<PAGE> 1
File Nos. 2-30164
811-1680
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. 43 [X]
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 43 [X]
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FIRST VARIABLE ANNUITY FUND A
-----------------------------
(Exact Name of Registrant)
FIRST VARIABLE LIFE INSURANCE COMPANY
-------------------------------------
(Name of Depositor)
2122 York Road
Oak Brook, IL 60523
---------------------------------------------------- ----------
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's telephone number including area code: (630)586-5000
Name and Address of Agent for Service
-------------------------------------
Arnold R. Bergman
Vice President, General Counsel and Secretary
First Variable Life Insurance Company
2122 York Road
Oak Brook, IL 60523
Copies to:
Raymond A. O'Hara III, 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, 1998 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.
If appropriate, check the following:
|_| This Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment.
Title of Securities being registered: Interests Under Variable Annuity
Contracts.
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FIRST VARIABLE ANNUITY FUND A
CROSS REFERENCE SHEET
(Pursuant to Rule 495(a))
<TABLE>
<CAPTION>
Item No. in
Form N-4 Location
- ----------- --------
PART A
- ------
<S> <C> <C>
Item 1. Cover Page ............................ Cover Page
Item 2. Definitions ........................... Definitions
Item 3. Synopsis .............................. Highlights; Fee Tables and
Examples
Item 4. Condensed Financial Information ....... Accumulation Unit Data
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
Contracts; Fund A and the
Investment Options
Item 7. General Description of Variable
Annuity Contracts ................... The Contracts
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 Contracts (Part A)
Item 20. Underwriters .......................... Underwriter
Item 21. Calculation of Performance Data ....... Not Applicable
Item 22. Annuity Payment ....................... Annuity Period (Part A)
Item 23. Financial Statements .................. Financial Statements
</TABLE>
PART C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
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PART A
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[LOGO] FIRST
VARIABLE
LIFE INSURANCE
COMPANY
SUPPLEMENT DATED MAY 1, 1998
TO
FIRST VARIABLE ANNUITY FUND A
PROSPECTUS
DATED MAY 1, 1998
- --------------------------------------------------------------------------------
This Supplement contains additional information on variable annuity contracts
("Contracts") previously issued by First Variable Life Insurance Company (the
"Company") and funded in First Variable Annuity Fund A ("Fund A"). The Contracts
described in this supplement have deductions and expenses that differ from those
described in the prospectus for variable annuity contracts issued to the State
of Arkansas Deferred Compensation Plan.
The Contracts 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 Internal Revenue Code ("Code") which meet all of the following criteria:
(1) purchases of the Contracts involve little or no selling effort on the part
of the distributor of the Contracts; (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 Contracts; 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 Contracts and that Fund A, the
Company and the distributor of the Contracts have not provided any services to
the plan.
FEE TABLE AND EXAMPLES
The purpose of the following tables is to assist Owners of the Contracts in
understanding the various costs and expenses of the Contracts, based on expenses
incurred during the fiscal year ended December 31, 1997. 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.
QUALIFIED PLANS (OTHER THAN SEPARATELY ADMINISTERED PLANS)
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
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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:
<TABLE>
<CAPTION>
INVESTMENT OPTION 1 YR. 3 YRS. 5 YRS. 10 YRS.
- ----------------- ----- ------ ------ -------
<S> <C> <C> <C> <C>
Small Cap Growth $73 $120 $171 $307
World Equity $71 $116 $163 $293
Growth $70 $112 $158 $281
Matrix Equity $71 $115 $161 $288
Growth & Income $72 $118 $166 $298
Multiple
Strategies $71 $116 $163 $293
High Income Bond $71 $116 $163 $293
U.S. Government
Bond $68 $106 $146 $258
Federated Prime
Money Fund II $68 $104 $143 $252
</TABLE>
SEPARATELY ADMINISTERED PLANS
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Contract Issue Fee
Maximum Sales Load Imposed on Purchases $25
(as a percentage of Purchase Payments)......................... NONE
Deferred Sales Load............................................... NONE
Surrender Fee..................................................... NONE *
Exchange Fee...................................................... NONE
Purchase Payment Processing Fee................................... NONE**
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
- ----------
* A Termination Charge of 2% of the Accumulation Value of a Contract 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 Contracts for Separately
Administered Plans.
EXAMPLES - SEPARATELY ADMINISTERED PLANS
An Owner would pay the following expenses on a $1,000 investment in a Contract,
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.
<TABLE>
<CAPTION>
INVESTMENT OPTION 1 YR. 3 YRS. 5 YRS. 10 YRS.
----------------- ----- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Small Cap Growth a) $43 $94 $147 $294
b) $24 $74 $127 $271
World Equity a) $41 $89 $140 $279
b) $23 $70 $119 $255
Growth a) $40 $85 $134 $267
b) $21 $66 $114 $243
Matrix Equity a) $41 $88 $137 $274
b) $22 $68 $117 $250
Growth & Income a) $42 $91 $142 $284
b) $23 $71 $122 $261
</TABLE>
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EXAMPLES - SEPARATELY ADMINISTERED PLANS(CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Multiple Strategies a) $41 $89 $140 $279
b) $23 $70 $119 $255
High Income Bond a) $41 $89 $140 $279
b) $23 $70 $119 $255
U.S. Government Bond a) $38 $78 $122 $243
b) $19 $59 $101 $218
Federated Prime
Money Fund II a) $37 $77 $119 $238
b) $18 $57 $98 $213
</TABLE>
OTHER PLANS
<TABLE>
<S> <C>
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
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
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:
<TABLE>
<CAPTION>
INVESTMENT OPTION 1 YR. 3 YRS. 5 YRS. 10 YRS.
----------------- ----- ------ ------ -------
<S> <C> <C> <C> <C>
Small Cap Growth $92 $139 $188 $322
World Equity $91 $135 $181 $308
Growth $90 $131 $175 $299
Matrix Equity $90 $133 $178 $303
Growth & Income $91 $136 $183 $312
Multiple Strategies $91 $135 $181 $308
High Income Bond $91 $135 $181 $308
U.S. Government Bond $88 $125 $164 $273
Federated Prime
Money Fund II $87 $123 $161 $268
</TABLE>
DEDUCTIONS AND EXPENSES OF THE CONTRACTS
All deductions and expenses related to the Contracts 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
Contract as follows:
<TABLE>
<CAPTION>
Percentage of Percentage of
Type of Contract Subject Purchase Net Amount
to Sales Charge Payment Invested
--------------- ------- --------
<S> <C> <C>
Qualified Plans (other than Separately
Administered Plans)........................... 5% 5.26%
Separately Administered Plans................. 0% 0%
Other Plans................................... 7% 7.53%
</TABLE>
CONTRACT ISSUE FEE. A charge of $25 is deducted from the initial Purchase
Payment for each Contract 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 Contract and in issuing the Contract.
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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 Contract 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 Contracts 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 Contract
may be withdrawn at any time during the Accumulation Period. However, a
Termination Charge of 2% of the Accumulation Value of such Contract 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 Contract, $1,020.41 will be the total reduction in the Accumulation Value of
the Contract, with $1,000.00 paid to the Contract 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 Contract 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 Contract and a written
notice are returned to the Company within 10 days of receipt of the Contract 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.)
PRIOR CONTRACTS
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.
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 CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS 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 CONTRACTS
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
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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 Contract 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
Contract 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 Contracts 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 Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals-Qualified Contracts" 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 Contracts 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 Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts 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 Contract issued under a Qualified
Plan.
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
Contracts" below.) Purchasers of Contracts 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 Contracts 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 Contracts. 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
Contracts" and "Tax-Sheltered Annuities--Withdrawal Limitations.") Any employee
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
TRADITIONAL IRAS AND ROTH IRAS. Eligible individuals may maintain: (a) an
individual retirement account or individual retirement annuity under section 408
of the Code ("Traditional IRA"); and (b) for tax years starting after 1997, a
non-tax deductible individual retirement account or individual retirement
annuity under section 408A of the Code ("Roth IRA"). Under applicable
limitations, amounts may be contributed to a Traditional IRA which will be
deductible from the individual's gross income. The amounts permitted to be
contributed to a Traditional IRA may be reduced if an individual also
contributes to a Roth IRA.
Traditional IRAs and Roth IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. Under certain conditions,
distributions from other IRAs and other Qualified Plans may be rolled over or
transferred on a tax-deferred basis into a Traditional IRA. Rollovers may also
be made to a Roth IRA, but only from a Traditional IRA
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<PAGE> 9
or from another Roth IRA. Rollovers from a Traditional IRA to a Roth IRA are
subject to immediate federal income taxation, but may qualify for special four
year income recognition rules if the transaction occurs in 1998.
Additional informational disclosure will be given by the Company for sales of
Contracts intended to be used with either a Traditional IRA or a Roth IRA, as
required by the Code. Purchasers of Contracts intended to be qualified as either
a Traditional IRA or a Roth IRA 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 Contracts
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
Contracts" below.) Purchasers of Contracts 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.
9
<PAGE> 10
Prospectus May 1, 1998
[LOGO] FIRST
VARIABLE
LIFE INSURANCE
COMPANY
VARIABLE ANNUITY CONTRACTS
FUNDED IN
FIRST VARIABLE ANNUITY FUND A
---------
The variable annuity contracts (the "Contracts") 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 Contract in which the
Contract may be returned by delivering or mailing it to the Company. Certain
states may permit the Owner more than 10 days to return the Contract. Within
seven days of receipt of the Contract 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 Contract
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.
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<PAGE> 11
TABLE OF CONTENTS
DEFINITIONS................................................................
FEE TABLE AND EXAMPLES.....................................................
ACCUMULATION UNIT DATA.....................................................
HIGHLIGHTS.................................................................
TYPES OF CONTRACTS......................................................
SALES CHARGE, CONTRACT ISSUE FEE, PURCHASE PAYMENT PROCESSING FEE
AND TERMINATION ......................................................
CHARGE..................................................................
OTHER CHARGES...........................................................
TAXES...................................................................
THE COMPANY................................................................
FUND A.....................................................................
INVESTMENT OPTIONS.........................................................
VARIABLE INVESTORS SERIES TRUST.........................................
FEDERATED INSURANCE SERIES..............................................
VOTING RIGHTS...........................................................
SUBSTITUTION OF OTHER SECURITIES.......................................
THE CONTRACTS..............................................................
IMMEDIATE CONTRACTS.....................................................
DEFERRED CONTRACTS......................................................
DEDUCTIONS AND EXPENSES OF THE CONTRACTS, FUND A AND THE INVESTMENT
OPTIONS.................................................................
CHARGES TO THE CONTRACTS................................................
CHARGES TO FUND A.......................................................
CHARGES TO THE INVESTMENT OPTIONS.......................................
ACCUMULATION PERIOD........................................................
FREE LOOK RIGHT.........................................................
DELAYED INVESTMENT START DATE...........................................
PURCHASE PAYMENT AMOUNTS................................................
WHEN AN ACCUMULATION UNIT IS VALUED.....................................
CREDITING ACCUMULATION UNITS............................................
ACCUMULATION UNIT VALUE.................................................
EXCHANGE OF VARIABLE ACCUMULATION UNITS.................................
SYSTEMATIC TRANSFERS - DOLLAR COST AVERAGING............................
ASSET REBALANCING PROGRAM...............................................
DETERMINATION OF ACCUMULATION UNIT VALUES UPON EXCHANGE.................
NET INVESTMENT FACTOR...................................................
ACCUMULATION VALUE......................................................
WITHDRAWAL PRIOR TO ANNUITY COMMENCEMENT DATE...........................
CERTAIN ADMINISTRATIVE PROCEDURES.......................................
ANNUITY PERIOD.............................................................
GENERAL.................................................................
ASSUMED INVESTMENT RATE.................................................
ELECTION AND EFFECTIVE DATE OF ELECTION.................................
FIXED ANNUITY...........................................................
VARIABLE ANNUITY........................................................
VARIABLE ANNUITY UNIT VALUE.............................................
EXCHANGE OF VARIABLE ANNUITY UNITS......................................
ANNUITY OPTIONS.........................................................
MISSTATEMENT OF AGE OR SEX..............................................
COMMUTATION.............................................................
DEATH BENEFIT..............................................................
DEATH BENEFIT PROVIDED BY THE CONTRACT..................................
ELECTION AND EFFECTIVE DATE OF ELECTION.................................
AMOUNTS PAYABLE ON DEATH OF PAYEE AFTER ANNUITY COMMENCEMENT DATE.......
PAYMENT OF DEATH BENEFIT................................................
11
<PAGE> 12
AMOUNT OF DEATH BENEFIT.................................................
DEFERMENT..................................................................
RETIREMENT PLAN CONDITIONS.................................................
OWNERSHIP PROVISIONS.......................................................
OWNER...................................................................
CHANGE OF OWNERSHIP.....................................................
ASSIGNMENT..............................................................
BENEFICIARY DESIGNATIONS...................................................
OTHER CHANGES IN THE CONTRACTS.............................................
FEDERAL TAX CONSIDERATIONS.................................................
GENERAL.................................................................
DIVERSIFICATION.........................................................
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS...........................
MULTIPLE CONTRACTS......................................................
TAX TREATMENT OF ASSIGNMENTS............................................
INCOME TAX WITHHOLDING..................................................
QUALIFIED PLANS.........................................................
TAX TREATMENT OF WITHDRAWALS-QUALIFIED CONTRACTS........................
TAX ADVICE AND OTHER TAXES..............................................
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS.................................
LEGAL PROCEEDINGS..........................................................
PERIODIC REPORTS...........................................................
STATE REGULATION...........................................................
RESERVATION OF RIGHTS......................................................
INQUIRIES..................................................................
PRIOR CONTRACTS............................................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION...................
12
<PAGE> 13
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 Contract.
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 Contract is equal to the Accumulation Value of a Contract
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: 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 Contracts.
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 Contract.
ISSUE DATE: The date on which the Contract becomes effective.
NET PURCHASE PAYMENT: A Purchase Payment, less the Contract Issue Fee and any
applicable taxes.
NON-QUALIFIED CONTRACT: A Contract that does not meet the requirements of
Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.
OWNER: The person, persons or entity entitled to the ownership rights stated in
a Contract and in whose name a Contract is issued. The Annuitant is the Owner
unless another Owner is named in the application. If a Contract is owned
jointly, rights and privileges under a Contract must be exercised by each Owner.
Even if another Owner is
13
<PAGE> 14
named in the application, the Annuitant becomes the Owner on the Annuity
Commencement Date. When the Owner and the Annuitant are the same person, any
death benefit payable will be paid to the Annuitant's Beneficiary.
OWNER'S BENEFICIARY: The person, persons or entity named to become the new Owner
if an Owner dies prior to the Annuity Commencement Date and who will receive the
death benefit set forth in a Contract 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 Contract in force and will become the Owner
pursuant to the terms of the Contract.
PAYEE: The recipient of Annuity Payments under a Contract either during the
Annuity Period or as a death benefit prior to the Annuity Commencement Date.
CONTRACT 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
Contract.
CONTRACT YEAR: The first Contract Year shall be the period of 12 months from the
Issue Date. Subsequent Contract 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
Contract.
PURCHASE PAYMENT PROCESSING FEE: A fee of $5 that may be paid to the Company
from subsequent Purchase Payments after the initial investment in a Contract
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 Contracts.
QUALIFIED CONTRACT: A Contract used in connection with a retirement plan that
meets the requirements of Sections 401, 403, 408, 408A or 457 of the Internal
Revenue Code.
SALES CHARGE: A charge imposed against the Purchase Payment for all Contracts
except those issued in connection with Separately Administered Plans to
reimburse the Company for its expenses related to distributing the Contracts.
SERVICE CENTER: The Company's administrative service center for the Contracts is
located 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 Contracts and/or other policies it
issues.
TERMINATION CHARGE: A charge applied against a Contract's Accumulation Value to
reimburse the Company for administrative expenses incurred in connection with
the termination of certain types of Contracts.
VIST: 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.
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<PAGE> 15
FEE TABLE AND EXAMPLES
The purpose of the following table is to assist investors in understanding the
various costs and expenses that investors in the Contracts 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, 1997. 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.
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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
</TABLE>
* A Termination Charge of 2% of the Accumulation Value of a Contract
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 Contracts 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 Contract may be
imposed if a withdrawal is for reasons other than death, disability,
financial hardship, employment termination, retirement or transfer to
specified plans.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees 1.00%
----
Total Fund A Annual Expenses 1.00%
----
</TABLE>
FUNDS' ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
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, 1997 were:
<TABLE>
<CAPTION>
Other
Operating
Expenses Total
Management (After Annual
Portfolio Fees Reimbursement) Expenses
--------- ---- -------------- --------
<S> <C> <C> <C>
VIST Small Cap Growth .85% .50% 1.35%
VIST World Equity .70% .50% 1.20%
VIST Growth .70% .40% 1.10%
VIST Matrix Equity .65% .50% 1.15%
VIST Growth & Income .75% .50% 1.25%
VIST Multiple Strategies .70% .49% 1.19%
VIST High Income Bond .70% .50% 1.20%
VIST U.S. Government Bond .60% .25% .85%
Federated Prime Money Fund II .55% .25% .80%
</TABLE>
First Variable Advisory Services Corp., the investment adviser to VIST,
has agreed through April 1, 1999 to reimburse VIST for operating expenses
(exclusive of management fees) in excess of .50% of a VIST Portfolio's
average net assets (.25% in the case of the VIST U.S. Government Bond
Portfolio). Had this investment adviser
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<PAGE> 16
not reimbursed expenses of the VIST Portfolios, for the year ended
December 31, 1997, the VIST annual expenses, as a percentage of the
Portfolio's average daily net assets, would have been 1.79% for the VIST
Small Cap Growth Portfolio; 1.47% for the VIST World Equity Portfolio;
1.54% for the VIST Matrix Equity Portfolio; 1.60% for the VIST Growth &
Income Portfolio; 1.21% for the VIST Multiple Strategies Portfolio; 1.64%
for the VIST High Income Bond Portfolio; and 1.73% for the VIST U.S.
Government Bond 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 daily 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, 1997, the annual expenses, as a percentage of the
Portfolio's average assets, would have been 1.00%.
EXAMPLES - STATE OF ARKANSAS DEFERRED COMPENSATION PLAN
An Owner would pay the following expenses on a $1,000 investment in a Contract,
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.
<TABLE>
<CAPTION>
INVESTMENT OPTION 1 YR. 3 YRS. 5 YRS. 10 YRS.
----------------- ----- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Small Cap Growth a) $43 $94 $147 $294
b) $24 $74 $127 $271
World Equity a) $41 $89 $140 $279
b) $23 $70 $119 $255
Growth a) $40 $85 $134 $267
b) $21 $66 $114 $243
Matrix Equity a) $41 $88 $137 $274
b) $22 $68 $117 $250
Growth & Income a) $42 $91 $142 $284
b) $23 $71 $122 $261
Multiple Strategies a) $41 $89 $140 $279
b) $23 $70 $119 $255
High Income Bond a) $41 $89 $140 $279
b) $23 $70 $119 $255
U.S. Government Bond a) $38 $78 $122 $243
b) $19 $59 $101 $218
Federated Prime
Money Fund II a) $37 $77 $119 $238
b) $18 $57 $98 $213
</TABLE>
16
<PAGE> 17
ACCUMULATION UNIT DATA
(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
audited financial statements, related notes and other financial information for
Fund A included in the Statement of Additional Information. The audited
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
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH DIVISION (1)
Beginning of Period $216.09 $173.49 $127.79 $130.10 $120.46 $131.71 $99.00 $103.81 $77.82 $67.30
End of Period $264.47 $216.09 $173.49 $127.79 $130.10 $120.46 $131.71 $99.00 $103.81 $77.82
No. of Accum.Units
Outstanding 113,511 117,250 134,326 141,689 158,790 184,141 191,183 204,689 219,043 241,500
GROWTH & INCOME DIVISION
Beginning of Period
(6/15/96) $9.27 $10.00
End of Period $11.76 $9.27
No. of Accum.Units
Outstanding 23,175 2,633
HIGH INCOME BOND DIVISION (1)
Beginning of Period $23.23 $20.54 $17.44 $18.95 $16.66 $14.54 $11.57 $12.06 $11.13 $10.04
End of Period $26.12 $23.23 $20.54 $17.44 $18.95 $16.66 $14.54 $11.57 $12.06 $11.13
No. of Accum. Units
Outstanding 22,513 13,294 12,200 11,637 10,310 8,164 4,639 9,693 9,301 7,843
MATRIX EQUITY DIVISION (2)
Beginning of Period $26.62 $25.70 $19.45 $19.86 $17.01 $17.00 $13.23 $13.72 $10.93 $10.00
End of Period $32.17 $26.62 $25.70 $19.45 $19.86 $17.01 $17.00 $13.23 $13.72 $10.93
No. of Accum. Units
Outstanding 21,980 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."
(2) Prior to May 1, 1997, the Matrix Equity Division was known as the "Tilt
Utility Division" and had different investment policies.
17
<PAGE> 18
ACCUMULATION UNIT DATA (CONTINUED)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MULTIPLE STRATEGIES DIVISION
Beginning of Period $24.73 $21.11 $16.12 $16.94 $15.49 $15.09 $12.35 $12.02 $9.97 $9.33
End of Period $29.82 $24.73 $21.11 $16.12 $16.94 $15.49 $15.09 $12.35 $12.02 $9.97
No. of Accum. Units
Outstanding 69,662 59,245 56,510 81,067 89,213 88,222 85,904 100,018 109,462 158,845
FEDERATED PRIME MONEY FUND II
DIVISION (1)
Beginning of Period $15.22 $14.67 $14.05 $13.69 $13.49 $13.20 $12.62 $11.82 $10.96 $10.32
End of Period $15.81 $15.22 $14.67 $14.05 $13.69 $13.49 $13.20 $12.62 $11.82 $10.96
No. of Accum. Units
Outstanding 59,406 61,128 59,872 61,727 56,746 67,192 76,051 133,920 118,874 100,546
SMALL CAP GROWTH DIVISION (2)
Beginning of Period (6/15/96) $10.13 $10.00
End of Period $10.11 $10.13
No. of Accum. Units
Outstanding 44,029 14,492
U.S. GOVERNMENT BOND DIVISION
Beginning of Period $19.62 $19.36 $16.27 $16.89 $15.60 $14.84 $13.07 $12.26 $10.87 $10.33
End of Period $21.24 $19.62 $19.36 $16.27 $16.89 $15.60 $14.84 $13.07 $12.26 $10.87
No. of Accum. Units
Outstanding 74,326 104,173 106,089 147,431 149,397 157,098 222,283 206,325 210,125 165,729
WORLD EQUITY DIVISION
Beginning of Period $18.42 $16.55 $13.45 $12.35 $10.63 $10.94 $10.23 $11.54 $9.98 $10.00
End of Period $20.05 $18.42 $16.55 $13.45 $12.35 $10.63 $10.94 $10.23 $11.54 $9.98
No. of Accum. Units
Outstanding 55,698 51,344 41,403 35,011 25,001 14,564 7,083 1,548 301 15
</TABLE>
(1) On January 2, 1997, shares of Federated Prime Money Fund II were
substituted for shares of the VIST Cash Management Portfolio. Accumulation
Unit Values prior to that date are based on the value of VIST 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."
18
<PAGE> 19
HIGHLIGHTS
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 CONTRACTS
This prospectus describes Variable Annuity Contracts. Contracts are either
flexible Purchase Payment deferred annuity Contracts ("Deferred Contracts") or
single Purchase Payment immediate annuity Contracts ("Immediate Contracts").
Depending on the tax treatment afforded a Contract, all Contracts are either
Qualified Contracts or Non-Qualified Contracts. For information concerning
taxation of the Company, Fund A, the Contracts and investors, see "FEDERAL TAX
CONSIDERATIONS." For information concerning the Company, see "THE COMPANY."
SALES CHARGE, CONTRACT ISSUE FEE, PURCHASE PAYMENT PROCESSING FEE AND
TERMINATION CHARGE
The net amount invested in a Contract after deduction of any Sales Charge,
Contract 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 Contract 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 Contract before the date Annuity
Payments begin, and the amount of monthly variable annuity benefits payable
under the Contract 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 Contracts 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 Contract. 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 Contracts 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 Contracts 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 a Plan 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 Contracts. 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 Contract.
OTHER CHARGES
Other charges are made daily against the assets of Fund A and the Investment
Options. Charges are made against each Fund A Division at an aggregate rate of
not more than 1.0% per annum for the assumption by the Company of mortality and
expense risks. Each Portfolio pays monthly investment advisory fees to its
investment adviser based on each Portfolio's average net assets. The Investment
Options also have direct expenses, such as legal, audit, custodial, share
registration and printing expenses, which may be considered to be an indirect
charge against assets. See the prospectuses for VIST and Federated Series.
19
<PAGE> 20
TAXES
There is a ten percent (10%) federal income tax penalty that may be applied to
the income portion of any distribution from the Contracts. However, the penalty
is not imposed under certain circumstances. See "Tax Treatment of
Withdrawals-Qualified Contracts."
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 business of variable life insurance,
variable annuities and fixed annuities. 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 of Des Moines, Iowa and Guarantee Reserve Life
Insurance Company of Calumet City, Illinois. 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 life insurance 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 1997, the Irish Life consolidated group had in excess of $14 billion
in assets. ILoNA is a Delaware corporation, incorporated as Carrig
International, Inc. in 1986.
The Company has an A- (Excellent) rating from A.M. Best, an independent firm
that analyzes insurance carriers. This rating is assigned to companies that have
a strong ability to meet obligations to policy holders over a long period of
time. The Company also has an AA- rating from Standard and Poor's and an AA
rating from Duff & Phelps Credit Rating Co. on claims paying ability. The
financial strength of the Company may be relevant with respect to the Company's
ability to satisfy its obligations under the Contracts.
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
Contracts, without regard to other income and gains or losses of any other
business the Company may conduct. The assets of Fund A are held separate and
apart from the Company's general account and from the assets of any of the
Company's affiliates. These assets are not chargeable with liabilities arising
out of any other business the Company may conduct or the liabilities of any
companies affiliated with the Company. However, all obligations arising under a
Contract, 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
Contract, 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 Contracts and (ii) the
providing of administrative services. See "DEDUCTIONS AND EXPENSES OF THE
POLICIES, FUND A AND THE INVESTMENT OPTIONS."
20
<PAGE> 21
INVESTMENT OPTIONS
VARIABLE INVESTORS SERIES TRUST
Variable Investors Series Trust ("VIST") is an open-end management investment
company that was formed as a series trust to provide funding options for
variable life insurance and variable annuity policies. Effective April 1, 1994,
VIST retained First Variable Advisory Services Corp. ("FVAS") to manage its
assets. FVAS is a wholly-owned subsidiary of the Company and retains the
services of sub-advisers under agreements to manage the assets of the VIST
Portfolios. The sub-advisers for the VIST Portfolios currently available under a
Contract are: Pilgrim Baxter & Associates, Ltd. with respect to VIST Small Cap
Growth Portfolio; Value Line, Inc. with respect to VIST Growth and VIST Multiple
Strategies Portfolios; State Street Bank and Trust Company with respect to VIST
Matrix Equity Portfolio; Warburg Pincus Asset Management, Inc. with respect to
VIST Growth & Income Portfolio; Keystone Investment Management Company with
respect to VIST World Equity Portfolio; Federated Investment Counseling with
respect to VIST High Income Bond Portfolio; and Strong Capital Management, Inc.
with respect to VIST U.S. Government Bond Portfolio.
Each Portfolio has a distinct investment objective and policy. The investment
objectives of the Portfolios available under a Contract are:
VIST SMALL CAP GROWTH. The investment objective of this Portfolio is to seek
capital appreciation. The Portfolio will invest, under normal conditions, at
least 65% of its total assets in securities of companies with small
capitalization (market capitalization or annual revenues under $1 billion at the
time of purchase).
VIST WORLD EQUITY. 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 "Contracts and Techniques Applicable to all Portfolios" in
the VIST prospectus for a discussion of the risks involved in investing in
foreign securities.
VIST GROWTH. 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.
VIST MATRIX EQUITY. 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.
VIST GROWTH & INCOME. 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.
VIST MULTIPLE STRATEGIES. 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.
VIST HIGH INCOME BOND. 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 Contracts of the
Portfolios -- High Income Bond Portfolio" in the VIST prospectus.
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VIST U.S. GOVERNMENT BOND. 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.
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.
FEDERATED 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 Federated 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
Contract 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 Contract.
Dividends or capital gain distributions received from a Portfolio are reinvested
in shares of that Portfolio and retained as assets of Fund A. VIST and Federated
shares will be redeemed, without any fee, to the extent necessary to pay taxes
and annual fees relating to the Contract and to make Annuity Payments under the
Contracts.
Additional Portfolios an/or Investment Options may be made available to Owners.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote the
shares of VIST 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 VIST nor Federated holds regular meetings of
shareholders.
Shares of VIST 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 VIST'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."
VIST and Federated intend to engage in mixed funding and shared funding.
Although VIST 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
VIST 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 VIST or Federated Series (or any Portfolio within VIST 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
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inappropriate in view of the purpose of the Contracts, 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
Contracts. No substitution of securities may take place without prior approval
of the Securities and Exchange Commission and under the requirements it may
impose.
THE CONTRACTS
This prospectus offers both Deferred Contracts and Immediate Contracts. Purchase
Payments may be made until retirement age is reached, which is usually not
earlier than age 60 nor later than age 75. The Contract provides that it may be
modified by the Company in order to maintain it in continued compliance with
applicable state and federal law.
IMMEDIATE CONTRACTS
Under an Immediate Contract, the first Annuity Payment is made one payment
period from the Issue Date. On the Issue Date, the annuity purchase rates for an
Immediate Contract 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 CONTRACTS
Under a Deferred Contract, Annuity Payments may begin on any date not later than
the end of the Annuitant's life expectancy according to U.S. Government tables,
as selected by the Owner. If no election of an Annuity Commencement Date is
made, Annuity Payments will begin on the Annuitant's attaining age 70. If no
election of an Annuity Option is in effect on the 30th day prior to the Annuity
Commencement Date, the Adjusted Value of the Contract will be applied under
Variable Annuity Option B, for a life annuity with 120 months certain. (See
"ANNUITY OPTIONS.") Distribution requirements applicable to Qualified Contracts
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 CONTRACTS, FUND A AND THE INVESTMENT OPTIONS
Deductions and expenses related to the Contracts described in this prospectus,
to Fund A and to the Investment Options are described below.
CHARGES TO THE CONTRACTS
SALES CHARGE. No Sales Charge is currently deducted from the Purchase Payments
for a Contract issued to the State of Arkansas Deferred Compensation Plan.
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 Contract 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.
CHARGE FOR PARTIAL AND TOTAL WITHDRAWALS. The Accumulation Value of a Contract
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 Contracts 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 Contracts
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 a Plan which complies
with Section 457 of the Internal Revenue Code.
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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 Contract, $1,020.41 will be the total reduction in the Accumulation Value of
the Contract, with $1,000.00 paid to the Contract 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 Contract 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 Contract and a written notice are returned to the
Company within 10 days of receipt of the Contract by the Owner.
CHARGES TO FUND A
To compensate the Company for assuming mortality and expense risks under the
Contract, 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 charge is guaranteed and may not be
increased by the Company.
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 VIST and Federated Series.
ACCUMULATION PERIOD
FREE LOOK RIGHT
An Owner has the right to review a Contract during an initial inspection period
specified in the Contract and, if dissatisfied, to return it to the Company or
to the agent through whom it was purchased. When the Contract 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 Contract 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 Federated 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 Contract.
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.
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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 Contract 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 Contract 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 Contract's Accumulation Value may be allocated to no more
than five Investment Divisions at any one time.
Persons desiring to purchase a Contract 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 Contract 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
Contract; 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 Contract for Accumulation Units of an equal dollar value of
another Investment Division. No more than five exchanges may be made within each
Contract 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.
SYSTEMATIC TRANSFERS - DOLLAR COST AVERAGING
The Company permits systematic transfers, such as a dollar cost averaging
program, that an Owner may initiate by telephone or by written request to the
Company at its Service Center. Through systematic transfers, designated amounts
are transferred, at the close of the last Valuation Period of each pre-selected
period, from a selected Investment Option to other pre-selected Investment
Options. The Owner may select from among the following periods, or any other
period acceptable to the Company: monthly, quarterly, semi-annually or annually.
The dollar cost averaging program permits transfers from the Federated Prime
Money Fund II Investment Division to other Investment Options on a regularly
scheduled basis. Through use of systematic transfers, instead of transfers of
the total Accumulation Value at one particular time, an Owner may be less
susceptible to the impact of market fluctuations. Systematic transfers may
prevent investing too much when the price of shares is high and too little when
the price of shares is low. However, since systematic transfers, such as dollar
cost averaging, involve continuous investment regardless of fluctuating price
levels, the purchaser should consider his ability to continue purchases through
periods of low price levels. The minimum amount which may be transferred at any
time is $100. The
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Company requires $1,200 of Accumulation Value to be in the Prime Money Fund II
Investment Division before a "dollar cost averaging" program may begin under a
Contract. Systematic transfers under the dollar cost averaging program are not
taken into account for purposes of determining the number of premitted transfers
within a year. The Company does not currently charge for enrolling in the dollar
cost averaging program, but reserves the right to do so.
ASSET REBALANCING PROGRAM
The Company administers an asset rebalancing program that an Owner may initiate
by telephone or by written request to the Company at its Service Center. The
asset rebalancing program enables the Owner to indicate to the Company the
percentage levels of Accumulation Value he or she would like to maintain in
particular Investment Options. At the close of the last Valuation Period each
pre-selected period, the Accumulation Value will be automatically rebalanced to
maintain the indicated percentages by transfers among the Investment Options.
The Owner may select from among the following periods, or any other period
acceptable to the Company: quarterly, semi-annually or annually. All
Accumulation Value must be included in the asset rebalancing program. Other
investment programs, such as systematic transfers and systematic withdrawals, or
other transfers or withdrawals may not work in concert with the asset
rebalancing program. Therefore, Owners should monitor their use of these
programs and other transfers or withdrawals while the asset rebalancing program
is being used.
Transfers under the asset rebalancing program are not taken into account for
purposes of determining the number of permitted transfers within a year. The
Company does not currently charge for enrolling in the asset rebalancing
program, but reserves the right to do so.
DETERMINATION OF ACCUMULATION UNIT VALUES UPON EXCHANGE
Following receipt of a request for any exchange by the Company at the Service
Center, the Accumulation Unit Value of any Investment Division from which an
exchange is made is determined at the close of the concurrent Valuation Period
or, if later, at the close of the Valuation Period during which the underlying
Portfolio of such Investment Division accepts and effects orders for redemption
of shares relating to such exchange. Upon receipt of the redemption proceeds,
the Accumulation Unit Value of any Investment Division to which an exchange is
made is determined at the close of the concurrent Valuation Period or, if later,
at the close of the first subsequent Valuation Period during which the
underlying Portfolio of the Investment Division to which the exchange is made
accepts and effects orders for purchases of shares relating to such exchange.
NET INVESTMENT FACTOR
The Net Investment Factor for an Investment Division's Valuation Period reflects
the investment experience of the Portfolio in which the Investment Division
invests as well as the charges assessed against the Investment Division. The
factor is calculated by:
1. Taking the net asset value as of the end of the current Valuation Period
of the Portfolio in which the Division invests.
2. Adding to (1) the amount of any dividend or capital gains distribution
declared during the current Valuation Period by the Portfolio. A charge
for taxes, if any, is subtracted from that amount.
3. Dividing (2) by the net asset value of the Portfolio at the end of the
preceding Valuation Period.
4. Subtracting a charge not to exceed the sum of the daily mortality and
expense risk charge for each day in the Valuation Period. See "CHARGES TO
FUND A."
The Net Investment Factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase or decrease or remain
the same.
ACCUMULATION VALUE
The Accumulation Value of a Contract on any given date is the dollar value of a
Contract. 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 Contract in such Investment
Division. The resulting Accumulation Value of each applicable Investment
Division is then totaled to determine the Accumulation Value of that Contract.
The resulting value may be reduced by the amount of any applicable taxes not
previously deducted.
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WITHDRAWAL PRIOR TO ANNUITY COMMENCEMENT DATE
If permitted by any plan under which the Contract is issued, the Owner may
surrender his or her interest in the Contract, 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 Contract 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, Contract number and
personal identification number. Calls received after such time will be processed
on the next business day. The Company will confirm the exchange over the
telephone and then follow up in writing. Telephone exchanges may be made only
after the Company has accepted a telephone authorization form from the Owner.
See "Determination of Accumulation Unit Values Upon Exchange." The Company will
use reasonable procedures to confirm that instructions communicated by telephone
are genuine. If it does not, the Company may be liable for any losses due to
unauthorized or fraudulent instructions. The Company tape records all telephone
instructions.
WITHDRAWALS. Requests for withdrawals may be made in writing in such form as the
Company may require. Under normal conditions, the Company will usually send the
withdrawal funds within seven calendar days of a withdrawal request, except as
the Company may be permitted to defer such payment in accordance with the 1940
Act. (See "Charge for Partial and Total Withdrawals.")
SIGNATURE GUARANTEES. Certain Contract 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 Contract.
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ANNUITY PERIOD
GENERAL
On the Annuity Commencement Date, the Adjusted Value of a Contract will be
applied, as specified by the Owner, under one of the Annuity Options provided in
the Contract 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 Contract applied on the
Annuity Commencement Date under one of the Annuity Options provided in the
Contract. 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 Contract 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
Contract 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 Contract will be applied to the Federated
Prime Money Fund II Division.
FIXED ANNUITY
Each Fixed Annuity Payment is determined in accordance with the annuity purchase
rates found in the Contract which are based on the minimum guaranteed interest
rate of 3.5% per year or, if more favorable to the Payee, in accordance with
annuity purchase rates found in similar fixed annuity contracts then being
issued by the Company on the Annuity Commencement Date. Once established, Fixed
Annuity Payments will not change regardless of investment, mortality or expense
experience.
VARIABLE ANNUITY
The Owner may elect to allocate all or part of the Adjusted Value of the
Contract 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 Contract,
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.
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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 Contract 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 Contract 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 Contract 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%, 66 2/3% or
50%) elected at the Annuity Commencement Date. No further payments will be made
after the survivor's death.
OPTION D. JOINT AND CONTINGENT ANNUITY: Monthly Annuity Payments during the
lifetime of the Annuitant and continuing during the lifetime of the designated
second person after the death of the Annuitant at the percentage (either 100%,
75%, 66 2/3% 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 Contract 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.
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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 CONTRACT
If the Annuitant is not the Owner and the Owner dies while the Contract 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 Contracts 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 Contract 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 Contract is in effect, while
the Owner is living, and before the Annuity Commencement Date, the Company, upon
receipt of due proof of death, will pay a death benefit to the Annuitant's
Beneficiary, either in a lump sum or under one of the Annuity Options as
provided under "Election and Effective Date of Election" below. If there is no
Annuitant's Beneficiary living on the date of death of the Annuitant, the
Company will pay the death benefit in a lump sum to the Owner upon receipt of
due proof of the death of both the Annuitant and the Annuitant's Beneficiary.
When the Annuitant is also the Owner, any Death Benefits payable will be payable
to the Annuitant's Beneficiary.
The Contract 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 Contract 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 Contract 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 Contract will be canceled; or
(b) to have the death benefit of the Contract applied under one of the Annuity
Options to effect (so long as the requirements in the "Death Benefit Provided by
the Contract" 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
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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 Contract and due proof of death are
received by the Company at the Service Center, except as the Company may be
permitted to defer such payment in accordance with the 1940 Act. (See
"DEFERMENT.") In the event of the death of either the Owner or the Annuitant
prior to the Annuity Commencement Date, if settlement under one of the Annuity
Options has been properly elected, the Annuity Commencement Date will be the
business day immediately following the date of receipt of both the election and
due proof of death by the Company at the Service Center.
AMOUNT OF DEATH BENEFIT
If Annuity Payments have not begun, the death benefit is equal to the greater of
(a) the Accumulation Value or (b) the sum of all Net Purchase Payments made
under the Contract, 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 Contract are received by the Company at the Service Center.
DEFERMENT
The Company will ordinarily pay the value of any Contract, 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 Contract 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 Contract. For example,
although the Contract permits surrender of the value of a participant's
Contract, the plan or trust pursuant to which the Contract 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 Contract. Applicants
should review plans or trusts carefully and consult their tax advisers before
purchasing a Contract.
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OWNERSHIP PROVISIONS
OWNER
The Contract will belong to the Owner. All Contract 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 Contract. 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 Contract 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 Contract may be issued. Subject to the foregoing, a Qualified Contract
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
Contract may change the ownership of the Contract during the lifetime of the
Annuitant and prior to the Annuity Commencement Date. The transfer of ownership
may result in adverse federal tax consequences for the Owner. A change of
ownership will not be binding upon the Company until written notification is
received by the Company at the Service Center and will be effective as of the
date on which the request for change was signed by the Owner; however, the
change will be without prejudice to the Company on account of any action taken
by the Company prior to receiving notice of the change.
ASSIGNMENT
A Contract 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 CONTRACTS
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 Contracts or waive any of the Company's rights. Any such change or waiver
must be in writing and endorsed on the Contract.
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 CONTRACTS. PURCHASERS BEAR THE
COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS "ANNUITY CONTRACTS" UNDER
FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER UNDERSTOOD THAT THE
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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 Contract 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 Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts 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 Contract (adjusted for any period certain or refund
feature) bears to the expected return under the Contract. The exclusion amount
for payments based on a variable annuity option is determined by dividing the
cost basis of the Contract (adjusted for any period certain or refund guarantee)
by the number of years over which the annuity is expected to be paid. Payments
received after the investment in the Contract has been recovered (i.e., when the
total of the excludable amounts equal the investment in the Contract) 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 Contract within the
meaning of Section 72 of the Code. Owners, Annuitants and Beneficiaries under
the Contracts 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
Contract as an annuity contract would result in imposition of federal income tax
to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract.
The Company intends that all Portfolios of VIST underlying the Contracts will be
managed by the Investment Adviser for VIST, and that Federated 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 Contract. 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 Contract 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 Contract prior to receipt of payments under the Contract.
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 Contract in an attempt to maintain favorable tax treatment.
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CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation, or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to Contracts held by a trust or other entity as an
agent for a natural person or to Contracts held by a tax-qualified retirement
plan described in sections 401, 403(a), 403(b), 408, 408A or 457 of the Code.
Purchasers should consult their own tax counsel or other tax adviser before
purchasing a Contract to be owned by a non-natural person.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
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.
QUALIFIED PLANS
The Contracts 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 Contracts 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
Contracts 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 Contract issued under a Qualified
Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described in
this prospectus. Generally, Contracts 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 Contracts. (See "Tax
Treatment of Withdrawals-Qualified Contracts.")
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
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men and women. The Contracts 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.
SECTION 457-DEFERRED COMPENSATION PLANS. Under Section 457 of the Code,
governmental and certain other tax-exempt employers may establish deferred
compensation plans for the benefit of their employees which may invest in
annuity contracts. The Code, as in the case of Qualified Plans, establishes
limitations and restrictions on eligibility, contributions and distributions.
Under these Plans, contributions made for the benefit of the employees will not
be includable in the employee's gross income until distributed from the Plan.
TAX TREATMENT OF WITHDRAWALS-QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract (other than a "qualified
distribution" from a Roth IRA), a ratable portion of the amount received is
taxable, generally based on the ratio of the individual's cost basis to the
individual's total accrued benefit under the retirement plan. A "qualified
distribution" from a Roth IRA is generally not subject to federal income
taxation, but can only be made after the assets have been in the Roth IRA for 5
years and the Owner: (a) reaches age 591*2; (b) dies or is disabled (as defined
in section 72(m)(7) of the Code); or (c) takes a qualified first-time homebuyer
distribution (as defined in section 72(t)(8) of the Code). Special tax rules may
be available for certain other distributions from a Qualified Contract.
The taxable portion of any distribution from a qualified retirement plan may be
subject to a 10% penalty tax under section 72(t) of the Code. This penalty tax
could apply to withdrawals from a Contract issued and qualified under Code
sections 401 (H.R. 10 and Corporate Pension and Profit-Sharing Plans), 403(b)
(Tax-Sheltered Annuities), 408 (Traditional IRAs) or 408A (Roth IRAs -
"nonqualified distributions" only). It is not imposed on: (a) qualified
rollovers or permitted direct transfers to a Traditional IRA, a Roth IRA, or to
another eligible qualified plan; (b) distributions made on or after the date on
which the Owner or Annuitant (as applicable) reaches age 591*2; (c)
distributions following the death or disability (as defined in section 72(m)(7)
of the Code) of the Owner or Annuitant (as applicable); (d) 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 (Qualified Plans
other than Traditional IRAs and Roth IRAs require the employee to be separated
from service for this exception to apply); (e) distributions to an Owner or
Annuitant (as applicable) who has separated from service after he has attained
age 55; (f) distributions made to the Owner or Annuitant (as applicable) for
payment of medical expenses which exceed 7.5% of adjusted gross income; (g)
distributions made to an alternate payee pursuant to a qualified domestic
relations order; (h) distributions from a Traditional IRA or from a Roth IRA for
payment of health insurance premiums while unemployed if certain conditions are
met; (i) amounts paid from a Traditional IRA and Roth IRA for qualified higher
education expenses (as defined in section 72(t)(7) of the Code); and (j) amounts
paid from a Traditional IRA or Roth IRA as a qualified first-time homebuyer
distribution (as defined in section 72(t)(8) of the Code). The exceptions stated
in (e) and (g) above do not apply to a Traditional IRA or to a Roth IRA.
Generally, distributions from a qualified plan (other than a Roth IRA) are
required to start 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. These
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 any required minimum distributions are not
made, a 50% penalty tax is imposed on the amount not distributed.
TAX ADVICE AND OTHER TAXES
The description in this prospectus of the federal tax treatment of amounts
invested and received under the Contracts 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.
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DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
First Variable Capital Services, Inc. ("FVCS"), a wholly-owned subsidiary of the
Company, is the distributor of the Contracts. The Contracts are sold by
broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD"). FVCS is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is
also a member of the NASD.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Fund A, FVCS or the
Company are a party.
PERIODIC REPORTS
During the Accumulation Period, the Company will send the Owner, at least once
during each Contract Year, a statement showing the number, type and value of the
Accumulation Units credited to the Contract, 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
Contract 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
Contracts 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 VIST 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 Contract should be directed to the Company's
Service Center at (501) 374-4800.
PRIOR CONTRACTS
The Company previously issued other variable annuity contracts funded in Fund A,
which continue to be funded in Fund A on the date of this prospectus. These
contracts were issued to: (i) individuals who wanted an annuity contract outside
the scope of an employer-sponsored plan or an individual retirement annuity;
(ii) employees covered under employer pension,
36
<PAGE> 37
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.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
General Information and History..............................................
Independent Auditors.........................................................
Legal Counsel................................................................
Underwriter..................................................................
Custody of Assets............................................................
Yield Calculation for Federated Prime Money Fund II Division.................
ARDC Performance Information.................................................
Financial Statements.........................................................
37
<PAGE> 38
PART B
38
<PAGE> 39
FIRST VARIABLE ANNUITY FUND A
AND
FIRST VARIABLE LIFE INSURANCE COMPANY
------------------
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
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 Counsel.......................................................
Underwriter.........................................................
Custody of Assets...................................................
Yield Calculation for Federated Prime Money Fund II Division .......
ARDC Performance Information........................................
Financial Statements................................................
39
<PAGE> 40
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 consolidated financial statements of First Variable Life Insurance Company
at December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997 and the financial statements of First Variable Life
Insurance Company - First Variable Annuity Fund A at December 31, 1997 and 1996
and for each of the years then ended appearing in this Statement of Additional
Information have been audited by Ernst & young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
LEGAL COUNSEL
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 Contracts. 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 Contracts 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 FEDERATED PRIME MONEY FUND II DIVISION
The Federated 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, 1997, the annualized
yield for the Federated Prime Money Fund II Division was 4.23% and the effective
yield was 4.32%.
For the seven calendar days ending December 31, 1997, the annualized and
effective yields for the Federated 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 Federated 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 Federated 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
Federated Prime Money Fund II Division assets.
40
<PAGE> 41
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 standardized performance data for
Contracts 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, 1997 and for 5 years and for the
life of the Portfolio (or 10 years, if the Portfolio has been in existence for
more than 10 years) for each Investment Division are listed below:
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND
------ ------- ------------
<S> <C> <C> <C>
Small Cap Growth (inception 5/4/95) -0.27% N/A 20.22%
World Equity (inception 6/10/88) 8.89% 13.68% 7.25%
Growth (inception 5/1/87) 22.39% 17.21% 14.87%
Matrix Equity (inception 6/16/88) 20.84% 13.73% 12.56%
Growth & Income (inception 5/31/95) 26.92% N/A 19.65%
Multiple Strategies (inception 5/5/87) 20.58% 14.15% 12.47%
High Income (inception 6/1/87) 12.41% 9.50% 10.15%
US Government Bond (inception 5/27/87) 8.28% 6.44% 7.55%
</TABLE>
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 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 Federated Prime Money Fund II Investment Divisions) for which the Company
will advertise yield, it will show a yield quotation based on a 30 day (or one
month) period ended on the date of the most recent balance sheet of the Separate
Account included in the registration statement, computed by dividing the net
investment income per Accumulation Unit earned during the period by the maximum
offering price per Unit on the last day of the period, according to the
following formula:
a-b 6
YIELD = 2[----- +1) -1]
cd
a= Net investment income earned during the period by VIST
attributable to shares owned by the Sub-Account.
41
<PAGE> 42
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, 1997 was 6.49%.
The High Income Bond Investment Division's yield for the period ended December
31, 1997 was 7.46%.
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 consolidated financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
42
<PAGE> 43
Financial Statements
First Variable Life Insurance Company - First Variable Annuity Fund A
Year ended December 31, 1997
43
<PAGE> 44
Report of Independent Auditors
To the Board of Directors of First Variable Life Insurance Company
and Contract Owners of First Variable Annuity Fund A
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of First Variable Life Insurance Company--First Variable Annuity
Fund A as of December 31, 1997, and the related statement of operations for the
year then ended, and the statements of changes in contract owners' equity 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,
1997 by correspondence with Variable Investors Series Trust and Federated
Investors. 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, 1997, the results of its
operations for the year then ended, and the changes in its contract owners'
equity for each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 30, 1998
44
<PAGE> 45
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statement of Assets, Liabilities and Contract Owners' Equity
December 31, 1997
<TABLE>
<CAPTION>
FEDERATED HIGH
PRIME INCOME MULTIPLE
MONEY GROWTH BOND STRATEGIES
TOTAL FUND II DIVISION DIVISION DIVISION
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in Variable Investors
Series Trust at value (cost
$27,959,575) $36,841,380 $30,058,474 $587,902 $2,078,242
Investments in Federated Prime Money
Fund II at value (cost $943,160) 943,160 $943,160
Receivable from First Variable Life
Insurance Company 11,224 7,839 13
----------------------------------------------------------------
Total assets $37,795,764 $943,160 $30,066,313 $587,915 $2,078,242
================================================================
LIABILITIES
Payable to First Variable Life
Insurance Company $ 4,918 $ 3,777 $ 1,140
CONTRACT OWNERS' EQUITY
Annuity contracts in payment period 46,420 $ 46,420
Variable annuity contract owners'
equity 37,744,426 939,383 30,019,893 $587,915 2,077,102
----------------------------------------------------------------
Total contract owners' equity 37,790,846 939,383 30,066,313 587,915 2,077,102
----------------------------------------------------------------
Total liabilities and contract owners'
equity $37,795,764 $943,160 $30,066,313 $587,915 $2,078,242
================================================================
<CAPTION>
U.S. SMALL
MATRIX GOVERNMENT WORLD GROWTH & CAP
EQUITY BOND EQUITY INCOME GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in Variable Investors
Series Trust at value (cost
$27,959,575) $706,305 $1,578,678 $1,115,263 $272,209 $444,307
Investments in Federated Prime Money
Fund II at value (cost $943,160)
Receivable from First Variable Life
Insurance Company 676 1,596 402 698
----------------------------------------------------------
Total assets $706,981 $1,578,678 $1,116,859 $272,611 $445,005
==========================================================
LIABILITIES
Payable to First Variable Life
Insurance Company $ 1
CONTRACT OWNERS' EQUITY
Annuity contracts in payment period
Variable annuity contract owners'
equity $706,981 1,578,677 $1,116,859 $272,611 $445,005
----------------------------------------------------------
Total contract owners' equity 706,981 1,578,677 1,116,859 272,611 445,005
----------------------------------------------------------
Total liabilities and contract owners'
equity $706,981 $1,578,678 $1,116,859 $272,611 $445,005
==========================================================
</TABLE>
See accompanying notes.
45
<PAGE> 46
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
FEDERATED HIGH
PRIME INCOME MULTIPLE
MONEY GROWTH BOND STRATEGIES
TOTAL FUND II DIVISION DIVISION DIVISION
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $3,183,091 $40,305 $2,461,216 $39,143 $171,668
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 352,970 7,900 282,436 5,730 18,439
---------------------------------------------------------------
Net investment income 2,830,121 32,405 2,178,780 33,413 153,229
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 694,133 696,027 (157) 18,246
Net unrealized appreciation
(depreciation) on investments
during the year 2,760,589 2,628,680 26,902 160,828
---------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 3,454,722 3,324,707 26,745 179,074
---------------------------------------------------------------
Net increase in contract owners'
equity resulting from operations $6,284,843 $32,405 $5,503,487 $60,158 $332,303
===============================================================
<CAPTION>
U.S. SMALL
MATRIX GOVERNMENT WORLD GROWTH & CAP
EQUITY BOND EQUITY INCOME GROWTH
DIVISION DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $162,241 $103,598 $ 166,676 $22,764 $15,480
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 6,360 16,463 11,157 1,124 3,361
----------------------------------------------------------
Net investment income 155,881 87,135 155,519 21,640 12,119
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 6,868 (74,951) 43,167 2,976 1,957
Net unrealized appreciation
(depreciation) on investments
during the year (45,194) 111,208 (115,269) (4,695) (1,871)
----------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (38,326) 36,257 (72,102) (1,719) 86
----------------------------------------------------------
Net increase in contract owners'
equity resulting from operations $117,555 $123,392 $ 83,417 $19,921 $12,205
==========================================================
</TABLE>
See accompanying notes.
46
<PAGE> 47
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statements of Changes in Contract Owners' Equity
Periods ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
FEDERATED
PRIME
MONEY CASH MANAGEMENT
TOTAL FUND II DIVISION
1997 1996 1997(1) 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 2,830,121 $ 1,639,338 $ 32,405 $ 30,013
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 694,133 1,753,700
Net unrealized appreciation
(depreciation) on investments
during the period 2,760,589 2,508,047
-----------------------------------------------------------------
Net increase in contract owners'
equity resulting from operations 6,284,843 5,901,085 32,405 30,013
-----------------------------------------------------------------
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale or transfer
of accumulation units 2,595,579 1,746,244 1,041,781 $(945,678) 25,028
Cost of accumulation units
terminated and exchanged (2,852,911) (4,701,471) (134,803) 12,260
-----------------------------------------------------------------
Increase (decrease) in contract
owners' equity from contract
owner transactions (257,332) (2,955,227) 906,978 (945,678) 37,288
-----------------------------------------------------------------
Increase (decrease) in contract
owners' equity 6,027,511 2,945,858 939,383 (945,678) 67,301
Contract owners' equity at
beginning of period 31,763,335 28,817,477 945,678 878,377
-----------------------------------------------------------------
Contract owners' equity at end of
period $37,790,846 $31,763,335 $ 939,383 $ 0 $945,678
=================================================================
<CAPTION>
GROWTH HIGH INCOME BOND
DIVISION DIVISION
1997 1996 1997 1996
--------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 2,178,780 $ 1,257,055 $ 33,413 $ 17,324
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 696,027 1,743,373 (157) (6,197)
Net unrealized appreciation
(depreciation) on investments
during the period 2,628,680 2,495,804 26,902 23,690
--------------------------------------------------
Net increase in contract owners'
equity resulting from operations 5,503,487 5,496,232 60,158 34,817
--------------------------------------------------
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale or transfer
of accumulation units 1,438,505 962,137 70,331 57,090
Cost of accumulation units
terminated and exchanged (2,251,117) (4,419,986) 148,581 (33,687)
--------------------------------------------------
Increase (decrease) in contract
owners' equity from contract
owner transactions (812,612) (3,457,849) 218,912 23,403
--------------------------------------------------
Increase (decrease) in contract
owners' equity 4,690,875 2,038,383 279,070 58,220
Contract owners' equity at
beginning of period 25,375,438 23,337,055 308,845 250,625
--------------------------------------------------
Contract owners' equity at end of
period $30,066,313 $25,375,438 $587,915 $308,845
==================================================
</TABLE>
(1) From commencement of operations, January 2, 1997
47
<PAGE> 48
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statements of Changes in Contract Owners' Equity (continued)
Periods ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
MULTIPLE STRATEGIES MATRIX EQUITY U.S. GOVERNMENT BOND WORLD EQUITY
DIVISION DIVISION DIVISION DIVISION
1997 1996 1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 153,229 $ 147,421 $155,881 $ 31,984 $ 87,135 $ 137,797 $ 155,519 $ 17,822
Realized gain (loss) on Variable
Investors Series Trust shares redeemed 18,246 5,073 6,868 6,391 (74,951) (13,075) 43,167 18,648
Net unrealized appreciation
(depreciation) on investments during
the period 160,828 46,232 (45,194) (21,107) 111,208 (95,325) (115,269) 56,123
-----------------------------------------------------------------------------------------
Net increase in contract owners' equity
resulting from operations 332,303 198,726 117,555 17,268 123,392 29,397 83,417 92,593
-----------------------------------------------------------------------------------------
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale or transfer of
accumulation units 346,879 191,831 103,422 127,302 27,448 93,089 192,176 176,494
Cost of accumulation units terminated
and exchanged (67,074) (118,256) (22,272) (56,130) (615,522) (132,616) (104,216) (9,008)
-----------------------------------------------------------------------------------------
Increase (decrease) in contract owners'
equity from contract owner
transactions 279,805 73,575 81,150 71,172 (588,074) (39,527) 87,960 167,486
-----------------------------------------------------------------------------------------
Increase (decrease) in contract owners'
equity 612,108 272,301 198,705 88,440 (464,682) (10,130) 171,377 260,079
Contract owners' equity at beginning of
period 1,464,994 1,192,693 508,276 419,836 2,043,358 2,053,488 945,482 685,403
-----------------------------------------------------------------------------------------
Contract owners' equity at end of period $2,077,102 $1,464,994 $706,981 $508,276 $1,578,676 $2,043,358 $1,116,859 $945,482
=========================================================================================
</TABLE>
48
<PAGE> 49
First Variable Life Insurance Company--
First Variable Annuity Fund A
Statements of Changes in Contract Owners' Equity (continued)
Periods ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
GROWTH & INCOME SMALL CAP GROWTH
DIVISION DIVISION
1997 1996(2) 1997 1996(2)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 21,640 $ 111 $ 12,119 $ (189)
Realized gain (loss) on Variable Investors
Series Trust shares redeemed 2,976 (233) 1,957 (280)
Net unrealized appreciation (depreciation)
on investments during the period (4,695) 536 (1,871) 2,094
---------------------------------------------------------------
Net increase in contract owners' equity
resulting from operations 19,921 414 12,205 1,625
---------------------------------------------------------------
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale or transfer of
accumulation units 155,934 25,033 164,781 88,240
Cost of accumulation units terminated
and exchanged 72,359 (1,049) 121,153 57,001
---------------------------------------------------------------
Increase (decrease) in contract owners'
equity from contract owner transactions 228,293 23,984 285,934 145,241
---------------------------------------------------------------
Increase (decrease) in contract owners'
equity 248,214 24,398 298,139 146,866
Contract owners' equity at beginning of
period 24,398 146,866
---------------------------------------------------------------
Contract owners' equity at end of period $272,612 $24,398 $445,005 $146,866
===============================================================
</TABLE>
See accompanying notes.
.
(2) From commencement of operations, May 1, 1996
49
<PAGE> 50
FIRST VARIABLE LIFE INSURANCE COMPANY -- FIRST VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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). Eight of the nine investment divisions of the Fund are invested
solely in the shares of the eight corresponding portfolios of the Variable
Investors Series Trust (the Trust), a no-load, diversified, open-end, series
management investment company registered under the 1940 Act. The remaining
investment division, formerly the Cash Management Division of the Trust, is
invested in the Federated Prime Money Fund II (Federated), a portfolio of
Federated Insurance Series Trust, an open end management investment company.
First Variable Life liquidated its investment in the Cash Management Division on
January 2, 1997. 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.
During 1997, the Tilt Utility Division, the Common Stock Division and the Small
Cap Division were renamed the Matrix Equity Division, the Growth Division and
the Small Cap Growth Division, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
INVESTMENTS
The investments in shares of the Trust and Federated are stated at the net asset
value per share of the respective portfolios of the Trust and Federated.
Investment transactions are accounted for on the date the shares are purchased
or sold. The cost of shares sold and redeemed is determined on the first-in,
first-out method. Dividends and capital gain distributions received from the
Trust and Federated are reinvested in the respective additional shares of the
Trust and Federated and are recorded as income by the Fund on the ex-dividend
date.
FEDERAL INCOME TAXES
For federal income tax purposes, operations of the Fund are combined with those
of First Variable Life, which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
50
<PAGE> 51
FIRST VARIABLE LIFE INSURANCE COMPANY -- FIRST VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The following table presents selected data for investments in each of the
Portfolios of the Trust and Federated at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER NET ASSET
OF SHARES COST VALUE
--------------------------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II 943,160 $ 943,160 $ 943,160
Growth Portfolio 866,182 21,378,312 30,058,474
High Income Bond Portfolio 60,483 554,634 587,902
Multiple Strategies Portfolio 196,793 1,834,901 2,078,242
Matrix Equity Portfolio 49,477 736,804 706,305
U.S. Government Bond Portfolio 155,366 1,636,327 1,578,678
World Equity Portfolio 79,184 1,098,145 1,115,263
Growth & Income Portfolio 18,686 276,368 272,209
Small Cap Growth Portfolio 28,521 444,084 444,307
--------------------------------------------------------
Totals 2,397,852 $28,902,735 $37,784,540
========================================================
</TABLE>
4. VARIABLE ANNUITY CONTRACT OWNERS' EQUITY
Variable annuity contract owners' equity at December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
ACCUMULATION UNIT
ACCUMULATION UNITS VALUE EQUITY
-------------------------------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II Division 59,406 15.813 $ 939,383
Growth Division 113,511 264.467 30,019,893
High Income Bond Division 22,513 26.115 587,915
Multiple Strategies Division 69,662 29.817 2,077,102
Matrix Equity Division 21,980 32.165 706,981
U.S. Government Bond Division 74,326 21.240 1,578,677
World Equity Division 55,698 20.052 1,116,859
Growth & Income Division 23,175 11.763 272,611
Small Cap Growth Division 44,029 10.107 445,005
---------------
Total $37,744,426
===============
</TABLE>
51
<PAGE> 52
FIRST VARIABLE LIFE INSURANCE COMPANY -- FIRST VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of Trust and Federated shares by the
Fund during the year ended December 31, 1997 are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------------
<S> <C> <C>
Federated Prime Money Fund II $1,502,709 $1,505,227
Growth Portfolio 3,527,510 2,167,549
High Income Bond Portfolio 293,953 41,640
Multiple Strategies Portfolio 558,515 124,342
Matrix Equity Portfolio 314,353 77,998
U.S. Government Bond Portfolio 126,103 627,039
World Equity Portfolio 424,430 182,547
Growth & Income Portfolio 262,410 12,880
Small Cap Growth Portfolio 323,419 26,064
------------------------------------
Totals $7,333,402 $4,765,286
====================================
</TABLE>
6. EXPENSES
First Variable Life charges the Fund, based on the value of the Fund, at an
annual rate of 0.6% for mortality risks and 0.4% for expense risks. Such charges
totaled $352,970 for the year ended December 31, 1997.
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.
9. YEAR 2000 ISSUES (UNAUDITED)
Like other investment funds and financial and business organizations around the
world, the Fund could be adversely affected if the computer systems of First
Variable Life and those of its service providers do not properly process and
calculate date-related information and data from and after January 1, 2000.
First Variable Life has completed an assessment of the Year 2000 impact on its
systems, procedures, customers and business processes. At December 31, 1997,
management of First Variable Life is satisfied that their main operating systems
are Year 2000 compliant. First Variable Life is reviewing its general office
systems and will be contacting its service providers during 1998. First Variable
Life believes it will complete the Year 2000 project not later than December 31,
1998, which is prior to any anticipated impact on its operating systems.
52
<PAGE> 53
FIRST VARIABLE LIFE INSURANCE COMPANY -- FIRST VARIABLE ANNUITY FUND A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. YEAR 2000 ISSUES (unaudited) (continued)
The date on which First Variable Life believes it will complete the Year 2000
project is based on its management's best estimates. Although there can be no
guarantee that these estimates will be achieved, its management does not at this
time believe that actual results will differ materially from those anticipated.
Specific factors that might cause such material differences would most likely
result from First Variable Life's service providers.
53
<PAGE> 54
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
First Variable Life Insurance Company
We have audited the accompanying consolidated balance sheets of First Variable
Life Insurance Company (the Company) as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
54
<PAGE> 55
First Variable Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities-available-for-sale, at
fair value (amortized cost:
1997-$274,439,000; 1996-$278,305,000) $294,961,000 $294,195,000
Option contracts 1,057,000 94,000
Equity securities-available-for-sale, at
fair value (cost: $684,000 in 1997 and 1996) 825,000 691,000
Policy loans 267,000 --
------------------------------
Total investments 297,110,000 294,980,000
Cash and cash equivalents 3,029,000 2,433,000
Accrued investment income 5,744,000 5,636,000
Deferred policy acquisition costs 7,520,000 5,486,000
Value of insurance in force acquired (Note 4) 16,939,000 19,494,000
Property and equipment, less allowances for depreciation
of $773,000 in 1997 and $508,000 in 1996 445,000 649,000
Goodwill, less accumulated amortization of $475,000
in 1997 and $329,000 in 1996 2,448,000 2,594,000
Other assets 732,000 2,273,000
Assets held in separate accounts 219,807,000 176,306,000
------------------------------
Total assets $553,774,000 $509,851,000
==============================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for annuity and life products $233,988,000 $239,509,000
Unearned revenue reserve 282,000 52,000
Supplementary contracts without life contingencies 21,711,000 21,008,000
Deferred income tax liability (Note 5) 6,692,000 5,642,000
Other liabilities 2,837,000 938,000
Liabilities related to separate accounts 219,807,000 176,306,000
------------------------------
Total liabilities 485,317,000 443,455,000
Commitments and contingencies (Note 8)
Stockholder's equity:
Capital stock, par value $1.00 per share-authorized
3,500,000 shares, issued and outstanding
2,500,000 shares 2,500,000 2,500,000
Additional paid-in capital 53,104,000 53,104,000
Net unrealized investment gains (Note 3) 9,066,000 7,324,000
Retained earnings 3,787,000 3,468,000
------------------------------
Total stockholder's equity 68,457,000 66,396,000
------------------------------
Total liabilities and stockholder's equity $553,774,000 $509,851,000
==============================
</TABLE>
See accompanying notes.
55
<PAGE> 56
First Variable Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Revenues:
Annuity and life product charges $ 3,141,000 $ 2,408,000 $ 1,786,000
Net investment income 22,597,000 23,458,000 23,465,000
Realized gains on investments 1,227,000 972,000 900,000
Other income 1,368,000 1,114,000 829,000
---------------------------------------------
Total revenues 28,333,000 27,952,000 26,980,000
Benefits and expenses:
Annuity and life benefits 14,856,000 16,336,000 16,694,000
Underwriting, acquisition and insurance
expenses 9,915,000 7,275,000 6,600,000
Management fee paid to parent 480,000 480,000 480,000
Other expenses 2,610,000 1,421,000 1,269,000
---------------------------------------------
Total benefits and expenses 27,861,000 25,512,000 25,043,000
---------------------------------------------
Income before income taxes 472,000 2,440,000 1,937,000
Income taxes 153,000 836,000 666,000
---------------------------------------------
Net income $ 319,000 $ 1,604,000 $ 1,271,000
=============================================
</TABLE>
See accompanying notes.
56
<PAGE> 57
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
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $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
Net income for 1997 -- -- -- 319,000 319,000
Change in net unrealized
investment gains/losses -- -- 1,742,000 -- 1,742,000
---------------------------------------------------------------------------------
Balance at December 31, 1997 $2,500,000 $53,104,000 $ 9,066,000 $ 3,787,000 $68,457,000
=================================================================================
</TABLE>
See accompanying notes.
57
<PAGE> 58
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 319,000 $ 1,604,000 $ 1,271,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Adjustments related to interest-sensitive
products:
Annuity benefits 14,856,000 16,336,000 16,694,000
Annuity product charges (3,141,000) (2,408,000) (1,786,000)
Realized gains on investments (1,227,000) (972,000) (900,000)
Policy acquisition costs deferred (3,208,000) (2,800,000) (3,693,000)
Amortization of deferred policy acquisition costs 594,000 360,000 132,000
Provision for depreciation and other amortization 937,000 524,000 481,000
Provision for deferred income taxes 153,000 836,000 666,000
Other 3,560,000 (1,949,000) (6,765,000)
-----------------------------------------------
Net cash provided by operating activities 12,843,000 11,531,000 6,100,000
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities-available-for-sale 24,657,000 21,770,000 19,378,000
Equity securities -- -- 1,807,000
-----------------------------------------------
24,657,000 21,770,000 21,185,000
Acquisition of investments:
Fixed maturities-available-for-sale (19,142,000) (7,517,000) (74,567,000)
Equity securities -- -- (1,500,000)
Option contracts (963,000) (94,000) --
-----------------------------------------------
(20,105,000) (7,611,000) (76,067,000)
Policy loans and other (267,000) (193,000) (252,000)
-----------------------------------------------
Net cash provided (used) by investing activities 4,285,000 13,966,000 (55,134,000)
</TABLE>
58
<PAGE> 59
First Variable Life Insurance Company
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Receipts from interest-sensitive products credited
to policyholder account balances $ 64,181,000 $ 58,175,000 $ 67,063,000
Return of policyholder account balances on
interest-sensitive products (80,713,000) (86,824,000) (72,196,000)
Contribution from parent -- -- 5,000,000
--------------------------------------------------
Net cash used in financing activities (16,532,000) (28,649,000) (133,000)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 596,000 (3,152,000) (49,167,000)
Cash and cash equivalents at beginning of year 2,433,000 5,585,000 54,752,000
--------------------------------------------------
Cash and cash equivalents at end of year $ 3,029,000 $ 2,433,000 $ 5,585,000
==================================================
</TABLE>
See accompanying notes.
59
<PAGE> 60
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
First Variable Life Insurance Company (the Company), a life insurance company
domiciled in the State of Arkansas, is a wholly-owned subsidiary of Irish Life
of North America, Inc. (ILoNA), which is owned by Irish Life, plc (Irish Life)
of Dublin, Ireland. The Company is licensed in 49 states and sells variable and
fixed annuity products and variable universal life products through regional
wholesalers and insurance brokers.
CONSOLIDATION
The consolidated financial statements include the Company and its wholly-owned
subsidiaries, First Variable Advisory Services Corp. and First Variable Capital
Services, Inc. All significant intercompany transactions have been eliminated.
INVESTMENTS
Fixed Maturities and Equity Securities
Fixed-maturity securities (bonds) 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, 1997 and 1996, 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.
60
<PAGE> 61
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Option contracts are carried at unamortized premium paid for the contract
adjusted for increases in their intrinsic value from increases in the S&P 500
index.
Policy loans are carried at unpaid principal balances.
Premiums and discounts on investments are amortized/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 designated as available for sale and are
reported at fair value. The change in unrealized gain and loss of equity
securities (net of related deferred income taxes, if any) is included directly
in stockholder's equity.
REALIZED GAINS AND LOSSES ON INVESTMENTS
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows) and a specific write-down is taken. Such
reductions in 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
write-down 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.
61
<PAGE> 62
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE ACQUIRED
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired is an asset that arose at the date the
Company was acquired by ILoNA. The initial value was determined by an actuarial
study using expected future gross profits as a measurement of the net present
value of the insurance acquired. Interest accrues on the current unamortized
balance at 7%.
For variable universal life insurance and investment products, these costs are
being amortized generally in proportion to expected gross profits from surrender
charges and investment, mortality and expense margins. That amortization is
adjusted retrospectively when estimates of current or future gross profits
(including the impact of investment gains and losses) to be realized from a
group of products are revised.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily using the straight-line method over
the estimated useful lives of the assets.
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is being amortized on a straight-line basis over a
period of twenty years.
The carrying value of goodwill is regularly reviewed for indications of
impairment in value which, in the view of management, are other than temporary.
If facts and circumstances suggest that goodwill is impaired, the Company
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 write-downs during the periods
ended December 31, 1997, 1996 or 1995.
62
<PAGE> 63
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE POLICY BENEFITS
Future policy benefit reserves for annuity and variable universal life products
are computed under a retrospective deposit method and represent policy account
balances before applicable surrender charges. Policy benefits and claims that
are charged to expense include benefit claims incurred in the period in excess
of related policy account balances. Interest crediting rates for annuity
products ranged from 4.5% to 6.5% in 1997 and 1996, and 4.5% to 6.8% in 1995.
DEFERRED INCOME TAXES
Deferred income tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the related asset or liability from period to period.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the investment
risk. The separate account assets and liabilities are carried at fair value.
Revenues and expenses related to the separate account assets and liabilities, to
the extent of benefits paid or provided to the separate account policyholders,
are excluded from the amounts reported in the accompanying consolidated
statements of income.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for annuity and variable universal life products consist of policy
charges for the cost of insurance, administration charges and surrender charges
assessed against policyholder account balances during the period. Expenses
related to these products include interest credited to policyholder account
balances and benefit claims incurred in excess of policyholder account balances.
63
<PAGE> 64
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Approximately 42%, 68% and 49% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1997, 1996 and 1995,
respectively, were written through three wholesalers. 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.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (SFAS 130), which is effective for years beginning after December 15,
1997. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 will require that enterprises (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS 130 will not have any impact on the Company's consolidated
results of operations, financial position or cash flows.
64
<PAGE> 65
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.
Option Contracts: The fair values for option contracts are based on
settlement values, quoted market prices of comparable instruments and
fees currently charged to enter into similar loans offered to borrowers
with similar credit ratings. Similar characteristics are aggregated for
the purposes of the calculations.
Equity Securities: The fair values for equity securities are based on
quoted market prices.
Policy Loans and Other Loans Receivable: The Company has not determined
the fair values associated with its policy loans and other loans
receivable as management believes any differences between the Company's
carrying value and the fair values afforded these instruments are
immaterial to the Company's financial position and, accordingly, the cost
to provide such disclosure would exceed the benefit derived. At December
31, 1997, the interest rate related to the outstanding policy loans is
5%.
65
<PAGE> 66
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Cash and Cash Equivalents: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate their fair
values.
Assets and Liabilities of Separate Accounts: Separate account assets and
liabilities are reported at estimated fair value in the Company's
consolidated balance sheets.
Future Policy Benefits for Annuity and Life Products and Supplementary
Contracts Without Life Contingencies: Fair values of the Company's
liabilities under contracts not involving significant mortality or
morbidity risks (principally deferred annuities) are stated at the cost
the Company would incur to extinguish the liability; i.e., the cash
surrender value. The Company is not required to and has not estimated
fair value of its liabilities under other contracts.
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities-
available-for-sale $294,961,000 $294,961,000 $294,195,000 $294,195,000
Option contracts 1,057,000 1,057,000 94,000 94,000
Equity securities 825,000 825,000 691,000 691,000
Policy loans 267,000 267,000 -- --
Cash and cash equivalents 3,029,000 3,029,000 2,433,000 2,433,000
Assets held in separate
accounts 219,807,000 219,807,000 176,306,000 176,306,000
LIABILITIES
Future policy benefits for
annuity and life products 233,988,000 233,988,000 239,509,000 239,562,000
Supplementary contracts
without life
contingencies 21,711,000 21,711,000 21,008,000 21,008,000
Liabilities related to
separate accounts 219,807,000 219,807,000 176,306,000 176,306,000
</TABLE>
66
<PAGE> 67
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,
1997 and 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturities-available-for-sale:
United States Government and agencies:
Mortgage and asset-backed securities $ 24,133,000 $ 730,000 $(283,000) $ 24,580,000
Other 23,546,000 1,391,000 (138,000) 24,799,000
State, municipal and other governments 3,991,000 250,000 -- 4,241,000
Public utilities 69,972,000 8,299,000 (303,000) 77,968,000
Industrial and miscellaneous 152,797,000 10,758,000 (182,000) 163,373,000
---------------------------------------------------------------
Total fixed maturities-available-for-sale $274,439,000 $21,428,000 $(906,000) $294,961,000
===============================================================
Equity securities $ 684,000 $ 141,000 $ -- $ 825,000
===============================================================
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
===============================================================
</TABLE>
67
<PAGE> 68
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 December31, 1997, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
MARKET
AMORTIZED COST VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $ 4,969,000 $ 4,999,000
Due after one year through five years 71,798,000 74,535,000
Due after five years through ten years 97,448,000 104,134,000
Due after ten years 76,091,000 86,713,000
Mortgage and asset-backed securities 24,133,000 24,580,000
-------------------------------
$274,439,000 $294,961,000
===============================
</TABLE>
The unrealized gain or loss 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:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------
<S> <C> <C>
Unrealized appreciation on fixed-maturity and equity
securities available-for-sale $20,663,000 $15,897,000
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs (1,780,000) (1,200,000)
Value of insurance in force acquired (5,157,000) (3,600,000)
Provision for deferred income tax benefit (4,660,000) (3,773,000)
--------------------------
Net unrealized investment gains $ 9,066,000 $ 7,324,000
==========================
</TABLE>
68
<PAGE> 69
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Income from:
Fixed maturities-available-for-sale $22,183,000 $23,364,000 $22,635,000
Cash and cash equivalents 225,000 288,000 1,051,000
Option contracts 474,000 -- --
---------------------------------------------
22,882,000 23,652,000 23,686,000
Less investment expenses (285,000) (194,000) (221,000)
-----------------------------------------------
Net investment income $22,597,000 $23,458,000 $23,465,000
===============================================
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized gain (loss) on investments
are summarized below:
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
REALIZED
Fixed maturities-available-for-sale $1,227,000 $ 972,000 $ 593,000
Equity securities -- -- 307,000
----------------------------------------------
Realized gains on investments $1,227,000 $ 972,000 $ 900,000
UNREALIZED
Fixed maturities-available-for-sale $4,632,000 $(12,756,000) $33,437,000
Equity securities 134,000 369,000 (133,000)
----------------------------------------------
Change in unrealized
appreciation/depreciation of investments $4,766,000 $(12,387,000) $33,304,000
==============================================
</TABLE>
69
<PAGE> 70
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 3l, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
----------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1997
Scheduled principal repayments
and calls $11,636,000 $ 447,000 -- $12,083,000
Sales 11,795,000 851,000 $ (72,000) 12,574,000
----------------------------------------------------------------
Total $23,431,000 $1,298,000 $ (72,000) $24,657,000
================================================================
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
================================================================
December 31, 1995
Scheduled principal repayments
and ca!Is $ 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
================================================================
</TABLE>
Income taxes during the periods ended December 31, 1997, 1996 and 1995 include a
provision of $416,000, $331,000 and $306,000, respectively, for the tax effect
of realized gains.
70
<PAGE> 71
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
OTHER
At December 31, 1997, fixed maturities with a carrying value of $8,281,000 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 3l, 1997.
The Company has acquired call option contracts relating to its equity-indexed
annuity product to hedge increases in the S&P 500 index. The options are
purchased concurrently with the issuance of these annuity contracts and expire,
if not utilized, at the end of the annuities' term. The Company pays, at the
beginning of the option contract, a premium for transferring the risk of
unfavorable changes in the S&P 500 index. The carrying value of the option
contracts is based upon the unamortized premium paid for the contract adjusted
for increases in its intrinsic value from increases in the S&P 500 index. The
carrying value of these contracts was $1,057,000 and $94,000 at December 31,
1997 and 1996, respectively.
CONCENTRATIONS OF CREDIT RISK
The Company's investment in public utility bonds at December 31, 1997 represents
26% of total investments and 14% 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.
71
<PAGE> 72
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. VALUE OF INSURANCE IN FORCE ACQUIRED
The value of insurance in force acquired is an asset that represents the present
value of future profits on business acquired. An analysis of the value of
insurance in force acquired for the periods ended December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
-----------------------------
<S> <C> <C>
Excluding impact on net unrealized investment gains
and losses:
Balance at beginning of period $23,094,000 $23,833,000
Accretion of interest during the period 1,582,000 1,642,000
Amortization of asset (2,580,000) (2,381,000)
-----------------------------
Balance prior to impact of net unrealized investment
gains and losses 22,096,000 23,094,000
Offset against net unrealized investment gains and
losses (5,157,000) (3,600,000)
-----------------------------
Balance at end of period $16,939,000 $19,494,000
=============================
</TABLE>
Amortization of the value of insurance in force acquired for the next five years
ending December 31 is expected to be as follows: 1998-$1,113,000;
1999-$1,280,000; 2000-$1,430,000; 2001-$1,384,000 and 2002-$1,340,000.
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.
72
<PAGE> 73
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Taxes provided in consolidated
statements of income on income
before income taxes-deferred $ 153,000 $ 836,000 $ 666,000
---------------------------------------------
153,000 836,000 666,000
Taxes provided in consolidated
statements of changes in
stockholder's equity:
Amounts attributable to change in
net unrealized investment
gains/losses during year-deferred 897,000 (3,022,000) 8,499,000
---------------------------------------------
$1,050,000 $(2,186,000) $9,165,000
=============================================
</TABLE>
The effective tax rate on income before income taxes is different from the
prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 472,000 $2,440,000 $1,937,000
==========================================
Income tax at federal statutory rate (34%) $ 160,000 $ 830,000 $ 659,000
Tax effect (decrease) off:
Other (7,000) 6,000 7,000
------------------------------------------
Income tax expense $ 153,000 $ 836,000 $ 666,000
==========================================
</TABLE>
73
<PAGE> 74
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 3l, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 1,969,000 $ 1,524,000
Operating loss carryforwards 2,590,000 2,245,000
Other 124,000 20,000
------------------------------
4,683,000 3,789,000
Deferred tax liabilities:
Fixed-maturity and equity securities (5,946,000) (4,702,000)
Deferred policy acquisition costs (2,523,000) (1,908,000)
Value of insurance in force acquired (2,533,000) (2,453,000)
Other (373,000) (368,000)
------------------------------
(11,375,000) (9,431,000)
------------------------------
Deferred income tax liability $ (6,692,000) $(5,642,000)
==============================
</TABLE>
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $7,619,000 at December 31, 1997 which expire from
2009 to 2012.
6. RETIREMENT AND COMPENSATION PLANS
Substantially all full-time employees of the Company are covered by a
non-contributory 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, 1997, 1996 or 1995.
74
<PAGE> 75
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
Employees of the Company also are eligible to participate in a contributory
defined contribution plan sponsored by ILoNA which is qualified under section
401(k) of the 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 1997) 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 $37,000, $27,000 and $24,000 for the
periods ended December 31, 1997, 1996 and 1995, respectively.
The Company also has certain other benefit and incentive plans. These plans are
considered immaterial to the consolidated financial statements.
7. STOCKHOLDER'S EQUITY
STATUTORY LIMITATIONS ON DIVIDENDS
The ability of the Company to pay dividends to ILoNA is restricted because prior
approval of insurance regulatory authorities is normally required for payment of
dividends to the stockholder which exceed an annual limitation. During 1998,
this annual limitation aggregates $3,360,000; 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 ($34,900,000 at
December 31, 1997) 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
75
<PAGE> 76
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCKHOLDER'S EQUITY (CONTINUED)
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
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 $1,240,000, $1,507,000 and $1,460,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Total statutory capital and
surplus was $33,556,000 at December 31, 1997 and $33,096,000 at December 31,
1996.
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 1998, 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.
76
<PAGE> 77
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. COMMITMENTS AND CONTINGENCIES
The Company leases its home office space and certain other equipment under
operating leases which expire through 2001. During the periods ended
December 31, 1997, 1996 and 1995, rent expense totaled $228,000, $206,000 and
$419,000, respectively. At December 31, 1997, minimum rental payments due under
all noncancelable operating leases with initial terms of one year or more are:
<TABLE>
<S> <C>
Year ending December 31:
1998 $230,000
1999 238,000
2000 241,000
2001 61,000
--------
$770,000
========
</TABLE>
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, 1997 and 1996, the Company has accrued $0 and $180,000,
respectively, for guaranty fund assessments based on its historical experience
and information available from those making guaranty fund assessments.
9. RELOCATION OF COMPANY
In December 1997, management decided to relocate the operations of the Company
from Boston to Illinois. As a result, at December 31, 1997, the Company accrued
a liability of $1,200,000, which relates to benefits for involuntarily
terminated employees, and certain other costs, including office and other lease
cancellations and write-down of furniture and equipment. The relocation is
expected to be completed by June 1998.
77
<PAGE> 78
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. YEAR 2000 ISSUES (UNAUDITED)
Like other financial and business organizations around the world, the Company
could be adversely affected if its computer systems and those of its service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The Company has completed an assessment of
the Year 2000 impact on its systems, procedures, customers and business
processes. At December 31, 1997, management is satisfied that their main
operating systems are Year 2000 compliant. The Company is reviewing its general
office systems and will be contacting its service providers during 1998. The
Company believes it will complete the Year 2000 project not later than
December 31, 1998, which is prior to any anticipated impact on its operating
systems.
The date on which the Company believes it will complete the Year 2000 project is
based on management's best estimates. Although there can be no guarantee that
these estimates will be achieved, management does not at this time believe that
actual results will differ materially from those anticipated. Specific factors
that might cause such material differences would most likely result from the
Company's service providers.
78
<PAGE> 79
PART C
78
<PAGE> 80
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, Liabilities and Contract Owners' Equity.
3. Statement of Operations.
4. Statements of Changes in Contract Owners' Equity.
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 Statements of Changes in Stockholder's Equity
5. Consolidated Statements of Cash Flows.
6. Notes to Consolidated 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 * *
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract *
5. Application for Variable Annuity *
80
<PAGE> 81
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). Consent of Arnold R. Bergman, Vice President, Genera Counsel
and Secretary, 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
15. Powers of Attorney # # - of the following individuals appointing
John M. Soukup or Arnold R. Bergman their attorney-in-fact to act
for them in their capacities as Directors of the Company or
otherwise, to do all things necessary to comply with the provisions
and intent of the Securities Act of 1933 and the Investment Company
Act of 1940 with respect to variable life insurance policies and
variable annuity contracts:
Ronald M. Butkiewicz Shane W. Gleeson Kenneth R. Meyer
Michael J. Corey T. David Kingston Philip R. O'Connor
Michael R. Ferrari Jeff S. Liebmann Stephen Shone
- ----------
* Filed herewith.
** Incorporated by reference to the Pre-Effective Amendment No. 1 to the Form
S-6 Registration Statement of First Variable Life Insurance Company
Separate Account VL, filed electronically with the Securities and Exchange
Commission on November 15, 1996 (File No. 333-05053).
*** Incorporated by reference to the Post-Effective Amendment No. 4 to the
Form N-4 Registration Statement of First Variable Life Insurance Company
Annuity Fund E, filed electronically with the Securities and Exchange
Commission on or about April 27, 1998 (File Nos. 33-86738, 811-4092).
# Incorporated by reference to the Form N-4 Registration Statement of First
Variable Life Insurance Company Annuity Fund E, filed electronically with
the Securities and Exchange Commission on September 14, 1996 (File Nos.
333-12197, 811-4092).
## Incorporated by reference to the Post-Effective Amendment No. 1 to the
Form S-6 Registration Statement of First Variable Life Insurance Company
Separate Account VL, filed electronically with the Securities and Exchange
Commission on or about April 27, 1998 (Registration No. 333-19193).
81
<PAGE> 82
ITEM 25. OFFICERS AND DIRECTORS OF DEPOSITOR
The following are the Officers and Directors of the Company.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the
Business Address Depositor
- ---------------- ---------
<S> <C>
Ronald M. Butkiewicz Chairman and Director
2211 York Road, Suite 202
Oak Brook, IL 60523
John M. Soukup President and Director
2122 York Road
Oak Brook, IL 60523
Michael J. Corey Director
401 East Host Drive
Lake Geneva, WI 53147
Michael R. Ferrari Director
25th & University Avenue
Des Moines, IA 50311
Shane W. Gleeson Director
2211 York Road
Oak Brook, IL 60523
Stephan Shone Director
Lower Abbey Street
Dublin 1, Ireland
T. David Kingston Director
Lower Abbey Street
Dublin 1, Ireland
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
Oak Brook, IL 60523
Arnold R. Bergman Vice President, General
2122 York Road Counsel and Secretary
Oak Brook, IL 60523
Christopher Harden Vice President and Treasurer
2122 York Road
Oak Brook, IL 60523
</TABLE>
82
<PAGE> 83
<TABLE>
<S> <C>
Martin Sheerin Vice President and Chief Actuary
2122 York Road
Oak Brook, IL 60523
Thomas Gualdoni Vice President - Sales
2122 York Road
Oak Brook, IL 60523
Constance Graves Assistant Vice President and Assistant
10 Post Office Square Controller
Boston, MA 02109
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE DEPOSITOR OR REGISTRANT.
Incorporated by reference to the Post-Effective Amendment No. 4 to the Form N-4
Registration Statement of FirstVariable Life Insurance Company Annuity Fund E as
filed electronically with the Securities and Exchange Commission on or about
April 27, 1998. (File Nos. 33-86738 and 811-4092).
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1998, there were no Owners of Non-Qualified Contracts and 275
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:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
- ----------------------------------- --------------------------------------
<S> <C>
Norman A. Fair Director
2211 York Road, Suite 202
Oak Brook, IL 60523
John M. Soukup President and Director
</TABLE>
83
<PAGE> 84
<TABLE>
<S> <C>
2122 York Road
Oak Brook, IL 60523
Arnold R. Bergman Secretary and Director
2122 York Road
Oak Brook, IL 60523
Constance Graves Assistant Treasurer
10 Post Office Square
Boston, MA 02109
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Christopher Harden and Arnold R. Bergman, who are located at 2122 York Road, Oak
Brook, IL 60523, 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 contracts 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.
84
<PAGE> 85
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter issued
to the American Council of Life Insurance dated November 28, 1988 (Commission
ref. IP-6-88) and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions imposed
by Section 403(b)(11) in each registration statement, including the prospectus,
used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions imposed
by Section 403(b) (11) in any sales literature used in connection with the offer
of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant understanding of (1) the restriction on redemption
imposed by Section 403(b)(11), and (2) other investment alternatives available
under the employer's Section 403(b) arrangement to which the participant may
elect to transfer his contract value.
85
<PAGE> 86
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 29th day of April,
1998.
FIRST VARIABLE ANNUITY FUND A
(Registrant)
By: FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John M. Soukup
------------------------------------
John M. Soukup, President
FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: John M. Soukup
------------------------------------
John M. Soukup, President
86
<PAGE> 87
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ronald M. Butkiewicz* Chairman & Director April 29, 1997
- ---------------------------
Ronald M. Butkiewicz
/s/ Michael J. Corey* Director April 29, 1997
- ---------------------------
Michael J. Corey
/s/ Michael R. Ferrari* Director April 29, 1997
- ---------------------------
Michael R. Ferrari
/s/ Shane W. Gleeson* Director April 29, 1997
- ---------------------------
Shane W. Gleeson
/s/ Stephen Shone* Director April 29, 1997
- ---------------------------
Stephen Shone
/s/ John M. Soukup President and Director April 29, 1997
- ---------------------------
John M. Soukup
/s/ T. David Kingston* Director April 29, 1997
- ---------------------------
T. David Kingston
/s/ Jeff S. Liebmann* Director April 29, 1997
- ---------------------------
Jeff S. Liebmann
/s/ Kenneth R. Meyer* Director April 29, 1997
- ---------------------------
Kenneth R. Meyer
/s/ Philip R. O'Connor* Director April 29, 1997
- ---------------------------
Philip R. O'Connor
/s/ Norman A. Fair Director and Principle April 29, 1997
- --------------------------- Accounting Officer
Norman A. Fair
*By Power of Attorney
/s/ Arnold R. Bergman
------------------------
Arnold R. Bergman
</TABLE>
87
<PAGE> 88
INDEX TO EXHIBITS
EXHIBIT NO.
EX-99.B1 Resolution of Board of Directors for the Company
authorizing the establishment of the Separate Account
EX-99.B4 Individual Flexible Purchase Payment Deferred Variable
Annuity Contract
EX-99.B5 Application for Variable Annuity
EX-99.B9(a) Consent of Arnold R. Bergman, Vice President, General
Counsel and Secretary, 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
88
<PAGE> 1
EX-99.B1
Resolution of Board of Directors for the Company
authorizing the establishment of the Separate Account
89
<PAGE> 2
FIRST VARIABLE LIFE INSURANCE COMPANY
Certificate of Secretary
I, Arnold R. Bergman, hereby depose and certify as follows:
1. That I am the duly elected Secretary of First Variable Life Insurance
Company;
2. That the following is a true and correct excerpt of a resolution duly
adopted by the Board of Directors of First Variable Life Insurance Company
on June 24, 1968:
RESOLVED, that a separate account to be known as the United Variable
Annuity Fund A, be and the same hereby is established as of July 1, 1968,
for the purpose of holding separate from other funds and assets of the
corporation premiums or other funds received from the sale of all variable
annuity contracts issued by United Variable Annuity Life Insurance Company
until such time as a second separate account is established, and to hold
the proceeds of investment of such funds; and all of such funds in the
separate account shall be held and applied exclusively for the benefit of
the holders or beneficiaries of those variable annuity contracts and shall
not be chargeable with liabilities arising out of any other business of
United Variable Annuity Life Insurance Company; and the President of the
corporation be and the same hereby is authorized to take such action as he
deems necessary to establish accounts and deposits for such United
Variable Annuity Fund A separate and apart from other assets of the
Company; a and such United Variable Annuity Fund A shall be administered
in accordance with the following Rules and Regulations, which Rules and
Regulations shall govern the operation of the Fund until such time as the
Rules and Regulations are amended in accordance with the terms thereof,
and the following persons shall comprise the initial Board of Managers of
the Fund:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Lee Bodenhamer 138 Summer Street
Weston, Massachusetts
W. Curtis Shipley 1132 East Ridgeway
Fayetteville, Arkansas
William G. Underwood 818 Broadview
Fayetteville, Arkansas
* * * *
</TABLE>
In Witness Whereof, I, the Secretary of said First Variable Life Insurance
Company, has hereunto set my hand and affixed the seal of said insurer on this
the 17th day of April, 1998.
SEAL
/s/ Arnold R. Bergman
----------------------------
Arnold R. Bergman, Secretary
90
<PAGE> 1
EX-99.B4
Individual Flexible Purchase Payment Deferred Variable Annuity Contract
91
<PAGE> 2
FIRST VARIABLE LIFE INSURANCE COMPANY
PLAZA WEST BUILDING * MCKINLEY AND LEE STREETS
LITTLE ROCK, ARKANSAS 72205
(501) 661-1500
First Variable Life Insurance Company ("We") will pay a monthly annuity income
to the Annuitant ("You"), if you are living on the Annuity Commencement Date.
The manner in which the dollar amounts of annuity payments are determined is
described in this Policy. The first annuity payment will be made on the Annuity
Commencement Date. Subsequent payments will be made on the corresponding day of
each month thereafter in accordance with the Annuity Option selected.
RIGHT TO RETURN POLICY - Please read this Policy. If not satisfied with it, the
Owner may, within 10 days after receipt, return it by delivering or mailing it
to the Home Office address indicated above. Within seven days of receipt of this
Policy and a written notice by Owner we will issue a refund. Unless the
applicable law requires a refund of Purchase Payments, we will refund the
Purchase Payments plus any increase or minus any decrease in the value of this
Policy attributable to the Purchase Payments.
This Policy is issued in consideration of the Application and the receipt of the
first Purchase Payment. The terms and conditions set forth in the subsequent
pages are part of this Policy.
EXECUTED AT THE HOME OFFICE OF THE COMPANY ON THE DATE OF ISSUE.
/s/ Don R. Skelton /s/ Vivian Joiner
- ------------------------------- -------------------------------
President Secretary
-------------------------------
Registrar
ANNUITY PAYMENTS, WITHDRAWAL VALUES AND THE DEATH BENEFITS PROVIDED BY THIS
POLICY, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE
AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
INDIVIDUAL DEFERRED VARIABLE ANNUITY POLICY
FLEXIBLE PURCHASE PAYMENTS - NO PARTICIPATING
92
<PAGE> 3
THIS IS A LEGAL CONTRACT
BETWEEN THE POLICY OWNER AND THE COMPANY.
READ YOUR POLICY CAREFULLY.
INTRODUCTION - This Policy is issued on your life as the Annuitant. You are also
the Owner of this Policy unless another Owner has been named in the Application.
The Owner is shown in Policy Schedule 1. If someone else is named as Owner, that
person has the rights and options described in this Policy.
IMPORTANT NOTICE - It is not necessary to employ any person to collect any
payment or benefit provided by this Policy. When you require help or advice, you
may write directly to us at our Home Office address. This Policy contains many
benefits. In your own best interest, you should consult with us if anyone
advises you to withdraw from or surrender this Policy or to replace it with a
new Policy.
NOTE
A copy of the application for this Policy is attached. Please examine this copy
carefully and if any errors or omissions are found, send this information
immediately with the Policy number to us at our Home Office address.
First Variable Life Insurance Company is a stock life insurance company,
incorporated under the Laws of the State of Arkansas, with its Home Office at
Little Rock, Arkansas.
93
<PAGE> 4
TABLE OF CONTENTS
Policy Schedule 1 -------------------------------------------------
Policy Schedule 2--------------------------------------------------
Policy Schedule 3--------------------------------------------------
Definitions--------------------------------------------------------
The Separate Account-----------------------------------------------
Purchase Payments--------------------------------------------------
Policy Values During Accumulation Period---------------------------
Withdrawals and Termination Charges--------------------------------
Death Benefit------------------------------------------------------
Annuity Provisions-------------------------------------------------
Ownership Provisions-----------------------------------------------
Beneficiary Designation--------------------------------------------
General Provisions-------------------------------------------------
Annuity Tables-----------------------------------------------------
Copy of the Application and any Endorsements follow page 19
POLICY SCHEDULE 1
Owner, Owner's Beneficiary and Annuitant's Beneficiary are as stated in the
Application for this Policy unless subsequently changed in accordance with its
provisions.
Annuitant: John Doe
Annuity Commencement Date: April 1, 2017
Policy Type: AR Deferred Compensation
<TABLE>
<S> <C> <C> <C>
Purchase Payment: $ 100,000.00 Policy Number: Specimen
Less:
Policy Issuance Fee: $ .00 Issue Date: April 1, 1987
Premium Tax: $ .00
Sales Charge $ 2,500.00 Issue Age: 35
Net Purchase Payment: $ 97,500-00
</TABLE>
Investment Division Allocation Information:
Maximum number of divisions at any one time: 5
Maximum number of allocation changes per Policy Year: 5
<TABLE>
Allocation of Net Purchase Payment on the Issue Date is as follows:
<S> <C> <C> <C>
Cash Management $24,375 Common Stock $ 9,750
U.S. Gov't & High Qual. Bond $19,500 Real Estate $19,500
High Yield Bond $24,375 Total $97,500
</TABLE>
When applicable law permits the Owner to return the Policy and receive a refund
equal to the Purchase Payment, the initial Net Purchase Payment will be invested
in a cash management Investment Division described in a prospectus of the
Separate Account for the period ending five days after the last day on which any
right to cancel the Policy exists.
94
<PAGE> 5
Policy Schedule 2
CHARGES AND FEES FOR THIS POLICY
Basic Policy Charges and Fees
<TABLE>
<S> <C> <C>
Sales Charge: Arkansas Deferred Compensation 2.5%
Tax Deferred Annuities 5.0%
Separately Administered Plans- 0%
All other Plans 7.0%
Policy Issuance Fee Arkansas Deferred Compensation $ 0
Separately Administered Plans $25
All other Plans $ 0
Purchase Payment Separately Administered Plans - $ 5
Processing Fee - All other Plans $ 0
</TABLE>
Charges Deducted from Investment Divisions
Asset Charge: Daily charge equivalent to 1.00% annually deducted from all
divisions.
Termination Charge
<TABLE>
<S> <C>
Arkansas Deferred Compensation Plan and
Separately Administered Plans 2% of the amount if any Accumulation Value:
(a) partially withdrawn for transfer
to any funding medium which is
not issued or maintained by First
Variable or its affiliates; or
(b) totally withdrawn to effect
a plan termination
All other Plans 0%
</TABLE>
The cumulative total of all Termination Charges is guaranteed never to exceed 5%
of total Purchase Payments under this Policy.
95
<PAGE> 6
DEFINITIONS
ACCUMULATION PERIOD: The period during which Purchase Payments maybe made and
prior to the Annuity Commencement Date.
ACCUMULATION UNIT: A unit of measure used in the calculation of the Accumulation
Value of each Investment Division of the Separate Account. This Policy provides
only for variable Accumulation Units.
ACCUMULATION VALUE: The Accumulation Value on any given date is the dollar value
of this Policy. It is the sum of the Accumulation Values in each of the
Investment Divisions.
ADJUSTED VALUE: The dollar amount applied under one of the Annuity Options.
ANNUITANT: The person named in the Application and on whose life the first
Annuity Payment is to be made. All references to "you" or "your" refer to the
Annuitant.
ANNUITANT'S BENEFICIARY: The person, persons or entity who has the right to the
Death Benefit set forth in this Policy upon your death. The Annuitant's
Beneficiary is as specified in the Application, unless changed.
ANNUITY COMMENCEMENT DATE: The Date on 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. There are two types of Annuity payments: Variable Annuity Payments and
Fixed Annuity Payments.
ANNUITY PERIOD: The period after the Annuity Commencement Date and 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.
ASSUMED INVESTMENT RATE: The rate used to determine the first monthly Annuity
Payment per thousand dollars of Adjusted Value.
FIXED ACCOUNT: All of our assets other than those allocated to a separate
account of the Company. Annuity Payments from the Fixed Account are Fixed
Annuities.
FIXED ANNUITY: An annuity with payments which do not vary as to the investment
experience of any separate account of the Company.
HOME OFFICE: Our executive and administrative headquarters at Plaza West
Building, McKinley and Lee Streets, Little Rock, Arkansas 72205. All references
to "we", "us", "our" and "ours" refer to First Variable Life Insurance Company.
INVESTMENT DIVISION: The Separate Account is divided into Investment Divisions.
Each Investment Division invests in a designated investment portfolio as
described in the prospectus of the Separate Account. The initial Investment
Division selections made in the application are specified in Policy Schedule 1.
These selections may be changed from time to time as specified in the Policy.
NON-QUALIFIED POLICY: A Policy which does not qualify for favorable tax
treatment under Sections 401, 403, 408 or 457 of the Internal Revenue Code of
1986, as amended ("Code").
OWNER: The person, persons or entity entitled to the ownership rights stated in
this Policy and in whose name this Policy is issued. You are the Owner unless
another Owner in named in the Application. The Owner is specified in the
Application, unless changed. If a Policy is owned jointly, rights and privileges
under this Policy must be
96
<PAGE> 7
exercised by each Owner. Even if another Owner is named in the Application, you
become the Owner on the Annuity Commencement Date.
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 this Policy upon the death of the Owner prior to the
Annuity Commencement Date; provided, however, that if such person is the Owner's
spouse, the spouse may keep this Policy in force and will become the Owner
pursuant to the terms of this Policy.
PAYEE: The recipient of Annuity Payments under this Policy. The Payee may be you
or a beneficiary who becomes entitled to Death Benefits.
POLICY ISSUANCE FEE: A fee which may be assessed to the initial Purchase
Payment.
POLICY YEAR: The first Policy Year shall be the period of twelve months from the
Issue Date. Subsequent Policy Years shall end on the same date in each
succeeding year.
PROCESSING FEE: A dollar charge which may be assessed to each Purchase Payment.
PURCHASE PAYMENT: An amount paid to us to provide benefits under this Policy.
QUALIFIED POLICY: A Policy used in connection with a retirement plan which
receives favorable federal income tax treatment under Sections 401, 403, 408 or
457 of the Code.
SALES CHARGE: A percentage charge which may be assessed to each Purchase
Payment.
SERVICE CENTER: Our administrative and policy owners' service headquarters at
Monarch Service Company, Post Office Box 9033, Springfield, Massachusetts
01102-9033
TAXES: Taxes which must be paid by us as a result of the issue, maintenance,
surrender or annuitization of this Policy.
TERMINATION CHARGE: The charge assessed against certain withdrawals of
Accumulation Units.
VALUATION PERIOD: The Valuation Period is each business day together with any
non-business days before it. A business day is any day the New York Stock
Exchange (NYSE) is open for trading, or any day in which the Securities and
Exchange Commission (SEC) requires that the Separate Account be valued.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of the Investment Divisions into which
the Adjusted Value is allocated.
97
<PAGE> 8
THE SEPARATE ACCOUNT
GENERAL - The benefits under this Policy are provided through investments we
make in the Separate Account, First Variable Annuity Fund A. This account is
kept separate from our general account and any other separate accounts we may
have. It is used to support variable annuity policies and may be used for other
purposes permitted by applicable laws and regulations. We own the assets in the
Separate Account. Assets equal to the reserves and other liabilities of the
account will not be charged with liabilities that arise from any other business
we conduct. We may transfer to our general account assets which exceed the
reserves and other liabilities of the Separate Account.
The Separate Account invests in mutual funds, unit investment trusts and other
investment portfolios which we determine to be suitable fro this Policy's
purposes. The Separate Account is treated as a unit investment trust under
Federal securities laws. It is registered with the Securities and Exchange
Commission (SEC) under the Investment Company Act of 1940.
The Separate Account is also governed by state laws of Arkansas, our state of
domicile. Income, realized and unrealized gains or losses from assets in the
Separate Account are credited to or charged against the account without regard
to other income, gains or losses in our other accounts.
INVESTMENT DIVISIONS - The Separate Account is divided into Investment
Divisions. Each Investment Division invests in a designated investment portfolio
described in the prospectus of the Separate Account and managed by the
investment advisers named in the prospectus. Such adviser must be registered
under the Investment Advisers Act of 1940. Each Investment Division will be
valued at the end of each Valuation Period.
SEPARATE ACCOUNT CHANGES - We may from time to time make additional Investment
Divisions available to you. These divisions will invest in investment portfolios
we find suitable for this Policy. We also have the right to eliminate Investment
Divisions from the Separate Account, to combine two or more Investment
Divisions, or to substitute a new portfolio for the portfolio in which an
Investment Division invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of this Policy. This may
happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment or for some other reason. We would get prior approval
from the Insurance Department of our state of domicile before making such a
substitution. We would also get prior approval from the SEC and any other
required approvals before making such a substitution.
When permitted by law we reserve the right to:
- deregister the Separate Account under the Investment Company Act of 1940
when registration of the Separate Account is no longer required;
- operate the Separate Account as a management company under the
Investment Company Act of 1940;
- restrict or eliminate any voting rights of policy owners, or other persons
who have voting rights in the Separate Account; and
- combine the Separate Account with other separate accounts.
RIGHT TO EXCHANGE POLICY - The Owner may exchange this Policy without
Termination Charges for another of our policies that is approved for sale at the
time of the exchange with benefits that do not vary with the investment results
of a separate account if.-
- there is a change in an investment adviser of any portfolio in which this
Policy holds Accumulation Units; or
- there is a material change in the investment objectives or restrictions
of any portfolio in which the Investment Divisions invest, and in which this
Policy holds accumulation Units.
We will notify the Owner if there is any such change. The Owner will be able to
exchange this Policy within 60 days after our notice or the effective date of
the change, whichever is later.
98
<PAGE> 9
PURCHASE PAYMENTS
PAYMENTS - The minimum amount of each Purchase Payment is $50 or, if paid on a
regular periodic basis, at least $300 per year. All Purchase Payments are to be
paid to us at our Service Center address. Purchase Payments may be made at any
time while this policy continues in full force prior to the Annuity Commencement
Date.
POLICY CONTINUATION - This Policy shall automatically be continued in full force
in accordance with its terms without additional Purchase Payments until the
earliest to occur of the following events:
(1) your death,
(2) the death of the Owner,
(3) withdrawal(s) to the extent that the Accumulation Value falls below one
of the minimums stated in Policy section "Withdrawals and Termination
Charges", or
(4) the Annuity Commencement Date.
NET PURCHASE PAYMENTS AND THEIR ALLOCATION - The "Net Purchase Payment" is that
portion of a Purchase Payment which remains after the deduction of any
applicable charges, taxes and fees. Each Net Purchase Payment will be allocated
to the Investment Divisions of the Separate Account as specified in the
Application or as specified in a form satisfactory to us signed by the Owner.
POLICY VALUES DURING THE ACCUMULATION PERIOD
CREDITING ACCUMULATION UNITS - Each Net Purchase Payment will be credited to the
specified Investment Divisions in the form of Accumulation Units. The number of
Accumulation Units to be credited to a specified Investment Division is
determined by dividing the dollar amount allocated to such division by the
Accumulation Unit value next computed for such division following acceptance for
investment of the allocated amount by the investment portfolio in which the
Investment Division invests.
ACCUMULATION UNIT VALUE - The value of an Accumulation Unit in 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 (see definition below) for the period since that date.
Since the purchaser bears the investment risk, there is no guarantee as to the
aggregate value of this Policy; such value may be less than, equal to or more
than the amounts allocated to the Investment Divisions.
NET INVESTMENT FACTOR - The Net Investment Factor is a value which indicates the
percentage change in the net asset value of an Investment Division since the
preceding Valuation Date.
The Net Investment Factor is computed in three steps:
First, the gross investment rate is equal to: (a) the total value of cash
dividends received or accrued during the Valuation Period by such Investment
Division, plus (b) any capital gains minus capital losses in such Investment
Division during the Valuation Period whether realized or unrealized, minus (c)
the sum of (i) provision for applicable taxes (none of which are anticipated)
arising from (a) or (b) above and (ii) accrued expense of safekeeping, audit,
actuarial, legal fees and interest; all divided by the value of the Investment
Division at the beginning of the Valuation Period.
Such rate may be positive or negative.
Second, the net investment rate for the Valuation Period is then determined by
deducting from the gross investment rate a factor equivalent to 1.00% on an
annual basis. This factor represents deductions made by us of (a) charges
equivalent to approximately 0.40%, on an annual basis, of the value of such
Investment Division for administrative expense risks; and (b) charges equivalent
to approximately 0.60%, on an annual basis, of the value of such Investment
Division for mortality expense risks.
Third, the Net Investment F actor for the Valuation Period is then calculated at
1.000000 plus the net investment rate for the period.
Since the net investment rate may be negative, the Net Investment Factor may be
less than 1.000000, and the value of an Accumulation Unit may be less than the
value on the previous Valuation Date.
99
<PAGE> 10
ACCUMULATION VALUE - The Accumulation Value in an Investment Division at the end
of any Valuation Period is determined by multiplying the Accumulation Unit value
of such Investment Division on that date by the number of Accumulation Units
credited to this Policy in such Investment Divisions. The total Accumulation
Value of this Policy is the sum of the Accumulation Values credited to this
Policy in each of the Investment Divisions. The Owner selects the divisions to
which to allocate the total Accumulation Value. The maximum number of divisions
to which the total Accumulation Value may be allocated at any time is shown in
Policy Schedule 1. The total Accumulation Value may be reduced by the amount of
any applicable Taxes for which no previous deduction has been made.
EXCHANGES BETWEEN INVESTMENT DIVISIONS
EXCHANGE OF VARIABLE ACCUMULATION UNITS - Before the Annuity Commencement date
the Owner may, by filing a written request with us, exchange the value of a
designated number of Accumulation Units of a particular Investment Division then
credited to this Policy for other Accumulation Units of an equal dollar value of
another Investment Division. No more than five (5) exchanges may be made within
each Policy Year.
DETERMINATION OF ACCUMULATION UNIT VALUES UPON EXCHANGE: Upon our receipt of a
request for any exchange, 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 first subsequent Valuation
Period during which the underlying investment portfolio of such Investment
Division accepts orders for redemption of shares relating to such exchange. Upon
our 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 or, if later, at the underlying portfolio of the
Investment Division to which the exchange is made accepts order for purchases of
shares relating to such exchange
The Accumulation Unit Value on exchange may also be affected by the requirement
of the underlying portfolio of the Investment Division to which an exchange is
made, relating to the form and time of receipt of funds with which to effect
such exchange
CHARGE TO SEPARATE ACCOUNT - To compensate us for assuming mortality and
administrative expense risks under this Policy, the Separate Account will incur
a daily charge at an annualized rate of 1.00% of the average daily net asset
value of the Separate Account.
We estimate that, of this charge, approximately 0.60% is for the assumption of
mortality risks and approximately 0.40% is for administrative expense risks. The
charge is guaranteed and may not be increased by us.
CHARGE FOR TAXES - Various jurisdictions impose taxes on annuity premiums or net
income received by life insurance companies. We may charge this Policy for the
amount of any tax levied at the time Purchase Payments are received, or, if not
previously deducted, as follows: (i) at the Annuity Commencement Date; (ii) in
the event of your death or the Owner's death prior to the Annuity Commencement
Date; (iii) in the event of a partial or total withdrawal, or (iv) when payable
by us.
WITHDRAWALS AND TERMINATION CHARGES
WITHDRAWALS - At any time before the Annuity Commencement Date and during your
lifetime, the Owner may elect to receive a cash withdrawal from this Policy by
filing with us at our Service Center a written election in such form as we may
require. This Policy must be returned to us before a total withdrawal can be
made.
WITHDRAWAL VALUE - A cash withdrawal may be either an amount equal to the total
Accumulation Value of this Policy at the end of the Valuation Period during
which the election becomes effective, less Taxes which have not yet been
deducted and any Termination Charge, as stated in Policy Schedule 2 (a "total
withdrawal"), or a lesser amount (a "partial withdrawal"). If a partial
withdrawal is requested which would leave an Accumulation Value of less than the
sum of Taxes which have not yet been deducted, and any Termination Charge then
such partial withdrawal will be treated as a total withdrawal. If the
Accumulation Value of this Policy after any withdrawal falls below $500, this
Policy may, at our option, be automatically surrendered and the Accumulation
Value less any applicable charges will be paid to the Owner. Any partial
withdrawal is subject to a $500 minimum.
100
<PAGE> 11
Any withdrawal will result in the cancellation of Accumulation Units with an
aggregate value equal to the dollar amount of the withdrawal payment plus, if
applicable, Taxes, and any Termination Charge. Any withdrawal will be paid
within seven days from the date the election becomes effective, except as we may
be permitted to defer such payment in accordance with the Investment Company Act
of 1940.
It is assumed that the earliest Purchase Payments are withdrawn first.
DEATH BENEFIT
DEATH BENEFIT PROVIDED BY THIS POLICY - you are not the owner and the Owner dies
while this policy is in effect, while you are living and before the Annuity
Commencement Date, we will pay a Death Benefit to the Owner's Beneficiary upon
receipt of due proof of death of the Owner. If there is no Owner's Beneficiary
living on the date 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 Owners
Beneficiary, the spouse may elect to keep this Policy in effect and become the
new Owner. If you are 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 of your rights cease upon the Owner's death.
If you (other than when you are also the Owner or are deemed to be the Owner for
certain nonqualified policies for the purposes of the Code) die while this
Policy is in effect, while the Owner is living and before the Annuity
Commencement Date we will pay a Death Benefit upon receipt of due proof of your
death to the Annuitant's Beneficiary, either in a lump sum or under one of the
Annuity Options elected or automatically placed in effect. If there is no
Annuitant's Beneficiary living on the date of your death, we will pay the Death
Benefit upon receipt of due proof of death of both you and the Annuitant's
Beneficiary in a lump sum to the Owner.
When you are both the Owner and the Annuitant, any Death Benefits will be
payable to the Annuitant's Beneficiary.
On or after the Annuity Commencement Date, no Death Benefit will be payable
under the Policy except as may be provided under the form of 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.
AMOUNT OF DEATH BENEFIT - If Annuity Payments have not begun, the Death Benefit
is equal to the greater of (a) the total Accumulation Value or (b) the sum of
all Net Purchase Payments made under this Policy, less the sum of all amounts
withdrawn as of the date of receipt at our service center of this Policy and due
proof of death.
OPTIONAL FORMS OF DEATH BENEFIT - During your lifetime and prior to the Annuity
Commencement Date, the Owner may elect to have the Death Benefit of this Policy
applied under one of the Annuity Options to effect a Variable Annuity, a Fixed
Annuity, or a combination of both, for the Annuitant's Beneficiary as Payee
after your death or for the Owner's Beneficiary as Payee after the Death of the
Owner. This election may be made or subsequently revoked by filing with us a
written election or revocation of an election in such forms as we may require.
Any written 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
at our Service Center. If no such election 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 this Policy will be canceled; or (b) to have the Death Benefit
applied under one of the Annuity 0ptions to effect a Variable Annuity, a Fixed
Annuity, or a combination of both. This election may be made by filing with us a
written election in such form as we 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 at our Service Center or (b) the date due
proof of your death is received at our Service Center. If written election is
not received by us within sixty days following the date due proof of death is
received at our 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, a life annuity with 120 monthly payments
certain as of the last day of the sixty day period.
101
<PAGE> 12
PAYMENT OF DEATH BENEFIT - If the Death Benefit is to be paid in one sum to the
Annuitant's Beneficiary or the Owner's Beneficiary, payment will be made within
seven days of the date this Policy and due proof of death is received at our
Service Center, except as we may be permitted to defer such payment in
accordance with the Investment Company Act of 1940. In the event of death of
either the Owner or you 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 us at our Service Center.
ANNUITY PROVISIONS
GENERAL - On the Annuity Commencement Date, the Adjusted Value of this Policy
will be applied, as specified by the Owner, under one of the Annuity Options
provided in this Policy or under such other Annuity Options as may be agreed to
by us. 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. The Owner
selects the divisions to which to allocate the Adjusted Value.
Annuity Payments may begin prior to your 70th birthday, as selected by the
Owner. If no election of an Annuity Commencement Date is made, Annuity Payments
will begin on your 70th birthday.
ADJUSTED VALUE - The Adjusted Value of this Policy is equal to the total
Accumulation Value of this Policy for the Valuation Period which ends
immediately preceding the Annuity Commencement Date, minus any applicable Taxes
not previously deducted.
ELECTION AND EFFECTIVE DATE OF ELECTION - During your lifetime and prior to the
Annuity Commencement Date, the Owner may elect to have the Adjusted Value of
this Policy applied on the Annuity Commencement Date under one of the Annuity
Options provided in this Policy. The Owner may also change any election, but any
election or change must be effective at least thirty days prior to the Annuity
Commencement Date. This election or change may be made by filing with us a
written election or change in such form as we may require. Any such election or
change will become effective on the date it is received at our Service Center.
If no election is in effect on the 30th day prior to the Annuity Commencement
Date, the Adjusted Value of this Policy will be applied under Variable Annuity
Option B, for a Life Annuity with 120 monthly payments certain.
Any such election may specify the proportion of the Adjusted Value of this
Policy to be applied to the Separate Account and the Fixed Account. The election
must 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 this Policy will be applied to the Separate
Account and be allocated to the Cash Management Investment Division included in
the prospectus.
ANNUITY COMMENCEMENT DATE - The Annuity Commencement Date as specified in the
Application may be changed from time to time by the Owner provided that such
change is effective at least thirty days prior to the then-current Annuity
Commencement Date. The new Annuity Commencement Date shall be a date, however,
which is not later than your life expectancy according to US Gov't. tables
measured by your age on the date of the change. Any change of the Annuity
Commencement Date may be made by filing with us a written designation of a new
Annuity Commencement Date in such form as we may require. Any such change will
become effective on the date the designation is received at our Service Center.
The Annuity Commencement Date may also be changed by an election of an Annuity
Option as provided in the section of this Policy entitled "Death Benefit".
FIXED ANNUITY - The dollar amount of each Fixed Annuity Payment shall be
determined in accordance with annuity purchase rates found in this 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 similar fixed annuity policies then
in use by us on the Annuity Commencement Date. Fixed Annuity Payments will not
change regardless of investment, mortality or expense experience.
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<PAGE> 13
VARIABLE ANNUITY - The Owner may elect to allocate all or part of the Adjusted
Value of this Policy to one or more Investment Divisions of the Separate
Account. If such an election is made by the Owner, the amount of annuity
payments will be determined as follows:
On the Annuity Commencement Date, the first monthly annuity payment is equal to
the Adjusted Value divided first by $ 1,000 and then multiplied by the
appropriate monthly annuity payment in the tables on page of this Policy or
their extension to include ages not shown. The amount of the first monthly
Variable Annuity Payment is then allocated to each Investment Division in
proportion to the allocation of the Adjusted Value to each Investment Division
as elected 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 for an
Annuity Unit was established at $10.00 for the first Valuation Period.
On each subsequent annuity payment date, the total annuity payment is the sum of
the annuity payments determined in each Investment Division. The annuity payment
in each Investment Division is determined by multiplying the number of Annuity
Units allocated to said division by the Annuity Unit Value for said division for
the Valuation Period which includes the seventh day prior to the annuity payment
date.
On each subsequent Variable Annuity Payment date, the total Variable Annuity
Payment is the sum of the Variable Annuity Payments determined in each
Investment Division. The Variable Annuity Payments in each Investment Division
is determined by multiplying the number of Annuity Units allocated to said
division for the Valuation Period which includes the seventh day prior to the
Variable Annuity Payment date.
ANNUITY UNIT VALUE - In each Investment Division, the value of an Annuity Unit
on any valuation date is determined by multiplying the value of an Annuity Unit
at the close of the preceding Valuation Period by the product of (a) the Net
Investment Factor for the Valuation Period at the close of which the Annuity
Unit Value is being calculated and (b) a factor determined actuarially to
neutralize the Assumed Investment Rate of 3.5%.
EXCHANGE OF VARIABLE ANNUITY UNITS - After the Annuity Commencement Date the
Payee may, by filing a written request at our Service Center, exchange the value
of a designated number of Variable Annuity Units of particular Investment
Divisions then credited to this Policy for other Variable Annuity Units, the
value of which would be such that the dollar amount of an Variable Annuity
payment made on the date of the exchange would be unaffected by the fact of the
exchange. No more than five (5) exchanges may be made within each Policy Year.
Exchanges will be made using the Annuity Unit values determined in the same
manner as that described previously on Policy section "Determination of
Accumulation Unit Values Upon Exchange.
ANNUITY OPTIONS - The amount applied under each Annuity 0ption 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, we reserve the
right to change the frequency of Annuity Payments so that the minimum is
attained or to discharge its entire remaining obligation by payment of a single
sum to the person who would be entitled to any amount then due.
Option A. Life Annuity: Monthly Annuity Payments during your lifetime.
Option B. Life Annuity with Period: Certain of 60, 120, 180 or 240 moths,
Monthly Annuity Payments during your lifetime and in any event for sixty, one
hundred twenty, one hundred eighty or two hundred forty months certain as
elected.
Option C. Joint and Survivor Annuity: Monthly Annuity Payments payable during
the joint lifetime of you and the designated second person and during the
lifetime of the survivor, at the percentage (either 100%, 75%, 6636%, or 50%)
elected.
Option D. Joint and Contingent Annuity: Monthly Annuity Payments during your
lifetime and continuing during the lifetime of the designated second person
after your death at the percentage (either 100%, 75%, 66 2/3%, or 50%) elected.
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<PAGE> 14
Option E. Fixed Payments for a Period Certain: Fixed monthly Annuity Payments
for any specified period (at least five years but not exceeding thirty 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. Annuity Option E is available on a Fixed
Annuity basis only. "Fixed Payments for a Period Certain" do not involve a life
contingency even though a mortality risk charge is assessed against an
individual's Policy value.
AMOUNTS PAYABLE ON DEATH OF PAYEE - In the event of the death of a Payee on or
after the Annuity Commencement Date, and prior to the expiration of a certain
period, if any, the annuity payments for the remainder of such certain period
will be paid (a) to the Annuitant's Beneficiary as such payments come due; or
(b) if there is no designated beneficiary then living, to the estate of the
deceased payee in a lump sum equal to the commuted value of such payments. All
payments made in one sum by us as provided in this paragraph are made in lieu of
paying any remaining Annuity Payments under any Annuity Option then in effect.
For 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 of each payment. For Variable Annuity Payments, this
calculation will also be based on the assumption 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 this value will remain unchanged thereafter.
COMMUTATION - Except as provided above, there shall be no right to receive,
after Annuity Payments have begun, the amount available for Annuity Payments in
a manner other than that specified in the Annuity Option placed in effect.
ANNUITY PURCHASE RATES - The annuity purchase rates on page show, for each $
1,000 applied, the dollar amount of both (a) the first monthly Variable Annuity
Payment based on the Assumed Investment Rate of 3.5% and (b) the monthly Fixed
Annuity Payment when this payment is based on the minimum guaranteed interest
rate of 3.5% per year.
The mortality table used in determining the annuity purchase rates for Options
A, B, C and D is the 1983 Blended Individual Annuity morality table with 60%
female and 40% male lives and a pivotal age of 55. In using this mortality
table, ages of annuitants will be reduced by one year for Annuity Commencement
Dates occurring during the 1990s, reduced two years for Annuity Commencement
Dates occurring during the decade 2000-2009, and so on.
Adjusted Ages will be determined based on your actual age, in completed years
and months, as of the Annuity Commencement Date. The tables below show annuity
purchase rates for exact Adjusted Ages; rates for Adjusted Ages expressed in
completed years and months will be based on straight line interpolation between
the appropriate annuity purchase rates.
The dollar amount of Annuity Payment for any Adjusted Age or combination of
Adjusted Ages not shown below or for any other form of Annuity Option agreed to
by us will be quoted by us on request.
SUPPLEMENTARY AGREEMENT - One or more Supplementary Agreements setting forth the
terms of the Annuity Option elected may be issued to you at the Annuity
Commencement Date. In that event, this Policy must be surrendered in exchange
for the Supplementary Agreement.
OWNERSHIP PROVISIONS
OWNER - This Policy will belong to the Owner. All Policy rights and privileges
may be exercised by the Owner without the consent of the Owner's Beneficiary,
you or the Annuitant's Beneficiary not irrevocably named, or any other person.
Such rights and privileges may be exercised only during your lifetime except as
otherwise provided in this Policy. You become the Owner on and after the Annuity
Commencement Date. The Annuitant's Beneficiary becomes the Owner on your death
after the Annuity Commencement Date.
CHANGE OF OWNERSHIP - The Owner may change the ownership of this Policy during
your lifetime and prior to the Annuity Commencement Date. A change of ownership
will not be binding upon us until written notification
104
<PAGE> 15
is received at our Service Center, and will be effective as of the date on which
the request for change was signed by the Owner. If this Policy is issued in
connection with a Qualified Plan, the Owner's right to transfer ownership may be
restricted.
ASSIGNMENT - This Policy may be assigned at any time before the Annuity
Commencement Date unless restricted. For any assignment to be binding on us, we
must receive a signed copy of it at our Service Center. We assume 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.
VOTING RIGHTS - As long as the Separate Account continues to be registered as a
unit investment trust under the Investment Company Act of 1940, the Owner will
be entitled to give instructions to us as to how shares of voting securities
held in the Separate Account attributable to this Policy should be voted at
meetings of shareholders of such voting securities. We will be entitled to
establish rules for the exercise by Owners of their rights to give voting
instructions with respect to such voting securities, including rules as to the
determination of record dates. Those persons entitled to give instructions will
be determined as of the record date for a meeting.
During the Accumulation Period, the number of votes which an Owner may cast is
equal to the number of Accumulation Units credited to him. The Owner may vote in
as many Investment Divisions as he has shares of those Investment Divisions.
During the Annuity Period, the number of votes which may be cast by an Owner in
each Investment Division is equal to (i) the amount of the latest actuarial
reserve established in the particular Investment Division to meet the annuity
obligations applicable to him or her, divided by (ii) the value of an Annuity
Unit in such Investment Division. Cumulative voting is not authorized.
Fractional votes will be counted.
During the Annuity Period, the number of votes attributed to a Policy will
generally decrease, since funds set aside for you will decrease. An Owner is not
entitled to give voting instructions with respect to Fixed Annuity Benefits
payable under this Policy.
Owners will receive proxy material and forms on which voting instructions may be
given. Shares held by the Separate Account for which no effective instructions
have been received from Owners will be voted for or against any proposition in
the same proportion as the shares for which instructions have been received.
Voting instructions will be effective only if this Policy is in force on the
date of the meeting.
PERIODIC REPORTS - During the Accumulation Period we 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 this Policy.
BENEFICIARY DESIGNATION
The Owner's Beneficiary and Annuitant's Beneficiary designation contained in the
Application will remain in effect until changed. Subject to the rights of an
irrevocable designation, the Owner may change the designation of an Owner's
Beneficiary or Annuitant's Beneficiary at any time while you are living by
filing with the Company a written beneficiary designation in such form as we may
require. The change will not be binding upon us until it is received at our
Service Center. When it is so received, the change will be effective as of the
date on which the beneficiary designation was signed; however, the change will
be without prejudice to us on account of any payment made or any action taken by
us prior to receiving the change.
GENERAL PROVISIONS
ENTIRE CONTRACT - This Policy is issued in consideration of receipt of the
Application and payment of the first Purchase Payment. This Policy and the
Application, a copy of which is attached, constitute the entire contract. All
statements made in the Application will, in the absence of fraud, be deemed
representations and not warranties, and no statement will void this Policy or be
used in defense to a claim under this Policy unless it is contained in the
Application and a copy of the Application is attached at issue. Only our
President, Vice President, Secretary or Assistant Secretary have the authority
to change any of the terms of this Policy or to waive any of our rights. Any
such change or waiver must be in writing and endorsed on this Policy.
MISSTATEMENT OF AGE OR SEX - If your age or sex (or the age or sex of any
designated second person) has been misstated, any Annuity benefits payable by us
at any time will be the Annuity benefits provided by the correct
105
<PAGE> 16
age or sex. After annuity payments have begun, we 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.
DETERMINATION OF VALUES - The method of determination by us of the number and
value of Accumulation Units and Annuity Units shall be conclusive upon you, the
Owner, any Payee and any beneficiary.
GUARANTEES - We guarantee that the dollar amount of Variable Annuity Payments
made during the lifetime of any Payee will not be adversely affected by our
actual mortality experience or by our actual expenses in excess of the expense
deductions provided for in this and other Policies providing benefits which vary
in accordance with the investment performance of the Separate Account.
INCONTESTABILITY - This Policy shall be incontestable after it has been enforce
for a period of two years from the Issue Date.
MODIFICATION - We may modify this Policy in order to maintain it in continued
compliance with applicable state and federal law. In the event of any such
modification, we may make appropriate endorsement to this Policy to reflect the
modification.
NON-PARTICIPATING - This Policy is non-participating and will not share in any
of our profits.
PAYMENTS BY US - All sums payable by us under this Policy are payable at our
Service Center. We may require surrender of this Policy as a condition to the
payment of any benefits.
PROOF OF AGE - We shall have the right to require evidence of the age of any
Payee under Annuity Options A, B, C and D and of the designated second person
under Annuity Options C and D prior to the commencement of Annuity Payments.
PROOF OF SURVIVAL - We shall have the right to require evidence of the survival
of any Payee, Annuitant or designated second person under Annuity 0ptions A, B,
C and D, as applicable, at the time any Annuity Payment is due.
GOVERNING LAW - This Policy shall be construed and interpreted in accordance
with the laws of the state in which it is delivered.
PROTECTION OF PROCEEDS - To the extent permitted by law, death proceeds and
Annuity Payments shall be free from legal process and the claim of any creditor
of the person entitled to them. No payment and no amount held by us can be taken
or assigned in advance of its payment date unless we receive the Owner's written
consent.
INFORMATION TO BE FURNISHED TO US - The Owner will furnish all information which
we may reasonably require for the administration of this Policy. We will not be
liable for the fulfillment of any obligations in any way dependent on such
information until we receive such information in a form satisfactory to us.
TERMINATION OF THIS POLICY - This Policy will terminate on the first day upon
which the performance and fulfillment by us of all of our duties and obligations
under this Policy have been completed.
QUALIFIED PLANS - If this Policy is issued as a Qualified Policy, an endorsement
will be attached amending certain provisions.
106
<PAGE> 17
AMOUNT OF FIRST MONTHLY ANNUITY PAYMENT
PER $1,000 OF ADJUSTED VALUE
<TABLE>
<CAPTION>
OPTION A OPTION B
LIFE ANNUITY LIFE ANNUITY WITH PAYMENTS CERTAIN
Adjusted Life
Age Only 60 Payments 120 Payments 180 Payments 240 Payments
- ---------- ------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
50 $4.33 $4.32 $4.31 $4.27 $4.22
55 4.72 4.71 4.68 4.61 4.51
60 5.25 5.23 5.15 5.02 4.82
65 5.98 5.93 5.77 5.51 NA
70 6.67 6.68 6.53 6.03 NA
</TABLE>
<TABLE>
<CAPTION>
OPTION C OPTION D
JOINT & SURVIVOR ANNUITY* JOINT & CONTINGENT ANNUITY**
Adjusted Adjusted
Age of Adjusted Age of Age of Adjusted Age of
Annuitant Designated Second Person Annuitant Designated Second Person
55 60 65 70 75 55 60 65 70 75
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $4.52 $4.73 $4.96 $5.21 $5.48 55 $4.32 $4.44 $4.53 $4.59 $4.64
60 4.73 4.98 5.27 5.57 5.90 60 4.58 4.74 4.88 5.00 5.09
65 4.96 5.27 5.62 6.00 6.49 65 4.85 5.07 5.30 5.50 5.66
70 5.21 5.57 6.00 6.49 7.02 70 5.13 5.43 5.75 6.06 6.35
</TABLE>
* Table based on assumed election of Joint and 66 2/3% Survivor Annuity
** Table based on assumed election of and 66 2/3% Contingent Annuity
OPTION E
FIXED PAYMENTS FOR A PERIOD CERTAIN
<TABLE>
<CAPTION>
Years Amount Years Amount Years Amount Years Amount Years Amount
- ----- ------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 18.12 10 9.83 15 7.10 20 5.75 25 4.96
6 15.35 11 9.09 16 6.76 21 5.56 25 4.84
7 13.38 12 8.46 17 6.47 22 5.39 26 4.73
8 11.90 13 7.94 18 6.20 23 5.24 28 4.63
9 10.75 14 7.49 19 5.97 24 5.09 29 4.53
30 4.45
</TABLE>
107
<PAGE> 1
EX-99.B5
Application for Variable Annuity
108
<PAGE> 2
FUND A
APPLICATION FOR VARIABLE ANNUITY POLICY
FIRST VARIABLE LIFE INSURANCE COMPANY
Home Office: 111 West Center Street Little Rock, Arkansas 72201
Service Center Monarch Service Company Post Office Box 9033 Springfield,
MA 01102-9033
INDIVIDUAL CONTRACT GROUP CONTRACT GROUP CERTIFICATE
Name of
Annuitant: _______________________ Purchase Payment Sent with
Application $_________
Address:____________________________ Male _____ Female _____
____________________________ Social Security #: ____________________
Date of Birth: ____________________
Annuitant's Beneficiary. Primary and Contingent, if any, (include name,
relationship and date of birth)
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
Annuity Commencement Date ________________
Owner. If the Owner in not the Annuitant, then complete the following section.
Owner.
Name: __________________________ Soc. Sec. No.: _____________________
Address: __________________________
__________________________
Owner's Beneficiary. Primary and Contingent if any, (include name, relationship
and date)
-------------------------------------------------
-------------------------------------------------
Investment Division Allocation (Maximum of 5)
In those states which require a full refund of all Purchase Payments after
a "Free Look" refund of Purchase Payments period, all Net Purchase
Payments will initially be allocated to the Cash Management Investment
Division for the "Free Lock" refund period plus five days. Thereafter, Net
Purchase Payments will be allocated in accordance with the further
selection made by the Owner, below, as provided in the Policy. This
corresponds with my understanding and agreement.
Owner _______________________
Portfolio Amount
------------------ ------------------
------------------ ------------------
------------------ ------------------
------------------ ------------------
------------------ ------------------
FEDERAL INCOME TAX WITHHOLDING ELECTION
I do do not elect to have Federal Income Tax withholding apply to
any withdrawals or Annuity Payments that I might receive.
109
<PAGE> 3
TAX STATUS OF APPLICATION (circle one)
408 IRA 457 401 HR 10
401 Corp. 403(b) TSA
Non-Qualified Other
Will this Contract replace or change any other insurance or annuity contract?
Yes No
If yes, give full details and name of Company in Special Requests section.
Special Requests
---------------------------------------------
---------------------------------------------
---------------------------------------------
This application cannot be processed without the appropriate adoption agreement
if a prototype of the Company is used.
ANNUITY PAYMENTS PROVIDED BY THIS CONTRACT. WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT ARE VARIABLE AND NO FIXED DOLLAR AMOUNT IS
GUARANTEED.
I acknowledge receipt of a current prospectus of the Company's Fund A and a
prospectus of Variable Investors Series Trust. I agree that the above answers
are complete and true to the best of my knowledge and belief and will form a
part of any contract issued thereon, and that no waiver or modification will
bind the Company unless in writing and signed by the President, a Vice
President, or the Corporate Secretary of the Company.
The contract applied for will not become effective until the application has
been accepted by written endorsement hereon by an official of the Company at its
home office. Money transmitted to the company with this application will not be
applied under the contract until this application has been so accepted.
Subsequent payments will not be applied under the contract until received by the
Company at its Service Center.
Signed at ____________________ on ____________
Signature of Applicant: ________________________
Signature of Owner (if other than Annuitant)______________________
To be completed by Agent: I have reviewed with the above Applicant this Annuity
Program and believe it to be suitable in view of the Applicant's situation. I
have do not have any knowledge or reason to believe that replacement or a
change in any other insurance or annuity contract may be involved. If
affirmative, give full details, name of company, and attach required documents.
Agent Name: _____________________
Agent Signature: _____________________
Date: _____________________
Agent Code: _____________________
Name of Broker-Dealer: _____________________
Authorized Signature: _____________________
Date: _____________________
- --------------------------------------------------------------------------------
Company Use Only:
Date Accepted ____________________ Accepted By _____________________
110
<PAGE> 1
EX-99.B9(a)
Consent of Arnold R. Bergman, Vice President, General Counsel and Secretary,
First Variable Life Insurance Company
111
<PAGE> 2
[LOGO OMITTED] FIRST
VARIABLE
LIFE INSURANCE
COMPANY
April 29, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration of Variable Annuity Contract Interests
First Variable Annuity Fund A of First Variable Life Insurance Company
(File Nos. 2-30164 and 811-1680)
Dear Sir/Madam:
I consent to the use in Registration No. 2-30164 of my opinion letter dated
April 25, 1997.
Very truly yours,
/s/ Arnold R. Bergman
- ------------------------
Arnold R. Bergman
Vice President, General Counsel* and Secretary
*Admitted in NY
112
<PAGE> 1
EX-99.B9(b)
Consent of Blazzard, Grodd & Hasenauer, P.C.
113
<PAGE> 2
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 24, 1998
CONSENT OF COUNSEL
We consent to the reference to our Firm under the caption "Legal Counsel"
contained in the Statement of Additional Information which forms a part of
Post-Effective Amendment No. 43 to 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.
/s/Blazzard, Grodd & Hasenauer, P.C.
BLAZZARD, GRODD & HASENAUER, P.C.
114
<PAGE> 1
EX-99.B10.
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 6, 1998 with respect to the
consolidated financial statements of First Variable Life Insurance Company and
January 30, 1998 with respect to the financial statements of First Variable Life
Insurance Company-First Variable Annuity Fund A, in Post Effective Amendment No.
43 to the Registration Statement (Form N-4 No. 2-30164) and related Prospectus
of First Variable Life Insurance Company.
/s/ Ernst & Young LLP
--------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
April 29, 1998
115
<PAGE> 1
EX-99.B13. Calculation of Performance Information
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FIRST VARIABLE ANNUITY FUND A
CALCULATION OF ARDC PERFORMANCE INFORMATION
4/17/98
PRIME MONEY FUND II FUND A YIELD CALCULATIONS AS OF 12/31/97
Seven Day Yield
<TABLE>
<S> <C>
12/31/97 Unit Price 15.813 (A)
12/24/97 Unit Price 15.800193 (B)
Difference 0.012807 (C)
Base Return (C)/(B) 0.000810560
</TABLE>
Annualized Base Return = (C)/(B)* 365/7 = 4.23%
Effective Yield = (1+Base Return)(365/7) -1 = 4.32%
TOTAL RETURN ON DIRECT PORTFOLIOS OVER RESPECTIVE PERIODS
FORMULA P*(1+T)N = ERV T = ((ERV/P)1/N)-1
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<S> <C>
POLICY ISSUE FEE 0
ANN CONTRACT MNT CHG 0
INCEPTION DATE CASH MANAGEMENT 5/27/87
INCEPTION DATE U.S. GOVT BOND 5/27/87
INCEPTION DATE MATRIX EQUITY 6/16/88
INCEPTION DATE WORLD EQUITY 6/16/88
INCEPTION DATE MULTIPLE STRATEIES 5/5/87
INCEPTION DATE HIGH INCOME 6/1/87 (Small Cap & Growth & Income
Portfolio's)
SURRENDAR CHARGE 0
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SMALL CAP GROWTH
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<CAPTION>
ONE YEAR START OF PORTFOLIO
<S> <C> <C> <C>
Unit Price EOP 10.107 Unit Price EOP 10.107
Unit Price BOP 10.134 Unit Price BOP 10.000
Accum Value EOP 997.34 Accum Value EOP 1,010.70
Surrender Charge 19.95 Surrender Charge 20.21
Ann Contract Charge -- Ann Contract Charge
Surrender Value 977.39 Surrender Value 990.49
Total Return -2.261% Total Return -0.615%
</TABLE>
WORLD EQUITY
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 20.052 Unit Price EOP 20.052 Unit Price EOP 20.052
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Unit Price BOP 18.415 Unit Price BOP 10.630 Unit Price BOP 10.000
Accum Value EOP 1,088.89 Accum Value EOP 1,886.42 Accum Value EOP 2,005.20
Surrender Charge 21.78 Surrender Charge 37.73 Surrender Charge 40.10
Ann Contract Charge -- Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,067.12 Surrender Value 1,848.69 Surrender Value 1,965.10
Total Return 6.712% Total Return 13.077% Total Return 7.330%
<CAPTION>
GROWTH
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 264.467 Unit Price EOP 264.467 Unit Price EOP 264.467
Unit Price BOP 216.086 Unit Price BOP 120.461 Unit Price BOP 63.52
Accum Value EOP 1,223.90 Accum Value EOP 2,195.47 Accum Value EOP 4,163.52
Surrender Charge 24.48 Surrender Charge 43.91 Surrender Charge 83.27
Ann Contract Charge -- Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,199.42 Surrender Value 2,151.56 Surrender Value 4,080.25
Total Return 19.942% Total Return 16.560% Total Return 12.432%
<CAPTION>
MATRIX EQUITY
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 32.165 Unit Price EOP 32.165 Unit Price EOP 32.165
Unit Price BOP 26.618 Unit Price BOP 17.013 Unit Price BOP 10.000000
Accum Value EOP 1,208.39 Accum Value EOP 1,890.57 Accum Value EOP 3,216.50
Surrender Charge 24.17 Surrender Charge 37.81 Surrender Charge 64.33
Ann Contract Charge -- Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,184.22 Surrender Value 1,852.76 Surrender Value 3,152.17
Total Return 18.422% Total Return 13.126% Total Return 12.774%
<CAPTION>
GROWTH & INCOME
ONE YEAR START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 11.763 Unit Price EOP 11.763
Unit Price BOP 9.268 Unit Price BOP 10
Accum Value EOP 1,269.21 Accum Value EOP 1,176.30
Surrender Charge 25.38 Surrender Charge 23.53
Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,243.82 Surrender Value 1,152.77
Total Return 24.382% Total Return 9.606%
<CAPTION>
MULTIPLE STRATEGIES
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Unit Price EOP 29.817 Unit Price EOP 29.817 Unit Price EOP 29.817
Unit Price BOP 24.728 Unit Price BOP 15.485 Unit Price BOP 10.000
Accum Value EOP 1,205.80 Accum Value EOP 1,925.49 Accum Value EOP 2,981.70
Surrender Charge 24.12 Surrender Charge 38.51 Surrender Charge 59.63
Ann Contract Charge -- Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,181.68 Surrender Value 1,886.98 Surrender Value 2,922.07
Total Return 18.168% Total Return 13.541% Total Return 10.582%
<CAPTION>
HIGH INCOME BOND
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 26.115 Unit Price EOP 26.115 Unit Price EOP 26.115
Unit Price BOP 23.233 Unit Price BOP 16.662 Unit Price BOP 10.000000
Accum Value EOP 1,124.05 Accum Value EOP 1,567.36 Accum Value EOP 2,611.50
Surrender Charge 22.48 Surrender Charge 31.35 Surrender Charge 52.23
Ann Contract Charge -- Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,101.57 Surrender Value 1,536.01 Surrender Value 2,559.27
Total Return 10.157% Total Return 8.272% Total Return 9.279%
<CAPTION>
U.S. GOVERNMENT BOND
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 21.24 Unit Price EOP 21.24 Unit Price EOP 21.24
Unit Price BOP 19.615 Unit Price BOP 15.597 Unit Price BOP 10.000
Accum Value EOP 1,082.84 Accum Value EOP 1,361.80 Accum Value EOP 2,124.00
Surrender Charge 21.66 Surrender Charge 27.24 Surrender Charge 42.48
Ann Contract Charge -- Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,061.19 Surrender Value 1,334.56 Surrender Value 2,081.52
Total Return 6.119% Total Return 5.942% Total Return 7.154%
<CAPTION>
FEDERATED PRIME MONEY II
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 15.813 Unit Price EOP 15.813 Unit Price EOP 15.813
Unit Price BOP 15.221 Unit Price BOP 13.493 Unit Price BOP 10
Accum Value EOP 1,038.89 Accum Value EOP 1,171.94 Accum Value EOP 1,581.30
Surrender Charge 20.78 Surrender Charge 23.44 Surrender Charge 31.63
Ann Contract Charge -- Ann Contract Charge -- Ann Contract Charge --
Surrender Value 1,018.12 Surrender Value 1,148.50 Surrender Value 1,549.67
Total Return 1.812% Total Return 2.808% Total Return 4.219%
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