the federal securities laws.
Registration with the Securities and Exchange Commission does not involve
supervision of management or investment practices or policies of Fund A by the
Securities and Exchange Commission.
Fund A is divided into Investment Divisions. On the date of this
Prospectus, the assets of each Investment Division are invested in one Portfolio
of the Trust. (See "Proposed Substitution of Cash Management Portfolio Shares.")
Not all Investment Divisions may be available in every state and, if available,
there may be a limitation on the percentage or amount of an investment that may
be allocated to an Investment Division. The value of both Accumulation Units and
Annuity Units in each Investment Division reflects the investment results of its
underlying Portfolio.
Fund A is administered and accounted for as part of the general business of
the Company, but the income and gains or losses of Fund A are credited to or
charged against the assets held for Fund A in accordance with the terms of the
Policies, without regard to other income and gains or losses of any other
business the Company may conduct. The assets of Fund A are held separate and
apart from the Company's general account and from the assets of any of the
Company's affiliates. These assets are not chargeable with liabilities arising
out of any other business the Company may conduct or the liabilities of any
companies affiliated with the Company. However, all obligations arising under a
Policy, including the obligation to make Annuity Payments, are general corporate
obligations of the Company.
While the Company is obligated to make the Variable Annuity Payments under
the Policy, the amount of the payments are not guaranteed. However, payments
under a Fixed Annuity option are guaranteed by the Company.
The Company performs or provides for the performance of all functions
necessary for the administration of Fund A. Included among such functions are
(i) assumption of all mortality and expense risks under the Policies and (ii)
the providing of administrative services. See "DEDUCTIONS AND EXPENSES OF THE
POLICIES, FUND A AND THE INVESTMENT OPTIONS."
Variable Investors Series Trust
Variable Investors Series Trust (the "Trust") is one of the underlying
investment medium for the Policies.
The Trust is an open-end, management investment company registered under
the 1940 Act. The Trust is managed by First Variable Advisory Services Corp.
("Investment Adviser"), a wholly-owned subsidiary of the Company. The Investment
Adviser retains the services of sub-advisers pursuant to Sub-Advisory Agreements
to manage the assets of the Portfolios of the Trust available to the Owners of
the Policies as follows: Federated Investment Counseling with respect to the
Cash Management Portfolio and the High Income Bond Portfolio, Value Line, Inc.
with respect to the Multiple Strategies Portfolio and the Common Stock
Portfolio, Strong Capital Management, Inc. with respect to the U.S. Government
Bond Portfolio, State Street Bank and Trust Company with respect to the Tilt
Utility Portfolio, Keystone Investment Management Company with respect to the
World Equity Portfolio, Warburg Pincus Counsellors, Inc. with respect to the
Growth & Income Portfolio and Pilgrim, Baxter & Associates, Ltd. with respect to
the Small Cap Portfolio. Prior to April 1, 1994, INVESCO Capital Management,
Inc. was the investment adviser of the Trust. While a brief summary of the
investment objectives of the Trust is set forth below, more comprehensive
information, including a discussion of management fees, is found in the
prospectus for the Trust. Be sure to read the complete risk disclosure in the
Trust prospectus before deciding to purchase a Policy and before allocating Net
Purchase Payments to a particular Investment Division.
The Portfolios available and their investment objectives are:
Cash Management Portfolio. The investment objective of this Portfolio is
preservation of capital, maintenance of liquidity and maximum current income
consistent with the foregoing objectives by investing exclusively in a
diversified
<PAGE>
portfolio of short-term money market instruments. An investment in the Cash
Management Portfolio is neither insured nor guaranteed by the U.S. Government.
Subject to regulatory approval, shares of the Prime Money Fund II of Federated
Insurance Series will be substituted for shares of the Cash Management
Portfolio. Therefore, following the Substitution, the Cash Management Portfolio
will no longer be available for investment. See "Proposed Substitution of Cash
Management Portfolio Shares."
U.S. Government Bond Portfolio - The investment objective of this Portfolio is
to seek current income and preservation of capital through investment primarily
in securities issued or guaranteed as to principal and interest by the U.S.
Government or by its agencies, authorities, or instrumentalities.
High Income Bond Portfolio. The investment objective of this Portfolio is to
obtain as high a level of current income as is believed to be consistent with
prudent investment management. As a secondary objective, the Portfolio seeks
capital appreciation when consistent with its primary objective. The Portfolio
seeks to achieve its investment objectives by investing primarily in
fixed-income securities rated lower than A. Many of the high yield securities in
which the Portfolio may invest are commonly referred to as "junk bonds." For
special, and significant, risks involved with investing in such securities
(including among others, risk of default and illiquidity) see "Investment
Objectives and Policies of the Portfolios - High Income Bond Portfolio" in the
Trust prospectus.
Tilt Utility Portfolio - The investment objective of this Portfolio is to seek
capital appreciation and current income by investing in a diversified portfolio
of common stock and income securities issued by companies engaged in the
utilities industry ("Utility Securities"). Under normal market conditions, at
least 80% of the Portfolio's assets will be invested in Utility Securities. The
Portfolio is intended to achieve investment returns that are higher than the
Standard & Poor's Utilities Index with equivalent risk, diversification and
price volatility. Prior to April 1, 1994, the Tilt Utility Portfolio was known
as the Equity Income Portfolio and had different investment objectives, policies
and restrictions.
World Equity Portfolio - The investment objective of this Portfolio is to
maximize long-term total return by investing primarily in common stocks, and
securities convertible into common stocks, traded in securities markets located
in countries around the world, including the United States. See "Foreign
Investments" under "Policies and Techniques Applicable to All Portfolios" in the
Trust prospectus for a discussion of the risks involved in investing in foreign
securities.
Common Stock Portfolio. The investment objective of this Portfolio is capital
growth by investing primarily in a diversified portfolio of common stocks and
securities convertible into or exchangeable for common stock. The secondary
objective is current income when consistent with its primary objective.
Multiple Strategies Portfolio - The investment objective of this Portfolio is to
seek as high a level of total return over an extended period of time as is
considered consistent with prudent investment risk by investing in equity
securities, bonds, and money market instruments in varying proportions.
Growth & Income Portfolio - The investment objective of this Portfolio is to
provide growth of capital and income. The Portfolio seeks to achieve its
objectives by investing in equity securities, fixed income securities and money
market instruments. The portion of the Portfolio invested at any given time in
each of these asset classes will vary depending on market conditions, and there
may be extended periods when the Portfolio is primarily invested in one of them.
In addition, the amount of income derived from the Portfolio will fluctuate
depending on the composition of the Portfolio's holdings and will tend to be
lower when a higher portion of the Portfolio is invested in equity securities.
The Portfolio may also purchase without limitation dollar-denominated American
Depository Receipts ("ADRs"). ADRs are issued by domestic banks and evidence
ownership of underlying foreign securities.
Small Cap Portfolio - The investment objective of this Portfolio is to seek
capital appreciation. The Portfolio will invest, under normal conditions, at
least 65% of its total assets in securities of companies with small
capitalizations (market capitalizations or annual revenues under $1 billion at
the time of purchase).
Federated Insurance Series
Federated Series is an open-end investment management company that was
formed as a series trust to provide funding options for variable life insurance
and variable annuity contracts. Pursuant to an investment advisory contract with
Federated Series, investment decisions for Federated Series are made by
Federated Advisers, an affiliate of
<PAGE>
Federated Investment Counseling. Federated Securities Corp. is the principal
distributor for shares of Prime Money Fund II.
Prime Money Fund II. The investment objective of this series is to provide
current income consistent with the stability of principal and liquidity. The
Fund pursues its investment objective by investing exclusively in a portfolio of
money market instruments maturing in 397 days or less. An investment in the
Prime Money Fund II series is neither insured nor guaranteed by the U.S.
Government.
Investors should read this prospectus and the prospectus for Federated
Series carefully before investing. Prospectuses for Federated Series may be
obtained by contacting the Service Center.
There is no assurance that the investment objective(s) of any of the
Portfolios will be met. An Owner bears the complete investment risk for Purchase
Payments allocated by an Owner to an Investment Division. The Accumulation Value
of a Policy will vary in accordance with the investment performance of the
Investment Division(s) to which Purchase Payments are allocated after the
imposition of the fees and charges assessed under the Policy.
Dividends or capital gain distributions received from a Portfolio are
reinvested in shares of that Portfolio and retained as assets of Fund A. Trust
shares will be redeemed, without any fee, to the extent necessary to pay taxes
and annual fees relating to the Policy and to make Annuity Payments under the
Policies.
Additional Portfolios may be created from time to time with different
investment objectives, policies and restrictions, managed by different
investment advisers or sub-advisers, and subject to different or additional
charges. These additional Portfolios, and/or additional investment options may
be made available to Owners.
Proposed Substitution of Cash Management Portfolio Shares
On April 15, 1996, the Company filed an application with the
Securities and Exchange Commission ("Commission") requesting an order approving
a proposal to substitute shares (the "Substitution") of the Prime Money Fund II
of the Federated Series for shares of the Cash Management Portfolio of the
Trust. Upon obtaining the order from the Commission approving the Substitution,
and subject to any prior approval by applicable insurance authorities, the
Company and the Separate Account propose to effect the Substitution as soon as
is practicable. Thereafter, the Prime Money Fund II of the Federated Series will
be available for investment by Owners through the Separate Account, instead of
the Cash Management Portfolio of the Trust.
The Company has proposed the Substitution to provide a transfer of the
assets of the Cash Management Portfolio that currently and in the future may be
expected to be of insufficient size to promote investment performance or to
reduce operating expenses. An Owner, prior to the date of Substitution, will be
provided with notice and permitted a specified period of at least thirty (30)
days to transfer his or her Cash Management Division value to any other
Investment Division without any limitation or charge being imposed.
Voting Rights
In accordance with its view of present applicable law, the Company will
vote the shares of the Trust and Federated Series that are in Fund A at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in Fund A. The Company will vote shares for
which it has not received instructions, as well as shares attributable to it, in
the same proportion as it votes shares for which it has received instructions.
Neither the Trust nor Federated Series holds regular meetings of shareholders.
Shares of the Trust and Federated Series are sold to the Company for
allocation to Fund A in connection with the Policies, and for allocation to
other seperate accounts funding other variable annuity contracts and variable
life insurance policies issued, or to be issued, by the Company. Shares of the
Trust and Federated Series may also be sold to
<PAGE>
other insurance companies, either affiliated or unaffiliated with the
Company, for the same purpose. It is conceivable that, in the future, it may be
disadvantageous for variable annuity seperate accounts and variable life
seperate accounts to invest in one or more of the Trust's Portfolios or
Federated Series simultaneously if the interests of variable annuity and
variable life policyholders differ. The Board of Trustees of the Trust and the
Trustees of Federated Series intent to monitor events to identify and material
ireconcilabale conflicts which may possible arise and to determine what action,
if any, should be taken in response thereto.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than sixty (60) days prior to
a shareholder meeting. Voting instructions will be solicited by written
communication at least ten (10) days prior to the meeting.
Substitution of Other Securities
If other shares of the Trust or Federated Series (or any Portfolio within
the Trust or any other Investment Option), are no longer available for
investment by Fund A or, if in the judgment of the Company, further investment
in the shares should become inappropriate in view of the Purpose of the
Policies, the Company may substitute shares of another Investment Option (or
Portfolio) for shares already purchased or to be purchased in the future by
Purchase Payments under the Policies. No substitution of securities may take
place without prior approval of the Securities and Exchange Commission and under
the requirements it may impose.
THE POLICIES
This Prospectus offers both Deferred Policies and Immediate Policies.
Purchase Payments may be made until retirement age is reached, which is usually
not earlier than age 60 nor later than age 75. Depending on the federal tax
treatment afforded a Policy, all Policies are either Qualified Policies or
Non-Qualified Policies. See "FEDERAL TAX CONSIDERATIONS." The Policy provides
that it may be modified by the Company in order to maintain it in continued
compliance with applicable state and federal law.
Immediate Policies
Under an Immediate Policy, the first Annuity Payment is made one payment
period from the Issue Date. On the Issue Date, the annuity purchase rates for an
Immediate Policy are applied to the Net Purchase Payment to determine the first
Variable Annuity Payment based on the Annuity Option elected. As to an amount
applied to an Investment Division, the number of Annuity Units is then
determined by dividing such amount by the Annuity Unit value for such Investment
Division for the Valuation Period which includes the seventh day prior to the
Annuity Commencement Date.
Subsequent Variable Annuity Payments are determined in accordance with the
provisions set forth in the section entitled "ANNUITY PERIOD, VARIABLE ANNUITY."
Deferred Policies
Under a Deferred Policy, Annuity Payments may begin on any date not later
than the end of the Annuitant's life expectancy according to U.S. Government
tables, as selected by the Owner. If no election of an Annuity Commencement Date
is made, Annuity Payments will begin on the Annuitant's attaining age 70. If no
election of an Annuity Option is in effect on the 30th day prior to the Annuity
Commencement Date, the Adjusted Value of the Policy will be applied under
Variable Annuity Option B, for a life annuity with 120 months certain. (See
"ANNUITY OPTIONS.") Distribution requirements applicable to Individual
Retirement Annuities and Qualified Policies may limit the availability of
certain Annuity Options to participants in such plans. (See "TAX TREATMENT OF
WITHDRAWALS - QUALIFIED POLICIES.")
<PAGE>
DEDUCTIONS AND EXPENSES OF THE POLICIES, FUND A AND THE INVESTMENT OPTIONS
All deductions and expenses related to the Policies, Fund A and the
Investment Options are described below.
Charges to the Policies
Sales Charge. A Sales Charge is deducted from the Purchase Payments for a
Policy as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of
Type of Policy Subject Purchase Net Amount
to Sales Charge Payment Invested
--------------- ------- --------
<S> <C> <C>
Qualified Plans (other than the State of Arkansas Deferred
Compensation Plan or Separately Administered Plans)............... 5% 5.26%
State of Arkansas Deferred Compensation Plan...................... 0% 0%
Separately Administered Plans..................................... 0% 0%
All other plans................................................... 7% 7.53%
</TABLE>
The Sales Charge reimburses the Company for some of its expenses related to
distributing the Policies. A maximum Sales Charge of 2.5% of Purchase Payment is
not currently imposed. However, it may be imposed on future payments under the
State of Arkansas Deferred Compensation Plan.
Policy Issue Fee. A charge of $25 is deducted from the initial Purchase Payment
for each Policy issued under a Separately Administered Plan. The charge is
intended to cover a portion of the Company's costs in establishing records
reflecting ownership of the Policy and in issuing the Policy.
Charge for Premium Taxes. Various jurisdictions impose a premium tax (currently
ranging, where imposed, from 0.5% to a maximum of 3.0%) on annuity premiums
received by life insurance companies. The Company may charge a Policy for the
amount of any premium tax levied at the time Purchase Payments are received, or,
if not previously deducted, as follows: (i) at its Annuity Commencement Date;
(ii) in the event of the death of the Annuitant or the Owner prior to the
Annuity Commencement Date; (iii) in the event of a partial or total withdrawal;
or (iv) when payable by the Company.
Purchase Payment Processing Fee. Although no fee is currently imposed, the
Company may, in the future, impose a charge of $5 on each Purchase Payment,
after the initial Purchase Payment, received in connection with Policies for
Separately Administered Plans. This charge would be to reimburse the Company for
a portion of its administrative expenses incurred in processing such payments.
Charge for Partial and Total Withdrawals. The Accumulation Value of a Policy
may be withdrawn at any time during the Accumulation Period. However, a
Termination Charge of 2% of the Accumulation Value of such Policy will be
imposed if the Owner of a Separately Administered Plan transfers the
Accumulation Value of such Separately Administered Plan to any funding medium
which is not issued or maintained by the Company or its affiliates. A
Termination Charge of 2% of the Accumulation Value attributable to Purchase
Payments made prior to July 1, 1991 will be imposed in the event the State of
Arkansas terminates the Plan or partially or wholly transfers the Accumulation
Value of the Policies issued under the Plan to a funding medium not issued or
maintained by the Company or its affiliates. This Termination Charge will not be
imposed on any Accumulation Value attributable to Purchase Payments made on and
after July 1, 1991. A Termination Charge of 2% will be imposed in the event of
partial or total withdrawals made by individuals from Policies issued under the
State of Arkansas Deferred Compensation Plan unless such partial or total
withdrawals are due to death, disability, financial hardship, employment
termination, retirement or transfer of funds to another Plan (other than another
Plan offered by the State of Arkansas) which complies with Section 457 of the
Internal Revenue Code. The Termination Charge reimburses the Company for some of
its expenses related to distributing the Policies.
The amount of the requested withdrawal will be paid to the Owner, with the
Termination Charge being deducted from the remaining Accumulation Value, so that
the actual reduction in the Accumulation Value as a result of the withdrawal
will be greater than the withdrawal amount paid to the Owner.
<PAGE>
For example, if the Owner requests a $1,000.00 withdrawal and the
Termination Charge is two percent of the full amount deducted from the
Accumulation Value of the Policy, $1,020.41 will be the total reduction in the
Accumulation Value of the Policy, with $1,000.00 paid to the Policy Owner and
$20.41 paid to the Company.
For a discussion of the tax consequences associated with certain
withdrawals, see "FEDERAL TAX CONSIDERATIONS." The Termination Charge is not
imposed upon annuitization of the Policy at the Annuity Commencement Date, nor
is it imposed on the payment of a death benefit. (See "DEATH BENEFIT.") There is
also no Termination Charge if the Policy and a written notice are returned to
the Company within 10 days of receipt of the Policy by the Owner.
Charges to Fund A
To compensate the Company for assuming mortality and expense risks under
the Policy, Fund A will incur a daily charge at an annualized rate of 1.0% of
the average daily net asset value of Fund A. (The Company estimates that, of
this charge, approximately 0.60% is for the assumption of mortality risks and
0.40% is for expense risks. The charge is guaranteed and may not be increased by
the Company.)
In assuming the mortality risk, the Company is taking the chance that (i)
the Annuitant will live longer than expected; (ii) the actuarial estimate of
mortality rates during the Annuity Period may prove erroneous and Annuitants as
a group will live longer than expected; and (iii) the Owner or the Annuitant
will die during the Accumulation Period at a time when the death benefit
guaranteed by the Company is higher than the Accumulation Value of the Policy.
In addition, the Company also assumes an expense risk insofar as the actual
expenses of administering the Policies may exceed the Policy Issuance Fee and
the Purchase Payment Processing Fee, if any, for such expenses.
If the charge for mortality and expense risks is insufficient to cover the
actual cost of these items, the Company will bear the loss. Conversely, if such
charges prove to be more than sufficient, the Company will profit. To the extent
this charge results in a profit to the Company, such profit will be available
for use by the Company for, among other things, the payment of distribution,
sales and other expenses.
Charges to the Investment Options
Each Portfolio pays monthly investment advisory fees. The Investment
Options also have direct expenses, such as legal, audit, custodial, share
registration and printing expenses, which may be considered to be an indirect
charge against assets. See the prospectus for the Trust and Federated Series.
ACCUMULATION PERIOD
Free Look Right
An Owner has the right to review a Policy during an initial inspection period
specified in the Policy and, if dissatisfied, to return it to the Company or to
the agent through whom it was purchased. When the Policy is returned to the
Company during the permitted period, it will be voided as if it had never been
in force. The Company will ordinarily refund the Accumulation Value (which may
be greater or less than the Purchase Payments received) on a Policy returned
during the permitted period, unless a different amount is required. The "free
look" period is at least 10 days, and may be greater depending on state
requirements.
Delayed Investment Start Date
Purchase Payments are generally allocated to the Investment Divisions
selected by the Owner. In certain instances, however, the Company reserves the
right to allocate Purchase Payments to the Cash Management Investment Division
(or, after the Substitution, to the Prime Money Fund II Investment Division) for
a period of up to 5 days beyond a `free look" inspection period before they will
be invested (together with any investment gain) in any other Investment
Divisions(s) designated by the Owner. If the Company elects to delay such
initial investments in Investment Divisions, the delay would apply where a
Contract is issued: (a) in a state which requires that Purchase Payments less
<PAGE>
withdrawals be refunded upon the exercise of (i) a "free look" right or (ii) an
inspection right following a "replacement' of an existing life insurance or
annuity contract; or (b) as in Individual Retirement Annuity (or as the initial
investment of an Individual Retirement Account).
On the date of this Prospectus, the Company does not delay investment start
dates and, should it elect to do so, it will so advise prospective investors in
a Policy.
Purchase Payment Amounts
The initial Purchase Payment and any subsequent Purchase Payments must be
at least $50; provided, however, that the minimum investment by means of a
payroll deduction plan or monthly pre-authorized bank draft is $300 per year.
The $300 minimum per year is waived for a Separately Administered Plan when
necessary to make the plan nondiscriminatory under the requirements of the Code
or ERISA.
If a Purchase Payment would cause the Accumulation Value to exceed
$1,000,000 or if the Accumulation Value already exceeds $1,000,000, additional
Purchase Payments will be accepted only with the prior approval of the Company.
When an Accumulation Unit is Valued
The value of an Accumulation Unit is calculated each day the New York Stock
Exchange is open for trading, or any day the Securities and Exchange Commission
requires that the securities of mutual funds, unit investment trusts or other
investment portfolios be valued. A day on which such valuation takes place is
termed a "Valuation Date."
Crediting Accumulation Units
Each initial Net Purchase Payment for a Policy will be allocated to the
Investment Division(s) of Fund A as specified by the Owner in the application.
Each Net Purchase Payment will be credited to the Policy as specified by the
Owner in the form of Accumulation Units. The number of Accumulation Units to be
credited to a particular Investment Division is determined by dividing the
dollar amount allocated to each specified Investment Division by such Investment
Division's Accumulation Unit value next computed following the acceptance of the
investment of the allocated amount by the Portfolio in which the Investment
Division invests. A Policy's Accumulation Value may be allocated to no more than
five Investment Divisions at any one time.
Persons desiring to purchase a Policy must send a completed application and
an initial Purchase Payment to the Company. If the application can be accepted
in the form received, the initial Purchase Payment generally will be credited to
the Policy within two business days after receipt. (See "Delayed Investment
Start Date.") Acceptance of any application is subject to approval by the
Company. If the initial Purchase Payment cannot be credited within five business
days after receipt because the application is incomplete, the Company will
contact the applicant and explain the reason for the delay. The Company will not
retain a Purchase Payment for more than five business days while processing an
incomplete application unless it has been authorized by the purchaser.
Accumulation Unit Value
The value of an Accumulation Unit for each Investment Division was
established at $10.00 for the first Valuation Period. The value of an
Accumulation Unit increases or decreases in proportion to the net investment
return of the Investment Division. Such value is determined by multiplying the
value of an Accumulation Unit on the immediately preceding valuation date by the
Net Investment Factor for the period since that date. Because the Owner bears
the investment risk, there is no guarantee as to the Accumulation Value of a
Policy; such value may be less than, equal to, or more than the amounts
initially allocated to the Investment Divisions.
Exchange of Variable Accumulation Units
Before the Annuity Commencement Date, the Owner may exchange the value of a
designated number of Accumulation Units of a particular Investment Division
credited to the Policy for Accumulation Units of an equal dollar value of
another Investment Division. No more than five exchanges may be made within each
Policy Year. Exchanges
<PAGE>
will be made using the Accumulation Unit values described below under
"Determination of Accumulation Unit Values upon Exchange." The Company reserves
the right to modify the transfer privilege, or to limit the amount of or reject
any exchange, as it deems appropriate at any time, to prevent abuse of the
transfer and exchange privilege to the disadvantage of
other Owners.
Determination of Accumulation Unit Values Upon Exchange
Following receipt of a request for any exchange by the Company at the
Service Center, the Accumulation Unit Value of any Investment Division from
which an exchange is made is determined at the close of the concurrent Valuation
Period or, if later, at the close of the Valuation Period during which the
underlying Portfolio of such Investment Division accepts and effects orders for
redemption of shares relating to such exchange. Upon receipt of the redemption
proceeds, the Accumulation Unit Value of any Investment Division to which an
exchange is made is determined at the close of the concurrent Valuation Period
or, if later, at the close of the first subsequent Valuation Period during which
the underlying Portfolio of the Investment Division to which the exchange is
made accepts and effects orders for purchases of shares relating to such
exchange.
Net Investment Factor
The Net Investment Factor for an Investment Division's Valuation Period
reflects the investment experience of the Portfolio in which the Investment
Division invests as well as the charges assessed against the Investment
Division. The factor is calculated by:
(1) Taking the net asset value as of the end of the current Valuation
Period of the Portfolio in which the Division invests.
(2) Adding to (1) the amount of any dividend or capital gains
distribution declared during the current Valuation Period by the Portfolio. A
charge for taxes, if any, is subtracted from that amount.
(3) Dividing (2) by the net asset value of the Portfolio at the end of
the preceding Valuation Period.
(4) Subtracting a charge not to exceed the sum of the daily mortality and
expense risk charge for each day in the Valuation Period. See "CHARGES TO FUND
A."
The Net Investment Factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase or decrease or remain
the same.
Accumulation Value
The Accumulation Value of a Policy on any given date is the dollar value of
a Policy. It is first determined in each Investment Division by multiplying the
value of an Accumulation Unit of such Investment Division on that date by the
number of Accumulation Units credited to the Policy in such Investment Division.
The resulting Accumulation Value of each applicable Investment Division is then
totaled to determine the Accumulation Value of that Policy. The resulting value
may be reduced by the amount of any applicable taxes not previously deducted.
Withdrawal Prior to Annuity Commencement Date
If permitted by any plan under which the Policy is issued, the Owner may
surrender his or her interest in the Policy, in whole or in part, for cash
before the Annuity Commencement Date. Such a withdrawal generally would result
in adverse federal tax consequences to the Owner. These consequences could
include (1) current taxation of payments received and (2) penalties because of a
premature distribution. (See "FEDERAL TAX CONSIDERATIONS.") The withdrawal value
will be determined as of the end of the applicable Valuation Dates during which
the Trust accepts orders for redemption of Trust shares reflecting the
withdrawal.
<PAGE>
Any partial withdrawal is subject to a $500 minimum and, at the Company's
option, may or may not be made if it would result in reducing the Accumulation
Value to less than $500 on the date of withdrawal. A withdrawal request must be
accompanied by the Policy only when a complete withdrawal is requested. Both
complete and partial withdrawals are subject to the possible imposition of the
Termination Charge. (See "Charge for Partial and Total Withdrawals.") No
withdrawals may be made after the Annuity Commencement Date.
Withdrawals are permitted from Policies issued in connection with Code
Section 403(b) qualified plans only under limited circumstances. See "Tax
Treatment of Withdrawals - Qualified Policies" and "Tax-Sheltered Annuities -
Withdrawal Limitations."
Certain Administrative Procedures
Described below are some of the Company's current administrative
procedures. The Company reserves the right to change them from time to time.
Exchanges. Exchanges of the value of Accumulation Units or Annuity Units
between Investment Divisions may be made either in writing in such form as the
Company may require or by telephone to the Company at the Service Center. If an
exchange is made by telephone, the Owner must call the Service Center by 4:00
p.m., Eastern time, give the Company the Owner's name, Policy number and
personal identification number. Calls received after such time will be processed
on the next business day. The Company will confirm the exchange over the
telephone and then follow up in writing. Telephone exchanges may be made only
after the Company has accepted a telephone authorization form from the Owner.
See "Determination of Accumulation Unit Values Upon Exchange." The Company will
use reasonable procedures to confirm that instructions communicated by telephone
are genuine. If it does not, the Company may be liable for any losses due to
unauthorized or fraudulent instructions. The Company tape records all telephone
instructions.
Withdrawals. Requests for withdrawals may be made in writing in such form
as the Company may require. Under normal conditions, the Company will usually
send the withdrawal funds within seven calendar days of a withdrawal request,
except as the Company may be permitted to defer such payment in accordance with
the 1940 Act. See "Charge for Partial and Total Withdrawals."
Signature guarantees. Certain Policy changes and transactions require a
signature guarantee. The signature must be guaranteed by a national bank or
trust company (not a savings bank or federal savings and loan association), a
member bank of the Federal Reserve System or a member firm of a national
securities exchange. Currently, signatures must be guaranteed on written
requests for withdrawals and exchanges, forms for change of name, Owner and
Beneficiary designation, and telephone authorization forms, if not submitted
with the application for the Policy.
ANNUITY PERIOD
General
On the Annuity Commencement Date, the Adjusted Value of a Policy will be
applied, as specified by the Owner, under one of the Annuity Options provided in
the Policy or under such other Annuity Option as may be agreed to by the
Company. Such value may be more or less than the amount of Net Purchase
Payments. Annuity Payments may be made on a fixed or variable basis or both.
Annuity Payments made on a variable basis will vary with the investment
experience of the Investment Divisions to which the Adjusted Value is allocated
by the Owner.
Assumed Investment Rate
The assumed investment rate used by the Company is 3.5% per year. The
assumed investment rate is used to determine the first monthly Variable Annuity
Payment per $1,000 of Adjusted Value. It should not be inferred that such rate
will bear any relationship to the actual net investment experience of Fund A.
Election and Effective Date of Election
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Owner may elect to have the Adjusted Value of the Policy applied on
the Annuity Commencement Date under one of the Annuity Options
<PAGE>
provided in the Policy. The Owner may also change any election, but any
election must be effective at least 30 days prior to the Annuity Commencement
Date. This election or change may be made by filing with the Company a written
election in such form as the Company may require. Any such election or change
will become effective on the date it is received in good order by the Company at
the Service Center.
If no such election is in effect on the 30th day prior to the Annuity
Commencement Date, the Adjusted Value of the Policy will be applied under
Variable Annuity Option B, for a Life Annuity with 120 monthly payments certain.
(See "Annuity Options.")
Any such election may specify the proportion of the Adjusted Value of the
Policy to be applied to Fund A and the Fixed Account. The election may also
specify how all or any part of the Adjusted Value is to be allocated to the
various Investment Divisions. In the event the election does not so specify,
then 100% of the Adjusted Value of the Policy will be applied to the Cash
Management Investment Division.
Fixed Annuity
Each Fixed Annuity Payment is determined in accordance with the annuity
purchase rates found in the Policy which are based on the minimum guaranteed
interest rate of 3.5% per year or, if more favorable to the Payee, in accordance
with annuity purchase rates found in similar fixed annuity contracts then being
issued by the Company on the Annuity Commencement Date. Once established, Fixed
Annuity Payments will not change regardless of investment, mortality or expense
experience.
Variable Annuity
The Owner may elect to allocate all or part of the Adjusted Value of the
Policy to one or more Investment Divisions of Fund A. If such election is made
by the Owner, the amount of Annuity Payments will be determined as follows: On
the Annuity Commencement Date, the first monthly Variable Annuity payment is
determined by dividing the Adjusted Value by $1,000 and multiplying the result
by the appropriate monthly Variable Annuity Payment reflected in the Policy,
which is guaranteed not to change. The amount of this first monthly payment is
then deducted from each Investment Division in proportion to the allocation of
the Adjusted Value made by the Owner. In each Investment Division, the number of
Annuity Units is determined by dividing the amount of the first payment so
allocated by the Annuity Unit value for the Valuation Period which includes the
seventh day prior to the Annuity Commencement Date. The number of Annuity Units
in each Investment Division then remains unchanged. In each Investment Division,
the value of an Annuity Unit was established at $10.00 for the first Valuation
Period. The dollar amount of each Variable Annuity Payment after the first may
increase, decrease or remain constant, and is determined by multiplying the
number of Annuity Units in each Investment Division by the Annuity Unit value in
that Investment Division for the Valuation Period which includes the seventh day
prior to the due date of each subsequent Annuity Payment and adding the amounts
so determined from each Investment Division.
Variable Annuity Unit Value
In each Investment Division, the value of an Annuity Unit in subsequent
Valuation Periods is determined by multiplying the value of the Annuity Unit at
the close of the preceding Valuation Period by the product of (a) the Net
Investment Factor for the Valuation Period and (b) a factor determined
actuarially to neutralize the Assumed Investment Rate.
Exchange of Variable Annuity Units
After the Annuity Commencement Date, the Payee may exchange the value of a
designated number of Variable Annuity Units of a particular Investment Division
then credited to the Policy for Variable Annuity Units of another Investment
Division, the value of which would be such that the dollar amount of an Annuity
Payment made on the date the exchange is completed would be unaffected by the
exchange. No more than five exchanges may be made within each Policy Year.
Exchanges will be made using the Annuity Unit values for the Valuation Period as
described under "Determination of Accumulation Unit Values Upon Exchange."
(Also, see "Certain Administrative Procedures.")
<PAGE>
Annuity Options
The Annuity Payments provided by the Policy are Fixed Annuities or Variable
Annuities or a combination of both, as elected by the Owner.
The amount applied under each Annuity Option will produce a different
initial Annuity Payment and stream of payments.
No election of any Annuity Option may be made unless an initial Annuity
Payment of at least $25 would be provided. If this minimum is not met, the
Company reserves the right to change the frequency of Annuity Payments so that
this minimum is attained.
Option A. Life Annuity: Monthly Annuity Payments during the lifetime of the
Annuitant. It would be possible under this Option for the Annuitant to receive
only one Annuity Payment if he or she dies prior to the due date of the second
Annuity Payment, two if he or she dies before the third Annuity Payment date,
and so forth.
Option B. Life Annuity with Periods Certain of 60, 120, 180 or 240 Months:
Monthly Annuity Payments during the lifetime of the Annuitant and in any event
for 60, 120, 180 or 240 months certain as elected by the Owner.
Option C. Joint and Survivor Annuity: Monthly Annuity Payments payable
during the joint lifetime of the Annuitant and the designated second person and
during the lifetime of the survivor, at the percentage (either 100%, 75%, 662/3%
or 50%) elected at the Annuity Commencement Date. No further payments will be
made after the survivor's death.
Option D. Joint and Contingent Annuity: Monthly Annuity Payments during the
lifetime of the Annuitant and continuing during the lifetime of the designated
second person after the death of the Annuitant at the percentage (either 100%,
75%, 662/3% or 50%) elected at the Annuity Commencement Date. No further
payments will be made after the survivor's death.
Option E. Fixed Payments for a Period Certain: Fixed monthly Annuity
Payments for any specified period (at least five years but not exceeding 30
years), as elected.
Annuity Options A, B, C, and D are available on a Fixed Annuity basis, a
Variable Annuity basis or a combination of both. Under Annuity Options B and E,
in the event of the death of the Annuitant, the guaranteed monthly payments will
be paid to the Beneficiary during the remainder of the period selected. Annuity
Option E is available on a Fixed Annuity basis only. Notwithstanding the fact
that a mortality risk charge is assessed against the Policy value, Annuity
Option E does not involve a life contingency, and thus a mortality risk charge
is incurred, but no mortality risk is assumed by the Company.
Misstatement of Age or Sex
If the age or sex of the Annuitant has been misstated, any annuity amounts
payable shall be those which the proceeds applied would have purchased at the
correct age and sex. After Annuity Payments have begun, the Company will pay
immediately any underpayments and will deduct any overpayments from the
succeeding payments as necessary for such payments to reflect the correct age or
sex.
Commutation
Except as provided under "Amounts Payable on Death of Payee After Annuity
Commencement Date," there shall be no right to receive, after Annuity Payments
have begun, the amount available for Annuity Payments in advance of the time
specified in the Annuity Option selected or automatically placed in effect.
<PAGE>
DEATH BENEFIT
Death Benefit Provided by the Policy
If the Annuitant is not the Owner and the Owner dies while the Policy is in
effect, while the Annuitant is living, and before the Annuity Commencement Date,
the Company, upon receipt of due proof of death of the Owner, will pay a death
benefit to the Owner's Beneficiary. (For Policies owned by non-natural persons,
the Annuitant will be deemed to be the Owner for this purpose and the death or a
change of the Annuitant shall be treated as the death of the Owner.) If there is
no Owner's Beneficiary living on the date of death of the Owner, the Company
will pay the death benefit, upon receipt of due proof of the death of both the
Owner and the Owner's Beneficiary, in one sum to the estate of the Owner. If the
Owner's Beneficiary is not an individual or the death benefit is payable to the
Owner's estate, the death benefit must be distributed within five years of the
Owner's death. If the Owner's Beneficiary is an individual, such individual may
receive payments in a lump sum or over a period of years not exceeding his or
her life expectancy beginning not later than one year after the Owner's death.
If the Owner's spouse is the Owner's Beneficiary, the spouse may elect to keep
the Policy in effect and become the new Owner. If the Annuitant is not the Owner
and the Owner dies before the Annuity Commencement Date, except in the case of a
spouse who elects to become the new Owner, all rights of the Annuitant cease
upon the Owner's death.
If the Annuitant (other than an Annuitant who is also the Owner or who is
deemed to be the Owner as discussed above) dies while the Policy is in effect,
while the Owner is living, and before the Annuity Commencement Date, the
Company, upon receipt of due proof of death, will pay a death benefit to the
Annuitant's Beneficiary, either in a lump sum or under one of the Annuity
Options as provided under "Election and Effective Date of Election" below. If
there is no Annuitant's Beneficiary living on the date of death of the
Annuitant, the Company will pay the death benefit in a lump sum to the Owner
upon receipt of due proof of the death of both the Annuitant and the Annuitant's
Beneficiary.
When the Annuitant is also the Owner, any Death Benefits payable will be
payable to the Annuitant's Beneficiary.
The Policy provides that upon the death of the Annuitant prior to the
Annuity Commencement Date, the death benefit will be paid to the named
Beneficiary. Such payments made upon the death of the Annuitant who is not the
Owner of the Policy do not qualify for the death of Owner exception to the ten
percent (10%) federal income tax penalty applied to the income portion of any
distribution from Non-Qualified Policies and will be subject to the ten percent
(10%) distribution penalty unless the Beneficiary is 591/2 or older or one of
the other exceptions applies. (See "Tax Treatment of Withdrawals - Non-Qualified
Policies.")
On or after the Annuity Commencement Date, no death benefit will be payable
under the Policy except as may be provided under the Annuity Option elected or
automatically placed in effect. In the event of the death of the Owner after the
Annuity Commencement Date, benefits must be distributed at least as rapidly as
the method of distribution in effect on the Owner's death.
Election and Effective Date of Election
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Owner may elect to have the death benefit of the Policy applied under
one of the Annuity Options (see "Annuity Options.") to effect a Variable
Annuity, a Fixed Annuity, or a combination of both, for the Annuitant's
Beneficiary as Payee after the death of the Annuitant or for the Owner's
Beneficiary as Payee after the death of the Owner. This election may be made and
subsequently revoked by filing with the Company a written election or revocation
of an election in such form as the Company may require. Any election or
revocation of an election of a method of settlement of the death benefit by the
Owner will become effective on the date it is received in good order by the
Company at the Service Center. If no election of a method of settlement of the
death benefit is in effect on the date of death, the Annuitant's Beneficiary or
the Owner's Beneficiary, as the case may be, may elect (a) to receive the death
benefit in the form of a lump-sum payment in which event the Policy will be
canceled; or (b) to have the death benefit of the Policy applied under one of
the Annuity Options to effect (so long as the requirements in the "Death Benefit
Provided by the Policy" section are met) a Variable Annuity, a Fixed Annuity, or
a combination of both. This election may be made by filing with the Company a
written election in such form as the Company may require. Any written election
of a method of settlement of the death benefit will become effective on the
later of: (a) the date the election is received in good order by the Company at
the Service
<PAGE>
Center; or (b) the date due proof of the death of the Owner or the Annuitant,
as applicable, is received by the Company at the Service Center. If a
written election is not received by the Company within 60 days following the
date due proof of death is received by the Company at the Service Center, the
Annuitant's Beneficiary or the Owner's Beneficiary, as the case may be, if an
individual, shall be deemed to have elected Variable Annuity Option B, for a
life annuity with 120 months certain as of the last day of the sixty-day period.
Amounts Payable on Death of Payee After Annuity Commencement Date
In the event of the death of a Payee on or after the Annuity Commencement
Date, and prior to the expiration of a period certain under Annuity Option B or
Annuity Option E, Annuity Payments for the remainder of such period certain will
be paid to (a) the Annuitant's Beneficiary as such payments come due; or (b) the
estate of the deceased Payee, if there is no Annuitant's Beneficiary then
living, in a lump sum equal to the commuted value of such payments. All payments
made in one sum by the Company are made in lieu of paying any remaining Annuity
Payments under any Annuity Option then in effect. For Annuity Payments being
made on a variable basis, the commuted value will be based on interest
compounded annually at the assumed investment rate, and for Annuity Payments
being made on a fixed basis, at the interest rate initially used in determining
the amount for each payment. For Variable Annuity Payments, this calculation
will also be based on the assumptions that the Annuity Unit values applicable to
the remaining payments will be the Annuity Unit values for the Valuation Period
which ends on the day before the date of the determination and that these values
will remain unchanged thereafter.
Payment of Death Benefit
If the death benefit is to be paid in one sum to a Beneficiary, payment
will be made within seven days of the date the Policy and due proof of death are
received by the Company at the Service Center, except as the Company may be
permitted to defer such payment in accordance with the 1940 Act. (See
"DEFERMENT.") In the event of the death of either the Owner or the Annuitant
prior to the Annuity Commencement Date, if settlement under one of the Annuity
Options has been properly elected, the Annuity Commencement Date will be the
business day immediately following the date of receipt of both the election and
due proof of death by the Company at the Service Center.
Amount of Death Benefit
If Annuity Payments have not begun, the death benefit is equal to the
greater of (a) the Accumulation Value or (b) the sum of all Net Purchase
Payments made under the Policy, less the sum of all amounts withdrawn.
The Accumulation Unit values used in determining the amount of the death
benefit will be those determined at the close of the Valuation Period in which
due proof of death and the Policy are received by the Company at the Service
Center.
DEFERMENT
The Company will ordinarily pay the value of any Policy, or will apply such
amount to provide an annuity, within seven days after receipt of the proper
request. However, the Company may defer any determination of the value to be
paid and payment or any application of such amount for (1) any period during
which the New York Stock Exchange is closed for other than customary weekend or
holiday closing or during which trading thereon is restricted by the Securities
and Exchange Commission; (2) any period during which an emergency exists as a
result of which it is not reasonably practicable to sell securities or fairly
determine Accumulation Unit values or Annuity Unit values; or (3) such other
period as the Securities and Exchange Commission or other regulatory authority
may permit for the protection of persons having an interest in Fund A.
RETIREMENT PLAN CONDITIONS
A Policy acquired in connection with a retirement plan or trust agreement
may be subject to special tax consequences. Such plans may also limit the
exercise by their participants of certain rights granted by a Policy. For
example, although the Policy permits surrender of the value of a participant's
Policy, the plan or trust pursuant to which
<PAGE>
the Policy was issued may not authorize the participant to exercise such
right. Further, the plan or trust may provide that (i) only the Owner may
exercise such right or (ii) only the Owner may exercise such right subject to
the direction of the participants. Certain plans or trusts may require that a
participant acquire a 100% vested or nonforfeitable interest in the benefits
provided by the plan or trust before a participant may exercise any of the
rights provided by the Policy. Applicants should review plans or trusts
carefully and consult their tax advisers before purchasing a Policy.
OWNERSHIP PROVISIONS
Owner
The Policy will belong to the Owner. All Policy rights and privileges may
be exercised by the Owner without the consent of any Owner's Beneficiary,
Annuitant or Annuitant's Beneficiary not irrevocably named, or any other person.
Such rights and privileges may be exercised only during the lifetime of the
Annuitant except as otherwise provided in the Policy. The Annuitant becomes the
Owner on and after the Annuity Commencement Date. The Annuitant's Beneficiary
becomes the Owner on the death of the Annuitant after the Annuity Commencement
Date.
Change of Ownership
Ownership of a Qualified Policy may be transferred: (1) to the Annuitant;
(2) to a trustee or successor trustee of a pension or profit-sharing trust which
is qualified under Section 401 of the Code; (3) to the trustee of an Individual
Retirement Account qualified under Section 408 of the Code for the benefit of
the Owner; or (4) as otherwise permitted from time to time by laws and
regulations governing retirement or deferred compensation plans for which a
Qualified Policy may be issued. Subject to the foregoing, a Qualified Policy may
not be assigned, alienated, garnished, attached or pledged as collateral for a
loan or as security for the performance of an obligation or for any other
purpose to any person other than the Company. The Owner of a Non-Qualified
Policy may change the ownership of the Policy during the lifetime of the
Annuitant and prior to the Annuity Commencement Date. The transfer of ownership
may result in adverse federal tax consequences for the Owner. A change of
ownership will not be binding upon the Company until written notification is
received by the Company at the Service Center and will be effective as of the
date on which the request for change was signed by the Owner; however, the
change will be without prejudice to the Company on account of any action taken
by the Company prior to receiving notice of the change.
Assignment
A Policy may be assigned at any time before the Annuity Commencement Date
unless restricted. For any assignment to be binding on the Company, the Company
must receive a signed copy of it at the Service Center. The Company assumes no
responsibility for the validity of any assignment. Any claim made under an
assignment is subject to proof of interest and the extent of that interest.
BENEFICIARY DESIGNATIONS
The Owner's Beneficiary and Annuitant's Beneficiary designations contained
in the application will remain in effect until changed. Subject to any
irrevocable designation, the Owner may change or revoke the designation of an
Owner's Beneficiary or Annuitant's Beneficiary at any time while the Annuitant
is living by filing with the Company a written beneficiary designation in such
form as the Company may require. The change or revocation will not be binding
upon the Company until it is received in good order at the Service Center. When
it is so received, the change will be effective as of the date on which the
designation was signed; however, the change will be without prejudice to the
Company on account of any payment made or any action taken by the Company prior
to receiving the change.
<PAGE>
OTHER CHANGES IN THE POLICY
Only the President, Senior Vice President, Vice President, Secretary or
Assistant Secretary of the Company has the authority to change any of the terms
of the Policy or waive any of the Company's rights. Any such change or waiver
must be in writing and endorsed on the Policy.
FEDERAL TAX CONSIDERATIONS
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict the probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice regarding the possibility
of such changes. The Company does not guarantee the tax status of the Policies.
Purchasers bear the complete risk that the Policies may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
General
Section 72 of the Code governs taxation of annuities in general. An Owner
is not taxed on increases in the value of a Policy until distribution occurs,
either in the form of a lump sum payment or as annuity payments under the
Annuity Option selected. For a lump sum payment received as a total withdrawal
(total surrender), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Policy. For Non-qualified Policies, this cost
basis is generally the purchase payments, while for Qualified Policies there may
be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments based
on a fixed annuity option is determined by multiplying the payment by the ratio
that the cost basis of the Policy (adjusted for any period certain or refund
feature) bears to the expected return under the Policy. The exclusion amount for
payments based on a variable annuity option is determined by dividing the cost
basis of the Policy (adjusted for any period certain or refund guarantee) by the
number of years over which the annuity is expected to be paid. Payments received
after the investment in the Policy has been recovered (i.e. when the total of
the excludable amounts equal the investment in the Policy) are full taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Policy within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Policies
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, Fund A is not a separate entity from the Company
and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the Policy
as an annuity contract would result in imposition of federal income tax to the
Owner with respect to earnings allocable to the Policy prior to the receipt of
payments under the Policy.
The Company intends that all Portfolios of the Trust underlying the
Policies will be managed by the Investment Adviser for the Trust, and that Prime
Money Fund II will be managed by its investment adviser, to comply with the
diversification requirements set forth in section 817(h) of the Code and
Treasury Regulation 1.817-5 promulgated thereunder.
<PAGE>
The Treasury Department has indicated that the diversification Regulations
do not provide guidance regarding the circumstances in which Owner control of
the investments of Fund A will cause the Owner to be treated as the owner of the
assets of Fund A, thereby resulting in the loss of favorable tax treatment for
the Policy. At this time it cannot be determined whether additional guidance
will be provided and what standards may be contained in such guidance.
The amount of Owner control which may be exercised under the Policy is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available would
cause the Owner to be considered as the owner of the assets of Fund A resulting
in the imposition of federal income tax to the Owner with respect to earnings
allocable to the Policy prior to receipt of payments under the Policy.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of Fund A.
Due to the uncertainty in this area, the Company reserves the right to
modify the Policy in an attempt to maintain favorable tax treatment.
<PAGE>
Policies Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Policies will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation, or certain other entities. Such Policies generally
will not be treated as anuities for federal income tax purposes. However, this
treatment is not applied to Policies held by a trust or other entity as an agent
for a natural person or to Policies held by a tax-qualified retirement plan
described in sections 401, 403(a), 403(b), 408, or 457 of the Code. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Policy to be owned by a non-natural person.
Multiple Policies
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
Tax Treatment of Assignments
An assignment or pledge of a Policy may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Policies.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross
income of the Owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Owner, in most cases, may
elect not to have taxes withheld or to have withholdings done at a different
rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a mandatory
20% withholding for federal income tax. The 20% withholding requirement
generally does not apply to: (a) series of substantially equal payments made at
least annually for the life or life expectancy of the participant or joint and
last survivor expectancy of the participant and a designated beneficiary, or
distributions for a specified period of 10 years or more; or (b) distributions
which are required minimum distributions; or (c) the portion of the
distributions not includible in gross income (i.e. return of after-tax
contributions). Participants should consult their own tax counsel or other tax
adviser regarding withholding requirements.
Tax Treatment of Withdrawals-Non-Qualified Policies
Section 72 of the Code governs the treatment of distributions from annuity
contracts. It provides that if the Accumulation Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includible in gross income. It
further provides that a ten percent (10%) penalty will apply to the income
portion of any distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2 (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
The Policy provides that upon the death of the Annuitant prior to the
Annuity Commencement Date, the death benefit will be paid to the named
Beneficiary. Such payments made upon the death of the Annuitant who is not the
Owner of the Policy do not qualify for the death of Owner exception to the ten
percent (10%) federal income tax penalty
<PAGE>
applied to the income portion of any distribution from Non-Qualified Policies
and will be subject to the ten percent (10%) distribution penalty unless the
Beneficiary is 591/2 or older or one of the other exceptions applies.
The above information does not apply to Qualified Policies. However,
separate tax withdrawal penalties and restrictions may apply to such Qualified
Policies. (See "Tax Treatment of Withdrawals-Qualified Policies," below.)
Qualified Plans
The Policies offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Policies issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Owners,
participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the Policies
comply with applicable law. Following are general descriptions of the types of
Qualified Plans with which the Policies may be used. Such descriptions are not
exhaustive and are for general informational purposes only. The tax rules
regarding Qualified Plans are very complex and will have differing applications
depending on individual facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a Policy issued under a Qualified Plan.
Policies issued pursuant to Qualified Plans include special provisions
restricting Policy provisions that may otherwise be available as described in
this Prospectus. Generally, Policies issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Policies. (See "Tax
Treatment of Withdrawals-Qualified Policies.")
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee
v. Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under the Title VII of the Civil Rights Act of
1964, vary between men and women. The Policies sold by the Company in connection
with Qualified Plans will utilize annuity tables which do not differentiate on
the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
H.R. 10 Plans. Section 401 of the Code permits self-employed individuals to
establish Qualified Plans for themselves and their employees, commonly referred
to as "H.R. 10" or "Keogh" plans. Contributions made to the Plan for the benefit
of the employees will not be included in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places limitations
and restrictions on all Plans including on such items as: amount of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. (See "Tax Treatment of Withdrawals-Qualified
Policies" below). Purchasers of Policies for use with an H.R. 10 Plan should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
Tax-Sheltered Annuities. Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable, educational
and scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Policies for the benefit of
their employees. Such contributions are not includible in the gross income of
the employees until the employees receive distributions from the Policies. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals-Qualified
Policies" and "Tax-Sheltered Annuities--Withdrawal Limitations".) Any employee
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
Individual Retirement Annuities. Section 408(b) of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" ("IRA"). Under applicable limitations, certain
amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. (See "Tax Treatment of
Withdrawals-Qualified Policies" below.) Under certain conditions, distributions
from other IRAs and other Qualified Plans may be rolled over or transferred on a
tax-deferred basis into an IRA. Sales of Policies for use with IRAs are subject
to special requirements imposed by the Code, including the requirement that
certain informational disclosure be given to persons
<PAGE>
desiring to establish an IRA. Purchasers of Policies to be qualified as
Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Corporate Pension and Profit-Sharing Plans. Sections 401(a) and 401(k) of the
Code permit corporate employers to establish various types of retirement plans
for employees. These retirement plans may permit the purchase of the Policies to
provide benefits under the Plan. Contributions to the Plan for the benefit of
employees will not be includible in the gross income of the employees until
distributed from the Plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places limitations
and restrictions on all plans including on such items as: amount of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitabiliy of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. (See "Tax Treatment of Withdrawals-Qualified
Policies" below.) Purchasers of Policies for use with Corporate Pension or
Profit-Sharing Plans should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
Section 457-Deferred Compensation Plans. Under Section 457 of the Code,
governmental and certain other tax-exempt employers may establish deferred
compensation plans for the benefit of their employees which may invest in
annuity contracts. The Code, as in the case of Qualified Plans, establishes
limitations and restrictions on eligibility, contributions and distributions.
Under these Plans, contributions made for the benefit of the employees will not
be includible in the employee's gross income until distributed from the Plan.
However, under a Section 457 Plan, all the assets remain solely the property of
the employer subject only to the claims of the employer's general creditors
until such time as made available to the participant or beneficiary.
Tax Treatment of Withdrawals-Qualified Policies.
In the case of a withdrawal under a Qualified Policy, a ratable portion of
the amount received is taxable, generally based on a ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Policy. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Policies
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit-Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (Individual
Retirement Annuities). To the extent amounts are not includible in gross income
because they have been rolled over to an IRA or to another eligible Qualified
Plan, no tax penalty will be imposed. The tax penalty will not apply to the
following distributions: (a) if distribution is made on or after the date on
which the Owner or Annuitant (as applicable) reaches age 591/2; (b)
distributions following the death or disability of the Owner or Annuitant (as
applicable) (for this purpose disability is as defined in Section 72 (m)(7) of
the Code); (c) after separation from service, distributions that are part of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Owner or Annuitant (as
applicable) and his or her designated Beneficiary; (d) distributions to an Owner
or Annuitant (as applicable) who has separated from service after he has
attained age 55; (e) distributions made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the amount allowable
as a deduction under Code Section 213 to the Owner or Annuitant (as applicable)
for amounts paid during the taxable year for medical care; and (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order. The
exceptions stated in (d), (e) and (f) above do not apply in the case of an
Individual Retirement Annuity. The exception stated in (c) above applies to an
Individual Retirement Annuity without the requirement that there be a separation
from service.
Generally, distributions from a qualified plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 701/2 . Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. In addition, distributions in excess of $150,000 per year may be
subject to an additional 15% excise tax unless an exemption applies.
Tax-Sheltered Annuities-Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section 403(b)(11)
of the Code) to circumstances only when the Owner: (1) attains age 591/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
<PAGE>
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or transfer between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
Tax Advice and Other Taxes
The description in this Prospectus of the federal tax treatment of amounts
invested and received under the Policies is not intended as tax advice and is
for general informational purposes only. For complete information on such
federal and state tax consequences, a competent tax adviser should be consulted.
The discussion of federal tax consequences in this Prospectus is based on
the law in effect on the date of this Prospectus, which is subject to change.
Tax laws affecting variable annuities have changed in recent years and numerous
proposals for additional changes continue to be considered by the IRS and
Congress.
DISTRIBUTION OF VARIABLE ANNUITY POLICIES
First Variable Capital Services, Inc. ("FVCS"), a wholly-owned subsidiary
of the Company, is the distributor of the Policies. The Policies are sold by
other broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD"). FVCS is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is
also a member of the NASD.
LEGAL PROCEEDINGS
There are no present or pending material legal proceedings to which Fund A
or FVCS is a party. The Company is engaged in various kinds of litigation the
resolution of which, in the opinion of management, is not material with respect
to Fund A.
PERIODIC REPORTS
During the Accumulation Period, the Company will send the Owner, at least
once during each Policy Year, a statement showing the number, type and value of
the Accumulation Units credited to the Policy, which statement shall be accurate
as of a date not more than two months prior to the date of mailing. In addition,
the Owner will receive such reports or prospectuses concerning Fund A and the
Investment Options as may be required by the 1940 Act and the Securities Act of
1933. The Company will also send such statements reflecting transactions in the
Policy as may be required by applicable laws, rules and regulations.
STATE REGULATION
The Company is subject to the laws of Arkansas governing life insurance
companies and to regulation by the Arkansas Commissioner of Insurance (the
"Commissioner"). An annual statement, in a prescribed form, is filed with the
Commissioner on or before March 1 of each year covering the operations of the
Company for the preceding year and its financial condition on December 31 of
such year. Its books and assets are subject to review and examination by the
Commissioner at all times, and a full examination of its operations is conducted
by regulatory authorities at least once every three years.
<PAGE>
In addition, the Company is subject to the insurance laws and regulations
of the other jurisdictions in which it is licensed to do business. Generally,
the insurance departments of such jurisdictions apply the laws of Arkansas in
determining the permissible investments of the Company.
RESERVATION OF RIGHTS
The Company reserves the right at any time to add or delete certain types
of Policies for sale. The Company also reserves the right, in compliance with
applicable law (including any required approval by the Securities and Exchange
Commission), to make available additional mutual funds and additional Portfolios
of the Trust in order to enhance the investment choices available to Owners. The
Company has agreed with the Securities and Exchange Commission that Fund A will
invest only in mutual funds which have undertaken to have a board of directors
(a majority of whom are not interested persons of the mutual fund) which would
formulate and approve any plan under Rule 12b-1 of the 1940 Act to finance
distribution expenses. The Company reserves the right, subject to compliance
with applicable law, to change the name of Fund A.
PRIOR POLICIES
The Company has issued earlier series of variable annuity policies ("prior
policies"). Payments may still be made in accordance with the terms of such
prior policies. However, not all Investment Divisions described in this
Prospectus are available to owners of such prior policies.
It will be necessary for owners of First Variable Forms 1001A, 1003A and
1005A Policies funded in First Variable Annuity Fund A to exchange their
policies for Policy Form 1005A.2 in order to allocate amounts to the Cash
Management Investment Division, U.S. Government Bond Investment Division, High
Income Bond Investment Division, Tilt Utility Investment Division, World Equity
Investment Division, Multiple Strategies Investment Division, Growth & Income
Division and Small Cap Division.
INQUIRIES
Any inquiries by an Owner about a Policy should be directed to the
Company's Service Center at (800) 544-0086.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Page
General Information and History.................................
Independent Auditors............................................
Legal Opinions..................................................
Underwriter.....................................................
Custody of Assets...............................................
Yield Calculation of Cash Management Investment Division........
Performance Information.........................................
Service Agreement...............................................
Financial Statements............................................
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
FIRST VARIABLE ANNUITY FUND A
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS DOCUMENT
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS DATED THE SAME DATE AS THIS
STATEMENT OF ADDITIONAL INFORMATION. A COPY OF THE PROSPECTUS MAY BE OBTAINED BY
WRITING OR CALLING THE SERVICE CENTER AT 323 CENTER STREET, SUITE 1200, THE
TOWER BUILDING, LITTLE ROCK, AR 72201, (501) 374-4800.
TABLE OF CONTENTS
Page
General Information and History...........................
Independent Auditors......................................
Legal Opinions............................................
Underwriter...............................................
Custody of Assets.........................................
Yield Calculation for Cash Management Investment Division.
Performance Information...................................
Service Agreement.........................................
Financial Statements......................................
First Variable Life Insurance Company, Depositor.
<PAGE>
GENERAL INFORMATION AND HISTORY
First Variable Annuity Fund A ("Fund A") is a separate account of the
company. The Company is a wholly-owned subsidiary of Irish Life of North
America, Inc. which is a beneficially-owned subsidiary of Irish Life plc Dublin,
Republic of Ireland. Information regarding the Company, its ownership and
history is contained in the Prospectus.
INDEPENDENT AUDITORS
The Company's independent auditor is Ernst & Young LLP, 200 Clarendon
Street, Boston Massachusetts 02116. The financial statements for the Company as
of December 31, 1995 and 1994 for the years then ended and the financial
statements for First Variable Anuity Fund A as of December 31, 1995 and for the
periods indicated included in this Statement of Additional Information, which is
incorporated by reference into the Prospectus, have been so included in reliance
on the report of Ernst & Young LLP, independent auditors, given on the authority
of said Firm as experts in auditing and accounting.
LEGAL OPINIONS
Legal matters in connection with the Policies described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
UNDERWRITER
First Variable Capital Services, Inc. ("FVCS"), a wholly-owned subsidiary
of the Company, is the principal underwriter of the Policies. Registered
representatives of other broker-dealers who are members of the National
Association of Securities Dealers, Inc., ("NASD") and who are authorized by FVCS
will sell the Contract. FVCS is registered with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 as a broker-dealer
and is also a member of the NASD. The Policies are offered on a continuous
basis.
CUSTODY OF ASSETS
The Company holds the assets of Fund A. These assets are held separate and
apart from the General Account.
YIELD CALCULATION FOR CASH MANAGEMENT INVESTMENT DIVISION INFORMATION
The Cash Management Investment Division of the Separate Account will
calculate its current yield based upon the seven days ended on the date
calculation. For the seven calendar days ended December 31, 1995, the annualized
yield for the Cash Management Investment Division was 5.76%.
For the seven calendar days ended December 31, 1995, the effective yield
for the Cash Management Investment Division was 5.93%.
The Prime Money II Fund Division had not commenced operations as of
December 31, 1995.
The current yield of the Cash Management Investment Division is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing Owner account having a balance of one Accumulation
Unit of the Investment Division at the beginning of the period, subtracting the
Mortality and Expense Risk Charge, dividing the difference by the value of the
account at the beginning of the same period to obtain the base period return and
multiplying the result by (365/7).
The Cash Management Investment Division computes its effective compound
yield according to the method prescribed by the Securities and Exchange
Commission. The effective yield reflects the reinvestment of net income earned
daily on Cash Management Investment Division assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
<PAGE>
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data. Any such
advertisement will include total return figures for the time periods indicated
in the advertisement. Such total return figures will reflect the deductions of a
1.00% Mortality and Expense Risk Charge, the investment advisory fee for the
underlying Portfolio being advertised and any applicable Annual Contract
Maintenance Charges.
The annualized total returns as of December 31, 1995 of each Investment
Division are listed below*:
1 Year 5 Year Life of Fund
------ ------ ------------
Common Stock** 35.762% 11.873% 10.570%
Multiple Strategies 30.925% 11.311% 9.085%
High Income 17.799% 11.223% 8.742%
Tilt Utility 32.126% 14.212% 13.318%
US Government Bond 18.987% 8.168% 7.982%
World Equity 22.534% 10.098% 6.841%
* As of December 31, 1995, the Growth and Income and Small Cap Investment
Divisions were not available investments under the Policies.
** Common Stock is a ten year Annualized Return.
The Company may also advertise non-standardized performance information
which does not include all charges.
The hypothetical value of a Contract purchased for the time periods
described in the advertisement will be determined by using the actual
Accumulation Unit values for an initial $1,000 purchase payment, and deducting
any applicable Annual Contract Maintenance Charges to arrive at the ending
hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 purchase payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of time periods described. The formula used in these calculations is:
[P(1 + T) to the power of n] = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time
periods used (or fractional portion thereof)
of a hypothetical $1,000 payment made at the
beginning of the time periods used.
In addition to total return data, the Company may include yield information in
its advertisements. For each Investment Division (other than the Cash Management
and Prime Money Fund II Investment Divisions) for which the Company will
advertise yield, it will show a yield quotation based on a 30 day (or one month)
period ended on the date of the most recent balance sheet of the Separate
Account included in the registration statement, computed by dividing the net
investment income per Accumulation Unit earned during the period by the maximum
offering price per Unit on the last day of the period, according to the
following formula:
a-b
Yield = 2 [ (---- + 1) to the sixth power - 1]
cd
a = Net investment income earned during the period by the
Trust attributable to shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units
outstanding during the period.
d = The maximum offering price per Accumulation Unit on the
last day of the period.
<PAGE>
The US Government Bond Investment Division's yield for the period ended
December 31, 1995 was 5.6512%.
The High Income Bond Investment Division's yield for the period ended
December 31, 1995 was 9.6146%.
Owners should note that the investment results of each Investment Division
will fluctuate over time, and any presentation of the Investment Division's
total return or yield for any period should not be considered as a
representation of what an investment may earn or what an Owner's total return or
yield may be in any future period.
SERVICE AGREEMENT
The Company has retained Alliance-One Services, L.P. ("Alliance"),
successor corporation to Vantage Computer Systems, Inc., 310 West 11th St.,
Kansas City, Missouri, to provide administrative services on the Policies. Such
administrative services include maintenance of Owner's records. The Company will
pay all fees and charges of Alliance. Alliance serves as the administrator to
various insurance companies offering variable and fixed annuity and variable
life insurance contracts. The Company administers other contracts it issues
through a separate service center.
FINANCIAL STATEMENTS
The financial statements of Fund A as of December 31, 1995 and the
financial statements of the Company, prepared on a statutory basis, as of
December 31, 1995 and 1994, are provided in this Statement of Additional
Information.
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Financial Statements
December 31, 1995
Contents
Report of Independent Auditors........................................
Financial Statements
Statement of Assets, Liabilities and Contract Owners' Equity..........
Statement of Operations...............................................
Statements of Changes in Net Assets...................................
Notes to Financial Statements.........................................
<PAGE>
Report of Independent Auditors
To the Board of Directors of First Variable Life Insurance Company
and Contract Owners of First Variable Annuity Fund A
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of First Variable Life Insurance Company--First Variable Annuity
Fund A as of December 31, 1995, and the related statements of operations for the
year then ended and changes in net assets for each year in the two years then
ended. These financial statements are the responsibility of First Variable Life
Insurance Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
Our procedures included confirmation of the securities owned as of December 31,
1995 by correspondence with Variable Investors Series Trust. 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 financial statements referred to above present fairly, in
all material respects, the financial position of First Variable Life Insurance
Company--First Variable Annuity Fund A at December 31, 1995, and the results of
its operations for the year then ended and changes in its net assets for each of
the years in the two years then ended, in conformity with generally accepted
accounting principles.
s/Ernst & Young LLP
-------------------
ERNST & YOUNG LLP
January 25, 1996
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Statement of Assets, Liabilities And Contract Owners' Equity
December 31, 1995
<TABLE>
<CAPTION>
Cash Common High Income Multiple
Management Stock Bond Strategies
Total Division Division Division Division
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in Variable Investors Series
Trust at value (cost $25,204,525) $28,817,694 $878,377 $23,337,272 $250,625 $1,192,693
------------------------------------------------------------------------------
Total assets $28,817,694 $878,377 $23,337,272 $250,625 $1,192,693
==============================================================================
Liabilities
Payable to First Variable Life Insurance
Company
$ 217 $ 217
------------------------------------------------------------------------------
Total liabilities 217 217
Contract owners' equity:
Annuity contracts in payment period 32,913 32,913
Variable annuity contract owners' equity 28,784,564 $878,377 23,304,142 $250,625 $1,192,693
------------------------------------------------------------------------------
Total contract owners' equity 28,817,477 878,377 23,337,055 250,625 1,192,693
------------------------------------------------------------------------------
Total liabilities and contract owners' equity $28,817,694 $878,377 $23,337,272 $250,625 $1,192,693
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S.
Tilt Government World
Utility Bond Equity
Division Division Division
----------------------------------------------
<S> <C> <C> <C>
Assets
Investments in Variable Investors Series
Trust at value (cost $25,204,525) $419,836 $2,053,488 $685,403
----------------------------------------------
Total assets $419,836 $2,053,488 $685,403
==============================================
Liabilities
Payable to First Variable Life Insurance
Company
----------------------------------------------
Total liabilities
Contract owners' equity:
Annuity contracts in payment period
Variable annuity contract owners' equity $419,836 $2,053,488 $685,403
----------------------------------------------
Total contract owners' equity 419,836 2,053,488 $685,403
----------------------------------------------
Total liabilities and contract owners' equity $419,836 $2,053,488 $685,403
==============================================
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
Cash Common High Income Multiple
Management Stock Bond Strategies
Total Division Division Division Division
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $1,825,150 $47,803 $1,384,647 $21,962 $108,169
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk charges 260,898 9,061 209,581 2,326 11,986
---------------------------------------------------------------------------
Net investment income 1,564,252 38,742 1,175,066 19,636 96,183
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on Series
Trust:
Variable Investors Series Trust
shares redeemed 772,984 777,822 (5,069) 21,604
Net unrealized appreciation on
investments during the year 4,940,911 4,398,703 23,145 192,197
---------------------------------------------------------------------------
Net realized and unrealized gain on 5,713,895 5,176,525 18,076 213,801
investments
---------------------------------------------------------------------------
Net increase in net assets
resulting from operations $7,278,147 $38,742 $6,351,591 $37,712 $309,984
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S
Tilt Government World
Utility Bond Equity
Division Division Division
--------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends $19,877 $204,701 $ 37,991
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk charges 3,219 19,202 5,523
--------------------------------------------
Net investment income 16,658 185,499 32,468
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on Series
Trust:
Variable Investors Series Trust
shares redeemed 61 (40,854) 19,420
Net unrealized appreciation on
investments during the year 76,734 189,344 60,788
--------------------------------------------
Net realized and unrealized gain on 76,795 148,490 80,208
investments
--------------------------------------------
Net increase in net assets
resulting from operations $93,453 $333,989 $112,676
============================================
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Cash Management Common Stock
Total Division Division
1995 1994 1995 1994 1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $1,564,252 $ 427,052 $ 38,742 $ 22,860 $1,175,066 $ (30,957)
Realized gain (loss) on Variable
Investors Series Trust shares redeemed 772,984 660,359 777,822 609,276
Net unrealized appreciation
(depreciation) on investments during 4,940,911 (1,612,123) 4,398,703 (966,268)
the year
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 7,278,147 (524,712) 38,742 22,860 6,351,591 (387,949)
From contract owner transactions
Net proceeds from sale of accumulation 1,085,371 805,996 33,362 11,111 676,552 445,933
units
Cost of accumulation units terminated
and exchanged (3,219,454) (2,936,126) (61,234) 56,672 (1,853,327) (2,661,491)
-----------------------------------------------------------------------------------
Increase (decrease) in net assets from
contract owner transactions (2,134,083) (2,130,130) (27,872) 67,783 (1,176,775) (2,215,558)
-----------------------------------------------------------------------------------
Increase (decrease) in net assets 5,144,064 (2,654,842) 10,870 90,643 5,174,816 (2,603,507)
Net assets at beginning of year 23,673,413 26,328,255 867,507 776,864 18,162,239 20,765,746
-----------------------------------------------------------------------------------
Net assets at end of year $28,817,477 $23,673,413 $878,377 $867,507 $23,337,055 $18,162,239
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
High Income Bond
Division
1995 1994
-------------------------------
<S> <C> <C>
Operations
Net investment income (loss) $ 19,636 $ 22,435
Realized gain (loss) on Variable
Investors Series Trust shares redeemed (5,069) (979)
Net unrealized appreciation
(depreciation) on investments during 23,145 (39,086)
the year
-------------------------------
Net increase (decrease) in net assets
resulting from operations 37,712 (17,630)
From contract owner transactions
Net proceeds from sale of accumulation 58,539 49,674
units
Cost of accumulation units terminated
and exchanged (48,569) (24,539)
-------------------------------
Increase (decrease) in net assets from
contract owner transactions 9,970 25,135
-------------------------------
Increase (decrease) in net assets 47,682 7,505
Net assets at beginning of year 202,943 195,438
-------------------------------
Net assets at end of year $250,625 $202,943
===============================
</TABLE>
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Statements of Changes in Net Assets (continued)
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Multiple Strategies Tilt Utility U.S. Government Bond
Division Division Division
1995 1994 1995 1994 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 96,183 $ 173,966 $ 16,658 $ 36,489 $ 185,499 $ 181,050
Realized gain (loss) on Variable
Investors Series trust shares redeemed 21,604 38,109 61 5,224 (40,854) 5,686
Net unrealized appreciation
(depreciation) on investments during 192,197 (287,610) 76,734 (47,346) 189,344 (279,153)
the year
----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 309,984 (75,535) 93,453 (5,633) 333,989 (92,417)
----------------------------------------------------------------------------------
From contract owner transactions
Net proceeds from sale of accumulation 115,442 100,815 76,157 75,497 23,640 32,249
units
Cost of accumulation units terminated
and exchanged (539,579) (230,144) (14,446) (51,747) (702,471) (64,763)
----------------------------------------------------------------------------------
Increase (decrease) in net assets from
contract owner transactions (424,137) (129,329) 61,711 23,750 (678,831) (32,514)
----------------------------------------------------------------------------------
Increase (decrease) in net assets (114,153) (204,864) 155,164 18,117 (344,842) (124,931)
Net assets at beginning of year 1,306,846 1,511,710 264,672 246,555 2,398,330 2,523,261
----------------------------------------------------------------------------------
Net assets at end of year $1,192,693 $1,306,846 $419,836 $264,672 $2,053,488 $2,398,330
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
World Equity
Division
1995 1994
----------------------------
<S> <C> <C>
Operations
Net investment income (loss) $ 32,468 $ 21,209
Realized gain (loss) on Variable
Investors Series trust shares redeemed 19,420 3,043
Net unrealized appreciation
(depreciation) on investments during 60,788 7,340
the year
----------------------------
Net increase (decrease) in net assets
resulting from operations 112,676 31,592
----------------------------
From contract owner transactions
Net proceeds from sale of accumulation 101,679 90,717
units
Cost of accumulation units terminated
and exchanged 172 39,886
----------------------------
Increase (decrease) in net assets from
contract owner transactions 101,851 130,603
----------------------------
Increase (decrease) in net assets 214,527 162,195
Net assets at beginning of year 470,876 308,681
----------------------------
Net assets at end of year $685,403 $470,876
============================
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Notes to Financial Statements
December 31, 1995
1. Organization
First Variable Annuity Fund A (the Fund) 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,
(1940 Act). Each of the seven investment divisions of the Fund are invested
solely in the shares of the seven 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. Under applicable
insurance law, the assets and liabilities of the Fund are clearly identified and
distinguished from the other assets and liabilities of First Variable Life. The
Fund cannot be charged with liabilities arising out of any other business of
First Variable Life.
First Variable Life is a wholly-owned subsidiary of Irish Life of North America,
Inc. (ILoNA), which is a wholly-owned subsidiary of Irish Life, plc. (Irish
Life) of Dublin, Ireland. All outstanding shares of the Company were purchased
by ILoNA from Monarch Life Insurance Company (Monarch Life), a Massachusetts
life insurance company, on September 22, 1994. 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.
Effective April 1, 1994, the name of the Equity Income Division was changed to
the Tilt Utility Division.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
Investments
The investments in shares of the Trust are stated at the net asset value per
share of the respective portfolios of the Trust. Investment transactions are
accounted for on the date the shares are purchased or sold. The cost of shares
sold and redeemed is determined on the first-in, first-out method. Dividends and
capital gain distributions received from the Trust are reinvested in additional
shares of the Trust and are recorded as income by the Fund on the ex-dividend
date.
Federal Income Taxes
For federal income tax purposes, operations of the Fund are combined with those
of First Variable Life which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Notes to Financial Statements (continued)
3. Investments
The following table presents selected data for investments in each of the
Portfolios of the Trust at December 31, 1995
<TABLE>
<CAPTION>
Number of Net Asset
Shares Cost Value
----------- -------------- --------------
<S> <C> <C> <C>
Cash Management Portfolio 878,377 $ 878,377 $ 878,377
Common Stock Portfolio 902,235 19,781,596 23,337,272
High Income Bond Portfolio 29,178 267,948 250,625
Multiple Strategies Portfolio 99,039 1,156,411 1,192,693
Tilt Utility Portfolio 26,734 384,034 419,836
U.S. Government Bond Portfolio 195,388 2,127,020 2,053,488
World Equity Portfolio 49,687 609,139 658,403
============== ==============
Totals $25,204,525 $28,817,694
============== ==============
</TABLE>
4. Contract Owners' Equity
Variable contract owners' equity at December 31, 1995 consists of the
following
<TABLE>
<CAPTION>
Accumulation Accumulation
Units Unit Value Equity
--------------- -------------- ---------------
<S> <C> <C> <C>
Cash Management Division 59,871.688 $ 14.671 $ 878,377
Common Stock Division 134,326.338 173.489 23,304,142
High Income Bond Division 12,200.159 20.543 250,625
Multiple Strategies Division 56,510.122 21.106 1,192,693
Tilt Utility Division 16,334.903 25.702 419,836
U.S. Government Bond Division 106,089.314 19.356 2,053,488
World Equity Division 41,403.409 16.554 685,403
===============
Total $28,784,564
===============
</TABLE>
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Notes to Financial Statements (continued)
5. Purchases and Sales of Securities
Cost of purchases and proceeds from sales of Trust shares by the Fund during the
year ended December 31, 1995 are shown below.
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
<S> <C> <C>
Cash Management Portfolio $ 276,323 $ 265,453
Common Stock Portfolio 2,304,016 2,259,874
High Income Bond Portfolio 81,484 51,878
Multiple Strategies Portfolio 220,784 548,739
Tilt Utility Portfolio 110,520 32,151
U.S. Government Bond Portfolio 363,847 857,179
World Equity Portfolio 368,032 233,712
=============== ===============
Totals $3,725,006 $4,248,986
=============== ===============
</TABLE>
6. Expenses
First Variable Life charges the Fund, based on the value of the Fund, at an
annual rate of 0.6% for mortality risks and 0.4% for expense risks. Such charges
totaled $260,898 for the year ended December 31, 1995.
7. Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
annuity contract, other than a contract issued in connection with certain types
of employee benefits plans, will not be treated as an annuity 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.
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund A
Notes to Financial Statements (continued)
8. Principal Underwriter and General Distributor
First Variable Capital Services, Inc. (FVCS), a wholly-owned subsidiary of First
Variable Life, is principal underwriter and general distributor of the contracts
issued through the Fund.
9. Investment Advisory and Business Management Agreements
On December 17, 1993, the Trustees of the Trust voted to terminate the existing
Investment Advisory and Business Management Agreements between the Trust and
INVESCO Capital Management, Inc., and to approve a new Investment Advisory
Agreement between the Trust and First Variable Advisory Services Corp., a
wholly-owned subsidiary of First Variable Life. These changes became effective
on April 1, 1994.
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholder
First Variable Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of First
Variable Life Insurance Company (the Company) as of December 31, 1995 and 1994,
and the related statutory-basis statements of operations, capital and surplus,
and cash flow for the years 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 audits.
We conducted our audits of the accompanying statutory-basis financial statements
in accordance with generally accepted auditing standards; however, as discussed
in the following paragraph, we were not engaged to determine or audit the
effects of the variances between statutory accounting practices and generally
accepted accounting principles. Generally accepted auditing standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion on the accompanying
statutory-basis financial statements.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Arkansas Insurance Department. When
statutory-basis financial statements are presented for purposes other than for
filing with a regulatory agency, generally accepted auditing standards require
that the auditors' report on such statements indicate whether they are presented
in conformity with generally accepted accounting principles. The accounting
practices used by the Company vary from generally accepted accounting principles
as explained in Note 1, and the Company has not determined the effects of those
variances. Accordingly, we were not engaged to audit, and we did not audit, the
effects of those variances. Since the accompanying financial statements do not
purport to be a presentation in conformity with generally accepted accounting
principles, we are not in a position to express, and we do not express, an
opinion on the financial statements referred to above as to fair presentation of
financial position, results of operations or cash flows in conformity with
generally accepted accounting principles.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of First
Variable Life Insurance Company at December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting practices prescribed or permitted by the Arkansas Insurance
Department.
s/Ernst & Young LLP
-------------------
ERNST & YOUNG LLP
January 25, 1996
<PAGE>
First Variable Life Insurance Company
Balance Sheets--Statutory Basis
<TABLE>
<CAPTION>
December 31
1995 1994
(In thousands)
<S> <C> <C>
Admitted assets
Cash and invested assets:
Bonds $302,616 $247,511
Common stocks 343 476
Cash and short-term investments 5,564 54,731
Total cash and invested assets 308,523 302,718
Investment income due and accrued 5,943 5,199
Other admitted assets 404 171
Separate account assets 132,176 94,282
Total admitted assets $447,046 $402,370
Liabilities and capital and surplus
Liabilities:
Annuity contract reserve $272,804 $261,934
Interest maintenance reserve 4,833 4,945
Federal income taxes 0 17
Remittances not allocated (365) 1,935
Asset valuation reserve 2,954 2,783
Transfers from separate accounts (1,369) (1)
Payable to affiliates 1 58
Other liabilities 1,375 4,743
Separate account liabilities 132,176 94,282
Total liabilities 412,409 370,696
Capital and surplus:
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 22,555 17,555
Unassigned surplus 9,582 11,619
Total capital and surplus 34,637 31,674
Total liabilities and capital and surplus $447,046 $402,370
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company
Statements of Operations, Capital and Surplus--Statutory Basis
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
(In thousands)
<S> <C> <C>
Premiums and other revenues:
Premiums and other considerations $67,063 $109,941
Investment income, less investment expenses 22,939 17,425
Other income 598 811
Total premiums and other revenues 90,600 128,177
Benefits and expenses
Benefit payments to policyholders and beneficiaries 62,339 71,385
Increase in annuity contract reserve 10,870 69,954
Total benefits paid or provided 73,209 141,339
Insurance expenses:
Commissions 3,738 1,560
General insurance expenses 5,693 4,979
Insurance taxes, licenses and fees 309 932
Other 302 115
Total insurance expenses 10,042 7,586
83,251 148,925
Net transfers to (from) separate accounts 9,133 (20,359)
Loss from operations before federal income tax benefit and net
realized capital losses (1,784) (389)
Federal income tax benefit (17) (43)
Loss from operations before net realized capital gains (losses)
(1,767) (346)
Net realized capital gains (losses), less related federal income tax expense
(1995-$0; 1994-$60) and amounts transferred to the interest maintenance
reserve (1995-($20); 1994-$470)
307 (228)
Net loss (1,460) (574)
Changes in net unrealized capital gains (losses) (133) 7,624
Net (increase) decrease in non-admitted assets (273) 198
(Increase) decrease in asset valuation reserve (171) 1,342
Loss on sale of limited partnerships (8,606)
Contributed capital from parent company 5,000
Net increase (decrease) in capital and surplus 2,963 (16)
Capital and surplus, beginning of year 31,674 31,690
Capital and surplus, end of year $34,637 $31,674
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company
Statements of Cash Flows--Statutory Basis
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
(In thousands)
<S> <C> <C>
Operations
Premiums and other considerations $ 67,063 $110,428
Investment income, less investment expenses 22,189 16,802
Other income 34 762
Benefits (62,339) (71,163)
Insurance expenses (10,056) (6,993)
Federal income taxes paid (recovered) 60 (380)
Transfers to (from) separate accounts (10,207) 20,698
Other expenses (303) (439)
Net cash provided by operations 6,441 69,715
Proceeds from investments sold, matured or repaid:
Bonds 19,378 15,450
Common stocks 1,807 14
Other invested assets 9,685
21,185 25,149
Tax on capital gains (60) (590)
Other cash provided:
Capital and surplus paid in 5,000
Other sources 403 6,213
Total other cash provided 5,403 6,213
Total cash provided 32,969 100,487
Cost of investments acquired:
Bonds (74,567) (49,883)
Common stocks (1,500) (14)
Other invested assets (258)
Total cost of investments acquired (76,067) (50,155)
Other cash applied:
Other (6,069) (2,618)
Total cash used (82,136) (52,773)
Increase (decrease) in cash and short-term investments (49,167) 47,714
Cash and short-term investments at beginning of year 54,731 7,017
Cash and short-term investments at end of year $ 5,564 $ 54,731
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis
December 31, 1995
1. Significant Accounting Policies
Organization
First Variable Life Insurance Company (the Company), a life insurance company
domiciled in the State of Arkansas, is a wholly-owned subsidiary of Irish Life
of North America, Inc. (ILoNA), which is owned by Irish Life, plc (Irish Life)
of Dublin, Ireland. All outstanding shares of the Company were purchased by
ILoNA from Monarch Life Insurance Company (Monarch Life), a Massachusetts life
insurance company, on September 22, 1994.
The Company is licensed in 49 states and sells variable and fixed annuity
products through regional wholesalers and insurance brokers.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Arkansas Insurance
Department, which practices differ in some respects from generally accepted
accounting principles (GAAP). The more significant of these differences are as
follows: (a) bonds are generally carried at amortized cost rather than
segregating the portfolio into held-to-maturity (carried at amortized cost),
held-for-sale (carried at fair value), and trading (carried at fair value)
classifications; (b) policy reserves are based on statutory mortality tables
rather than on the basis of the mortality, interest and withdrawal assumptions
anticipated by the Company when the policies were issued, as would be used for
GAAP. Statutory annuity reserves are stated at values which, in the aggregate,
are not less than those prescribed by the Commissioner's Annuity Reserve
Valuation Method (CARVM); for GAAP, annuity reserves would be stated at account
value; (c) expenses relating to the acquisition of new business are charged to
operations as incurred rather than being deferred and amortized over the period
that the related income is earned. Commissions and expense allowances on
reinsurance ceded are recognized as income when due rather than deferred and
amortized over the terms of the respective reinsurance agreements; (d) certain
assets, principally amounts due from other companies and furniture and
equipment, designated as "nonadmitted assets," are excluded from the balance
sheet and are charged to unassigned surplus; (e) net realized gains or losses
attributed to changes in the level of interest rates in the market are deferred
and amortized over the remaining life of the bond rather than recognized as
gains or losses in the statement of operations when the sale is completed; (f)
declines in the estimated realizable value of investments are recognized through
the establishment of a formula-determined statutory investment reserve (carried
as a liability) whose changes are reflected directly in surplus, rather than
through reductions in the statement of operations, when such declines are judged
to be other than temporary; (g) deferred federal income taxes are not provided
for the effects of differences in the bases of assets and liabilities reported
for financial statement and income tax purposes, as would be the treatment under
GAAP; (h) investments in subsidiaries are carried on the basis of their equity
in net assets and changes in the carrying amounts of subsidiaries are credited
or charged directly to unassigned surplus rather than included in the
determination of net income (under GAAP, wholly-owned subsidiaries are presented
on a consolidated basis); (i) net unrealized investment gains and losses are not
segregated as a separate component of capital and surplus, as is required by
GAAP; and (j) pension expense is recognized in accordance with rules and
regulations permitted by the Employee Retirement Income Security Act of 1974
rather than on an accrual basis.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. Significant Accounting Policies (continued)
Investments
Investments are valued in accordance with methods prescribed by the Securities
Valuation Office of the National Association of Insurance Commissioners (NAIC).
Investments in bonds not backed by other loans are generally carried at
amortized cost using the interest method. Loan-backed bonds are valued at
amortized cost using the interest method including anticipated prepayments.
Prepayment assumptions are obtained from dealer survey values or internal
estimates and are consistent with the current interest rate and economic
environment. The retrospective adjustment method is used to value all
securities.
Common stocks are generally carried at market value.
Investments
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of twelve months or less to be
cash equivalents.
Investments in separate accounts are carried at market value. Cash and
short-term investments are stated at cost which approximates market value.
Realized gains and losses on investments are determined using the first-in,
first-out basis and are recognized in net income, net of related federal income
taxes and amounts transferred to the Interest Maintenance Reserve. Unrealized
capital gains and losses, resulting from changes in the difference between cost
and the carrying value of investments, are reflected in surplus.
Interest income is recognized on an accrual basis. The Company does not accrue
interest on bonds in default or where management determines collection is
uncertain.
Annuity Contract Reserve
The reserves for annuity contracts, all developed by actuarial methods, are
established and maintained on the basis of published mortality tables using
assumed interest rates and valuation methods that will provide, in the
aggregate, reserves that are greater than the minimum valuation required by law
or guaranteed policy cash values.
Recognition of Premium Revenues and Costs
Premiums are recognized as revenues over the premium-paying period, whereas
commissions and other costs applicable to the acquisition of new business are
charged to operations as incurred.
Federal Income Taxes
Generally, the Company records income tax expense based on estimates of
amounts that will be due and payable based on current year's taxable income,
without regard to deferred income taxes.
Separate Accounts
The separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for variable annuity
contracts, and for which the contract owner, rather than the Company, bears the
investment risk.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. Significant Accounting Policies (continued)
Separate Accounts (continued)
Separate account assets, comprised principally of shares of Variable Investors
Series Trust, primarily represent funds deposited by separate account contract
owners segregated into accounts with specific investment objectives. The assets
are carried at market value. An offsetting liability is maintained to the extent
of contract owners' interests in the assets.
Transfers from separate accounts represent the net premium and benefit
withdrawals between the separate accounts and the Company's general account, as
well as charges assessed the separate accounts for the assumption of mortality,
distribution, administrative and other expense risks, and for administrative
charges by the Company.
Premiums
Approximately 49% of the direct business written in 1995 was written through one
wholesaler. The Company's management believes that other broker/dealers could
generate the same level of sales on comparable terms. Direct premiums are not
concentrated in any geographical area.
Use of Estimates
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
2. Permitted Statutory Accounting Practices
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Arkansas Insurance
Department. "Prescribed" statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project, which is expected to be completed in 1997, will likely change, to
some extent, prescribed statutory accounting practices, and may result in
changes to the accounting practices that the Company uses to prepare its
statutory financial statements.
In 1994, the Company received written approval from the Arkansas Insurance
Department to report a portion of realized losses on the sale of limited
partnerships which related to prior years as a direct charge to surplus offset
by the resultant change in unrealized losses. This transaction had no net effect
on surplus.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
3. Investment Operations
Components of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
(In thousands)
<S> <C> <C>
Bonds $22,016 $16,349
Short-term investments 1,042 1,066
Limited partnership interests 0 31
Amortization of IMR 92 79
Other 10 187
23,160 17,712
Less investment expenses (221) (287)
Net investment income $22,939 $17,425
</TABLE>
At December 31, 1995 and 1994, the carrying value and estimated fair value of
the Company's portfolio of bonds are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
Carrying Value Gains Losses Estimated Fair
Value
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1995
Bonds:
U.S. Treasury and other U.S.
Government obligations $ 35,548 $ 1,212 $ (63) $ 36,697
Public utilities 95,820 5,325 (698) 100,447
Corporate 141,313 11,287 (53) 152,547
Mortgage-backed 29,935 296 (333) 29,898
$302,616 $18,120 $(1,147) $319,589
</TABLE>
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
Carrying Value Gains Losses Estimated Fair
Value
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1994
Bonds:
U.S. Treasury and other U.S.
Government obligations $ 31,113 $ 67 $ (2,705) $ 28,475
Public utilities 69,273 162 (7,489)
61,946
Corporate 124,025 1,093 (6,196)
118,922
Mortgage-backed 23,100 16 (2,642)
20,474
$247,511 $ 1,338 $(19,032) $229,817
</TABLE>
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
3. Investment Operations (continued)
The carrying value and estimated fair value of debt securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay certain obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated Fair
Carrying Value Value
(In thousands)
<S> <C> <C>
Bonds:
Due in one year or less $ 5,735 $ 5,707
Due after one year through five years 46,118 48,889
Due after five years through ten years 123,424 129,144
Due after ten years 97,404 105,951
Mortgage-backed securities 29,935 29,898
$302,616 $319,589
</TABLE>
Proceeds from the sales of investments in bonds during 1995 and 1994 were $19.4
million and $0; gross gains of $0.4 million and $0 and gross losses of $0.4
million and $0 were realized on those sales, respectively.
At December 3l, 1995, First Variable's investments with a carrying value of
$57.1 million, were held on deposit with various state insurance departments.
The Company's affiliated common stock investments represent its wholly-owned
subsidiaries, First Variable Capital Services, Inc. (FVCS), a registered
broker-dealer which commenced operations on December 1, 1992, and First Variable
Advisory Services Corp. (FVAS), an investment advisor which commenced operations
on April 1, 1994. The cost and carrying value of the Company's affiliated common
stock investments was $18,000 and $21,000, respectively at both December 31,
1995 and 1994.
The Company's unaffiliated common stock had a cost of $16,000 at both
December 31, 1995 and 1994, and carrying value of $322,000 and $455,000 at
December 31, 1995 and 1994, respectively.
Effective August 31, 1994, the Company transferred all limited partnership
assets to its former parent for the then current statement value. As stated in
Note 2, the Company classified losses incurred in prior years as a direct charge
to surplus offset by the resultant change in unrealized losses.
Concentrations of Credit Risk
The Company's investment in public utility bonds at December 31, 1995 represents
32% of total investments and 21% of admitted assets. The holdings of public
utility bonds are widely diversified and all issues met the Company's investment
policies and credit standards when purchased.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
4. Policy and Contract Attributes
Annuity Contract Reserves
The Company's major categories of reserves for annuity contracts and
supplementary contracts at December 31, 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
1995 1994
(In thousands)
<S> <C> <C>
Annuities $242,147 $233,229
Supplementary contracts with life contingencies 11,114 11,483
Supplementary contracts without life contingencies 19,543 17,222
Life and annuity reserves $272,804 $261,934
</TABLE>
At December 31, 1995, the Company's annuity contract reserves that are subject
to discretionary withdrawal (with adjustment), subject to discretionary
withdrawal (without adjustment), and not subject to discretionary withdrawal
provisions are summarized as follows:
<TABLE>
<CAPTION>
Amount Percent
(In thousands)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $ 32,443 8%
Subject to discretionary withdrawal (without adjustment) at book
value with minimal or no charge or adjustment
339,232 84
Not subject to discretionary withdrawal 31,724 8
Total annuity reserves and deposit fund liabilities $403,399 100%
</TABLE>
5. Federal Income Taxes
Differences between financial statement operating income before federal income
taxes and taxable income are primarily attributed to differences between book
and tax bases for investments, annuity contract reserves and tax basis deferred
acquisition costs.
The Company filed an election under Internal Revenue Code Section 338(h)(10)
which allowed the Company to record its tax-basis assets at market value at the
date the Company was acquired by ILoNA. The resulting tax-basis goodwill will be
amortized over a 10-15 year period.
In 1994, the Company filed its own separate federal income tax return covering
the period September 22, 1994 to December 31, 1994. From 1991 until September
21, 1994, the Company was included in the consolidated life/non-life federal
income tax returns of Regal Re, the Company's former ultimate parent, for which
taxes were provided under a written tax allocation agreement entered into on
September 23, 1992. This agreement terminated effective September 21, 1994.
There was a consolidated loss for 1994. Under the tax allocation agreement,
there was no provision for tax in 1994.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
6. Benefit Plans
Effective with the Company's purchase by ILoNA, substantially all of the
Company's employees became participants in a defined benefit pension plan which
ILoNA sponsors for its affiliated companies. Benefits are based on years of
service and the highest consecutive five years of compensation out of an
employee's final ten years of employment. The Company makes annual contributions
to the plan in amounts necessary to provide for normal costs and appropriate
prior service costs. No pension expense was recognized in the current year
because the plan was subject to the full funding limitation under the Internal
Revenue Code. As of the most recent actuarial valuation date, the total
accumulated benefit obligation determined in accordance with the Employee
Retirement Income Security Act of 1974 (ERISA) and valued as of January 1, 1995
was $2.9 million including vested benefits of $2.8 million. The fair value of
plan assets was $3.6 million.
Substantially all of the Company's employees are eligible for a 401(k) Employee
Saving Plan sponsored by ILoNA. Employees can contribute up to 15% of their
annual salary (with a maximum contribution of $9,240 in 1995) 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. There is an incentive compensation plan for certain officers of the
Company.
7. Reinsurance
During 1994, the Company maintained a reinsurance agreement with Monarch Life,
on a coinsurance basis, whereby the Company ceded to Monarch Life certain
single-premium deferred annuity policies. This reinsured business was recaptured
effective August 30, 1994 at the time of the Company's acquisition by ILoNA. The
effect of the recapture was an increase in premiums of $74 million and an
increase in reserves of $72 million, resulting in a gain from the transaction,
reflected in operations, of $2 million. In 1994, the Company received $.4
million from Monarch Life for expense allowances for administration of the
policies reinsured. At December 31, 1995 and 1994, there is no reinsurance in
effect.
Additional information on direct business written and reinsurance ceded for the
year 1994 is set forth below:
<TABLE>
<CAPTION>
1994
(In thousands)
<S> <C>
Direct premiums $ 30,534
Reinsurance recaptured from Monarch Life 74,755
Net premiums $105,289
Direct annuity benefits and payments on supplementary contracts incurred
$ 14,181
Reinsurance ceded to Monarch Life (715)
Net annuity benefits and payments on supplementary contracts incurred
$ 13,466
</TABLE>
8. Dividend Restrictions and Common Stock Dividend
The maximum amount of dividends which could be paid to the Company's stockholder
would normally be restricted to the greater of 10% of the surplus at the
preceding December 31 or the net income from operations for the previous year.
This amount is $3.5 million at December 31, 1995; however, pursuant to a
directive received from the Arkansas Insurance Department in 1991, any proposed
payment of a dividend currently requires its approval.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
8. Dividend Restrictions and Common Stock Dividend (continued)
On December 14, 1994, the Company's board of directors authorized a 2/3 for 1
common stock dividend to increase the Company's capital stock to $2.5 million to
meet the minimum statutory capital requirement as mandated by certain states in
which the Company does business. The additional $1.0 million was transferred to
capital stock from additional paid in capital.
9. Separate Accounts Reconciliation
The separate accounts of the Company represent funds related to variable annuity
products. There are no guarantees associated with the separate account portion
of these products. The assets for these accounts are carried at market value.
Information regarding the separate accounts of the Company as of and for the
year ended December 31, 1995 is as follows:
<TABLE>
<S> <C>
Premiums, deposits and other considerations $ 30,534
Reserves for separate accounts with assets at:
Fair value $130,807
Amortized cost 0
Total $130,807
Reserves for separate accounts by withdrawal characteristics:
At book value less current surrender charge of 5% or more $ 15,674
At book value less current surrender charge of 5% or less 114,822
130,496
Not subject to discretionary withdrawal 311
Total separate account liabilities $130,807
</TABLE>
Following is a reconciliation of transfers as reported in the separate account
annual statement summary of operations and the Company's statement of operations
for the year ended December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Transfers to separate accounts 33,541
Transfers from separate accounts (24,408)
Net transfers to (from) separate accounts as reported in the $ 9,133
separate account summary of operations
Transfers as reported in the Company's statement of operations $ 9,133
</TABLE>
Contract owners' interest in net investment income and realized and unrealized
capital gains and losses on separate account assets are not reflected in
operations. Fees charged on separate account contract owner deposits are
included in operations in the transfers from separate accounts line. These fees
during 1995 and 1994 amounted to $1.5 million and $1.3 million, respectively.
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
10. Contingencies
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments may
be partially recovered through a reduction in future premium taxes in certain
states. At December 31, 1995 and 1994, the Company has accrued $.1 million and
$.2 million, respectively, for guaranty fund assessments based on its historical
experience and information available from those making guaranty fund
assessments.
11. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair value disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Investments: Fair values for bonds are based on quoted market prices, where
available. For securities not actively traded, fair values are estimated using
values obtained from independent pricing services. The fair values for common
stocks are based on quoted market prices.
Cash and Short-Term Investments: The carrying amounts reported in the
accompanying statutory-basis balance sheets for these financial instruments
approximate their fair values.
Annuity Contract Reserves: Fair values of the Company's liabilities under
contracts not involving significant mortality or morbidity risks (principally
deferred annuities), are stated at the cost the Company would incur to
extinguish the liability, i.e., the cash surrender value. The Company is not
required to estimate the fair value of its liabilities under other contracts.
The carrying values and estimated fair values of the Company's financial
instruments for which it is practicable to calculate a fair value are as
follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Carrying Value Estimated Fair Carrying Value Estimated Fair
Value Value
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Bonds $302,616 $319,589 $247,511 $229,817
Common stocks 343 343 476 476
Liabilities:
Annuities and supplementary 272,804 271,212 261,934 260,318
contracts with and without
life contingencies
</TABLE>
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
12. Related-Party Transactions
In addition to the related-party transactions reported in Notes 3, 5 and 6, the
Company has participated in the following related-party transactions:
The Company has agreements with its wholly-owned subsidiaries, FVCS and FVAS,
under which the Company performs various services (including accounting and data
processing) without charge to the subsidiaries. In addition, the Company
reimburses FVCS and FVAS for all direct costs incurred by FVCS and FVAS in their
operations. During 1995 and 1994, the Company reimbursed FVCS and FVAS $282,000
and $325,000, respectively, for these costs.
In accordance with the Company's investment advisory services agreement with
FVAS, the Company will reimburse FVAS if FVAS's revenues are inadequate to meet
its obligations. Included in the 1995 and 1994 reimbursement of $282,000 and
$325,000, respectively, noted above was $274,000 and $233,000, respectively,
related to this agreement.
The Company entered into an Expense Allocation Agreement with Monarch Life and
other affiliates on October 1, 1993. The agreement provided a methodology for
allocating and reimbursing both direct and overhead expenses. Amounts allocated
to the Company pursuant to this agreement were $1.6 million for 1994. The
agreement was terminated on September 21, 1994.
A management agreement was entered into with ILoNA in January 1995 to provide
for certain management services. 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 1995 by the
Company pursuant to these agreements were $480,000 and $190,000, respectively.
PART C
<PAGE>
FIRST VARIABLE ANNUITY FUND A
PART C
ITEM 24. LIST OF ALL FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements
The following financial statements of Fund A are contained in Part B
hereof:
<TABLE>
<S> <C> <C>
1. Report of Independent Auditors.
2. Statement of Assets, Liabilities and Contract Owners' Equity.
3. Statement of Operations.
4. Statements of Changes in Net Assets.
5. Notes to Financial Statements.
The following Financial Statements -- Statutory-Basis of the Company are
included in Part B hereof:
1. Report of Independent Auditors.
2. Balance Sheets.
3. Statements of Operations, Capital and Surplus.
4. Statements of Cash Flows.
5. Notes to Financial Statements.
(b) Exhibits
1. Resolution of Board of Directors for the Company authorizing the establishment the Separate Account*
2. Not Applicable
3(a). Underwriting Agreement***
(b). Selling Agreement***
<PAGE>
(c). Form of Principal Underwriter's Agreement#
(d). Form of Broker-Dealer Agreement#
4. Individual Flexible Purchase Payment Deferred Variable Annuity#
5. Application for Variable Annuity#
6. Articles of Incorporation and By-laws of First Variable Life Insurance Company**
7. Not Applicable
8. Form of Fund Participation Agreement (to be filed by Amendment)
9. Opinion and Consent of Counsel ##
</TABLE>
- ----------
* Incorporated by reference to the Registrant's Original Registration
Statement.
** Incorporated by reference to the Registrant's Post-Effective Amendment
No. 27 to the registration statement on Form N-4, File No. 2-30164,
dated April 24, 1986.
*** Incorporated by reference to the Registrant's Post-Effective Amendment
No. 29 to the registration statement on Form N-4, File No. 2-30164,
dated April 22, 1987.
# Incorporated by reference to First Variable Annuity Fund A's
Post-Effective Amendment No. 37 to Form N-4 as filed on April 30,
1993.
## Incorporated by reference to First Variable Annuity Fund A's
Post-Effective Amendment No. 39 to Form N-4 as filed on April 11,
1994.
<PAGE>
PART C
ITEM 24(b)
10. Consent of Ernst & Young LLP
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Not Applicable
27. Financial Data Schedule
ITEM 25. OFFICERS AND DIRECTORS OF DEPOSITOR
The following are the Officers and Directors of the Company.
Name and Principal Positions and Offices with the Depositor
Business Address
Ronald M. Butkiewicz Chairman and Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Stephan M. Largent President and Director
10 Post Office Square
Boston, MA 02109
Michael J. Corey Director
401 East Host Drive
Lake Geneva, WI 53147
Michael R. Ferrari Director
25th & University Avenue
Des Moines, IA 50311
Peter D. Fullam Director
Lower Abbey Street
Dublin 1, Ireland
T. David Kingston Director
Lower Abbey Street
Dublin 1, Ireland
<PAGE>
PART C
ITEM 25
Jeff S. Liebmann Director
1301 Avenue of the Americas
New York, NY 10019
Kenneth R. Meyer Director
200 South Wacker Drive,
Suite 2100
Chicago, IL 60606
Phillip R. O'Connor Director
111 West Washington, Suite 1247
Chicago, IL 60602
Norman A. Fair Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Thomas K. Neavins Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Arnold R. Bergman Vice President - Legal & Administration
10 Post Office Square and Secretary
Boston, MA 02109
Martin Sheerin Vice President and Chief Actuary
10 Post Office Square
Boston, MA 02109
Mark Reynolds Vice President and Treasurer
10 Post Office Square
Boston, MA 02109
Anthony Koenig, Jr. Assistant Controller
10 Post Office Square
Boston, MA 02109
Constance Graves Assistant Controller
10 Post Office Square
Boston, MA 02109
Mark Kelly Assistant Treasurer
10 Post Office Square
Boston, MA 02109
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT.
Incorporated by reference to Registrant's Post-Effective Amendment No. 40 to
Form N-4 as filed on April 26, 1995.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 28, 1996, there were 93 Owners of Non-Qualified Contracts and
1,451 Owners of Qualified Contracts.
ITEM 28. INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933 ("Act") may be permitted to directors and officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Art and
will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) First Variable Capital Services, Inc. ("FVCS") is the principal underwriter
for the Contracts and for the following investment companies:
First Variable Annuity Fund E
Monarch Life Insurance Company Separate Account VA
(b) The following persons are directors and officers of FVCS:
Name and Principal Business Address Positions and Offices with Underwriter
Norman A. Fair Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Stephan M. Largent President and Director
10 Post Office Square
Boston, MA 02109
Arnold R. Bergman Secretary
10 Post Office Square
Boston, MA 02109
<PAGE>
Mark Reynolds Treasurer and Director
10 Post Office Square
Boston, MA 02109
Anthony Koenig, Jr. Assistant Treasurer
10 Post Office Square
Boston, MA 02109
Mark Kelly Assistant Treasurer
10 Post Office Square
Boston, MA 02109
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Mark E. Reynolds, and Arnold R. Bergman, who are located at 10 Post
Office Square, 12th Floor, Boston, MA 02109, maintain physical possession of the
accounts, books or documents of the Separate Account required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payment under the variable annuity
1/31/95 may be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written oral request.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b) (11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant understanding of (1) the restriction on redemption
imposed by Section 403(b)(11), and (2) other investment alternatives available
under the employer's Section 403(b) arrangement to which the participant may
elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, as amended, the Registrant certifies that it meets the requirements
of Securities Act Rule 485(b) for effectiveness of this Registration Statement
and has caused this Registration Statement to be signed on its behalf, in the
City of Boston, and the Commonwealth of Massachusetts, on this 25th day of
April, 1996.
FIRST VARIABLE ANNUITY FUND A
(Registrant)
By: FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: s/Stephan M. Largent
______________________________
Stephan M. Largent, President
FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: s/Stephan M. Largent
________________________________
Stephan M. Largent, President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
s/Ronald M. Butkiewicz
_____________________ Chairman & Director April 23, 1996
Ronald M. Butkiewicz
s/Michael J. Corey
_____________________ Director April 23, 1996
Michael J. Corey
___________________ Director _________
Michael R. Ferrari
s/Peter D. Fullam
_____________________ Director April 23, 1996
Peter D. Fullam
s/Stephan M. Largent
_____________________ President and Director April 25, 1996
Stephan M. Largent
s/T. David Kingston
______________________ Director April 23, 1996
T. David Kingston
_____________________ Director _________
Jeff S. Liebman
_____________________ Director _________
Kenneth R. Meyer
_______________________ Director _________
Phillip R. O'Connor
s/Norman A. Fair
_______________________ Director April 24, 1996
Norman A. Fair
s/Thomas K. Neavins
_______________________ Director April 23, 1996
Thomas K. Neavins
s/Mark E. Reynolds
______________________ Vice President and Treasurer April 25, 1996
Mark E. Reynolds
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
EX-99.B10. Consent of Ernst & Young LLP
EX-99.B13 Calculation of Performance Information
EX-27. Financial Data Schedule
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" in the Statement of Additional Information and to the use of our
reports dated January 25, 1996, with respect to the financial statements of
First Variable Life Insurance Company - First Variable Annuity Fund A and the
statutory-basis financial statements of First Variable Life Insurance Company
included in this Post-Effective Amendment No. 41 to the Registration Statement
(Form N-4, No. 2-30164).
/sErnst & Young LLP
-----------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 24, 1996
EX-99.B13
Exhibit 13
FIRST VARIABLE ANNUITY FUND A
CALCULATION OF PERFORMANCE INFORMATION
Cash Management Direct Fund A Yield Calculations as of 12/31/95
Seven Day Yield
12/29/95 Unit Price 14.670992 (A)
12/22/95 Unit Price 14.654804 (B)
Difference 0.016188 (C)
Base Return (C) / (B) 0.001104621
Annualized Base Return = (C) / (B) * 5.76%
365/7 =
Effective Yield = (1+Base Return) ^ 5.93%
(365/7) -1 =
Total Return on Direct Portfolios over respective periods Formula P*(1+T) ^ N =
ERV T = ((ERV/P) ^ 1/N) -1
Policy Issue Fee 0
Ann Contract Mnt Chg 0
Inception Date Cash 5/27/87
Management
Inception Date U.S. 5/27/87
Govt Bond
Inception Date Tilt 6/16/88
Utility
Inception Date World 6/16/88
Equity
Inception Date Multiple 5/5/87
Strateies
Inception Date High 6/1/87
Income
Surrender Charge 0
<TABLE>
<CAPTION>
CASH MANAGEMENT
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 14.671068 Unit Price EOP 14.671068 Unit Price EOP 14.671068
Unit Price BOP 14.053973 Unit Price BOP 12.620377 Unit Price BOP 10
Accum Value EOP Accum Value EOP Accum Value EOP
1,467.11
1,043.91 1,162.49
Surrender Charge Surrender Charge Surrender Charge
- - -
Ann Contract Charge Ann Contract Ann Contract
Charge Charge
- - -
Surrender Value Surrender Value Surrender Value
1,467.11
1,043.91 1,162.49
Total Return 4.391% Total Return 3.057% Total Return 4.563%
COMMON STOCK
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 173.488893 Unit Price EOP 173.488893 Unit Price EOP 173.488893
Unit Price BOP 127.789103 Unit Price BOP 99.002126 Unit Price BOP 63.52
Accum Value EOP Accum Value EOP Accum Value EOP
2,731.25
1,357.62 1,752.38
Surrender Charge Surrender Charge Surrender Charge
- - -
Ann Contract Charge Ann Contract Ann Contract
Charge Charge
- - -
Surrender Value Surrender Value Surrender Value
2,731.25
1,357.62 1,752.38
Total Return 35.762% Total Return 11.873% Total Return 10.570%
MULTIPLE STRATEGIES
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 21.105824 Unit Price EOP 21.105824 Unit Price EOP 21.105824
Unit Price BOP 16.120568 Unit Price BOP 12.351475 Unit Price BOP 10.000000
Accum Value EOP Accum Value EOP Accum Value EOP
2,110.58
1,309.25 1,708.77
Surrender Charge Surrender Charge Surrender Charge
- - -
Ann Contract Charge Ann Contract Ann Contract
Charge Charge
- - -
Surrender Value Surrender Value Surrender Value
2,110.58
1,309.25 1,708.77
Total Return 30.925% Total Return 11.311% Total Return 9.085%
U.S. GOVERNMENT BOND
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 19.356218 Unit Price EOP 19.356218 Unit Price EOP 19.356218
Unit Price BOP 16.267499 Unit Price BOP 13.071287 Unit Price BOP 10.000000
Accum Value EOP Accum Value EOP Accum Value EOP
1,935.62
1,189.87 1,480.82
Surrender Charge Surrender Charge Surrender Charge
- - -
Ann Contract Charge Ann Contract Ann Contract
Charge Charge
- - -
Surrender Value Surrender Value Surrender Value
1,935.62
1,189.87 1,480.82
Total Return 18.987% Total Return 8.168% Total Return 7.982%
HIGH INCOME BOND
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 20.54275 Unit Price EOP 20.54275 Unit Price EOP 20.54275
Unit Price BOP 17.438852 Unit Price BOP 11.566402 Unit Price BOP 10.000000
Accum Value EOP Accum Value EOP Accum Value EOP
2,054.28
1,177.99 1,776.07
Surrender Charge Surrender Charge Surrender Charge
- - -
Ann Contract Charge Ann Contract Ann Contract
Charge Charge
- - -
Surrender Value Surrender Value Surrender Value
2,054.28
1,177.99 1,776.07
Total Return 17.799% Total Return 11.223% Total Return 8.742%
TILT UTILITY
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 25.701775 Unit Price EOP 25.701775 Unit Price EOP 25.701775
Unit Price BOP 19.452425 Unit Price BOP 13.225082 Unit Price BOP 10.000000
Accum Value EOP Accum Value EOP Accum Value EOP
2,570.18
1,321.26 1,943.41
Surrender Charge Surrender Charge Surrender Charge
- - -
Ann Contract Charge Ann Contract Ann Contract
Charge Charge
- - -
Surrender Value Surrender Value Surrender Value
2,570.18
1,321.26 1,943.41
Total Return 32.126% Total Return 14.212% Total Return 13.318%
WORLD EQUITY
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 16.480176 Unit Price EOP 16.480176 Unit Price EOP 16.480176
Unit Price BOP 13.449488 Unit Price BOP 10.187538 Unit Price BOP 10.000000
Accum Value EOP Accum Value EOP Accum Value EOP
1,648.02
1,225.34 1,617.68
Surrender Charge Surrender Charge Surrender Charge
- - -
Ann Contract Charge Ann Contract Ann Contract
Charge Charge
- - -
Surrender Value Surrender Value Surrender Value
1,648.02
1,225.34 1,617.68
Total Return 22.534% Total Return 10.098% Total Return 6.841%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Cash Management Division
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 878,377
<INVESTMENTS-AT-VALUE> 878,377
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 878,377
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 878,377
<SHARES-COMMON-PRIOR> 867,507
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 878,377
<DIVIDEND-INCOME> 47,803
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 9,061
<NET-INVESTMENT-INCOME> 38,742
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 38,742
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,870
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> U.S. Government Bond Division
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2,127,020
<INVESTMENTS-AT-VALUE> 2,053,488
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,053,488
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 195,388
<SHARES-COMMON-PRIOR> 246,805
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,053,488
<DIVIDEND-INCOME> 204,701
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 19,202
<NET-INVESTMENT-INCOME> 185,499
<REALIZED-GAINS-CURRENT> (40,854)
<APPREC-INCREASE-CURRENT> 189,344
<NET-CHANGE-FROM-OPS> 333,989
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (344,842)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> High Income Bond Division
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 267,948
<INVESTMENTS-AT-VALUE> 250,625
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 250,625
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 29,178
<SHARES-COMMON-PRIOR> 25,645
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 250,625
<DIVIDEND-INCOME> 21,962
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2,326
<NET-INVESTMENT-INCOME> 19,636
<REALIZED-GAINS-CURRENT> (5,069)
<APPREC-INCREASE-CURRENT> 23,145
<NET-CHANGE-FROM-OPS> 37,712
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 47,682
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> Common Stock Division
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 19,781,596
<INVESTMENTS-AT-VALUE> 23,337,272
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,337,272
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 217
<TOTAL-LIABILITIES> 217
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 902,235
<SHARES-COMMON-PRIOR> 903,318
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 23,337,055
<DIVIDEND-INCOME> 1,384,647
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 209,581
<NET-INVESTMENT-INCOME> 1,175,066
<REALIZED-GAINS-CURRENT> 777,822
<APPREC-INCREASE-CURRENT> 4,398,703
<NET-CHANGE-FROM-OPS> 6,351,591
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,174,816
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> Multiple Strategies Division
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,156,411
<INVESTMENTS-AT-VALUE> 1,192,693
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,192,693
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 99,039
<SHARES-COMMON-PRIOR> 130,395
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,192,693
<DIVIDEND-INCOME> 108,169
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 11,986
<NET-INVESTMENT-INCOME> 96,183
<REALIZED-GAINS-CURRENT> 21,604
<APPREC-INCREASE-CURRENT> 192,197
<NET-CHANGE-FROM-OPS> 309,984
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (114,153)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> Tilt Utility Division
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 384,034
<INVESTMENTS-AT-VALUE> 419,836
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 419,836
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 26,734
<SHARES-COMMON-PRIOR> 21,394
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 419,836
<DIVIDEND-INCOME> 19,877
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,219
<NET-INVESTMENT-INCOME> 16,658
<REALIZED-GAINS-CURRENT> 61
<APPREC-INCREASE-CURRENT> 76,734
<NET-CHANGE-FROM-OPS> 93,453
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 155,164
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> World Equity Division
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 609,139
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</TABLE>
