<PAGE>
File Nos. 2-30164
811-1680
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. ____ |_|
Post-Effective Amendment No. 42 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42 |X|
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, 1997 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.
1
<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 most recent fiscal year on or
about February 27, 1997.
2
<PAGE>
FIRST VARIABLE ANNUITY FUND A
CROSS REFERENCE SHEET
(Pursuant to Rule 495(a))
Item No. in
Form N-4 Location
- -------- --------
PART A
- ------
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
PART B
- ------
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;
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
PART C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
3
<PAGE>
PART A
4
<PAGE>
[LOGO OF FIRST VARIABLE LIFE INSURANCE COMPANY]
SUPPLEMENT DATED MAY__,1997
TO
FIRST VARIABLE ANNUITY FUND A
PROSPECTUS
DATED MAY 1, 1997
- --------------------------------------------------------------------------------
This Supplement contains additional information on variable annuity policies
("Policies") previously issued by First Variable Life Insurance Company (the
"Company") and funded in First Variable Annuity Fund A ("Fund A"). The Policies
described in this supplement have deductions and expenses that differ from those
described in the Prospectus for variable annuity policies issued to the State of
Arkansas Deferred Compensation Plan.
The Policies described below were issued either to: (a) Qualified Plans; (b)
Separately Administered Plans; or (c) Plans other than Qualified Plans, or
Separately Administered Plans ("Other Plans"). "Separately Administered Plans"
mean: 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.
EXPENSE INFORMATION
The purpose of the following tables is to assist Owners of the Policies in
understanding the various costs and expenses of the Policies, based on expenses
incurred during the fiscal year ended December 31, 1996. These charges and
expenses differ from those described in the Prospectus with respect to variable
annuity policies issued to the State of Arkansas Deferred Compensation Plan. See
the Prospectus for information on expenses for the Investment Options. 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.
5
<PAGE>
Qualified Plans (Other than Separately Administered Plans)
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%
Examples - Qualified Plans (Other than Separately Administered Plans)
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.
----------------- ----- ------ ------ -------
Growth (1) $71 $115 $162 $290
Growth & Income $72 $118 $166 $298
High Income Bond $71 $116 $163 $293
Matrix Equity (2) $71 $115 $161 $288
Multiple Strategies $71 $116 $163 $293
Prime Money Fund II $68 $104 $143 $252
Small Cap Growth (3) $73 $120 $171 $307
U.S. Government Bond $68 $106 $146 $258
World Equity $71 $116 $163 $293
(1) Prior to May 1, 1997, this Investment Option was known as "Common Stock."
(2) Prior to May 1, 1997, this Investment Option was known as "Tilt Utility."
(3) Prior to May 1, 1997, this Investment Option was known as "Small Cap."
Separately Administered Plans
Contract Owner Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of Purchase Payments) NONE
Deferred Sales Load........................................... NONE
Surrender Fee................................................. 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.
6
<PAGE>
Examples - Separately Administered Plans
An Owner would pay the following expenses on a $1,000 investment in a Policy,
assuming a 5% annual return on assets and allocation of 100% of Purchase
Payments to the Portfolio shown:
a) upon a surrender at the end of each time period for which a
Termination Charge is assessed;
b) if the Contract is not surrendered, or upon a surrender for which no
Termination Charge is assessed.
Investment Option 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
----------------- ----- ------ ------ -------
Growth a) $41 $88 $138 $276
b) $22 $69 $118 $252
Growth & Income a) $42 $91 $142 $284
b) $23 $71 $122 $261
High Income Bond a) $41 $89 $140 $279
b) $23 $70 $119 $255
Matrix Equity a) $41 $88 $137 $274
b) $22 $68 $117 $250
Multiple Strategies a) $41 $89 $140 $279
b) $23 $70 $119 $255
Prime Money Fund II a) $37 $77 $119 $238
b) $18 $57 $98 $213
Small Cap Growth a) $43 $94 $147 $294
b) $24 $74 $127 $271
U.S. Government Bond a) $38 $78 $122 $243
b) $19 $59 $101 $218
World Equity a) $41 $89 $140 $279
b) $23 $70 $119 $255
Other Plans
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 value)
Mortality and Expense Risk Fees.............................. 1.00%
----
Total Fund A Annual Expenses................................. 1.00%
Examples - Other Plans (Plans other than Qualified Plans and Separately
Administered Plans)
You would pay the following expenses on a $1,000 investment at the end of the
applicable time period, assuming a 5% annual return on assets:
Investment Option 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
----------------- ----- ------ ------ -------
Growth $91 $134 $179 $305
Growth & Income $91 $136 $183 $312
High Income Bond $91 $135 $181 $308
Matrix Equity $90 $133 $178 $303
Multiple Strategies $91 $135 $181 $308
Prime Money Fund II $87 $123 $161 $268
Small Cap Growth $92 $139 $188 $322
U.S. Government Bond $88 $125 $164 $273
World Equity $91 $135 $181 $308
7
<PAGE>
Deductions and Expenses of the Policies
All deductions and expenses related to the Policies are described below. See the
Prospectus for information on additional charges and expenses of Fund A and the
Investment Options.
Sales Charge. A Sales Charge is deducted from the Purchase Payments for a Policy
as follows:
Percentage of Percentage of
Type of Policy Subject Purchase Net Amount
to Sales Charge Payment Invested
--------------- ------- --------
Qualified Plans (other than Separately
Administered Plans)...................... 5% 5.26%
Separately Administered Plans.............. 0% 0%
Other Plans................................ 7% 7.53%
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 4.0%) 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.
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" in the Prospectus. 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" in the
Prospectus.) 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.
Purchase Payment Amounts
Read the Prospectus carefully for information on permitted Purchase Payment
amounts. 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. (See "PURCHASE PAYMENT AMOUNTS" in the Prospectus.)
8
<PAGE>
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 Growth & Income
Division, High Income Bond Division, Matrix Equity Division, Multiple Strategies
Division, Small Cap Growth Division, U.S. Government Bond Division, World Equity
Division and Prime Money Fund II Division.
SUPPLEMENTAL FEDERAL TAX CONSIDERATIONS
NOTE: The following description supplements the FEDERAL TAX CONSIDERATIONS
section of the Prospectus. Both descriptions are based upon the Company's
understanding of current federal income tax law applicable to annuities in
general and certain tax qualified and non-tax qualified retirement income plans.
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 the Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable state
or other tax laws.
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 includable 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 591/2(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 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" in the Prospectus.)
Qualified Plans
As stated in the Prospectus, 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 have been issued. 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.
9
<PAGE>
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 includable 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 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 includable 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 Corporate Pension or
Profit-Sharing Plans should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
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
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 transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
THIS SUPPLEMENT SHOULD BE RETAINED WITH YOUR PROSPECTUS FOR FUTURE REFERENCE.
10
<PAGE>
[LOGO OF FIRST VARIABLE LIFE INSURANCE COMPANY]
VARIABLE ANNUITY POLICIES
FUNDED IN
FIRST VARIABLE ANNUITY FUND A
PROSPECTUS
Dated: May __, 1997
---------
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 employees covered under
certain deferred compensation plans qualified under the Internal Revenue
Code (the "Code"), including the State of Arkansas Deferred Compensation
Plan.
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's Service Center 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.
11
<PAGE>
TABLE OF CONTENTS
DEFINITIONS.................................................................
FUNDS' 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...............................................................
TAXES ..................................................................
THE COMPANY, FUND A, AND THE INVESTMENT OPTIONS.............................
THE COMPANY.............................................................
FUND A .................................................................
VARIABLE INVESTORS SERIES TRUST.........................................
FEDERATED INSURANCE SERIES..............................................
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............................................
NET INVESTMENT FACTOR...................................................
ACCUMULATION UNIT VALUE.................................................
EXCHANGE OF VARIABLE ACCUMULATION UNITS.................................
DETERMINATION OF ACCUMULATION UNIT VALUES UPON EXCHANGE.................
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....................................
ELECTION AND EFFECTIVE DATE OF ELECTION.................................
AMOUNTS PAYABLE ON DEATH OF PAYEE AFTER ANNUITY COMMENCEMENT DATE.......
PAYMENT OF DEATH BENEFIT................................................
AMOUNT OF DEATH BENEFIT.................................................
12
<PAGE>
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..................................................
QUALIFIED PLANS.........................................................
TAX TREATMENT OF WITHDRAWALS-QUALIFIED POLICIES.........................
TAX ADVICE AND OTHER TAXES..............................................
DISTRIBUTION OF VARIABLE ANNUITY POLICIES...................................
LEGAL PROCEEDINGS...........................................................
PERIODIC REPORTS............................................................
STATE REGULATION............................................................
RESERVATION OF RIGHTS.......................................................
INQUIRIES...................................................................
PRIOR POLICIES..............................................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....................
13
<PAGE>
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.
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
14
<PAGE>
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.
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.
Omitted Paragraph
Service Center: The Company's administrative service center for the Policies
is located at 323 Center Street, Suite 1200, The Tower Building, Little Rock,
AR 72201, (501-374-4800). You may also call the Company at (800-385-4312).
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.
15
<PAGE>
FUNDS' ANNUAL EXPENSES
(as a percentage of the average daily net assets of available Portfolios
of Variable Investors Series Trust and Federated Insurance Series)
Underlying shares of the Portfolios of Variable Investors Series Trust ("VIST")
and Federated Insurance Series ("Federated") are purchased at net asset value,
which reflects investment management fees, other operating expenses and any
expense reimbursement paid by an investment adviser to the applicable Portfolio.
The total annual expenses of the Portfolios as a percentage of average net
assets for the year ended December 31, 1996 were:
<TABLE>
<CAPTION>
VIST Federated
VIST VIST VIST VIST Small VIST VIST Prime Money
VIST Growth Growth Hi. Inc. Matrix Multiple Cap US Gov. World Fund II
& Income Bond Equity Strat. Growth Bond Equity
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mgmt. Fees....... .70% .75% .70% .65% .70% .85% .60% .70% .55%
Other Operating
Expenses -
After Expense
Reimbursement .47% .50% .50% .50% .50% .50% .25% .50% .25%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Annual
Expenses 1.17% 1.25% 1.20% 1.15% 1.20% 1.35% .85% 1.20% .80%
</TABLE>
First Variable Advisory Services Corp. ( "Investment Adviser" ) has agreed
through April 1, 1998 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 U.S. Government Bond
Portfolio). Had the Investment Adviser not reimbursed expenses of the
Portfolios, for the year ended December 31, 1996, the VIST Annual Expenses would
have been 1.17% for the Growth Portfolio; 2.63% for the Growth & Income
Portfolio; 1.99% for the High Income Bond Portfolio; 1.48% for the Matrix Equity
Portfolio; 1.32% for the Multiple Strategies Portfolio; 2.38% for the Small Cap
Growth Portfolio; 1.66% for the U.S. Government Bond Portfolio; and 1.50% for
the World Equity Portfolio. Federated Advisors, the investment adviser for
Federated, has voluntarily agreed to waive any portion of its fee and/or
reimburse certain operating expenses of Federated in excess of .80% of the
Federated Prime Money Fund II Portfolio's average net assets, but can modify or
terminate this voluntary agreement at any time at its sole discretion. Had this
investment adviser not waived expenses and/or reimbursed expenses of the
Federated Prime Money Fund II Portfolio for the year ended December 31, 1996,
the annual expenses, as a percentage of the Portfolio's average assets, would
have been 1.37%.
Deleted Footnote
16
<PAGE>
EXPENSE INFORMATION
The purpose of the following 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, 1996. 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.
Deleted Paragraphs
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%
----
^ Deleted Footnote
* 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 and 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. A
Termination Charge of 2% of the Accumulation Value of a Policy may be
imposed if a withdrawal is for reasons other than death, disability,
financial hardship, employment termination, retirement or transfer to
specified plans.
Deleted Paragraphs
Examples - State of Arkansas Deferred Compensation Plan
An Owner would pay the following expenses on a $1,000 investment in a Policy,
assumining a 5% annual return on assets and allocation of 100% of Purchase
Payments to the Portfolio shown:
a) upon a surrender at the end of each time period for which a
Termination Charge is assessed;
b) if the Contract is not surrendered, or upon a surrender for which no
Termination Charge is assessed.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Investment Option 1 Yr. 3 Yrs. 5 Yrs. 10 Yrs.
----------------- ----- ------ ------ -------
Growth a) $41 $88 $138 $276
b) $22 $69 $118 $252
Growth & Income a) $42 $91 $142 $284
b) $23 $71 $122 $261
High Income Bond a) $41 $89 $140 $279
b) $23 $70 $119 $255
Matrix Equity a) $41 $88 $137 $274
b) $22 $68 $117 $250
Multiple Strategies a) $41 $89 $140 $279
b) $23 $70 $119 $255
Prime Money Fund II a) $37 $77 $119 $238
b) $18 $57 $ 98 $213
Small Cap Growth a) $43 $94 $147 $294
b) $24 $74 $127 $271
U.S. Government Bond a) $38 $78 $122 $243
b) $19 $59 $101 $218
World Equity a) $41 $89 $140 $279
b) $23 $70 $119 $255
17
<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 Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Division (1)
Beginning of Period $ 173.49 $ 127.79 $ 130.10 $ 120.46 $ 131.71 $ 99.00 $ 103.81 $ 77.82 $ 67.30 $ 66.04
End of Period $ 216.09 $ 173.49 $ 127.79 $ 130.10 $ 120.46 $ 131.71 $ 99.00 $ 103.81 $ 77.82 $ 67.30
No. of Accum.Units
Outstanding 117,250 134,326 141,689 158,790 184,141 191,183 204,689 219,043 241,500 248,378
Growth & Income Division
Beginning of Period $ 10.00
(6/15/96)
End of Period $ 9.27
No. of Accum.Units
Outstanding 2,633
High Income Bond
Division(1)
Beginning of Period $ 20.54 $ 17.44 $ 18.95 $ 16.66 $ 14.54 $ 11.57 $ 12.06 $ 11.13 $ 10.04 $ 10.00
End of Period $ 23.23 $ 20.54 $ 17.44 $ 18.95 $ 16.66 $ 14.54 $ 11.57 $ 12.06 $ 11.13 $ 10.04
No. of Accum. Units
Outstanding 13,294 12,200 11,637 10,310 8,164 4,639 9,693 9,301 7,843 14,189
Matrix Equity
Division(2)
Beginning of Period $ 25,70 $ 19.45 $ 19.86 $ 17.01 $ 17.00 $ 13.23 $ 13.72 $ 10.93 $ 10.00
End of Period $ 26.62 $ 25.70 $ 19.45 $ 19.86 $ 17.01 $ 17.00 $ 13.23 $ 13.72 $ 10.93 N/A
No. of Accum. Units
Outstanding 19,095 16,335 13,606 12,418 9,731 5,381 2,470 574 18
</TABLE>
(1) Prior to May 1, 1997, the Growth Division was known as the "Common Stock
Division." Prior to January 1, 1989, the High Income Bond Division was
known as the "High Yield Bond Division."
(2) Prior to May 1, 1997, the Matrix Equity Division was known as the "Tilt
Utility Division" and had different investment policies. Prior to April 1,
1994, the Division was known as the "Equity Income Division" and had
different investment objectives, policies and restrictions.
18
<PAGE>
FIRST VARIABLE ANNUITY FUND A CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES (continued)
<TABLE>
<CAPTION>
Year Year Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multiple Strategies
Division
Beginning of Period $ 21.11 $ 16.12 $ 16.94 $ 15.49 $ 15.09 $ 12.35 $ 12.02 $ 9.97 $ 9.33 $ 10.00
End of Period $ 24.73 $ 21.11 $ 16.12 $ 16.94 $ 15.49 $ 15.09 $ 12.35 $ 12.02 $ 9.97 $ 9.33
No. of Accum. Units
Outstanding 59,245 56,510 81,067 89,213 88,222 85,904 100,018 109,462 158,845 255,283
Prime Money Fund II
Division (1)
Beginning of Period $ 14.67 $ 14.05 $ 13.69 $ 13.49 $ 13.20 $ 12.62 $ 11.82 $ 10.96 $ 10.32 $ 10.00
End of Period $ 15.22 $ 14.67 $ 14.05 $ 13.69 $ 13.49 $ 13.20 $ 12.62 $ 11.82 $ 10.96 $ 10.32
No. of Accum. Units
Outstanding 61,128 59,872 61,727 56,746 67,192 76,051 133,920 118,874 100,546 122,600
Small Cap Growth
Division (2)
Beginning of Period $ 10.00
(6/15/96)
End of Period $ 10.13
No. of Accum. Units
Outstanding 14,492
U.S. Government Bond
Division (3)
Beginning of Period $ 19.36 $ 16.27 $ 16.89 $ 15.60 $ 14.84 $ 13.07 $ 12.26 $ 10.87 $ 10.33 $ 10.00
End of Period $ 19.62 $ 19.36 $ 16.27 $ 16.89 $ 15.60 $ 14.84 $ 13.07 $ 12.26 $ 10.87 $ 10.33
No. of Accum. Units
Outstanding 104,173 106,089 147,431 149,397 157,098 222,283 206,325 210,125 165,729 98,820
World Equity Division
Beginning of Period $ 16.55 $ 13.45 $ 12.35 $ 10.63 $ 10.94 $ 10.23 $ 11.54 $ 9.98 $ 10.00
End of Period $ 18.42 $ 16.55 $ 13.45 $ 12.35 $ 10.63 $ 10.94 $ 10.23 $ 11.54 $ 9.98
No. of Accum. Units
Outstanding 51,3443 41,403 35,011 25,001 14,564 7,083 1,548 301 15
</TABLE>
(1) On January 2, 1997, shares of the Prime Money Fund II were substituted for
shares of the Cash Management Portfolio. Accumulation Unit Values shown
are based on the value of Cash Management Portfolio shares held for the
periods shown.
(2) Prior to May 1, 1997, the Small Cap Growth Division was known as the
"Small Cap Division."
(3) Since December 31, 1988, the investment policies of the VIST U.S.
Government Bond Portfolio (formerly the VIST "U.S. Government and High
Quality Bond Portfolio") have been changed. See the VIST prospectus.
19
<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.
20
<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."
The Company does not currently impose a Sales Charge against Policies issued in
connection with the State of Arkansas Deferred Compensation Plan.
During the Accumulation Period, the Owner may make a total or partial withdrawal
from the Policy. 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 and 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 also 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.
{omitted paragraph}
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
21
<PAGE>
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 prospectuses for the Trust and Federated Series.
omitted paragraph
Taxes
There is a ten percent (10%) federal income tax penalty 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 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 the U.S. Virgin Islands. The Company
is a wholly-owned subsidiary of Irish Life of North America, Inc. ("ILoNA")
which in turn is beneficially owned by Irish Life plc. ("Irish Life"). ILoNA
also owns Interstate Assurance Company ("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 1996, 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.
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-deferral 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. Each Investment Division invests in
shares of a Portfolio of a mutual fund. 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
22
<PAGE>
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 mutual
funds 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
High Income Bond Portfolio, Value Line, Inc. with respect to the Multiple
Strategies Portfolio and the Growth Portfolio, Strong Capital Management, Inc.
with respect to the U.S. Government Bond Portfolio, State Street Bank and Trust
Company with respect to the Matrix Equity 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 Growth 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:
^ Omitted Paragraph
Growth Portfolio. The investment objective of this Portfolio is capital growth
which it seeks to achieve through a policy of investing primarily in a
diversified portfolio of common stocks and securities convertible into or
exchangeable for common stock. The secondary objective is current income when
consistent with its primary objective. Prior to May 1, 1997, this Portfolio was
known as the "Common Stock Portfolio."
Growth & Income Portfolio - The investment objectives of this Portfolio are to
provide current income and growth of capital. The Portfolio seeks to achieve its
objectives by investing in equity securities, fixed income securities and money
market instruments. The portion of the Portfolio invested at any given time in
each of these asset classes will 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.
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 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.
23
<PAGE>
Matrix Equity Portfolio - The investment objective of this Portfolio is capital
appreciation and current income. The Portfolio will seek to achieve its
investment objective by investing in a diversified portfolio that is selected by
the Sub-Adviser on the basis of its proprietary analytical model. Sector weights
are normally maintained at a similar level to that of the S&P 500 Index. The
Portfolio will invest at least 65% of its total assets in equity securities.
Prior to May 1, 1997, this Portfolio was known as the "Tilt Utility Portfolio"
and had different policies, but maintained the same investment 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.
Small Cap Growth 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 market
capitalization or annual revenues under $1 billion at the time of purchase.
Prior to May 1, 1997, this Portfolio was known as the "Small Cap Portfolio."
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.
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.
Federated Insurance Series
Federated Insurance Series ("Federated") is an open-end investment management
company that was formed as a series trust to provide funding options for
variable life insurance and variable annuity contracts. Pursuant to an
investment advisory contract with Federated, investment decisions for Federated
are made by Federated Advisers, an affiliate of Federated Investment Counseling.
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 Portfolio 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 and
Federated 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 an/or Investment Options may be made available to Owners.
Omitted Paragraph
24
<PAGE>
Voting Rights
In accordance with its view of present applicable law, the Company will vote the
shares of the Trust and Federated that are in the Separate Account at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in the Separate Account. 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 holds regular meetings of
shareholders.
Shares of the Trust and Federated are used as the investment vehicle for
separate accounts of insurance companies offering variable annuity contracts and
variable life insurance policies. The use of the Trust's and Federated's shares
as investments for both variable annuity contracts and variable life insurance
policies is referred to as "mixed funding." The use of these shares as
investments by separate accounts of unaffiliated life insurance companies is
referred to as "shared funding."
The Trust and Federated intend to engage in mixed funding and shared funding.
Although the Trust and Federated do not currently foresee any disadvantage to
Contract owners due to differences in redemption rates, tax treatment, or other
considerations resulting from mixed funding or shared funding, the Trustees of
the Trust and the Trustees of Federated will closely monitor the operation of
mixed funding and shared funding and will consider appropriate action to avoid
material conflict and take appropriate action in response to material conflicts
which occur.
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. Each Owner having a voting interest will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.
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. 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
25
<PAGE>
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
Qualified Policies may limit the availability of certain Annuity Options to
participants in such plans. (See "TAX TREATMENT OF WITHDRAWALS - QUALIFIED
POLICIES.")
DEDUCTIONS AND EXPENSES OF THE POLICIES, FUND A AND THE INVESTMENT OPTIONS
Deductions and expenses related to the Policies described in this Prospectus, to
Fund A and to the Investment Options are described below.
Charges to the Policies
Omitted paragraph
Sales Charge. No Sales Charge is currently deducted from the Purchase Payments
for a Policy issued to the State of Arkansas Deferred Compensation Plan.
Omitted paragraph
Charge for Premium Taxes. Various jurisdictions impose a premium tax (currently
ranging, where imposed, from 0.5% to a maximum of 4.0%) 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.
Omitted Paragraph
Charge for Partial and Total Withdrawals. The Accumulation Value of a Policy may
be withdrawn at any time during the Accumulation Period. 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 and 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. 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.
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.
26
<PAGE>
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 prospectuses 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 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
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 an 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.
27
<PAGE>
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 at its Service Center. 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 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.
28
<PAGE>
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 (i) current taxation of payments received and (ii) 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 withdrawal request is accepted.
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.
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, and 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.
29
<PAGE>
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 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 Prime Money Fund II
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.
30
<PAGE>
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.")
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.
31
<PAGE>
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.
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.
32
<PAGE>
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.
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 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.
33
<PAGE>
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 (i) any period during
which the New York Stock Exchange is closed for other than customary weekend or
holiday closings or during which trading thereon is restricted by the Securities
and Exchange Commission; (ii) 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 (iii) 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 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: (i) to the Annuitant; (ii)
to a trustee or successor trustee of a pension or profit-sharing trust which is
qualified under Section 401 of the Code; (iii) to the trustee of an Individual
Retirement Account qualified under Section 408 of the Code for the benefit of
the Owner; or (iv) 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
34
<PAGE>
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.
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 and certain
tax qualified deferred compensation plans. 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 includable 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
35
<PAGE>
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 fully 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.
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.
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 annuities 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
36
<PAGE>
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 includable 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) 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 includable in gross
income (i.e., return of after-tax contributions). Participants should consult
their own tax counsel or other tax adviser regarding withholding requirements.
Omitted Paragraphs -
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. The following general 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.
Omitted Paragraphs -
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
37
<PAGE>
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 includable in the employee's gross income until
distributed from the Plan.
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 includable 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; (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order ;
and (g) distributions from an Individual Retirement Annuity for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
Owner or Annuitant (as applicable) and his or her spouse and dependents if the
Owner or Annuitant (as applicable) has received unemployment compensation for at
least 12 weeks. This exception will no longer apply after the Owner or Annuitant
(as applicable) has been re-employed at least 12 weeks. The exceptions stated in
(d) 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 , or retires, whichever is later. 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.
Omitted Paragraph
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
broker-dealers who are members of the National Association of Securities
Dealers,
38
<PAGE>
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 material pending legal proceedings to which Fund A, FVCS or the
Company is a party.
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.
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.
INQUIRIES
Any inquiries by an Owner about a Policy should be directed to the Company's
Service Center at (800) 385-4312.
PRIOR POLICIES
The Company previously issued variable annuity policies funded in Fund A, which
continue to be funded in Fund A on the date of this Prospectus. These policies
were issued to: (i) individuals who wanted 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 Code; or (iii) individuals
through an individual retirement annuity described in Section 408(b) of the
Code.
39
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
General Information and History..................................
Independent Auditors.............................................
Legal Opinions...................................................
Underwriter......................................................
Custody of Assets
Yield Calculation for Prime Money Fund II Division...............
ARDC Performance Information.....................................
Financial Statements.............................................
40
<PAGE>
PART B
41
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
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 COMPANY 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 Prime Money Fund II Division
ARDC Performance Information
Financial Statements...................................................
First Variable Life Insurance Company, Depositor.
42
<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 consolidated balance sheets for the
Company as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholder's equity and cash flows for the
years then ended and for the period September 22, 1994 through December 31,
1994, and the financial statements for First Variable Annuity Fund A as of
December 31, 1996 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 Contracts have been reviewed by the
Company's Legal Department. Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut, has provided advice on certain matters relating to the federal
securities and tax laws.
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 PRIME MONEY FUND II DIVISION
The Prime Money Fund II Division of the Separate Account will calculate
its current yield based upon the seven days ended on the date of calculation.
For the seven calendar days ended December 31, 1996, the annualized yield for
the Prime Money Fund II Division was 5.25% and the effective yield was 5.34%.
For the seven calendar days ending December 31, 1996, the annualized and
effective yields for the Prime Money Fund II Division are based on the
performance of shares of the VIST Cash Management Portfolio then held by the
Division.
The current yield of the Prime Money Fund II 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 Prime Money Fund II 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
Prime Money Fund II Division assets.
43
<PAGE>
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.
ARDC PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data for Policies
issued to the Arkansas Deferred Compensation Plan. 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 and the investment advisory fee for the
underlying Portfolio being advertised.
The annualized total returns as of December 31, 1996 of each Investment
Division are listed below:
1 Year 5 Year Life of Fund
------ ------ ------------
Growth * 22.062% 10.924% 11.071%
Growth & Income -- -- (9.637%)
High Income 10.834% 8.744% 8.958%
Matrix Equity** 1.494% 9.463% 11.996%
Multiple Strategies 14.819% 10.671% 9.668%
Small Cap Growth*** -- -- (1.193%)
US Government Bond (.690%) 5.679% 7.053%
World Equity 9.015% 10.356% 7.222%
* Prior to May 1, 1997, the Growth Division was known as the "Common Stock
Division. A ten year annualized total return is shown instead of Life of Fund.
** Prior to May 1, 1997, the Matrix Equity Division was known as the "Tilt
Utility Division" and had different investment policies.
*** Prior to May 1, 1997, the Small Cap Growth Division was known as the
"Small Cap Division."
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:
Yield = 2 [((a-b)/cd + 1)^ 6-1]
44
<PAGE>
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.
The US Government Bond Investment Division's yield for the period ended
December 31, 1996 was 6.38%.
The High Income Bond Investment Division's yield for the period ended
December 31, 1996 was 8.51%.
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.
FINANCIAL STATEMENTS
The financial statements of Fund A as of December 31, 1996 and the
consolidated financial statements of the Company, as of December 31, 1996 and
1995 and for the period September 22, 1994 through December 31, 1994 are
provided in this Statement of Additional Information.
45
<PAGE>
Financial Statements
First Variable Life Insurance Company--First Variable Annuity Fund A
Year ended December 31, 1996
46
<PAGE>
Report of Ernst & Young LLP, 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 and contract owners' equity
of First Variable Life Insurance Company--First Variable Annuity Fund A as of
December 31, 1996, and the related statement of operations for the year then
ended, and the statements of changes in net assets for each of the two years in
the period 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,
1996 by correspondence with Variable Investors Series Trust. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Variable Life Insurance
Company--First Variable Annuity Fund A at December 31, 1996, the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
s/Ernst & Young LLP
-----------------------------
Ernst & Young LLP
Boston, Massachusetts
January 31, 1997
47
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statement of Assets and Contract Owners' Equity
December 31, 1996
<TABLE>
<CAPTION>
High U.S. Growth
Cash Common Income Multiple Tilt Government World & Small
Management Stock Bond Strategies Utility Bond Equity Income Cap
Total Division Division Division Division Division Division Division Division Division
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments in Variable
Investors Series Trust
at value (cost
$25,640,486) $31,761,702 $945,678 $25,373,805 $308,845 $1,464,994 $508,276 $2,043,358 $945,482 $24,398 $146,866
Receivable from First
Variable Life
Insurance Company 1,633 1,633
-----------------------------------------------------------------------------------------------------------
Total assets $31,763,335 $945,678 $25,375,438 $308,845 $1,464,994 $508,276 $2,043,358 $945,482 $24,398 $146,866
===========================================================================================================
Contract owners' equity
Annuity contracts in
payment period $ 39,321 $ 39,321
Variable annuity
contract owners'
equity 31,724,014 $945,678 25,336,117 $308,845 $1,464,994 $508,276 $2,043,358 $945,482 $24,398 $146,866
-----------------------------------------------------------------------------------------------------------
Total contract owners'
equity $31,763,335 $945,678 $25,375,438 $308,845 $1,464,994 $508,276 $2,043,358 $945,482 $24,398 $146,866
===========================================================================================================
</TABLE>
See accompanying notes.
48
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
High U.S.
Cash Common Income Multiple Government World
Management Stock Bond Strategies Tilt Utility Bond Equity
Total Division Division Division Division Division Division(1) Division
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $1,950,917 $38,245 $1,509,928 $20,144 $160,290 $ 36,735 $ 158,988 $26,288
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 311,579 8,232 252,873 2,820 12,869 4,751 21,191 8,466
----------------------------------------------------------------------------------------------
Net investment income (loss) 1,639,338 30,013 1,257,055 17,324 147,421 31,984 137,797 17,822
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on
Series Trust:
Variable Investors Series
Trust shares redeemed 1,753,700 1,743,373 (6,197) 5,073 6,391 (13,075) 18,648
Net unrealized appreciation
(depreciation) on investments
during the year 2,508,047 2,495,804 23,690 46,232 (21,107) (95,325) 56,123
----------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 4,261,747 4,239,177 17,493 51,305 (14,716) (108,400) 74,771
----------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $5,901,085 $30,013 $5,496,232 $34,817 $198,726 $ 17,268 $ 29,397 $92,593
==============================================================================================
</TABLE>
Growth
& Small
Income Cap
Division(1) Division(1)
Investment income:
Dividends $ 193 $ 106
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 82 295
-------------------------
Net investment income (loss) 111 (189)
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on
Series Trust:
Variable Investors Series
Trust shares redeemed (233) (280)
Net unrealized appreciation
(depreciation) on investments
during the year 536 2,094
-------------------------
Net realized and unrealized gain
(loss) on investments 303 1,814
-------------------------
Net increase in net assets
resulting from operations $ 414 $1,625
=========================
See accompanying notes.
(1) From commencement of operations, May 1, 1996.
49
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statements of Changes in Net Assets
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Cash Management Common Stock High Income Bond
Total Division Division Division
1996 1995 1996 1995 1996 1995 1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 1,639,338 $ 1,564,252 $ 30,013 $ 38,742 $ 1,257,055 $ 1,175,066 $ 17,324 $ 19,636
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 1,753,700 772,984 1,743,373 777,822 (6,197) (5,069)
Net unrealized appreciation
(depreciation) on investments
during the period 2,508,047 4,940,911 2,495,804 4,398,703 23,690 23,145
-------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 5,901,085 7,278,147 30,013 38,742 5,496,232 6,351,591 34,817 37,712
-------------------------------------------------------------------------------------------------
From contract owner transactions
Net proceeds from sale of
accumulation units 1,746,244 1,085,371 25,028 33,362 962,137 676,552 57,090 58,539
Cost of accumulation units
terminated and exchanged (4,701,471) (3,219,454) 12,260 (61,234) (4,419,986) (1,853,327) (33,687) (48,569)
-------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from contract owner transactions (2,955,227) (2,134,083) 37,288 (27,872) (3,457,849) (1,176,775) 23,403 9,970
-------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 2,945,858 5,144,064 67,301 10,870 2,038,383 5,174,816 58,220 47,682
Net assets at beginning of period 28,817,477 23,673,413 878,377 867,507 23,337,055 18,162,239 250,625 202,943
-------------------------------------------------------------------------------------------------
Net assets at end of period $31,763,335 $28,817,477 $945,678 $878,377 $25,375,438 $23,337,055 $308,845 $250,625
=================================================================================================
</TABLE>
Multiple Strategies
Division
1996 1995
----------------------------
Operations
Net investment income (loss) $ 147,421 $ 96,183
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 5,073 21,604
Net unrealized appreciation
(depreciation) on investments
during the period 46,232 192,197
----------------------------
Net increase in net assets
resulting from operations 198,726 309,984
----------------------------
From contract owner transactions
Net proceeds from sale of
accumulation units 191,831 115,442
Cost of accumulation units
terminated and exchanged (118,256) (539,579)
----------------------------
Increase (decrease) in net assets
from contract owner transactions 73,575 (424,137)
----------------------------
Increase (decrease) in net assets 272,301 (114,153)
Net assets at beginning of period 1,192,693 1,306,846
----------------------------
Net assets at end of period $1,464,994 $1,192,693
============================
50
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statements of Changes in Net Assets (continued)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Growth &
Tilt Utility U.S. Government Bond World Equity Income Small Cap
Division Division Division Division(1) Division(1)
1996 1995 1996 1995 1996 1995 1996 1996
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 31,984 $ 16,658 $ 137,797 $ 185,499 $ 17,822 $ 32,468 $ 111 $ (189)
Realized gain (loss) on Variable Investors
Series Trust shares redeemed 6,391 61 (13,075) (40,854) 18,648 19,420 (233) (280)
Net unrealized appreciation (depreciation) on
investments during the period (21,107) 76,734 (95,325) 189,344 56,123 60,788 536 2,094
--------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 17,268 93,453 29,397 333,989 92,593 112,676 414 1,625
--------------------------------------------------------------------------------------
From contract owner transactions
Net proceeds from sale of accumulation units 127,302 76,157 93,089 23,640 176,494 101,679 25,033 88,240
Cost of accumulation units terminated
and exchanged (56,130) (14,446) (132,616) (702,471) (9,008) 172 (1,049) 57,001
--------------------------------------------------------------------------------------
Increase (decrease) in net assets from
contract owner transactions 71,172 61,711 (39,527) (678,831) 167,486 101,851 23,984 145,241
--------------------------------------------------------------------------------------
Increase (decrease) in net assets 88,440 155,164 (10,130) (344,842) 260,079 214,527 24,398 146,866
Net assets at beginning of period 419,836 264,672 2,053,488 2,398,330 685,403 470,876
--------------------------------------------------------------------------------------
Net assets at end of period $508,276 $419,836 $2,043,358 $2,053,488 $945,482 $685,403 $24,398 $146,866
======================================================================================
</TABLE>
See accompanying notes.
(1) From commencement of operations, May 1, 1996.
51
<PAGE>
First Variable Life Insurance Company---
First Variable Annuity Fund A
Notes to Financial Statements
December 31, 1996
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 (the
1940 Act). Each of the nine investment divisions of the Fund is invested solely
in the shares of the nine 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. 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.
The Small Cap Division and the Growth & Income Division commenced operations on
May 1, 1996.
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.
52
<PAGE>
First Variable Life Insurance Company---
First Variable Annuity Fund A
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Federal Income Taxes
For federal income tax purposes, operations of the Fund are combined with those
of First Variable Life, which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Investments
The following table presents selected data for investments in each of the
Portfolios of the Trust at December 31, 1996:
Number
of Shares Cost Net Asset Value
--------------------------------------------
Cash Management Portfolio 945,678 $ 945,678 $ 945,678
Common Stock Portfolio 828,579 19,322,324 25,373,805
High Income Bond Portfolio 33,674 302,478 308,845
Multiple Strategies Portfolio 115,361 1,382,482 1,464,994
Tilt Utility Portfolio 33,327 493,581 508,276
U.S. Government Bond Portfolio 205,586 2,212,214 2,043,358
World Equity Portfolio 62,773 813,095 945,482
Growth & Income Portfolio 1,964 23,862 24,398
Small Cap Portfolio 9,151 144,772 146,866
------------------------------
Totals $25,640,486 $31,761,702
==============================
53
<PAGE>
First Variable Life Insurance Company---
First Variable Annuity Fund A
Notes to Financial Statements
4. Contract Owners' Equity
Variable annuity contract owners' equity at December 31, 1996 consists of the
following:
Accumulation Units Accumulation Unit
Value Equity
-------------------------------------------------
Cash Management Division 62,129.821 15.221 $ 945,678
Common Stock Division 117,250.155 216.086 25,336,117
High Income Bond Division 13,293.376 23.233 308,845
Multiple Strategies Division 59,244.338 24.728 1,464,994
Tilt Utility Division 19,095.199 26.618 508,276
U.S. Government Bond Division 104,173.235 19.615 2,043,358
World Equity Division 51,343.036 18.415 945,482
Growth & Income Division 2,632.499 9.268 24,398
Small Cap Division 14,492.402 10.134 146,866
-----------
Total $31,724,014
===========
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, 1996 are shown below:
Purchases Sales
---------------------------
Cash Management Portfolio $ 489,426 $ 422,125
Common Stock Portfolio 2,610,258 4,812,903
High Income Bond Portfolio 79,449 38,722
Multiple Strategies Portfolio 362,856 141,858
Tilt Utility Portfolio 155,898 52,742
U.S. Government Bond Portfolio 393,343 295,074
World Equity Portfolio 289,021 103,713
Growth & Income Portfolio 27,641 3,546
Small Cap Portfolio 149,374 4,322
---------------------------
Totals $4,557,266 $5,875,005
===========================
54
<PAGE>
First Variable Life Insurance Company---
First Variable Annuity Fund A
Notes to Financial Statements
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 $311,579 for the year ended December 31, 1996.
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.
8. Principal Underwriter and General Distributor
First Variable Capital Services, Inc., a wholly-owned subsidiary of First
Variable Life, is principal underwriter and general distributor of the contracts
issued through the Fund.
55
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder
First Variable Life Insurance Company
We have audited the accompanying consolidated balance sheets of First Variable
Life Insurance Company (the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholder's equity, and
cash flows for the years then ended and for the period September 22, 1994 (date
operations acquired) through December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Variable Life Insurance Company at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended and for the period September 22, 1994 (date operations acquired) through
December 31, 1994, in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
---------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
February 7, 1997
56
<PAGE>
First Variable Life Insurance Company
Consolidated Balance Sheets
December 31
1996 1995
--------------------------
Assets
Investments:
Fixed maturities--available-for-sale, at
market (amortized cost: 1996--$278,305,000;
1995--$290,943,000) $294,195,000 $319,589,000
Equity securities, at market value
(cost: $684,000 in 1996 and 1995) 691,000 322,000
Other invested assets 94,000 --
--------------------------
Total investments 294,980,000 319,911,000
Cash and cash equivalents 2,433,000 5,585,000
Accrued investment income 5,636,000 5,943,000
Deferred policy acquisition costs 5,486,000 3,046,000
Value of insurance in force acquired 19,494,000 16,733,000
Property and equipment, less allowances for
depreciation of $508,000 in 1996 and $228,000
in 1995
649,000 739,000
Goodwill, less accumulated amortization of
$329,000 in 1996 and $183,000 in 1995 2,594,000 2,740,000
Other assets 2,273,000 151,000
Assets held in separate accounts 176,306,000 132,176,000
--------------------------
Total assets $509,851,000 $487,024,000
==========================
Liabilities and stockholder's equity
Liabilities:
Future policy benefits for annuity products $239,509,000 $255,694,000
Unearned revenue reserve 52,000 --
Supplementary contracts without life contingencies 21,008,000 19,543,000
Deferred income tax liability 5,642,000 7,826,000
Other liabilities 938,000 1,128,000
Liabilities related to separate accounts 176,306,000 132,176,000
--------------------------
Total liabilities 443,455,000 416,367,000
Commitments and contingencies
Stockholder's equity:
Capital stock, par value $1.00 per share--
authorized 3,500,000 shares, issued and
outstanding 2,500,000 shares
2,500,000 2,500,000
Additional paid-in capital 53,104,000 53,104,000
Net unrealized investment gains 7,324,000 13,189,000
Retained earnings 3,468,000 1,864,000
Total stockholder's equity 66,396,000 70,657,000
--------------------------
Total liabilities and stockholder's equity $509,851,000 $487,024,000
==========================
See accompanying notes.
57
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
Period from
September 22, 1994 (date
operations acquired)
Year ended December 31 through
1996 1995 December 31, 1994
----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Annuity product charges $ 2,408,000 $ 1,786,000 $ 344,000
Net investment income 23,458,000 23,465,000 5,318,000
Realized gains on investments 972,000 900,000 541,000
Other income 1,114,000 829,000 178,000
----------------------------------------------------
Total revenues 27,952,000 26,980,000 6,381,000
Benefits and expenses:
Annuity benefits 16,336,000 16,694,000 4,038,000
Underwriting, acquisition and insurance expenses
7,275,000 6,600,000 1,281,000
Management fee paid to parent 480,000 480,000 120,000
Other expenses 1,421,000 1,269,000 214,000
----------------------------------------------------
Total benefits and expenses 25,512,000 25,043,000 5,653,000
----------------------------------------------------
Income before income taxes 2,440,000 1,937,000 728,000
Income taxes 836,000 666,000 135,000
----------------------------------------------------
Net income $ 1,604,000 $ 1,271,000 $ 593,000
====================================================
</TABLE>
See accompanying notes.
58
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Net
Unrealized
Additional Investment Total
Capital Paid-in Gains Retained Stockholder's
Stock Capital (Losses) Earnings Equity
------------------------------------------------------------------------------
Initial capitalization on
<S> <C> <C> <C> <C> <C>
September 22, 1994 $1,500,000 $49,104,000 $50,604,000
Issuance of 1,000,000 shares of
capital stock pursuant to stock
dividend 1,000,000 (1,000,000) --
Net income for 1994 -- -- $ 593,000 593,000
Change in net unrealized
investment gains/losses -- -- $(3,308,000) -- (3,308,000)
Balance at December 31, 1994 2,500,000 48,104,000 (3,308,000) 593,000 47,889,000
Contribution from parent -- 5,000,000 -- -- 5,000,000
Net income for 1995 -- -- -- 1,271,000 1,271,000
Change in net unrealized
investment gains/losses -- -- 16,497,000 -- 16,497,000
------------------------------------------------------------------------------
Balance at December 31, 1995 2,500,000 53,104,000 13,189,000 1,864,000 70,657,000
Net income for 1996 -- -- -- 1,604,000 1,604,000
Change in net unrealized
investment gains/losses -- -- (5,865,000) -- (5,865,000)
------------------------------------------------------------------------------
Balance at December 31, 1996 $2,500,000 $53,104,000 $ 7,324,000 $3,468,000 $66,396,000
==============================================================================
</TABLE>
See accompanying notes.
59
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
September 22, 1994 (date
operations acquired)
Year ended December 31 through
1996 1995 December 31, 1994
-----------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,604,000 $ 1,271,000 $ 593,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Adjustments related to interest-sensitive
products:
Annuity benefits 16,336,000 16,694,000 4,038,000
Annuity product charges (2,408,000) (1,786,000) (344,000)
Realized gains on investments (972,000) (900,000) (541,000)
Policy acquisition costs deferred (2,800,000) (3,693,000) (693,000)
Amortization of deferred policy acquisition costs
360,000 132,000 8,000
Provision for depreciation and other amortization
524,000 481,000 243,000
Provision for deferred income taxes 836,000 666,000 135,000
Other (1,949,000) (6,765,000) 1,724,000
-----------------------------------------------------
Net cash provided by operating activities 11,531,000 6,100,000 5,163,000
Investing activities
Sale, maturity or repayment of investments:
Fixed maturities--available-for-sale 21,770,000 19,378,000 5,554,000
Equity securities -- 1,807,000 --
-----------------------------------------------------
21,770,000 21,185,000 5,554,000
Acquisition of investments:
Fixed maturities--available-for-sale (7,517,000) (74,567,000) (29,543,000)
Equity securities -- (1,500,000) --
Other (94,000) -- --
-----------------------------------------------------
(7,611,000) (76,067,000) (29,543,000)
Other (193,000) (252,000) (81,000)
-----------------------------------------------------
Net cash provided (used) by investing activities
13,966,000 (55,134,000) (24,070,000)
</TABLE>
60
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Period from
September 22, 1994 (date
operations acquired)
Year ended December 31 through
1996 1995 December 31, 1994
----------------------------------------------------
<S> <C> <C> <C>
Financing activities
Receipts from interest-sensitive products credited
to policyholder account balances $ 58,175,000 $ 67,063,000 $ 14,153,000
Return of policyholder account balances on
interest-sensitive products (86,824,000) (72,196,000) (16,285,000)
Contribution from parent -- 5,000,000 75,791,000
----------------------------------------------------
Net cash provided (used) by financing activities
(28,649,000) (133,000) 73,659,000
----------------------------------------------------
Net increase (decrease) in cash and cash equivalents
(3,152,000) (49,167,000) 54,752,000
Cash and cash equivalents at beginning of period
5,585,000 54,752,000 --
----------------------------------------------------
Cash and cash equivalents at end of period $ 2,433,000 $ 5,585,000 $ 54,752,000
====================================================
</TABLE>
See accompanying notes.
61
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1996
1. Significant Accounting Policies
Organization and Nature of Business
First Variable Life Insurance Company (the Company), a life insurance company
domiciled in the State of Arkansas, is a wholly-owned subsidiary of Irish Life
of North America, Inc. (ILoNA), which is owned by Irish Life, plc (Irish Life)
of Dublin, Ireland. The Company is licensed in 49 states and sells variable and
fixed annuity products through regional wholesalers and insurance brokers.
On September 22, 1994, ILoNA purchased the Company for $49,514,000 plus expenses
of $1,090,000. The financial statements presented herein represent operations
since the date of purchase.
Consolidation
The consolidated financial statements include the Company and its wholly-owned
subsidiaries, First Variable Advisory Services Corp. and First Variable Capital
Services, Inc. All significant intercompany transactions have been eliminated.
Investments
Fixed Maturities and Equity Securities
Fixed-maturity securities (bonds) may be categorized as "available-for-sale,"
"held for investment" or "trading." Fixed-maturity securities which may be sold
are designated as "available-for-sale." Available-for-sale securities are
reported at market value, and unrealized gains and losses on these securities
are included directly in stockholder's equity, net of certain adjustments (see
Note 3). Fixed-maturity securities that the Company has the positive intent and
ability to hold to maturity are designated as "held-for-investment."
Held-for-investment securities are reported at cost adjusted for amortization of
premiums and discounts. Changes in the market value of these securities, except
for declines that are other than temporary, are not reflected in the Company's
financial statements. Securities that are bought and held principally for the
purpose of selling them in the near term are designated as "trading securities."
Unrealized gains and losses on trading securities are included in current
earnings. At December 31, 1996 and 1995, all of the Company's fixed-maturity
securities are designated as available-for-sale, although the Company is not
precluded from designating fixed-maturity securities as held-for-investment or
trading at some future date.
62
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Premiums and discounts on investments are amortized/accrued using methods which
result in a constant yield over the securities' expected lives.
Amortization/accrual of premiums and discounts on mortgage and asset-backed
securities incorporates a prepayment assumption to estimate the securities'
expected lives.
Equity securities (common stocks) are reported at market. The change in
unrealized appreciation and depreciation of marketable equity securities (net of
related deferred income taxes, if any) is included directly in stockholder's
equity.
Realized Gains and Losses on Investments
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows) and a specific writedown is taken. Such
reductions in carrying value are recognized as realized losses and charged to
income. Realized gains and losses on sales are determined on the basis of
specific identification of investments. If the Company expects that an issuer of
a security will modify its payment pattern from contractual terms but no
writedown is required, future investment income is recognized at the rate
implicit in the calculation of net realizable value under the expected payment
pattern.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Deferred Policy Acquisition Costs and Value of Insurance in Force Acquired
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired is an asset that arose at the date the
Company was acquired by ILoNA. The initial value was determined by an actuarial
study using expected future gross profits as a measurement of the net present
value of the insurance acquired. Interest accrues on the current unamortized
balance at 7%.
63
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
These costs are being amortized generally in proportion to expected gross
profits from surrender charges and investment, mortality and expense margins.
That amortization is adjusted retrospectively when estimates of current or
future gross profits (including the impact of investment gains and losses) to be
realized from a group of products are revised.
Property and Equipment
Property and equipment are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily using the straight-line method over
the estimated useful lives of the assets.
Goodwill
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is being amortized on a straight-line basis over a
period of twenty years.
The carrying value of goodwill is regularly reviewed for indicators of
impairment in value which, in the view of management, are other than temporary.
If facts and circumstances suggest that goodwill is impaired, the Company
assesses the fair value of the underlying business and reduces goodwill to an
amount that results in the book value of the underlying business approximating
fair value. The Company has not recorded any such writedowns during the periods
ended December 31, 1996, 1995 or 1994.
Future Policy Benefits
Future policy benefit reserves for annuity products are computed under a
retrospective deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims that are charged to
expense include benefit claims incurred in the period in excess of related
policy account balances. Interest crediting rates for annuity products ranged
from 4.5% to 6.5% in 1996, 4.5% to 6.8% in 1995 and 5.0% to 7.0% in 1994.
Deferred Income Taxes
Deferred income tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the asset or liability from period to period.
64
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Separate Accounts
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the investment
risk. The separate account assets and liabilities are carried at fair value.
Revenues and expenses related to the separate account assets and liabilities, to
the extent of benefits paid or provided to the separate account policyholders,
are excluded from the amounts reported in the accompanying consolidated
statements of income.
Recognition of Premium Revenues and Costs
Revenues for annuity products consist of policy charges for the cost of
insurance, administration charges and surrender charges assessed against
policyholder account balances during the period. Expenses related to these
products include interest credited to policyholder account balances and benefit
claims incurred in excess of policyholder account balances.
Approximately 22%, 49% and 0% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1996, 1995 and 1994,
respectively, were 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 in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Significant estimates and assumptions are utilized in the calculation of
deferred policy acquisition costs, policyholder liabilities and accruals,
postretirement benefits, guaranty fund assessment accruals and valuation
allowances on investments. It is reasonably possible that actual experience
could differ from the estimates and assumptions utilized which could have a
material impact on the consolidated financial statements.
65
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
consolidated balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 also excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements and allows companies to forego the
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented herein are limited by
each of these factors and do not purport to represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Fixed-Maturity Securities: Fair values for fixed-maturity securities have
been determined by the Company's outside investment manager and are based
on quoted market prices, when available, or price matrices for securities
which are not actively traded, developed using yield data and other
factors relating to instruments or securities with similar
characteristics.
Equity Securities: The fair values for equity securities are based on
quoted market prices.
Other Invested Assets and Cash and Cash Equivalents: The carrying amounts
reported in the consolidated balance sheets for these instruments
approximate their fair values.
Assets and Liabilities of Separate Accounts: Separate account assets and
liabilities are reported at estimated fair value in the Company's
consolidated balance sheets.
66
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
Future Policy Benefits and Supplementary Contracts Without Life
Contingencies: Fair values of the Company's liabilities under contracts
not involving significant mortality or morbidity risks (principally
deferred annuities) are stated at the cost the Company would incur to
extinguish the liability; i.e., the cash surrender value.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of SFAS No. 107 at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------ ------------------- ------------------
Carrying Carrying
Value Fair Value Value Fair Value
------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Assets
Fixed maturities--
available-for-sale $294,195,000 $294,195,000 $319,589,000 $319,589,000
Equity securities 691,000 691,000 322,000 322,000
Other invested assets 94,000 94,000 -- --
Cash and cash equivalents 2,433,000 2,433,000 5,585,000 5,585,000
Assets held in separate accounts
176,306,000 176,306,000 132,176,000 132,176,000
Liabilities
Future policy benefits for
annuity products 239,509,000 239,562,000 255,694,000 251,669,000
Supplementary contracts without
life contingencies
21,008,000 21,008,000 19,543,000 19,543,000
Liabilities related to separate
accounts 176,306,000 176,306,000 132,176,000 132,176,000
</TABLE>
67
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations
Fixed Maturities and Equity Securities
The following tables contain amortized cost and market value information on
fixed maturities (bonds) and equity securities (common stocks) at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Gains Unrealized Estimated Market
Cost Losses Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
Fixed maturities--available-
for-sale:
United States Government
and agencies:
Mortgage and asset-
backed securities $ 25,641,000 $ 1,315,000 $ (105,000) $ 26,851,000
Other 22,483,000 1,109,000 (20,000) 23,572,000
State, municipal and other
governments 3,994,000 270,000 -- 4,264,000
Public utilities 81,053,000 6,224,000 (44,000) 87,233,000
Industrial and
miscellaneous 145,134,000 7,406,000 (265,000) 152,275,000
------------------------------------------------------------------------
Total fixed maturities--
available-for-sale $ 278,305,000 $ 16,324,000 $ (434,000) $ 294,195,000
========================================================================
Equity securities $ 684,000 $ 7,000 $ -- $ 691,000
========================================================================
December 31, 1995
Fixed maturities--available-for-
sale:
United States Government
and agencies:
Mortgage and asset-
backed securities $ 27,766,000 $ 2,465,000 $ (333,000) $ 29,898,000
Other 33,823,000 2,937,000 (63,000) 36,697,000
State, municipal and other
governments -- -- -- --
Public utilities 89,454,000 11,691,000 (698,000) 100,447,000
Industrial and miscellaneous
139,900,000 12,700,000 (53,000) 152,547,000
------------------------------------------------------------------------
Total fixed
maturities--available-for-sale $ 290,943,000 $ 29,793,000 $(1,147,000) $ 319,589,000
========================================================================
Equity securities $ 684,000 $ -- $ (362,000) $ 322,000
========================================================================
</TABLE>
68
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
The amortized cost and estimated market value of the Company's portfolio of
fixed-maturity securities at December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Estimated
Amortized Market
Cost Value
-----------------------------------
Due in one year or less $ 1,011,000 $ 1,019,000
Due after one year through five years 65,683,000 67,758,000
Due after five years through ten years 102,261,000 107,206,000
Due after ten years 83,709,000 91,361,000
Mortgage and asset-backed securities 25,641,000 26,851,000
-----------------------------------
$278,305,000 $294,195,000
===================================
The unrealized appreciation or depreciation on fixed-maturity and equity
securities available-for-sale is reported as a separate component of
stockholder's equity, reduced by adjustments to deferred policy acquisition
costs and value of insurance in force acquired that would have been required as
a charge or credit to income had such amounts been realized and a provision for
deferred income taxes. Net unrealized investment gains (losses) as reported were
comprised of the following:
December 31
1996 1995
------------------------------
Unrealized appreciation on fixed-maturity and
equity securities available-for-sale $ 15,897,000 $ 28,284,000
Adjustments for assumed changes in amortization
pattern of:
Deferred policy acquisition costs (1,200,000) (1,200,000)
Value of insurance in force acquired (3,600,000) (7,100,000)
Provision for deferred income taxes (benefit) (3,773,000) (6,795,000)
------------------------------
Net unrealized investment gains $ 7,324,000 $ 13,189,000
==============================
69
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
Net Investment Income
Components of net investment income are as follows:
Period from
September 22, 1994
(date operations
Year ended December 31 acquired) through
1996 1995 December 31, 1994
------------------------------------------------
Income from:
Fixed maturities--available-
for-sale $ 23,364,000 $22,635,000 $ 4,713,000
Cash and cash equivalents 288,000 1,051,000 667,000
------------------------------------------------
23,652,000 23,686,000 5,380,000
Less investment expenses (194,000) (221,000) (62,000)
------------------------------------------------
Net investment income $ 23,458,000 $23,465,000 $ 5,318,000
================================================
Realized and Unrealized Gains and Losses
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments are summarized below:
Period from
September 22, 1994
(date operations
Year ended December 31 acquired) through
1996 1995 December 31, 1994
-----------------------------------------------
Realized
Fixed maturities--available-
for-sale $ 972,000 $ 593,000 $ 541,000
Equity securities -- 307,000 --
-----------------------------------------------
Realized gains on investments $ 972,000 $ 900,000 $ 541,000
===============================================
Unrealized
Fixed maturities--available-
for-sale $(12,756,000) $33,437,000 $(4,791,000)
Equity securities 369,000 (133,000) (229,000)
-----------------------------------------------
Change in unrealized
appreciation/depreciation of
investments $(12,387,000) $33,304,000 $(5,020,000)
===============================================
70
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio (all classified as available-for-sale) for the periods
ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Realized Realized
Cost Gains Losses Proceeds
-------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Scheduled principal repayments
and calls $13,416,000 $ 329,000 $ (8,000) $ 13,737,000
Sales 7,382,000 715,000 (64,000) 8,033,000
-------------------------------------------------------
Total $20,798,000 $ 1,044,000 $ (72,000) $ 21,770,000
=======================================================
Year ended December 31, 1995
Scheduled principal repayments
and calls $ 6,448,000 $ 117,000 $ (38,000) $ 6,527,000
Sales 12,337,000 635,000 (121,000) 12,851,000
-------------------------------------------------------
Total $18,785,000 $ 752,000 $ (159,000) $ 19,378,000
=======================================================
Period from September 22,
1994 (date operations
acquired) through December
31, 1994
Scheduled principal repayments
and calls $ 5,013,000 $ 541,000 -- $ 5,554,000
Sales -- -- -- --
-------------------------------------------------------
Total $ 5,013,000 $ 541,000 -- $ 5,554,000
=======================================================
</TABLE>
Income taxes during the periods ended December 31, 1996, 1995 and 1994 include a
provision of $331,000, $306,000 and $184,000, respectively, for the tax effect
of realized gains.
71
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
Other
At December 31, 1996, fixed maturities with a carrying value of $8,500,000 were
held on deposit with state agencies to meet regulatory requirements.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded 10% of stockholder's equity
at December 31, 1996.
Concentrations of Credit Risk
The Company's investment in public utility bonds at December 31, 1996 represents
30% of total investments and 17% of total assets. The holdings of public utility
bonds are widely diversified and all issues met the Company's investment
policies and credit standards when purchased.
4. Value of Insurance in Force Acquired
The value of insurance in force acquired is an asset that represents the present
value of future profits on business acquired. An analysis of the value of
insurance in force acquired for the periods ended December 31, 1996 and 1995 is
as follows:
Year ended December 31
1996 1995
-----------------------------
Excluding impact on net unrealized investment
gains and losses:
Balance at beginning of period $23,833,000 $24,476,000
Accretion of interest during the period 1,642,000 1,691,000
Amortization of asset (2,381,000) (2,334,000)
-----------------------------
Balance prior to impact of net unrealized
investment gains and losses 23,094,000 23,833,000
Offset against net unrealized investment
gains and losses (3,600,000) (7,100,000)
-----------------------------
Balance at end of period $19,494,000 $16,733,000
=============================
72
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Value of Insurance in Force Acquired (continued)
Amortization of the value of insurance in force acquired for the next five years
ending December 31 is expected to be as follows: 1997--$1,008,000;
1998--$1,113,000; 1999--$1,280,000; 2000--$1,430,000 and 2001--$1,384,000.
5. Federal Income Taxes
The Company and its subsidiaries each file separate federal income tax returns.
Deferred income taxes have been established by the Company and its subsidiaries
based upon the temporary differences, the reversal of which will result in
taxable or deductible amounts in future years when the related asset or
liability is recovered or settled, within each entity.
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
Period from
September 22, 1994
(date operations
Year ended December 31 acquired) through
1996 1995 December 31, 1994
-----------------------------------------------
<S> <C> <C> <C>
Taxes provided in consolidated
statements of income on income
before income taxes-deferred $ 836,000 $ 666,000 $ 135,000
-----------------------------------------------
836,000 666,000 135,000
Taxes provided in consolidated
statements of changes in
stockholder's equity:
Amounts attributable to change in
net unrealized investment
gains/losses during year--deferred (3,022,000) 8,499,000 (1,704,000)
-----------------------------------------------
$ (2,186,000) $ 9,165,000 $ (1,569,000)
===============================================
</TABLE>
73
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Federal Income Taxes (continued)
The effective tax rate on income before income taxes is different from the
prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
Period from
September 22, 1994
(date operations
Year ended December 31 acquired) through
1996 1995 December 31, 1994
-----------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 2,440,000 $ 1,937,000 $ 728,000
===============================================
Income tax at federal statutory rate
(34%) $ 830,000 $ 659,000 $ 248,000
Tax effect (decrease) of:
Business meals and entertainment
6,000 5,000 1,000
Other -- 2,000 (114,000)
-----------------------------------------------
Income tax expense $ 836,000 $ 666,000 $ 135,000
===============================================
</TABLE>
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1996 and 1995 is as follows:
December 31
1996 1995
---------------------------------
Deferred tax assets:
Future policy benefits $ 1,524,000 $ 1,859,000
Operating loss carryforwards 2,245,000 1,540,000
Other 20,000 --
---------------------------------
3,789,000 3,399,000
Deferred tax liabilities:
Fixed-maturity and equity securities
(4,702,000) (7,355,000)
Deferred policy acquisition costs
(1,908,000) (1,248,000)
Value of insurance in force acquired
(2,453,000) (2,280,000)
Other (368,000) (342,000)
---------------------------------
(9,431,000) (11,225,000)
---------------------------------
Deferred income tax liability $(5,642,000) $ (7,826,000)
=================================
74
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Federal Income Taxes (continued)
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $6,603,000 at December 31, 1996 which expire from
2009 to 2011.
6. Retirement and Compensation Plans
Substantially all full-time employees of the Company are covered by a
noncontributory defined benefit pension plan sponsored by ILoNA. The benefits
are based on years of service and the employee's compensation. In addition,
effective January 1, 1996, ILoNA adopted a nonqualified supplemental plan to
provide benefits in excess of limitations established by the Internal Revenue
Code. The Company records its required contributions as pension expense related
to these plans. There were no material contributions to the plan during the
periods ended December 31, 1996, 1995 or 1994.
Employees of the Company also are eligible to participate in a contributory
defined contribution plan sponsored by ILoNA which is qualified under section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
employees of the Company. Employees can contribute up to 15% of their annual
salary (with a maximum contribution of $9,500 in 1996) to the plan. The Company
contributes an additional amount, subject to limitations, based on the voluntary
contribution of the employee. Further, the plan provides for additional employer
contributions based on the discretion of the Board of Directors of ILoNA.
Pension expense related to this plan was $27,000, $24,000 and $2,000 for the
periods ended December 31, 1996, 1995 and 1994, respectively.
The Company also has certain other benefit and incentive plans. These plans are
considered immaterial to the consolidated financial statements.
7. Stockholder's Equity
Common Stock Dividend
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 meet the
minimum statutory capital requirement as mandated by certain states in which the
Company does business. The additional $1,000,000 was transferred to capital
stock from additional paid-in capital.
75
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Stockholder's Equity (continued)
Statutory Limitations on Dividends
The ability of the Company to pay dividends to ILoNA is restricted because prior
approval of insurance regulatory authorities is normally required for payment of
dividends to the stockholder which exceed an annual limitation. During 1997,
this annual limitation aggregates $3,300,000; however, pursuant to a directive
received from the Arkansas Insurance Department in 1991, any proposed payment of
a dividend currently requires its approval. Also, the amount ($33,300,000 at
December 31, 1996) by which stockholder's equity stated in conformity with
generally accepted accounting principles exceeds statutory capital and surplus
as reported is restricted and cannot be distributed.
Statutory Accounting Policies
The financial statements of the Company included herein differ from related
statutory-basis financial statements principally as follows: (a) the bond
portfolio is designated as available-for-sale and carried at fair value rather
than generally being carried at amortized cost; (b) acquisition costs of
acquiring new business are deferred and amortized over the life of the policies
rather than charged to operations as incurred; (c) future policy benefit
reserves on certain annuity products are based on full account values, rather
than discounting methodologies utilizing statutory interest rates; (d) deferred
income taxes are provided for the differences between the financial statement
and income tax bases of assets and liabilities; (e) net realized gains or losses
attributed to changes in the level of interest rates in the market are
recognized as gains or losses in the consolidated statements of income when the
sale is completed rather than deferred and amortized over the remaining life of
the fixed maturity security; (f) declines in the estimated realizable value of
investments are charged to the consolidated statements of income for declines in
value, when such declines in value are judged to be other than temporary rather
than through the establishment of a formula-determined statutory investment
reserve (carried as a liability), changes in which are charged directly to
surplus; (g) agents' balances and certain other assets designated as
"nonadmitted assets" for statutory purposes are reported as assets rather than
being charged to surplus; (h) revenues for annuity products consist of policy
charges for the cost of insurance, policy administration charges and surrender
charges assessed rather than premiums received; (i) pension expense is
76
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Stockholder's Equity (continued)
recognized in accordance with SFAS No. 87, Employers' Accounting for Pensions,
rather than in accordance with rules and regulations permitted by the Employee
Retirement Income Security Act of 1974; (j) the financial statements of
subsidiaries are consolidated with those of the Company and (k) assets and
liabilities are restated to fair values when a change in ownership occurs that
is accounted for as a purchase, with provisions for goodwill and other
intangible assets, rather than continuing to be presented at historical cost.
Net loss for the Company, as determined in accordance with statutory accounting
practices, was $1,507,000, $1,460,000 and $574,000 for the years ended December
31, 1996, 1995 and 1994, respectively. Total statutory capital and surplus was
$33,096,000 at December 31, 1996 and $34,637,000 at December 31, 1995.
The National Association of Insurance Commissioners currently is in the process
of codifying statutory accounting practices, the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices. That
project, which is expected to be completed in 1997, will likely change, to some
extent, statutory accounting practices. The codification may result in changes
to the permitted or prescribed accounting practices that the Company uses to
prepare its statutory-basis financial statements.
8. Commitments and Contingencies
The Company leases its home office space and certain other equipment under
operating leases which expire through 2001. During the periods ended December
31, 1996, 1995 and 1994, rent expense totaled $206,000, $419,000 and $81,000,
respectively. At December 31, 1996, minimum rental payments due under all
noncancelable operating leases with initial terms of one year or more are:
Year ending December 31:
1997 $ 230,000
1998 230,000
1999 238,000
2000 241,000
2001 61,000
-----------
$ 1,000,000
===========
77
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Commitments and Contingencies (continued)
The Company is involved in litigation where amounts are alleged that are
substantially in excess of contractual policy benefits or certain other
agreements. Management and its legal counsel do not believe any of these claims
will result in a material loss to the Company.
Assessments are, from time to time, levied on the Company by life and health
guaranty associations in most states in which the Company is licensed to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. Assessments have not been material to the Company's financial
statements in the past. However, the economy and other factors have caused a
number of failures of substantially larger companies since that time. At
December 31, 1996 and 1995, the Company has accrued $180,000 and $140,000,
respectively, for guaranty fund assessments based on its historical experience
and information available from those making guaranty fund assessments.
78
<PAGE>
PART C
79
<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:
1. Report of Independent Auditors.
2. Statement of Assets and Contract Owners' Equity.
3. Statement of Operations.
4. Statements of Changes in Net Assets.
5. Notes to Financial Statements.
The following financial statements of the Company are included in Part B
hereof:
1. Report of Independent Auditors.
2. Consolidated Balance Sheets.
3. Consolidated Statements of Income.
4. Consolidated Statement of Changes in Stockholder's Equity
5. Consolidated Statements of Cash Flows.
6. Notes to Financial Statements.
(b) Exhibits
1. Resolution of Board of Directors for the Company authorizing the
establishment of the Separate Account*
2. Not Applicable
3(a). Underwriting Agreement**
(b). Broker-Dealer Agreement**
(c). Form of Sales Agreement***
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract #
5. Application for Variable Annuity #
80
<PAGE>
PART C
ITEM 24 (b) (continued)
6(a). Articles of Incorporation of First Variable Life Insurance Company #
#
(b). By-laws of First Variable Life Insurance Company **
7. Not Applicable
8(a). Form of Fund Participation Agreement with Variable Investors Series
Trust ***
(b). Form of Fund Participation Agreement with Federated Insurance Series
***
9(a). Opinion and Consent of Arnold R. Bergman, Vice President - Legal,
First Variable Life Insurance Company
(b). Consent of Blazzard, Grodd & Hasenauer
10. Consent of Ernst & Young LLP, Independent Auditors
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Not Applicable
----------------------------------------
* Incorporated by reference to the Registrant's Original Registration
Statement.
** Incorporated by reference to the Pre-Effective Amendment No. 1 to the Form
S-6 Registration Statement of First Variable Life Insurance Company and Separate
Account VL, as filed electronically with the Securities and Exchange Commission
on November 15, 1996 (File No. 333-05053).
*** Incorporated by reference to the Registrant's Post-Effective Amendment No.
29 to the Form N-4 Registration Statement (File Nos. 2-30164, 811-1680), as
filed on or about April 22, 1987.
# Incorporated by reference to the Registrant's Post-Effective Amendment No.
37 to the Form N-4 Registration Statement (File Nos. 2-30164, 811-1680), as
filed on or about April 30, 1993.
## Incorporated by reference to the Post-Effective Amendment No. 2 to the
Form N-4 Registration Statement of First Variable Life Insurance Company and
First Variable Annuity Fund E, as filed electronically with the Securities and
Exchange Commission on April 29, 1996 (File Nos. 33-86738, 811-4092).
### Incorporated by reference to the Form N-4 Registration Statement of First
Variable Life Insurance Company and First Variable Annuity Fund E, as filed
electronically with the Securities and Exchange Commission on September 14, 1996
(File Nos. 333-12197, 811-4092).
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
Business Address Depositor
- ---------------- ---------
Ronald M. Butkiewicz Chairman and Director
2211 York Road, Suite 202
81
<PAGE>
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
Stephen Shone Director
Lower Abbey Street
Dublin 1, Ireland
T. David Kingston Director
Lower Abbey Street
Dublin 1, Ireland
82
<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
Philip 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
Deleted Paragraph
Thomas Simpson Vice President and Chief Marketing
10 Post Office Square Officer
Boston, MA 02109
Anthony J. Koenig, Jr. Vice President and Treasurer
10 Post Office Square
Boston, MA 02109
Constance Graves Assistant Vice President and Assistant
10 Post Office Square Controller
Boston, MA 02109
Mark Kelly Assistant Vice President and Assistant
10 Post Office Square Treasurer
Boston, MA 02109
83
<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 31, 1997, there were no Owners of Non-Qualified Contracts and 1,338
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
First Variable Life Insurance Company Separate Account VL
(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
Thomas Simpson Vice President and Director
10 Post Office Square
Boston, MA 02109
Arnold R. Bergman Secretary and Director
10 Post Office Square
Boston, MA 02109
84
<PAGE>
Anthony Koenig, Jr. Vice President and Treasurer
10 Post Office Square
Boston, MA 02109
Constance Graves 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
Anthony J. Koenig, Jr., 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.
(d) In accordance with section 26(e) of the Investment Company Act of 1940,
First Variable Life Insurance Company hereby represents that the fees and
charges deducted under the Contract described in this Registration Statement on
Form N-4, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by First Variable
Life Insurance Company.
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;
85
<PAGE>
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.
86
<PAGE>
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,
1997.
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
87
<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.
Signature Title Date
Ronald M. Butkiewicz* Chairman & Director April 25, 1997
- ---------------------------
Ronald M. Butkiewicz
Michael J. Corey* Director April 25, 1997
- ---------------------------
Michael J. Corey
Michael R. Ferrari* Director April 25, 1997
- ---------------------------
Michael R. Ferrari
- --------------------------- Director ---------------
Stephen Shone
s/Stephan M. Largent President and Director April 25, 1997
- ---------------------------
Stephan M. Largent
T. David Kingston* Director April 25, 1997
- ---------------------------
T. David Kingston
Jeff S. Liebmann* Director April 25, 1997
- ---------------------------
Jeff S. Liebmann
- --------------------------- Director ---------------
Kenneth R. Meyer
Philip R. O'Connor* Director April 25, 1997
- ---------------------------
Philip R. O'Connor
Norman A. Fair* Director April 25, 1997
- ---------------------------
Norman A. Fair
Thomas K. Neavins* Director April 25, 1997
- ---------------------------
Thomas K. Neavins
s/Anthony J. Koenig, Jr. Vice President and Treasurer April 25, 1997
- ---------------------------
Anthony J. Koenig, Jr.
*By Power of Attorney
s/Arnold R. Bergman
--------------------
Arnold R. Bergman
88
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Ronald M. Butkiewicz, a Director of
First Variable Life Insurance Company, a corporation duly organized under the
laws of the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R.
Bergman, or any one of the foregoing individually, as my attorney and agent, for
me, and in my name as a Director of this company on behalf of the Company or
otherwise, with full power to execute, deliver and file with the Securities and
Exchange Commission all documents required for registration of variable annuity
and variable life insurance contracts under the Securities Act of 1933, as
amended, and the registration of unit investment trusts under the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/ RONALD M. BUTKIEWICZ
- ------------------------ ------------------------------
Ronald M. Butkiewicz
89
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Michael J. Corey, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/ MICHAEL J. COREY
- ------------------------ ------------------------------
Michael J. Corey
90
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Norman A. Fair, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 24th day of April, 1996
WITNESS:
/S/ THOMAS K. NEAVINS /S/ NORMAN A. FAIR
- ------------------------ ------------------------------
Norman A. Fair
91
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Michael R. Ferrari, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 18th day of November, 1996
WITNESS:
/S/ MICHAEL R. FRIEDBERG /S/ MICHAEL R. FERRARI
- ------------------------ ------------------------------
Michael R. Ferrari
92
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, T. David Kingston, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/ T. DAVID KINGSTON
- ------------------------ ------------------------------
T. David Kingston
93
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Jeff S. Liebmann, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MICHAEL R. FRIEDBERG /S/ JEFF S. LIEBMANN
- ------------------------ ------------------------------
Jeff S. Liebmann
94
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Thomas K. Neavins, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/ THOMAS K. NEAVINS
- ------------------------ ------------------------------
Thomas K. Neavins
95
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Philip R. O' Connor, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws of
the State of Arkansas, do hereby appoint, Stephan Largent and Arnold R. Bergman,
or any one of the foregoing individually, as my attorney and agent, for me, and
in my name as a Director of this company on behalf of the Company or otherwise,
with full power to execute, deliver and file with the Securities and Exchange
Commission all documents required for registration of variable annuity and
variable life insurance contracts under the Securities Act of 1933, as amended,
and the registration of unit investment trusts under the Investment Company Act
of 1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MICHAEL R. FRIEDBERG /S/ PHILIP R. O'CONNOR
- ------------------------ ------------------------------
Philip R. O'Connor
96
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
- -----------
EX-99.B9(a) Opinion and Consent of Arnold R. Bergman, Vice
President-Legal, First Variable Life Insurance Company
EX-99.B9(b) Consent of Blazzard, Grodd & Hasenauer, P.C.
EX-99.B10. Consent of Ernst & Young LLP, Independent Auditors
EX-99.B13. Calculation of Performance Information
97
<PAGE>
EX-99.B9(a) Opinion and Consent of Arnold R. Bergman, Vice
President-Legal, First Variable Life Insurance Company
98
<PAGE>
[LETTERHEAD OF FIRST VARIABLE LIFE INSURANCE COMPANY]
April 25, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration of Contract Interests
First Variable Annuity Fund A of First Variable Life Insurance Company
(File Nos. 2-30164 and 811-1680)
Dear Sir/Madam:
In my capacity as Vice President - Legal of First Variable Life Insurance
Company ("First Variable"), I have acted as chief legal officer with regard to
variable annuity contracts ("Contracts") described in the captioned Registration
and funded in First Variable Annuity Fund A ("Separate Account") of First
Variable. I have examined the Articles of Incorporation and Bylaws of First
Variable, the Contracts and such other records as I have deemed necessary in
connection with the rendering of this opinion.
Based upon the foregoing and having regard for such legal consideration as I
have deemed relevant, I am of the opinion that:
1. First Variable is a duly organized and existing stock life insurance
company under the laws of the state of Arkansas authorized to issue life
insurance and annuity contracts.
2. The establishment of the Separate Account has been duly authorized by the
Board of Directors of First Variable.
3. Upon the acceptance of purchase payments made by an Owner pursuant to a
Policy issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully paid, non-assessable contractual
interest under such Policy.
This opinion speaks only as of the date hereof and I expressly disclaim any
obligation to update it for any change in the law or facts occurring subsequent
to the date hereof.
I consent to the use in Registration No. 2-30164 of this opinion letter.
Very truly yours,
s/Arnold R. Bergman
- -------------------------
Arnold R. Bergman
Vice President - Legal*
*Admitted in NY
99
<PAGE>
EX-99.B9(b) Consent of Blazzard, Grodd & Hasenauer, P.C.
100
<PAGE>
Blazzard, Grodd & Hasenauer, P.C.
ATTORNEYS AT LAW CONNECTICUT OFFICE:
943 POST ROAD EAST - P.O. BOX 5108
NORSE N. BLAZZARD** WESTPORT, CONNECTICUT 06881-5108
LESLIE E. GRODD* TELEPHONE (203) 226-7866
JUDITH A. HASENAUER** FACSIMILE (203) 454-4028
WILLIAM E. HASENAUER*
RAYMOND A. O'HARA III*
LYNN KORMAN STONE* FLORIDA OFFICE:
MAUREEN M. MURPHY* SUITE 213, OCEANWALK MALL
101 NORTH OCEAN DRIVE
* Admitted in Connecticut HOLLYWOOD, FLORIDA 33019
** Admitted in Connecticut & Florida TELEPHONE (305) 920-6590
FACSIMILE (305) 920-6902
April 25, 1997
Board of Directors
First Variable Life Insurance Company
10 Post Office Square, 12th Floor
Boston, MA 02109
Re: Consent of Counsel
First Variable Annuity Fund A
Dear Sir or Madam:
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Statement of Additional Information which forms a part of the
Registration Statement on Form N-4 (File No.2-30164) for the individual flexible
payment deferred variable annuity contracts ("Contracts") to be issued by First
Variable Life Insurance Company and its separate account, First Variable Annuity
Fund A.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: s/ Raymond A. O'Hara III
---------------------------------
Raymond A. O'Hara III
101
<PAGE>
EX-99.B10. Consent of Ernst & Young LLP, Independent Auditors
102
<PAGE>
Consent of Ernst & Young LLP, 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
February 7, 1997, with respect to the consolidated financial statements of First
Variable Life Insurance Company, and January 31, 1997, with respect to the
financial statements of First Variable Life Insurance Company-First Variable
Annuity Fund A, included in this Post-Effective Amendment No. 42 to the
Registration Statement (Form N-4, No. 2-30164.)
s/Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 25, 1997
103
<PAGE>
EX-99.B13. Calculation of Performance Information
104
<PAGE>
EX-99.B13
Exhibit 13
FIRST VARIABLE ANNUITY FUND A
CALCULATION OF ARDC PERFORMANCE INFORMATION
Prime Money Fund II/ Fund A Yield Calculations as of 12/31/96
Seven Day Yield
12/31/96 Unit Price 15.221 (A)
12/24/96 Unit Price 15.209 (B)
Difference 0.012 (C)
Base Return (C)/(B) 0.000814849
Annualized Base Return = (C)/(B) * 365/7 4.25%
=
Effective Yield = (1+Base Return) ^ 4.34%
(365/7) -1 =
Total Return on Fund A 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 Prime 5/27/87
Money Fund II Division
Inception Date U.S. Govt 5/27/87
Bond Division
Inception Date Matrix 6/16/88
Equity Division
Inception Date World 6/16/88
Equity Division
Inception Date Multiple 5/5/87
Strategies Division
Inception Date High 6/1/87
Income Bond Division
Surrender Charge 0
<TABLE>
<CAPTION>
PRIME MONEY FUND II DIVISION
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 15.221 Unit Price EOP 15.221 Unit Price EOP 15.221
Unit Price BOP 14.671 Unit Price BOP 13.203 Unit Price BOP 10
Accum Value EOP 1,037.48 Accum Value EOP 1,152.82 Accum Value EOP 1,522.10
Surrender Charge - Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,037.48 Surrender Value 1,152.82 Surrender Value 1,522.10
Total Return 3.748% Total Return 2.885% Total Return 4.478%
</TABLE>
105
<PAGE>
<TABLE>
<CAPTION>
GROWTH DIVISION
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 216.086 Unit Price EOP 216.086 Unit Price EOP 216.086
Unit Price BOP 173.489 Unit Price BOP 131.706 Unit Price BOP 63.52
Accum Value EOP 1,245.53 Accum Value EOP 1,640.67 Accum Value EOP 3,401.86
Surrender Charge - Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,245.53 Surrender Value 1,640.67 Surrender Value 3,401.86
Total Return 24.553% Total Return 10.409% Total Return 11.773%
MULTIPLE STRATEGIES
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 24.728 Unit Price EOP 24.728 Unit Price EOP 24.728
Unit Price BOP 21.106 Unit Price BOP 15.093 Unit Price BOP 10
Accum Value EOP 1,171.62 Accum Value EOP 1,638.36 Accum Value EOP 2,472.80
Surrender Charge - Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,171.62 Surrender Value 1,638.36 Surrender Value 2,472.80
Total Return 17.162% Total Return 10.378% Total Return 9.901%
U.S. GOVERNMENT BOND
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 19.615 Unit Price EOP 19.615 Unit Price EOP 19.615
Unit Price BOP 19.356 Unit Price BOP 14.842 Unit Price BOP 10
Accum Value EOP 1,013.37 Accum Value EOP 1,321.55 Accum Value EOP 1,961.50
Surrender Charge - Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,013.37 Surrender Value 1,321.55 Surrender Value 1,961.50
Total Return 1.337% Total Return 5.734% Total Return 7.270%
HIGH INCOME BOND
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 23.233 Unit Price EOP 23.233 Unit Price EOP 23.233
Unit Price BOP 20.543 Unit Price BOP 14.545 Unit Price BOP 10
Accum Value EOP 1,130.96 Accum Value EOP 1,597.36 Accum Value EOP 2,323.30
Surrender Charge - Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,130.96 Surrender Value 1,597.36 Surrender Value 2,323.30
Total Return 13.096% Total Return 9.060% Total Return 9.188%
MATRIX EQUITY
</TABLE>
106
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 26.618 Unit Price EOP 26.618 Unit Price EOP 26.618
Unit Price BOP 25.702 Unit Price BOP 16.994 Unit Price BOP 10
Accum Value EOP 1,035.65 Accum Value EOP 1,566.28 Accum Value EOP 2,661.80
Surrender Charge - Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,035.65 Surrender Value 1,566.28 Surrender Value 2,661.80
Total Return 3.565% Total Return 9.389% Total Return 12.132%
WORLD EQUITY
ONE YEAR FIVE YEARS START OF PORTFOLIO
Unit Price EOP 18.415 Unit Price EOP 18.415 Unit Price EOP 18.415
Unit Price BOP 16.554 Unit Price BOP 10.938 Unit Price BOP 10
Accum Value EOP 1,112.40 Accum Value EOP 1,683.57 Accum Value EOP 1,841.50
Surrender Charge - Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,112.40 Surrender Value 1,683.57 Surrender Value 1,841.50
Total Return 11.240% Total Return 10.980% Total Return 7.402%
SMALL CAP GROWTH
ONE YEAR START OF PORTFOLIO
Unit Price EOP 10.134 Unit Price EOP 10.134
Unit Price BOP 10 Unit Price BOP 10
Accum Value EOP 1,013.40 Accum Value EOP 1,013.40
Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge -
Surrender Value 1,013.40 Surrender Value 1,013.40
Total Return 1.340% Total Return 1.340%
GROWTH & INCOME
ONE YEAR START OF PORTFOLIO
Unit Price EOP 9.268 Unit Price EOP 9.268
Unit Price BOP 10 Unit Price BOP 10
Accum Value EOP 926.80 Accum Value EOP 926.80
Surrender Charge - Surrender Charge -
Ann Contract Charge - Ann Contract Charge -
Surrender Value 926.80 Surrender Value 926.80
Total Return -7.320% Total Return -7.320%
</TABLE>
107
