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File No. 811-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-8B-2
REGISTRATION STATEMENT OF UNIT INVESTMENT TRUSTS
WHICH ARE CURRENTLY ISSUING SECURITIES
Pursuant to Section 8(b) of the Investment Company Act of 1940
FIRST PENN-PACIFIC VARIABLE LIFE INSURANCE SEPARATE ACCOUNT
(Name of Unit Investment Trust)
Not the issuer of periodic payment plan certificates.
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X Issuer of periodic payment plan certificates.
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I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Furnish name of the trust and the Internal Revenue Service
Employer Identification Number.
First Penn-Pacific Variable Life Insurance Separate Account
(the "Variable Account"). There is no Internal Revenue Service
Employer Identification Number for the Variable Account.
(b) Furnish title of each class or series of securities issued by
the trust.
Variable portion of flexible premium variable life insurance
policies (the "Policies").
2. Furnish name and principal business address and zip code and the
Internal Revenue Service Employer Identification Number of each
depositor of the trust.
First Penn-Pacific Life Insurance Company
(the "Company" or "First Penn-Pacific")
1801 South Meyers Road
Oakbrook Terrace, Illinois 60181-5214
IRS Employer Identification Number: 23-2044248
3. Furnish name and principal business address and zip code and the
Internal Revenue Service Employer Identification Number of each
custodian or trustee of the trust indicating for which class or series
of securities each custodian or trustee is acting.
There is no custodian or trustee.
4. Furnish name and principal business address and zip code and the
Internal Revenue Service Employer Identification Number of each
principal underwriter currently distributing securities of the trust.
No Policies are currently being distributed. When distribution
commences, the principal underwriter will be:
First Penn-Pacific Securities, Inc.
("FPPSI")
1801 South Meyers Road
Oakbrook Terrace, Illinois 60181
IRS Employer Identification Number: 36-4301181
5. Furnish name of state or other sovereign power, the laws of which
govern with respect to the organization of the trust.
Indiana
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6. (a) Furnish the dates of execution and termination of any
indenture or agreement currently in effect under the terms of
which the trust was organized and issued or proposes to issue
securities.
The Variable Account was established pursuant to Indiana law
by resolution of the Board of Directors of First Penn-Pacific
adopted on May 25, 1995, as amended and restated on February
22, 2000, as a segregated asset account of First Penn-Pacific.
The Variable Account will continue in existence until its
complete liquidation and the distribution of its assets to the
persons entitled to receive them. The resolution authorizes
the issuance of the Policies.
(b) Furnish the dates of execution and termination of any
indenture or agreement currently in effect pursuant to which
the proceeds of payments on securities issued or to be issued
by the trust are held by the custodian or trustee.
Not applicable, for the reasons set forth under Item 3, which
is incorporated herein by reference.
7. Furnish in chronological order the following information with respect
to each change of name of the trust since January 1, 1930. If the name
has never been changed, so state.
The Variable Account has never been known by any other name.
8. State the date on which the fiscal year of the trust ends.
The fiscal year of the Variable Account ends on December 31.
MATERIAL LITIGATION
9. Furnish a description of any pending legal proceedings, material with
respect to the security holders of the trust by reason of the nature of
the claim or the amount thereof, to which the trust, the depositor, or
the principal underwriter is a party or of which the assets of the
trust are the subject, including the substance of the claims involved
in such proceeding and the title of the proceeding. Furnish a similar
statement with respect to any pending administrative proceeding
commenced by a governmental authority or any such proceeding or legal
proceeding known to be contemplated by a governmental authority.
Include any proceeding which, although immaterial itself, is
representative of, or one of, a group which in the aggregate is
material.
See "Legal Proceedings" in the Prospectus in Exhibit D, which is
incorporated herein by reference.
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II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
GENERAL INFORMATION CONCERNING THE SECURITIES OF THE TRUST AND THE RIGHTS OF
HOLDERS
10. Furnish a brief statement with respect to the following matters for
each class or series of securities issued by the trust:
(a) Whether the securities are of the registered or bearer type;
The Policies which are to be issued are of the registered type
insofar as all Policies are owned by the person(s) named in a
Policy as the Policy Owner (the "Owner"), and the records
concerning the Owner are maintained by or on behalf of the
Company.
(b) Whether the securities are of the cumulative or distributive
type;
The Policies are of the cumulative type, providing for no
direct distribution of income, dividends or capital gains.
Such amounts are not separately identifiable but are reflected
in the Account Values and death benefit under a Policy at any
time.
(c) The rights of security holders with respect to withdrawal or
redemption;
See "Policy Loans", "Amount Payable on Surrender of the
Policy", and "Cancellation" in the Prospectus in Exhibit D
incorporated herein by reference.
(d) The rights of security holders with respect to conversion,
transfer, partial redemption and similar matters;
See "Amount Payable on Surrender of the Policy", "Partial
Withdrawals", "Cancellation", "Allocation of Net Premiums",
and "Transfer of Policy Account Value" in the Prospectus in
Exhibit D, incorporated herein by reference.
(e) If the trust is the issuer of periodic payment plan
certificates, the substance of the provisions of any indenture
or agreement with respect to lapses or defaults by security
holders in making principal payments, and with respect to
reinstatement;
See "Termination and Grace Period" and "Reinstatement" in the
Prospectus in Exhibit D, incorporated herein by reference.
(f) The substance of the provisions of any indenture or agreement
with respect to voting rights, together with the names of any
persons other than security holders given the right to
exercise voting rights pertaining to the trust's securities or
the underlying securities and the relationship of such persons
to the trust;
See "Voting Rights" in the Prospectus in Exhibit D,
incorporated herein by reference.
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(g) Whether security holders must be given notice of any change
in:
(1) the composition of the assets of the trust;
See "Statements to Policy Owners" in the Prospectus
in Exhibit D, incorporated herein by reference.
Except to the extent described in the Prospectus, no
changes in the terms and conditions of the Policies
can be made without notice to and/or consent of
Policy Owners. As described in the response to other
items of this form, however, the Policies permit the
Company to exercise discretion in changing certain
fees and charges, restricting certain Policy Owner
rights and taking certain other actions.
(2) the terms and conditions of the securities issued by
the trust;
See 10(g)(1) above, which is incorporated herein by
reference.
(3) the provisions of any indenture or agreement of the
trust;
No notice to or consent from Owners is required in
connection with any change in the provisions of the
resolution of the Company's Board of Directors
pursuant to which the Variable Account was
established and the Policies will be issued.
(4) the identity of the depositor, trustee or custodian;
There is no requirement for notice to, or consent of
Owners with respect to any change in the identity of
the Variable Account's depositor.
(h) Whether the consent of security holders is required in order
for action to be taken concerning any change in:
(1) the composition of the assets of the trust;
See "Allocation of Net Premiums" and "Additions,
Deletions and Substitutions of Securities" in the
Prospectus in Exhibit D, incorporated herein by
reference. Also see (g)(1) above, which is
incorporated herein by reference.
(2) the terms and conditions of the securities issued by
the trust;
See (g)(3) above, which is incorporated herein by
reference.
(3) the provisions of any indenture or agreement of the
trust;
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See (g)(1) above, which is incorporated herein by
reference.
(4) the identity of the depositor, trustee or custodian;
See (g)(4) above, which is incorporated herein by
reference.
(i) Any other principal feature of the securities issued by the
trust or any other principal right, privilege or obligation
not covered by subdivisions (a) to (g) or by any other item in
this form.
See "Policy Account Value", "Policy Benefits and Rights", and
"Deductions and Charges", in the Prospectus in Exhibit D,
incorporated herein by reference.
INFORMATION CONCERNING THE SECURITIES UNDERLYING THE TRUST'S SECURITIES
11. Describe briefly the kind or type of securities comprising the unit of
specified securities in which security holders have an interest. If the
trust owns or will own any securities of its regular brokers or dealers
as defined in Rule 10b-1 under the Act, or their parents, identify
those brokers or dealers and state the value of the registrant's
aggregate holdings of the securities of each subject issuer as of the
close of the registrant's most recent fiscal year.
The Policy Owner will not be the owner of the securities held in the
Variable Account, although the value of those securities will be used
to calculate Policy benefits. The securities are owned by the Company
but held in the Variable Account pursuant to Indiana insurance laws
governing the operation of separate accounts. The securities held in
the Variable Account will be shares of the Portfolios described below,
which are the following registered, open-end management investment
companies or series thereof: Lincoln National Bond Fund, Inc., Lincoln
National Money Market Fund, Inc. and separate series of Delaware Group
Premium Fund ("Delaware Fund"), as well as shares of such other
investment companies or series thereof as the Company may make
available from time to time in accordance with the terms of the
Policies and applicable law.
Lincoln Investment Management, Inc. ("LIM") is the investment adviser
to the Lincoln Funds. LIM has acted as an investment adviser to mutual
funds for many years. LIM is an indirect wholly-owned subsidiary of
Lincoln National Corp., which is also First Penn-Pacific's ultimate
parent. Delaware Management Company ("Delaware Management") is the
investment manager to each Portfolio of the Delaware Fund except the
International Equity Series. Delaware Management and its predecessors
have been managing funds since 1938. Delaware International Advisers
Ltd. ("Delaware International"), an affiliate of Delaware Management,
is the investment manager for the International Equity Series.
Delaware International began operating in 1990.
For additional information about the Portfolios, and their advisers and
subadvisers, see "Variable Account Investments: Portfolios" in the
prospectus in Exhibit D, incorporated herein by reference.
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The investment objectives of the Portfolios in which the Variable
Account invests are as follows:
PORTFOLIOS OF LINCOLN NATIONAL FUNDS
AND VARIABLE ACCOUNT SUB-ACCOUNTS
BOND FUND. Maximum current income consistent with prudent investment
strategy. The Portfolio invests primarily in medium and long-term
corporate and government bonds.
MONEY MARKET FUND. Maximum current income consistent with the
preservation of capital. The Portfolio invests in short-term
obligations issued by U.S. corporations, the U.S. Government, and
federally chartered bankers and U.S. branches of foreign banks.
PORTFOLIOS OF DELAWARE FUND AND VARIABLE
ACCOUNT SUB-ACCOUNTS
TREND SERIES. Long-term capital appreciation, by investing primarily in
small-cap common stocks and convertible securities of emerging and
other growth oriented companies that the adviser believes are
responsive to changes within the marketplace and possess fundamental
characteristics to support continued growth.
GROWTH AND INCOME SERIES (FORMERLY DECATUR TOTAL RETURN SERIES).
Highest possible total rate of return by selecting issues that exhibit
the potential for capital appreciation while providing higher than
average dividend income.
SELECT GROWTH SERIES. Long-term capital appreciation, by investing in
common stocks of companies that the adviser believes have the potential
for high earnings growth. The Portfolio invests, but not exclusively,
in common stocks and income producing securities convertible into
common stocks, consistent with the Portfolio's objective.
INTERNATIONAL EQUITY SERIES. Long-term growth without undue risk to
principal, by investing in equity securities that provide the potential
for capital appreciation and income. As an international fund, under
normal circumstances the Portfolio will invest at least 65% of its
total assets in equity securities of companies from at least three
foreign countries.
12. If the trust is the issuer of periodic payment plan certificates and if
any underlying securities were issued by another investment company,
furnish the following information for each such company:
(a) Name of company;
Lincoln National Bond Fund, Inc.
Lincoln National Money Market Fund, Inc.
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Delaware Group Premium Fund
(b) Name and principal business address of depositor;
Not applicable.
(c) Name and principal business address of trustee or custodian;
Custodian for Lincoln National Bond Fund, Inc., Lincoln
National Money Market Fund, Inc. (the "Lincoln Funds"), and
Delaware Group Premium Fund;
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, New York 11245
(d) Name and principal business address of principal underwriter;
There is no principal under writer for the Lincoln Fund.
Distributor for Delaware Group Premium Funds:
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
(e) The period during which the securities of such company have
been the underlying securities.
No underlying securities have to date been acquired by the
Variable Account.
INFORMATION CONCERNING LOADS, FEES, CHARGES AND EXPENSES
13. (a) Furnish the following information with respect to each load,
fee, expense or charge to which (1) principal payments; (2)
underlying securities; (3) distributions; (4) cumulated or
reinvested distributions or income; and (5) redeemed or
liquidated assets of the trust's securities are subject:
(A) the nature of such load, fee, expense, or charge;
(B) the amount thereof;
(C) the name of the person to whom such amounts are paid
and his relationship to the trust;
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(D) the nature of the services performed by such person
in consideration for such load, fee, expense, or
charge.
For sub-paragraphs (A) to (D) of this sub-item, see
"Deductions and Charges" and "Surrender Charge" in the
Prospectus in Exhibit D, incorporated herein by reference.
(b) For each installment payment type of periodic payment plan
certificate of the trust, furnish the following information
with respect to sales load and other deductions from principal
payments.
Not applicable, because the Variable Account intends initially
to issue Policies on a modified single premium basis.
(c) State the amount of total deductions as a percentage of the
net amount invested for each type of security issued by the
trust. State each different sales charge available as a
percentage of the public offering price and as a percentage of
the net amount invested. List any special purchase plans or
methods established by rule or exemptive order that reflect
scheduled variations in, or elimination of, the sales load,
and identify each class of individuals or transactions to
which such plans apply.
See (a) and (b) above, which are incorporated herein by
reference.
(d) Explain fully the reasons for any difference in the price at
which securities are offered generally to the public, and the
price at which securities are offered for any class of
transactions to any class or group of individuals, including
officers, directors, or employees of the depositor, trustee,
custodian, or principal underwriter.
See "Deductions and Charges -- Monthly Deduction", "Deduction
and Charges --Partial Withdrawal Charge", and "Deduction and
Charges -- Special Provisions for Group or Sponsored
Arrangements" in the Prospectus in Exhibit D, incorporated
herein by reference.
(e) Furnish a brief description of any loads, fees, expenses or
charges not covered in Item 13(a) which may be paid by
security holders in connection with the trust or its
securities.
None
(f) State whether the depositor, principal underwriter, custodian
or trustee, or any affiliated person of the foregoing may
receive profits or other benefits not included in answer to
Item 13(a) or 13(d) through the sale or purchase of the
trust's securities or interests in such securities, or
underlying securities or interests in underlying securities,
and describe fully the nature and extent of such profits or
benefits.
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See "Portfolio Expenses" in the Prospectus in Exhibit D,
incorporated herein by reference.
(g) State the percentage that the aggregate annual charges and
deductions for maintenance and other expenses of the trust
bear to the dividend and interest income from the trust
property during the period covered by the financial statements
filed herewith:
Not applicable since the Variable Account has not yet
commenced operations.
INFORMATION CONCERNING THE OPERATIONS OF THE TRUST
14. Describe the procedure with respect to applications (if any) and the
issuance and authentication of the trust's securities, and state the
substance of the provisions of any indenture or agreement pertaining
thereto.
See "Application for a Policy", "Allocation of Net Premiums", and
"Distribution of Policies" in the Prospectus in Exhibit D, incorporated
herein by reference.
15. Describe the procedure with respect to the receipt of payments from
purchasers of the trust's securities and the handling of the proceeds
thereof, and state the substance of the provisions of any indenture or
agreement pertaining thereto.
See "Application for a Policy", "Premiums", "Allocation of Net
Premiums", and "Transfer of Policy Account Value" in the Prospectus in
Exhibit D, incorporated herein by reference.
16. Describe the procedure with respect to the acquisition of underlying
securities and the disposition thereof, and state the substance of the
provisions of any indenture or agreement pertaining thereto.
See "Portfolios" in the Prospectus in Exhibit D incorporated herein by
reference.
17. (a) Describe the procedure with respect to withdrawal or
redemption by security holders.
The procedures with respect to withdrawal or redemption by
security holders are described in response to Items 10(c) and
10(d), which are incorporated herein by reference.
(b) Furnish the names of any persons who may redeem or repurchase,
or are required to redeem or repurchase, the trust's
securities or underlying securities from security holders, and
the substance of the provisions of any indenture or agreement
pertaining thereto.
See Items 10(c), 10(d) and 10(e) and 17(a), which are
incorporated herein by reference.
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(c) Indicate whether repurchased or redeemed securities will be
canceled or may be resold.
Not applicable. Variable Account assets are used to support
benefits and amounts payable under a Policy and there is no
limit on the amount of Variable Account interests that may be
sold.
18. (a) Describe the procedure with respect to the receipt, custody
and disposition of the income and other distributable funds of
the trust and state the substance of the provisions of any
indenture or agreement pertaining thereto.
See "Allocation of Net Premiums" and "Portfolios" in the
Prospectus in Exhibit D, incorporated herein by reference.
(b) Describe the procedure, if any, with respect to the
reinvestment of distributions to security holders and state
the substance of the provisions of any indenture or agreement
pertaining thereto.
Not applicable.
(c) If any reserves or special funds are created out of income or
principal, state with respect to each such reserve or fund the
purpose and ultimate disposition thereof, and describe the
manner of handling of same.
The assets of the Variable Account which are allocable to the
Policies constitute a reserve for the payment of benefits
under the Policies. The general assets of the Company are also
available to satisfy the Company's contractual obligations
under the Policies.
(d) Submit a schedule showing the periodic and special
distributions which have been made to security holders during
the three years covered by the financial statements filed
herewith. State for each such distribution the aggregate
amount and amount per share. If distributions from sources
other than current income have been made, identify each such
other source and indicate whether such distribution represents
the return of principal payments to security holders. If
payments other than cash were made describe the nature
thereof, the account charged and the basis of determining the
amount of such charge.
Not applicable.
19. Describe the procedure with respect to the keeping of records and
accounts of the trust, the making of reports and the furnishing of
information to security holders, and the substance of the provisions of
any indenture or agreement pertaining thereto.
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The Company has responsibility for all administration of the Policies.
The Company, among other things, will maintain the records and books of
the Variable Account and the Sub-Accounts. It also will maintain
records of the name, address, taxpayer identification number, and other
pertinent information for each Owner and the number and type of Policy
issued to each such Owner and records with respect to the Policy
Account Value, Surrender Value, Accumulation Unit Value and the Death
Benefit of each Policy. Under the Distribution Agreement among the
Company, on its own behalf and on behalf of the Variable Account, and
FPPSI, FPPSI will maintain certain records relating to the sale of the
Policies. The Company may also utilize the services of a third party
administrator to maintain certain records.
See "Portfolios" and "Statements to Policy Owners" in the Prospectus in
Exhibit D, incorporated herein by reference.
20. State the substance of the provisions of any indenture or agreement
concerning the trust with respect to the following:
(a) Amendments to such indenture or agreement;
Item 10(g) is incorporated herein by reference.
(b) The extension or termination of such indenture or agreement;
Items 6(a) and 6(b) are incorporated herein by reference.
(c) The removal or resignation of the trustee or custodian, or the
failure of the trustee or custodian to perform its duties,
obligations and functions;
Not applicable, for the reasons set forth in Item 3, which is
incorporated herein by reference.
(d) The appointment of a successor trustee and the procedure if a
successor trustee is not appointed;
Not applicable.
(e) The removal or resignation of the depositor, or the failure of
the depositor to perform its duties, obligations and
functions;
There are no provisions relative to the removal or resignation
of the depositor or the failure of the depositor to perform
its duties, obligations and functions. The Company is bound
under the Policies and Indiana insurance law to carry out its
obligations and those of the Variable Account under the
Policies.
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(f) The appointment of a successor depositor and the procedure if
a successor depositor is not appointed.
There are no provisions relating to the appointment of a
successor depositor or the procedure if a successor depositor
is not appointed. The Company is bound under the Policies and
Indiana insurance law to carry out its obligations (including
those with respect to the Variable Account) under the
Policies.
21. (a) State the substance of the provisions of any indenture or
agreement with respect to loans to security holders.
See "Policy Loans" in the Prospectus in Exhibit D,
incorporated herein by reference.
(b) Furnish a brief description of any procedure or arrangement by
which loans are made available to security holders by the
depositor, principal underwriter, trustee or custodian, or any
affiliated person of the foregoing. The following items should
be covered:
(1) the name of each person who makes such agreements or
arrangements with security holders;
(2) the rate of interest payable on such loans;
(3) the period for which loans may be made;
(4) costs or charges for default in repayment at
maturity;
(5) other material provisions of the agreement or
arrangements.
Item 21(a) is incorporated herein by reference.
(c) If such loans are made, furnish the aggregate amount of loans
outstanding at the end of the last fiscal year, the amount of
interest collected during the last fiscal year allocated to
the depositor, principal underwriter, trustee or custodian or
affiliated person of the foregoing and the aggregate amount of
loans in default at the end of the last fiscal year covered by
financial statements filed herewith.
Not applicable, since no Policies have yet been sold.
22. State the substance of the provisions of any indenture or agreement
with respect to limitations on the liabilities of the depositor,
trustee or custodian, or any other party to such indenture or
agreement.
There are no such provisions.
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23. Describe any bonding arrangement for officers, directors, partners or
employees of the depositor or principal underwriter of the trust,
including the amount of coverage and the type of bond.
See "First Penn-Pacific " in the Prospectus in Exhibit D, incorporated
herein by reference.
24. State the substance of any other material provisions of any indenture
or agreement concerning the trust or its securities and a description
of any other material functions or duties of the depositor, trustee or
custodian not stated in Item 10 or Items 14 to 23 inclusive.
See "General Policy Provisions" in the Prospectus in Exhibit D,
incorporated herein by reference.
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
ORGANIZATION AND OPERATIONS OF DEPOSITOR
25. State the form of organization of the depositor of the trust, the name
of the state or other sovereign power under the laws of which the
depositor was organized and the date of organization,
See "First Penn-Pacific" in the Prospectus in Exhibit D, incorporated
herein by reference.
26. (a) Furnish the following information with respect to all fees
received by the depositor of the trust in connection with the
exercise of any functions or duties concerning securities of
the trust during the period covered by the financial
statements filed herewith: (Chart omitted)
The Company has not received any such fees as yet.
(b) Furnish the following information with respect to any fee or
any participation in fees received by the depositor from any
underlying investment company or any affiliated person or
investment adviser of such company:
(1) the nature of such fee or participation;
(2) the name of the person making payment;
(3) the nature of the services rendered in consideration
for such fee or participation;
(4) the aggregate amount received during the last fiscal
year covered by the financial statements filed
herewith.
The Company has not received any such fees.
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27. Describe the general character of the business engaged in by the
depositor including a statement as to any business other than that of
depositor of the trust. If the depositor acts or has acted in any
capacity with respect to any investment company or companies other than
the trust, state the name or names of such company or companies, their
relationship, if any, to the trust, and the nature of the depositor's
activities therewith. If the depositor has ceased to act in such named
capacity, state the date of and circumstances surrounding such
cessation.
See "First Penn-Pacific" in the Prospectus in Exhibit D, incorporated
herein by reference.
OFFICIALS AND AFFILIATED PERSONS OF DEPOSITOR
28. (a) Furnish as at latest practicable date the following
information with respect to the depositor of the trust, with
respect to each officer, director, or partner of the
depositor, and with respect to each natural person directly or
indirectly owning, controlling or holding with power to vote
five percent or more of the outstanding voting securities of
the depositor.
Items 29 and 30 are incorporated herein by reference.
(b) Furnish a brief statement of the business experience during
the last five years of each officer, director or partner of
the depositor.
See "Officers and Directors of First Penn-Pacific" in the
Prospectus in Exhibit D, incorporated herein by reference.
COMPANIES OWNING SECURITIES OF DEPOSITOR
29. Furnish as at latest practicable date the following information with
respect to each company which directly or indirectly owns, controls or
holds with power to vote five percent or more of the outstanding voting
securities of the depositor.
First Penn-Pacific is a wholly-owned subsidiary of Lincoln National
Insurance Company, which is in turn a wholly-owned subsidiary of
Lincoln National Corporation ("LNC"). Through its subsidiaries LNC
operates multiple insurance and investment management businesses.
CONTROLLING PERSONS
30. Furnish as at latest practicable date the following information with
respect to any person, other than those covered by Items 28, 29 and 42
who directly or indirectly controls the depositor.
Not applicable
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COMPENSATION OF OFFICERS AND DIRECTORS OF DEPOSITOR.
COMPENSATION OF OFFICERS OF DEPOSITOR.
31. Furnish the following information with respect to the remuneration for
services paid by the depositor during the last fiscal year covered by
financial statements filed herewith:
(a) Directly to each of the officers or partners of the depositor
directly receiving the three highest amounts of remuneration:
No officer, director or employee has been paid any separate
remuneration by the Company for services with respect to the
Variable Account.
(b) Directly to all officers or partners of the depositor as a
group exclusive of persons whose remuneration is included
under Item 31 (a), stating separately the aggregate amount
paid by the depositor itself and the aggregate amount paid by
all the subsidiaries.
Item 31(a) is incorporated herein by reference.
(c) Indirectly or through subsidiaries to each of the officers or
partners of the depositor.
Item 31(a) is incorporated herein by reference.
COMPENSATION OF DIRECTORS
32. Furnish the following information with respect to the remuneration for
services, exclusive of remuneration reported under Item 31, paid by the
depositor during the last fiscal year covered by financial statements
filed herewith:
(a) The aggregate direct remuneration to directors;
Item 31(a) is incorporated herein by reference.
(b) Indirectly or through subsidiaries to directors.
Item 31(a) is incorporated herein by reference.
COMPENSATION TO EMPLOYEES
33. (a) Furnish the following information with respect to the
aggregate amount of remuneration for services of all employees
of the depositor (exclusive of persons whose remuneration is
reported in Items 31 and 32) who received remuneration in
excess of $10,000 during the last fiscal year covered by
financial statements filed herewith from the depositor and any
of its subsidiaries.
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Item 31(a) is incorporated herein by reference.
(b) Furnish the following information with respect to the
remuneration for services paid directly during the last fiscal
year covered by financial statements filed herewith to the
following classes of persons (exclusive of those persons
covered by Item 33(a)): (1) sales managers, branch managers,
district managers and other persons supervising the sale of
registrant's securities; (2) salesmen, sales agents,
canvassers and other persons making solicitations but not in a
supervisory capacity; (3) administrative and clerical
employees; and (4) others (specify). If a person is employed
in more than one capacity, classify according to predominant
type of work.
Item 31(a) is incorporated herein by reference.
COMPENSATION TO OTHER PERSONS
34. Furnish the following information with respect to the aggregate amount
of compensation for services paid any person (exclusive of persons
whose remuneration is reported in Items 31, 32 and 33), whose aggregate
compensation in connection with services rendered with respect to the
trust in all capacities exceeded $10,000 during the last fiscal year
covered by financial statements filed herewith from the depositor and
any of its subsidiaries:
Not applicable, because the Variable Account has not yet commenced
operations.
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
DISTRIBUTION OF SECURITIES
35. Furnish the names of the states in which sales of the trust's
securities: (a) are currently being made, (b) are presently proposed to
be made, and (c) have been discontinued, indicating by appropriate
letter the status with respect to each state.
No sales of the Policies have been made or are currently being made. It
is presently proposed to sell the Policies in all the states (except
New York) and the District of Columbia, to the extent that, and at such
time as, the Company obtains necessary regulatory clearance in such
states to do so.
36. If sales of the trust's securities have at any time since January 1,
1936 been suspended for more than a month describe briefly the reasons
for such suspension.
Not applicable.
37. (a) Furnish the following information with respect to each
instance where, subsequent to January 1, 1937, any federal or
state governmental officer, agency, or regulatory body denied
authority to distribute securities of the trust, excluding a
denial which
17
<PAGE>
was merely a procedural step prior to any determination by
such officer, etc. and which denial was subsequently
rescinded:
(1) name of officer, agency or body;
(2) date of denial;
(3) brief statement of reasons given for denial.
As to (1) through (3), none.
(b) Furnish the following information with regard to each instance
where, subsequent to January 1, 1937, the authority to
distribute securities of the trust has been revoked by any
federal or state governmental officer, agency or regulatory
body:
(1) name of officer, agency or body;
(2) date of revocation;
(3) brief statement of reasons given for revocation.
As to (1) through (3), none.
38. (a) Furnish a general description of the method of distribution of
securities of the trust.
See "Distribution of Policies" in the Prospectus in Exhibit D,
incorporated herein by reference.
(b) State the substance of any current selling agreement between
each principal underwriter and the trust or the depositor,
including a statement as to the inception and termination
dates of the agreement, any renewal and termination
provisions, and any assignment provisions.
The Company will execute a Distribution Agreement with FPPSI
whereby FPPSI will distribute the Policies on a best efforts
basis. The agreement will be effective on the date stipulated
and will remain effective until terminated by either party
upon not less than 60 days advance written notice and may not
be assigned, except by operation of law.
See Exhibit 1-A(3)(a) and "Distribution of Policies" in the
Prospectus in Exhibit D, incorporated herein by reference.
(c) State the substance of any current agreements or arrangements
of each principal underwriter with dealers, agents, salesmen,
etc. with respect to commissions and overriding commissions,
territories, franchises, qualifications and revocations. If
the
18
<PAGE>
trust is the issuer of periodic payment plan certificates,
furnish schedules of commissions and the bases thereof. In
lieu of a statement concerning schedules of commissions, such
schedules of commissions may be filed as Exhibit A(3)(c).
See Exhibits 1-A(3)(b) and (c) and "Distribution of Policies"
in the Prospectus in Exhibit D, incorporated herein by
reference.
INFORMATION CONCERNING PRINCIPAL UNDERWRITER.
39. (a) State the form of organization of each principal underwriter
of securities of the trust, the name of the state or other
sovereign power under the laws of which each underwriter was
organized and the date of organization.
FPPSI is a corporation organized under the laws of the State
of Illinois on June 18, 1999.
(b) State whether any principal underwriter currently distributing
securities of the trust is a member of the National
Association of Securities Dealers, Inc.
Not applicable as the Variable Account currently is not
distributing securities. FFPSI is registered as a
broker-dealer under the Securities Exchange Act of 1934, and
is a member of the National Association of Securities Dealers,
Inc.
40. (a) Furnish the following information with respect to all fees
received by each principal underwriter of the trust from the
sale of securities of the trust and any other functions in
connection therewith exercised by such underwriter in such
capacity or otherwise during the period covered by the
financial statements filed herewith:
Not applicable, since no Policies have yet been sold.
(b) Furnish the following information with respect to any fee or
any participation in fees received by each principal
underwriter from any underlying investment company or any
affiliated person or investment adviser of such company:
(1) the nature of such fee or participation;
(2) the name of the person making payment;
(3) the nature of the services rendered in consideration
for such fee or participation;
(4) the aggregate amount received during the last fiscal
year covered by the financial statements filed
herewith.
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<PAGE>
The response to Item 40(a) is incorporated herein by
reference. No such fee or any participation in fees
are provided for. The response to Item 13(a) is
incorporated herein by reference.
41. (a) Describe the general character of the business engaged in by
each principal underwriter, including a statement as to any
business other than the distribution of securities of the
trust. If a principal underwriter acts or has acted in any
capacity with respect to any investment company or companies,
other than the trust, state the name or names of such company
or companies, their relationship, if any, to the trust and the
nature of such activities. If a principal underwriter has
ceased to act in such named capacity, state the date of and
circumstances surrounding such cessation.
FFPSI is a broker-dealer that intends to act as a distributor
of variable insurance products. FFPSI is a wholly-owned
subsidiary of First Penn-Pacific.
(b) Furnish as at latest practicable date the address of each
branch office of each principal underwriter currently selling
securities of the trust and furnish the name and residence
address of the person in charge of such office.
Not applicable, since no Policies are currently being sold.
(c) Furnish the number of individual salesmen of each principal
underwriter through whom any of the securities of the trust
were distributed for the last fiscal year of the trust covered
by the financial statements filed herewith and furnish the
aggregate amount of compensation received by such salesmen in
such year.
Not applicable, since no sales of Policies have yet been made.
42. Furnish as at latest practicable date the following information with
respect to each principal underwriter currently distributing securities
of the trust and with respect to each of the officers, directors or
partners of such underwriter.
Not applicable, since no Policies are currently being distributed.
43. Furnish, for the last fiscal year covered by the financial statements
filed herewith, the amount of brokerage commissions received by any
principal underwriter who is a member of a national securities exchange
and who is currently distributing the securities of the trust or
effecting transactions for the trust in the portfolio securities of the
trust.
Not applicable, since no Policies have yet been sold.
OFFERING PRICE OR ACQUISITION VALUATION OF SECURITIES OF THE TRUST
44. (a) Furnish the following information with respect to the method
of valuation used by the trust for purposes of determining the
offering price to the public of securities
20
<PAGE>
issued by the trust or the valuation of shares or interests in
the underlying securities acquired by the holder of a periodic
payment plan certificate:
(1) the source of quotations used to determine the value
of portfolio securities;
Portfolio shares are valued at net asset value, as
supplied to the Company by the Portfolios or their
agents.
(2) whether opening, closing, bid, asked or any other
price is used;
Not applicable.
(3) whether price is as of the day of sale or as of any
other time;
Item 16 is incorporated herein by reference.
(4) a brief description of the methods used by registrant
for determining other assets and liabilities
including accrual for expenses and taxes (including
taxes on unrealized appreciation);
The Variable Account's assets and liabilities (such
as charges against the Variable Account) are valued
in accordance with generally accepted accounting
principles on an accrual basis. With regard to
charges for accrual of an income tax reserve, Item
13(a) is incorporated herein by reference.
(5) other items which registrant adds to the net asset
value in computing offering price of its securities;
Not applicable, for the reasons set forth in Item
44(b), which is incorporated herein by reference.
(6) whether adjustments are made for fractions:
(i) before adding distributor's compensation
(load); and
(ii) after adding distributor's compensation
(load):
Not applicable, because the Variable Account does not
compute per-unit values in the manner presupposed by
this Item and Item 44(b). Appropriate adjustments
will be made for fractions in all computations.
(b) Furnish a specimen schedule showing the components of the
offering price of the trust's securities as at the latest
practicable date.
Since the Variable Account has not issued any Policies, this
item cannot be answered in the way it contemplates. In return
for Premiums paid, the Policy Owners and
21
<PAGE>
beneficiaries have insurance coverage in the amount of the
Death Benefit under the Policy, a right to the Surrender Value
of the Policy and an interest in the Cash Value of the Policy.
The manner of calculating these benefits, rights and interests
is described in Items 10(c), (d), (e) and (i), which are
incorporated herein by reference. The fees and charges to
which the Policies are subject are described in Item 13, which
is incorporated herein by reference, and the manner of
determining the amount of Premiums under a Policy is described
in Item 44(c), which is incorporated herein by reference.
(c) If there is any variation in the offering price of the trust's
securities to any person or classes of persons other than
underwriters, state the nature and amount of such variation
and indicate the person or classes of persons to whom such
offering is made.
In setting its premium rates, the Company considers actuarial
estimates of death and cash value benefits, terminations,
expenses, investment experience and amounts to be contributed
to the Company's surplus. For additional information as to how
premium rates are set, see Items 13(c) and 13(a), which are
incorporated herein by reference.
45. Furnish the following information with respect to any suspension of the
redemption rights of the securities issued by the trust during the
three fiscal years covered by the financial statements filed herewith:
(a) by whose action redemption rights were suspended;
(b) the number of days' notice given to security holders prior to
suspension of redemption rights;
(c) reason for suspension;
(d) period during which suspension was in effect.
There has been no such suspension.
REDEMPTION VALUATION OF SECURITIES OF THE TRUST.
46. (a) Furnish the following information with respect to the method
of determining the redemption or withdrawal valuation of
securities issued by the trust:
(1) the source of quotations used to determine the value
of portfolio securities;
Item 44(a)(1) is incorporated herein by reference.
(2) whether opening, closing, bid, asked or any other
price is used;
22
<PAGE>
Not applicable.
(3) whether price is as of the day of sale or as of any
other time;
Item 44(a) (3) is incorporated herein by reference.
(4) a brief description of the methods used by registrant
for determining other assets and liabilities
including accrual for expenses and taxes (including
taxes on unrealized appreciation);
Item 44(a)(4) is incorporated herein by reference.
(5) other items which registrant deducts from the net
asset value in computing redemption value of its
securities;
Item 44(a)(5) is incorporated herein by reference.
(6) whether adjustments are made for fractions.
Item 44(a)(6) is incorporated herein by reference.
(b) Furnish a specimen schedule showing the components of the
redemption price to the holders of the trust's securities as
at the latest practicable date.
To the extent that this paragraph is applicable, see the
answers to Items 44(a) and 46(a), which are incorporated
herein by reference.
PURCHASE AND SALE OF INTERESTS IN UNDERLYING
SECURITIES FROM AND TO SECURITY HOLDERS
47. Furnish a statement as to the procedure with respect to the maintenance
of a position in the underlying securities or interests in the
underlying securities, the extent and nature thereof and the person who
maintains such a position. Include a description of the procedure with
respect to the purchase of underlying securities or interests in the
underlying securities from security holders who exercise redemption or
withdrawal rights and the sale of such underlying securities and
interests in the underlying securities to other security holders. State
whether the method of valuation of such underlying securities or
interests in the underlying securities differs from that set forth in
Items 44 and 46. If any item of expenditure included in the
determination of the valuation is not or may not actually be incurred
or expended, explain the nature of such item and who may benefit from
the transaction.
Item 16 is incorporated herein by reference. There is no procedure for
the purchase of underlying securities or interests therein from Owners
who exercise surrender rights.
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
23
<PAGE>
48. Furnish the following information as to each trustee or custodian of
the trust:
(a) Name and principal business address;
(b) Form of organization;
(c) State or other sovereign power under the laws of which the
trustee or custodian was organized;
(d) Name of governmental supervising or examining authority.
Not applicable. The Variable Account has neither trustee nor
custodian.
49. State the basis for the payment of fees or expenses of the trustee or
custodian for services rendered with respect to the trust and its
securities, and the aggregate amount thereof for the last fiscal year.
Indicate the person paying such fees or expenses. If any fees or
expenses are prepaid, state the unearned amount.
Not applicable.
50. State whether the trustee or custodian or any other person has or may
create a lien on the assets of the trust, and if so, give full
particulars, outlining the substance of the provisions of any indenture
or agreement with respect thereto.
No such lien may be created.
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Furnish the following information with respect to the insurance of
holders of securities:
(a) The name and address of the insurance company;
Various insurance benefits are provided under the Policies by
the Company, the address of which is incorporated herein by
reference to Item 2.
(b) The types of policies and whether individual or group
policies;
The Policies are flexible premium variable life insurance
policies and are issued on an individual basis.
(c) The types of risks insured and excluded;
The mortality and expense risk assumed is that the Company's
estimates of longevity and of the expenses incurred over the
lengthy period the Policy may be in effect --
24
<PAGE>
which estimates are the basis for the level of other charges
the Company makes under the Policy -- will not be correct.
Under certain options for the payment of benefits under the
Policies, the Company assumes the risk that it will be unable
to invest the assets supporting the Policies at a return
sufficient to pay the guaranteed minimum interest rate under
such options and the expenses of administering the Policies
and, in some cases, a risk that beneficiaries under such
options will live longer than anticipated.
Under certain Long-Term/Convalescent Care Riders offered in
conjunction with the Policies, the Company assumes the risk
that its estimates as to when Insureds will qualify for
reimbursement of long-term care expenses will be incorrect.
(d) The coverage of the policies;
See "Purchase of Policy and Allocation of Net Premiums" in the
Prospectus in Exhibit D, incorporated herein by reference.
(e) The beneficiaries of such policies and the uses to which the
proceeds of policies must be put;
The recipient of the benefits of the insurance undertakings
described in Item 51(c) is either the designated primary
beneficiary, any contingent beneficiaries, or the estate of
the insured(s) as stated in the application for the Policy or
as subsequently modified by the Owner. There is no limitation
on the use of the proceeds.
(f) The terms and manner of cancellation and of reinstatement;
The insurance undertakings described in Item 51 (c) are
integral parts of the Policy and may not be terminated while
the Policy remains in effect, except to the extent set forth
in Items 10(e) and 21(a), which are incorporated herein by
reference.
(g) The method of determining the amount of Payments to be paid by
holders of securities;
See "Purchase of Policy and Allocation of Net Premiums in the
Prospectus in Exhibit D, incorporated herein by reference.
(h) The amount of aggregate Payments paid to the insurance company
during the last fiscal year;
Not applicable, since no Policies have yet been sold.
25
<PAGE>
(i) Whether any person other than the insurance company receives
any part of such Payments, the name of each such person and
the amount involved, and the nature of the services rendered
therefor;
Item 13(e) is incorporated herein by reference.
(j) The substance of any other material provisions of any
indenture or agreement of the trust relating to insurance.
None except as disclosed in this registration statement.
VII. POLICY OF REGISTRANT
52. (a) Furnish the substance of the provisions of any indenture or
agreement with respect to the conditions upon which and the
method of selection by which particular portfolio securities
must or may be eliminated from the assets of the trust or must
or may be replaced by other portfolio securities. If an
investment adviser or other person is to be employed in
connection with such selection, elimination or substitution,
state the name of such person, the nature of any affiliation
to the depositor, trustee or custodian, and any principal
underwriter, and the amount of the remuneration to be received
for such services. If any particular person is not designated
in the indenture or agreement, describe briefly the method of
selection of such person.
Items 10(g) and 10(h) are incorporated herein by reference
with regard to the Company's right to substitute any other
investment for shares of any Portfolio of the Funds.
(b) Furnish the following information with respect to each
transaction involving the elimination of any underlying
security during the period covered by the financial statements
filed herewith:
(1) title of security;
(2) date of elimination;
(3) reasons for elimination;
(4) the use of the proceeds from the sale of the
eliminated security;
(5) title of security substituted, if any;
(6) whether depositor, principal underwriter, trustee or
custodian or any affiliated person of the foregoing
were involved in the transaction;
26
<PAGE>
(7) compensation or remuneration received by each such
person directly or indirectly as a result of the
transaction.
Not applicable, since no Policies have yet been sold.
(c) Describe the policy of the trust with respect to the
substitution and elimination of the underlying securities of
the trust with respect to:
(1) the grounds for elimination and substitution;
(2) the type of securities which may be substituted for
any underlying security;
(3) whether the acquisition of such substituted security
or securities would constitute the concentration of
investment in a particular industry or group of
industries or would conform to a policy of
concentration of investment in a particular industry
or group of industries;
(4) whether such substituted securities may be the
securities of any other investment company; and
(5) the substance of the provisions of any indenture or
agreement which authorize or restrict the policy of
the registrant in this regard.
Items 10(g) and 10(h) are incorporated herein by reference.
(d) Furnish a description of any policy (exclusive of policies
covered by paragraphs (a) and (b) herein) of the trust which
is deemed a matter of fundamental policy and which is elected
to be treated as such.
None.
REGULATED INVESTMENT COMPANY
53. (a) State the taxable status of the trust.
See "Taxation of First Penn-Pacific and the Variable Account"
in the Prospectus in Exhibit D, incorporated herein by
reference.
(b) State whether the trust qualified for the last taxable year as
a regulated investment company as defined in Section 851 of
the Internal Revenue Code of 1954, and state its present
intention with respect to such qualification during the
current taxable year.
The Variable Account has not and does not intend to so
qualify.
27
<PAGE>
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. If the trust is not the issuer of periodic payment plan certificates,
furnish the following information with respect to each class or series
of its securities:
Not applicable.
55. If the trust is the issuer of periodic payment plan certificates, a
transcript of a hypothetical account shall be filed in approximately
the following form on the basis of the certificate calling for the
smallest amount of payments. The schedule shall cover a certificate of
the type currently being sold assuming that such certificate had been
sold at a date approximately ten years prior to the date of
registration or at the approximate date of organization of the trust.
Not applicable. The Policies are life insurance policies and do not
operate as the usual periodic payment plan certificate. Moreover, no
Policies have yet been sold and the Variable Account has no operating
history.
56. If the trust is the issuer of periodic payment plan certificates,
furnish by years for the period covered by the financial statements
filed herewith in respect of certificates sold during such period, the
following information for each fully paid type of each installment
payment type of periodic payment plan certificate being issued by the
trust.
Not applicable, since no Policies have yet been sold.
57. If the trust is the issuer of periodic payment plan certificates,
furnish by years for the period covered by the financial statements
filed herewith the following information for each installment payment
type of periodic payment plan certificate currently being issued by the
trust.
Not applicable, since no Policies have yet been sold.
58. If the trust is the issuer of periodic payment plan certificates,
furnish the following information for each installment payment type of
periodic payment plan certificate outstanding as at the latest
practicable date.
Not applicable, since no Policies have yet been sold.
59. Financial Statements:
Financial Statements of the Trust:
No financial statements are filed for the Variable Account
because it has not yet commenced operations, has no assets nor
liabilities, and has received no income or incurred any
expense.
28
<PAGE>
Financial Statements of the Depositor:
"Financial Statements" in the Prospectus included in Exhibit D
are incorporated herein by reference.
IX. EXHIBITS
Except as otherwise noted all exhibits are incorporated by reference to the
Registration Statement filed on Form S-6, of First Penn-Pacific Variable Life
Insurance Separate Account, filed contemporaneously herewith.
EXHIBIT NUMBER TITLE
1-A(1) Amended and Restated Resolution of First Penn-Pacific establishing
First Penn-Pacific Variable Life Insurance Separate Account*
1-A(2) Not Applicable
1-A(3)(a) Form of Distribution Agreement*
1-A(3)(b) Form of Broker-Dealer and General Agent Sales Agreement*
1-A(3)(c) Schedules of Sales Commissions**
1-A(4) Not Applicable
1-A(5)(a) Specimen Policy*
1-A(5)(b) Specimen Convalescent Care Benefits Rider*
1-A(5)(c) Specimen Extension of Convalescent Care Benefits Rider*
1-A(5)(d) Specimen Extension of Convalescent Care Benefits Rider with
Automatic Increasing Benefits*
1-A(5)(e) Specimen Guarantee Enhancement Rider*
1-A(6)(a) Articles of Incorporation of First Penn-Pacific*
1-A(6)(b) By-laws of First Penn-Pacific*
1-A(7) Not Applicable
1-A(8)(a) Participation Agreements**
29
<PAGE>
1-A(9) Not Applicable
1-A(10)(a) Specimen Application for Life Insurance*
1-A(10)(b) Specimen Application for Life Insurance*
1-A(10)(c) Specimen Supplemental Application for Variable Life Insurance*
1-A(10)(d) Specimen Supplemental Application for Long-Term Care Riders*
B Not Applicable
C Not Applicable
99-D Prospectus included in Form S-6 Registration Statement of First
Penn-Pacific Variable Life Insurance Separate Account (File No.
333-xxxxx ), filed contemporaneously herewith**
- --------------------
*Incorporated by reference to Form S-6 Registration Statement of First
Penn-Pacific Variable Life Insurance Separate Account (File No. 333-xxxxx)(the
"Form S-6 Registration Statement"), filed contemporaneously herewith.
**To be filed as an Exhibit for a pre-effective amendment to the Form S-6
Registration Statement, and incorporated by reference herein.
***Attached hereto.
30
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, the
depositor of the registrant has caused this registration statement to be duly
signed on behalf of the registrant in the City of Oakbrook Terrace and the State
of Illinois on the 24th day of February, 2000.
FIRST PENN-PACIFIC VARIABLE LIFE
INSURANCE SEPARATE ACCOUNT (Registrant)
By: FIRST PENN-PACIFIC LIFE INSURANCE
COMPANY (Depositor
BY: /s/ Roland C. Baker
Roland C. Baker
President
Attest: /s/ Marcia L. DuMond
-----------------------------
Marcia L. DuMond
Vice President and General Counsel
31
<PAGE>
EXHIBIT INDEX
EXHIBIT TITLE
D Prospectus included in Form S-6 Registration Statement
of First Penn-Pacific Variable Life Insurance Separate Account
(File No. 333-__________)
69054.1
32
<PAGE>
PROSPECTUS
[SUBJECT TO COMPLETION]
FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICIES
ISSUED BY
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
IN CONNECTION WITH ITS
FIRST PENN-PACIFIC VARIABLE LIFE INSURANCE SEPARATE ACCOUNT
1801 SOUTH MEYERS ROAD
OAKBROOK TERRACE, ILLINOIS 60181-5214
ADMINISTRATIVE OFFICE
[TO BE INSERTED]
[1-800-XXX-XXXX]
This prospectus describes Flexible Premium Variable Life Insurance Policies (the
"Policies") offered by First Penn-Pacific Life Insurance Company ("we", "us, or
"First Penn-Pacific") for prospective insured persons ages 30-80. We require you
to pay at least $10,000 in Initial Premium. Subject to certain restrictions,
however, you may pay additional Premiums and increase or decrease the level of
life insurance benefits under your Policy.
You may also choose our Long-Term/Convalescent Care Benefits Riders. These
Riders provide primarily for the reimbursement of certain care expenses during
the life of the Insured if he or she becomes Chronically Ill, as defined in the
Riders. The total benefits payable under our base Rider equals the Death Benefit
under your Policy, less any loans. You may also purchase extended coverage.
Payment of benefits under the base Rider reduces the Death Benefit payable by an
equal amount. The Long-Term/Convalescent Care Benefits Riders are described at
pages [29-31] of this Prospectus.
You also may choose our Guarantee Enhancement Rider. While this Rider is in
effect, your Policy will remain in force at a reduced level of coverage if the
Surrender Value no longer is sufficient to pay the monthly charges.
(CONTINUED ON NEXT PAGE)
- ------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFER TO BUY BE ACCEPTED BEFORE THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SOLICITING AN OFFER TO BUY
THESE SECURITIES NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE DATE OF THIS PROSPECTUS IS FEBRUARY 25, 2000.
2
<PAGE>
The Policy is a modified endowment contract for Federal income tax purposes,
except in certain cases described in "Federal Tax Considerations" beginning on
page [42]. A loan, distribution or other amount received from a modified
endowment contract during the life of the Insured will be taxed to the extent of
any accumulated income in the Policy. Any taxable withdrawal will also be
subject to an additional ten percent penalty tax, with certain exceptions.
The Policy currently offers six investment options, each of which is a
Sub-Account of the First Penn-Pacific Variable Life Insurance Separate Account
(the "Variable Account"). Each Sub-Account invests exclusively in shares of one
of the following Portfolios:
[INSERT ADDITIONAL PORTFOLIOS]
DELAWARE GROUP PREMIUM FUND
- Trend Series
- Growth and Income Series (formerly Decatur Total Return Series)
- Select Growth Series
- International Equity Series
LINCOLN NATIONAL FUNDS
- Lincoln National Bond Fund, Inc.
- Lincoln National Money Market Fund, Inc.
Not all of the Sub-Accounts may be available under your Policy. You should
contact your representative for further information as to the availability of
the Sub-Accounts. We may make other investment options available in the future.
You also may allocate all or part of your Net Premiums to our Fixed Account.
Your Policy does not have a guaranteed minimum Policy Account Value. Your Policy
Account Value will rise and fall, depending on the investment performance of the
Portfolios underlying the Sub-Accounts to which you allocate your Net Premiums.
You bear the entire investment risk on amounts allocated to the Sub-Accounts.
The investment policies and risks of each Portfolio are described in the
accompanying prospectuses for the Portfolios. The Policy Account Value will also
reflect Net Premiums, amounts withdrawn, and cost of insurance and any other
charges.
When the Insured dies, we will pay a Death Benefit to a Beneficiary specified by
you. We will subtract from the Death Benefit the Loan Account Value, any unpaid
loan interest, any unpaid Policy charge, and any benefits previously paid under
our Long Term/Convalescent Care Benefits Riders. The Death Benefit generally
will equal the Specified Amount of your Policy. In certain circumstances,
however, the Death Benefit may be greater than the Specified Amount of your
Policy. In those circumstances, the Death Benefit may increase or decrease based
on the investment experience of the Portfolios underlying the Sub-Accounts to
which you have allocated your Net Premiums.
3
<PAGE>
Your Policy will remain in force as long as your Surrender Value is sufficient
to pay the monthly charges or you have an in force Guarantee Enhancement Rider.
You generally may cancel your Policy by returning it to us within thirty days
after you receive it. We will refund your Premium.
In the future, in certain states the Policies may be offered as group contracts
with individual ownership represented by Certificates. The discussion of
Policies in this Prospectus applies equally to Certificates under group
contracts, unless the context specifies otherwise.
IT MAY NOT BE ADVANTAGEOUS FOR YOU TO PURCHASE VARIABLE LIFE INSURANCE TO
REPLACE YOUR EXISTING INSURANCE COVERAGE OR IF YOU ALREADY OWN A VARIABLE LIFE
INSURANCE POLICY.
YOUR POLICY AND THE INVESTMENTS IN THE PORTFOLIOS ARE NOT DEPOSITS, OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK. YOUR POLICY IS SUBJECT TO
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
YOUR POLICY IS NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE
PORTFOLIOS LISTED ABOVE. IF ANY OF THOSE PROSPECTUSES ARE MISSING OR OUTDATED,
PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
The Policy may not be available in all states.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS....................................................................7
FEES AND EXPENSES..............................................................9
QUESTIONS AND ANSWERS ABOUT YOUR POLICY.......................................11
PURCHASE OF POLICY AND ALLOCATION OF NET PREMIUMS.............................18
Application for a Policy...................................................18
Premiums...................................................................19
Allocation of Net Premiums.................................................19
Policy Account Value.......................................................20
Accumulation Unit Value....................................................20
Transfer of Policy Account Value...........................................21
Transfers Authorized by Telephone..........................................21
Dollar Cost Averaging......................................................22
Asset Rebalancing..........................................................22
THE INVESTMENT AND FIXED ACCOUNT OPTIONS......................................23
Variable Account Investments...............................................23
Portfolios..............................................................23
Voting Rights...........................................................25
Additions, Deletions, and Substitutions of Securities...................26
The Fixed Account..........................................................27
POLICY BENEFITS AND RIGHTS....................................................27
Death Benefit..............................................................27
Change in the Specified Amount.............................................28
Optional Insurance Benefits................................................29
Long Term/Convalescent Care Benefits Riders.............................29
Guarantee Enhancement Rider.............................................31
Policy Loans...............................................................32
Amount Payable on Surrender of the Policy..................................33
Partial Withdrawals........................................................33
Proceeds Options...........................................................34
Policy after Age 100.......................................................35
Termination and Grace Period...............................................35
Reinstatement .............................................................36
Cancellation ..............................................................36
Postponement of Payments ..................................................36
DEDUCTIONS AND CHARGES........................................................36
Premium Expense Charge.....................................................36
Mortality and Expense Risk Charge .........................................37
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Other Variable Account Charge .............................................37
Monthly Deduction..........................................................37
Cost of Insurance Charge................................................37
Monthly Expense Charge..................................................38
Rider Charges...........................................................38
Portfolio Expenses.........................................................38
Surrender Charge...........................................................38
Partial Withdrawal Charge..................................................39
Transfer Fee...............................................................39
Special Provisions for Group or Sponsored Arrangements ....................39
GENERAL POLICY PROVISIONS.....................................................40
Statements to Policy Owners................................................40
Limit on Right to Contest..................................................40
Suicide....................................................................41
Misstatement as to Age and Sex.............................................41
Beneficiary................................................................41
Assignment.................................................................41
Dividends..................................................................41
Notice and Elections.......................................................42
Modification...............................................................42
FEDERAL TAX CONSIDERATIONS....................................................42
Taxation of First Penn-Pacific and the Variable Account....................42
Tax Status of the Policy ..................................................42
Diversification Requirements.............................................43
Owner Control............................................................43
Tax Treatment of Life Insurance Death Benefit Proceeds.....................44
Tax Deferral During Accumulation Period....................................44
Policies Which Are MECs..................................................45
Policies Which Are Not MECs..............................................45
Long Term/Convalescent Care Benefits Riders................................46
Status of Policy after Age 100.............................................46
Actions to Ensure Compliance with the Tax Law..............................46
Federal Income Tax Withholding.............................................46
Tax Advice.................................................................47
DESCRIPTION OF FIRST PENN-PACIFIC AND THE VARIABLE ACCOUNT....................47
First Penn-Pacific Life Insurance Company..................................47
Officers and Directors of First Penn-Pacific...............................47
Variable Account...........................................................49
Safekeeping of the Variable Account's Assets...............................49
State Regulation of First Penn-Pacific.....................................49
DISTRIBUTION OF POLICIES......................................................49
</TABLE>
6
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<TABLE>
<S> <C>
LEGAL PROCEEDINGS.............................................................50
LEGAL MATTERS.................................................................51
REGISTRATION STATEMENT........................................................51
EXPERTS.......................................................................51
FINANCIAL STATEMENTS..........................................................51
ILLUSTRATIONS................................................................I-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. FIRST PENN-PACIFIC DOES NOT AUTHORIZE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS BASED IN THIS PROSPECTUS.
7
<PAGE>
DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION UNIT - An accounting unit of measurement that we use to calculate
the value of a Sub-Account.
AGE - An Insured's age at his or her last birthday.
BENEFICIARY(IES) - The person(s) named by you to receive the Death Benefit under
the Policy.
DEATH BENEFIT - The amount payable to the Beneficiary under your Policy upon the
death of the Insured, before we subtract any permitted deductions under your
Policy.
DOLLAR COST AVERAGING - Our program under which we periodically transfer Policy
Account Value to the Sub-Accounts of your choice, until the source you designate
is exhausted or you instruct us to stop.
FIXED ACCOUNT - The portion of the Policy Account Value allocated to our general
account.
GRACE PERIOD - A 61-day period during which your Policy will remain in force so
as to permit you to pay a sufficient amount to keep your Policy from lapsing.
INSURED - The person whose life is insured under your Policy.
ISSUE DATE - The Issue Date in your Policy Schedule. It is the date the
requirements for coverage have been received, and your Policy is approved. It is
used to determine Policy Anniversaries, Policy Years and the Monthly Anniversary
Day.
LOAN ACCOUNT - An account established for amounts transferred from the
Sub-Accounts or the Fixed Account as security for outstanding Policy Loans.
LOAN ACCOUNT VALUE - An amount equal to the sum of all amounts transferred to
the Loan Account plus credited interest.
MONTHLY ANNIVERSARY DAY - The same day in each month as the Issue Date or the
next Valuation Day, if that day is not a Valuation Day or is non-existent for
that month. The day of the month on which the Monthly Deduction is taken from
your Policy Account Value.
MONTHLY DEDUCTION - The amount deducted from your Policy Account Value on each
Monthly Anniversary Day for the cost of insurance charge, the Monthly Expense
Charge and the cost of any benefit Rider.
NET POLICY ACCOUNT VALUE - The Policy Account Value less the Loan Account Value.
NET PREMIUM - A Premium less any Premium Expense Charge.
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POLICY ACCOUNT VALUE - The sum of the values of your interests in the
Sub-Accounts, the Fixed Account and the Loan Account.
POLICY ANNIVERSARY - The same day and month as the Issue Date for each
subsequent year the Policy remains in force.
POLICY OWNER ("YOU") - The person(s) having the privileges of ownership defined
in your Policy. The Policy Owner may or may not be the same person as the
Insured.
POLICY YEAR - Each twelve-month period beginning on the Issue Date and each
Policy Anniversary.
PORTFOLIO(S) - The underlying mutual funds in which the Sub-Accounts invest.
Each Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PREMIUM - An amount paid to us as payment for your Policy by you or on your
behalf.
SEC - The United States Securities and Exchange Commission.
SPECIFIED AMOUNT - The amount designated as such on the Policy Schedule of your
Policy or as subsequently changed in accordance with the terms of your Policy.
It is used to determine the amount of Death Benefit.
SUB-ACCOUNT - A division of the Variable Account, which invests wholly in shares
of one of the Portfolios.
SUB-ACCOUNT VALUE - The value of the assets held in a Sub-Account.
SURRENDER VALUE - The Net Policy Account Value less any Surrender Charge.
TAX CODE - The Internal Revenue Code of 1986, as amended.
VALUATION DAY - Each day the New York Stock Exchange is open for business and we
are open, except any day on which we can delay payment of an amount attributable
to the Variable Account as provided in "Postponement of Payments" on page [36]
below.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Sub-Accounts. Each Valuation Period begins at the close of normal
trading on the New York Stock Exchange ("NYSE"), currently 4:00 p.m. Eastern
time, on each Valuation Day and ends at the close of the NYSE on the next
Valuation Day.
VARIABLE ACCOUNT - First Penn-Pacific Variable Life Insurance Separate Account,
which is a segregated investment account of First Penn-Pacific.
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<PAGE>
FEES AND EXPENSES
The following tables are designed to help you understand the fees and expenses
that you bear, directly or indirectly, as a Policy Owner. The first table
labeled "Policy Charges and Deductions" describes the Policy charges and
deductions you directly bear under the Policy. The second table labeled
"Portfolio Expenses" describes the fees and expenses of the Portfolios that you
bear indirectly when you purchase a Policy. (See "Deductions and Charges",
beginning on page [36]).
POLICY CHARGES AND DEDUCTIONS
CHARGES DEDUCTED FROM POLICY ACCOUNT VALUE(6)
Monthly Cost of Insurance Charge:(1)
Current Guaranteed
Ranges from $.xx per $1,000 of net Ranges from $.xx per $1,000 of net
amount at risk to $xx.xx per $1,000 amount at risk to $xx.xx per $1,000
of net amount at risk. of net amount at risk.
Monthly Expense Charge:
Current: $6.00 per month
Guaranteed Maximum: $8.00 per month
TRANSACTION CHARGES
Transfer Fee: $25 per transfer after the first
twelve transfers in each Policy Year(2)
DEFERRED SALES CHARGE
Maximum Surrender Charge: As a percentage of your Initial Premium
<TABLE>
<CAPTION>
Issue Age 30-50 51-65 66-80
<S> <C> <C> <C>
Policy Years 1-10 12% 8% 6%
11 9.6% 6.4% 4.8%
12 7.2% 4.8% 3.6%
13 4.8% 3.27% 2.4%
14 2.4% 1.6% 1.2%
15 0% 0% 0%
</TABLE>
Partial Withdrawal Charge: $25 per partial withdrawal after the first
in each Policy Year(4)
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<PAGE>
CHARGES DEDUCTED FROM THE SUB-ACCOUNTS
Annual Variable Account Charges:
Mortality and Expense Risk Charge: An annual effective rate of 1.00% of
average daily net assets in the Variable
Account
Federal Income Tax Charge: Currently none. (5)
PREMIUM EXPENSE CHARGE: 3.5% of each Premium.
(1) The basis of the cost of insurance charges and the calculation of the net
amount at risk are described in "Monthly Deduction - Cost of Insurance
Charge," on pages [37-38].
(2) Transfers under our Dollar Cost Averaging and Asset Rebalancing programs do
not count against the twelve free transfer limit. See "Transfer Fee" on
page [39].
(3) The Surrender Charge is a percentage of the Initial Premium only. Payment
of additional premiums does not affect the Surrender Charge. The Surrender
Charge declines to 0% after the fourteenth Policy Year. The Surrender
Charge is imposed to cover a portion of the sales expense we incur in
distributing the Policies. Payment of a Partial Withdrawal Charge will
reduce the remaining Surrender Charge. See "Surrender Charge," on pages
[38-39].
(4) See "Partial Withdrawal Charge" on page [39].
(5) We currently do not assess a charge for federal income taxes that may be
attributable to the operations of the Variable Account. We reserve the
right to do so in the future. See "Other Variable Account Charge", page
[37].
(6) If you select our Long Term/Convalescent Care Riders or Guarantee
Enhancement Rider, we will deduct an additional charge for each Rider each
month as part of your monthly deduction. The monthly charge will depend
upon the type of Rider(s) you select and the factors described in "Monthly
Deduction - Rider Charges" on page [38].
11
<PAGE>
PORTFOLIO EXPENSES(1)
(As a percentage of average daily net assets after fee waivers and expense
reimbursements)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL TOTAL
PORTFOLIO PORTFOLIO
MANAGEMENT 12b-1 OTHER ANNUAL
PORTFOLIO FEES FEES EXPENSES EXPENSES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Delaware Group Premium Trend Series (2) 0.71% 0 0.12% 0.83%
- -------------------------------------------------------------------------------------------------------------------------------
Delaware Group Premium Growth and Income Series (2) 0.60% 0 0.11% 0.71%
- -------------------------------------------------------------------------------------------------------------------------------
Delaware Group Premium Select Growth Series (1)(2) 0.75% 0 0.10% 0.85%
- -------------------------------------------------------------------------------------------------------------------------------
Delaware Group Premium International Equity Series (2) 0.74% 0 0.15% 0.89%
- -------------------------------------------------------------------------------------------------------------------------------
Lincoln National Bond Fund 0.44% 0 0.13% 0.57%
- -------------------------------------------------------------------------------------------------------------------------------
Lincoln National Money Market Fund 0.48% 0 0.11% 0.59%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All Portfolio Expenses are based on 1998 expenses, except for the Delaware
Portfolios. Since Delaware Group Premium Select Growth Series commenced
operations on May 3, 1999, its expenses are estimated. The expenses of
other Delaware Portfolios are annualized based on expenses as of June 30,
1999.
(2) Beginning [May 1, 1998], Delaware Management elected voluntarily to waive
its fees and pay the expenses of the Delaware Trend Series and Delaware
Select Growth Series to the extent necessary to ensure that such
Portfolios' annual operating expenses, exclusive of taxes, interest,
brokerage commissions, and extraordinary expenses, do not exceed 0.85% of
average daily net assets through [October 31, 1999]. Beginning [May 1,
1999], Delaware International elected voluntarily to waive its fee and pay
the expenses of the Delaware International Equity Series to the extent
necessary to ensure that such Portfolio's annual operating expenses,
exclusive of taxes, interest, brokerage commissions, and extraordinary
expenses, do not exceed 0.95% of average daily net assets through [October
31, 1999]. Delaware Management has voluntarily agreed to waive its
management fee for Delaware Growth and Income Fund in excess of 0.60% of
average daily net assets. Delaware Management may end this waiver at any
time. Absent such waivers and/or reimbursements, as of June 30, 1999 the
Management Fees, Other Expenses, and total Annual Expenses for those
Portfolios would have been: [0.72%,] 0.12%, and 0.84%, respectively, for
Delaware Trend Series; 0.62%, 0.10%, and 0.72%, respectively, for Delaware
Growth and Income Series; 0.75%, 0.25% and 1.00%, respectively, for
Delaware Select Growth Series; and 0.75%, 0.15%, and 0.90%, respectively,
for Delaware International Equity Series. The figures shown above do not
reflect the reduction of certain expenses during the period.
QUESTIONS AND ANSWERS ABOUT YOUR POLICY
These are answers to questions that you may have about some of the more
important features of the Policy. The Policy is described more fully in the
remainder of this Prospectus. Please read this Prospectus carefully. Unless
otherwise indicated, the description of the Policy contained in this Prospectus
assumes that the Policy is in force, that there is no Loan Account Value and
that current federal tax laws apply.
1. WHAT IS A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY?
The Policy has a Death Benefit, Policy Account Value, and other features similar
to life insurance policies providing fixed benefits. It is a "flexible premium"
policy because it provides some flexibility in determining when and how much
Premium to pay. You should be aware, however, that unlike many flexible premium
policies, the Policy requires you to pay a significant
12
<PAGE>
Initial Premium and your ability to pay additional Premium without submitting
evidence of insurability is limited. It is a "variable" Policy because the
Policy Account Value and, in some circumstances, the Death Benefit vary
according to the investment performance of the Sub-Accounts to which you have
allocated your Net Premiums. The Policy Account Value is not guaranteed. The
Policy provides you with the opportunity to take advantage of any increase in
your Policy Account Value, but you also bear the risk of any decrease.
2. WHO MAY PURCHASE A POLICY?
We will issue a Policy on the life of a prospective Insured age 30-80 who meets
our underwriting standards. We may apply a lower maximum age limit if you apply
for certain Long Term/Convalescent Care Benefits Riders.
3. WHAT IS THE DEATH BENEFIT?
While the Policy is in force, we will pay a Death Benefit to the Beneficiary
upon the death of the Insured. The Death Benefit will be the greater of the
Specified Amount or a percentage of the Policy Account Value. Before we pay the
Death Benefit to the Beneficiary, however, we will subtract the Loan Account
Value, any additional accrued loan interest, any due and unpaid charges, and an
amount equal to the benefits paid under our Long Term/Convalescent Care Benefits
Riders, if you have received any. In addition, if you withdraw part of your
Policy Account Value, we will reduce the Specified Amount by an equal amount.
See "Partial Withdrawals" on pages [33-34].
4. WHAT ARE THE LONG-TERM/CONVALESCENT CARE BENEFIT RIDERS?
These Riders provide primarily for reimbursement of certain care expenses during
the life of the Insured if he or she becomes Chronically Ill, as defined in the
Rider. You may select our base Rider and add additional Riders providing
additional benefits. The base Rider provides for a maximum benefit equal to the
Death Benefit under your Policy, less any loans, determined as of the date we
approve your claim for benefits under the Rider. The payment of benefits under
the base Rider in effect is a prepayment of the Death Benefit, since each
benefit payment reduces the Death Benefit payable by an equal amount. You may
also purchase an Extension of Benefits Rider, to provide either a fixed or
gradually increasing extension of your coverage, after you have used up the
coverage provided by the base Rider. There is also a daily reimbursement limit.
If your Policy lapses before the Insured qualifies for benefits under these
Riders, the Riders also lapse. However, if the Policy lapses while the Insured
is eligible for benefits under these Riders, we will pay or continue to pay
benefits under the Riders as long as the Insured continues to be eligible for
benefits, up to the maximum benefit limit.
We deduct the cost of these Riders as part of the Monthly Deduction from your
Policy Account Value. For more information, see "Long-Term/Convalescent Care
Benefits Riders" at pages [29-31] of this Prospectus. Amounts deducted to pay
for these Riders may be taxable to you as ordinary income. For more information,
see "Federal Tax Considerations: Long Term/Convalescent Care Benefits Rider" at
page [46] below.
13
<PAGE>
5. HOW WILL THE POLICY ACCOUNT VALUE OF MY POLICY BE DETERMINED?
Your Net Premiums are invested in one or more of the Sub-Accounts or allocated
to the Fixed Account, as you instruct us. Your Policy Account Value is the sum
of the values of your interests in the Sub-Accounts, plus the values in the
Fixed Account and the Loan Account. Your Policy Account Value will depend on the
investment performance of the Sub-Accounts and the amount of interest we credit
to the Fixed Account and the Loan Account, as well as the Net Premiums paid,
partial withdrawals, and charges assessed. We do not guarantee a minimum Policy
Account Value on the portion of your Net Premiums allocated to the Variable
Account.
6. WHAT ARE THE PREMIUMS FOR THIS POLICY?
Your Initial Premium must equal at least $10,000. If you choose, you may pay
additional Premiums of at least $100 each, subject to the restrictions described
in this Prospectus. You may pay additional Premium up to the lesser of $5,000 or
10% of your Initial Premium without providing evidence of insurability. Before
we accept additional Premium in excess of that amount, however, we may require
you to provide evidence of insurability, if an increase in the Death Benefit
would result. We may refuse any additional Premium in our discretion; however,
you may always pay any additional Premium necessary to keep your Policy in
force.
7. CAN I INCREASE OR DECREASE MY POLICY'S SPECIFIED AMOUNT?
Yes, you have considerable flexibility to increase or decrease your Policy's
Specified Amount. You may request an increase and/or decrease by sending us a
written request. If you request an increase in Specified Amount, we may require
that you provide us with evidence of insurability that meets our underwriting
standards. We may grant or deny your request in our discretion. An increase in
the Specified Amount of your Policy will increase the charges deducted from your
Policy Account Value. However, it will not affect the Surrender Charge. We will
not permit you to decrease the Specified Amount of your Policy below the Minimum
Specified Amount shown in your Policy Schedule. For more detail, see "Change in
Specified Amount", on pages [28-29].
8. WHEN IS THE POLICY EFFECTIVE?
In general, if we approve your application, your Policy will be effective and
your life insurance coverage under the Policy will begin as of the date that we
receive your Initial Premium after satisfaction of the applicable underwriting
requirements. While your application is in underwriting and you have paid your
Initial Premium, we may provide you with temporary life insurance coverage in
accordance with the terms of our conditional receipt.
If we approve your application, you will earn interest on your initial Net
Premiums from the date we received them. We will begin to deduct the Policy
charges as of the Issue Date. We will temporarily allocate your initial Net
Premium to our Money Market Sub-Account until we allocate it to the other
Sub-Accounts and/or the Fixed Account in accordance with the procedures
described in the Answer to Question 9.
14
<PAGE>
If we reject your application, we will not issue you a Policy. We will return
any Premium you have paid. We will not subtract any Policy charges from the
amount we refund to you.
9. HOW ARE MY NET PREMIUMS ALLOCATED?
Before your Premiums are allocated to the Policy Account Value, we deduct a
Premium Expense Charge of 3.5% of each Premium. This charge covers a portion of
our distribution expenses, state premium tax expenses and certain federal tax
liabilities associated with the receipt of Premiums. For more detail, see
"Premium Expense Charge" on page [36]. The remaining amount is called the Net
Premium.
When you apply for the Policy, you specify in your application how to allocate
your Net Premiums among the Sub-Accounts and the Fixed Account. You must
allocate at least five percent of your Net Premiums to each option that you
choose, and the total allocations must equal 100%. We allocate any subsequent
Net Premiums in those percentages until you give us new written instructions. In
the future, we may change these limits.
If we approve your application and you paid all or a portion of your Premium
prior to the Issue Date, we will credit interest to your Initial Premium at our
then current rate for the period from our receipt of your Initial Premium to the
Issue Date. On the Issue Date, your initial Net Premium (plus any interest) will
be allocated to the Money Market Sub-Account. Forty days after the Issue Date,
we will allocate your Policy Account Value to the Sub-Accounts and the Fixed
Account in accordance with your instructions.
Additional Premiums generally will be allocated as of the date we receive your
Premium in our Administrative Office. We may delay allocating a subsequent
premium if evidence of insurability is required.
You may transfer Policy Account Value among the Sub-Accounts and the Fixed
Account while the Policy is in force, by writing to us or calling us at
1-800-xxx-xxxx. We may charge a fee of $25 per transfer on each transfer after
the first twelve transfers in any Policy Year, not counting Dollar Cost
Averaging and Asset Rebalancing transfers. We may change the number of free
transfers at any time, subject to the contractual limit described above, but the
transfer fee will never exceed $25 per transfer. While you may also transfer
amounts from the Fixed Account, certain restrictions apply. For more detail, see
"Transfer of Policy Account Value" and "Transfers Authorized by Telephone", on
page [22].
You may also use our automatic Dollar Cost Averaging program or our Asset
Rebalancing program. Under the Dollar Cost Averaging program, periodically
amounts are automatically transferred to the Sub-Accounts at regular intervals
from the account of your choice. For more detail, see "Dollar Cost Averaging",
on page [22].
Under the Asset Rebalancing program, you periodically can readjust the
percentage of your Policy Account Value allocated to each Sub-Account to
maintain a pre-set level. Investment results will shift the balance of your
Policy Account Value allocations. If you elect Asset Rebalancing, we
periodically transfer your Policy Account Value back to the specified
15
<PAGE>
percentages at the frequency that you specify. For more detail, see "Asset
Rebalancing", on page [23].
10. WHAT ARE MY INVESTMENT CHOICES UNDER THE POLICY?
You can allocate and reallocate your Policy Account Value among the
Sub-Accounts, each of which in turn invests in a single Portfolio. Under the
Policy, the Variable Account currently invests in the following Portfolios:
[INSERT ADDITIONAL PORTFOLIOS]
DELAWARE GROUP PREMIUM FUND
- Trend Series
- Growth and Income Series (formerly Decatur Total Return Series)
- Select Growth Series
- International Equity Series
LINCOLN NATIONAL FUNDS
- Lincoln National Bond Fund, Inc.
- Lincoln National Money Market Fund, Inc.
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies,
which are described in the accompanying Prospectuses for the Portfolios.
In addition, the Fixed Account is available.
11. MAY I TAKE OUT A POLICY LOAN?
Yes, you may borrow money from us using your Policy as security for the loan.
Because Policies usually are treated as "modified endowment contracts" ("MECs")
for tax purposes, in most instances Policy Loans are treated as distributions
for Federal tax purposes. Therefore, you may incur tax liabilities if you borrow
a Policy Loan. For more detail, see "Policy Loans", on pages [32-33], and
"Policies Which Are MECs", on page [45].
12. WHAT ARE THE CHARGES DEDUCTED FROM MY PREMIUMS AND MY POLICY ACCOUNT
VALUE?
PREMIUM EXPENSE CHARGE. As noted above, we deduct a 3.5% Premium Expense Charge
from each Premium before it is allocated to the Policy Account Value. This
charge covers a portion of our state premium tax expenses, certain federal
expenses associated with the receipt of premium, and our distribution expenses.
MORTALITY AND EXPENSE RISK. On each Valuation Day we deduct the Mortality and
Expense Risk Charge from the Sub-Accounts to compensate First Penn-Pacific for
certain mortality and
16
<PAGE>
expense risks assumed under the Policies. The Mortality and Expense Risk Charge
is calculated at an annual effective rate equal to 1.00% of average daily net
assets.
MONTHLY DEDUCTION. We also deduct a monthly deduction from your Policy Account
Value for the cost of insurance charge, the Monthly Expense Charge, and the cost
of any Rider. The cost of insurance charge covers our anticipated mortality
costs. The Monthly Expense Charge covers certain administrative expenses in
connection with the Policies. We allocate the Monthly Deduction pro rata among
your Policy Account Value in the Sub-Accounts and the Fixed Account.
TRANSFER FEE. We charge a fee of $25 per transfer on each transfer, excluding
Asset Rebalancing and Dollar Cost Averaging transfers, after the 12th transfer
in any Policy Year. We may change the number of free transfers and the transfer
fee at any time, but you will always be able to make at least 12 free transfers
per year and the transfer fee will never exceed $25.
SURRENDER CHARGE. We impose a Surrender Charge to cover a portion of the sales
expenses we incur in distributing the Policies. These sales expenses include
agents' commissions, advertising, and the printing of Prospectuses. The
Surrender Charge is described in the answer to Question 13 below and in
"Surrender Charge", on pages [38-39].
PARTIAL WITHDRAWAL CHARGE. We impose a Partial Withdrawal Charge of $25 on each
partial withdrawal after the first in each Policy Year. The Partial Withdrawal
Charge is used to cover a portion of our distribution and administrative
expenses. Payment of a Partial Withdrawal Charge will reduce the Surrender
Charge on a subsequent surrender, as described in "Partial Withdrawal Charge" on
page [39] below.
OTHER. In addition to our charges under the Policy, each Portfolio deducts
amounts from its assets to pay its investment advisory fee and other expenses.
The Prospectuses for the Portfolios describe their respective charges and
expenses in more detail. We may receive compensation from the investment
advisers or administrators of the Portfolios. Such compensation will be
consistent with the services we provide or the cost savings resulting from the
arrangement and therefore may differ between Portfolios.
FOR MORE INFORMATION. The charges assessed under the Policy are summarized in
the table entitled "Policy Charges and Deductions" on pages [9-11] and described
in more detail in "Deductions and Charges", beginning on page [36].
13. DO I HAVE ACCESS TO THE VALUE OF MY POLICY?
While your Policy is in force, you may surrender your Policy for the Surrender
Value, which is the Policy Account Value, less any Loan Account Value and any
Surrender Charge. Upon surrender, life insurance coverage under your Policy will
end. You may also withdraw part of your Policy Account Value through a partial
withdrawal. You may not withdraw less than $500 at one time. A partial
withdrawal will reduce your Policy's Specified Amount by an equal amount. You
may not make a partial withdrawal that would reduce your Policy's specified
amount below the Minimum Specified Amount. We may waive or change these limits.
For
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more detail, see "Amount Payable on Surrender of the Policy" and "Partial
Withdrawals", on pages [33-34].
We may deduct a Surrender Charge on a surrender and a Partial Withdrawal Charge
on a partial withdrawal.
SURRENDER CHARGE. If you surrender your Policy, we may deduct a Surrender
Charge. The Surrender Charge equals the amount shown in the Surrender Charge
table in your Policy, adjusted to reflect any partial withdrawals. The amount of
the Surrender Charge decreases over time. If you surrender your Policy after
fourteen Policy Years have elapsed, we will not charge a Surrender Charge.
Generally, the Surrender Charge is equal to your Initial Premium multiplied by
the applicable percentage shown in the table on page [9] of this Prospectus. The
applicable rate depends on the Insured's issue age, and the number of years
elapsed since issuance.
PARTIAL WITHDRAWAL CHARGE. We charge a $25 Partial Withdrawal Charge on each
partial withdrawal after the first in each Policy Year. Payment of a Partial
Withdrawal Charge reduces the Surrender Charge payable on a subsequent
surrender. In the Policy Year in which the partial withdrawal is taken, we will
reduce the then applicable Surrender Charge by the amount of the Partial
Withdrawal Charge. In subsequent years, we will reduce the applicable Surrender
Charge proportionately.
We do not charge the Partial Withdrawal Charge for payments made under the
Long-Term/Convalescent Care Riders.
For more detail, see "Surrender Charge", on pages [38-39].
14. WHAT ARE THE TAX CONSEQUENCES OF BUYING THIS POLICY?
Your Policy is structured to meet the definition of life insurance contract
under the Tax Code. In most circumstances, your Policy will be considered a
"modified endowment contract", which is a form of life insurance contract under
the Tax Code. Special rules govern the tax treatment of modified endowment
contracts. Under current tax law, death benefit payments under modified
endowment contracts, like death benefit payments under other life insurance
contracts, generally are excluded from the gross income of the beneficiary.
Withdrawals and Policy Loans, however, are treated differently. Amounts
withdrawn and Policy Loans are treated first as income, to the extent of any
gain, and then as a return of Premium. The income portion of the distribution is
includable in your taxable income. Also, an additional ten percent penalty tax
is generally imposed on the taxable portion of amounts received before age 59
1/2. For more information on the tax treatment of the Policy, see "Federal Tax
Considerations", beginning on page [42], and consult your tax adviser.
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15. CAN I RETURN THIS POLICY AFTER IT HAS BEEN DELIVERED?
You may cancel your Policy by returning it to us within thirty days after you
receive it. If you return your Policy, it terminates and we will pay you an
amount equal to your Premium.
16. WHEN DOES COVERAGE UNDER THE POLICY END?
Your Policy will terminate if you voluntarily surrender your Policy. Your Policy
also may terminate if on a Monthly Anniversary Day the Surrender Value is
insufficient to pay the Monthly Deduction and you do not pay an amount
sufficient to keep the Policy in force by the end of the 61-day Grace Period. In
that circumstance, your Policy will terminate unless your Policy includes our
Guarantee Enhancement Rider and you meet the conditions for keeping that Rider
in effect. However, if that Rider is in effect, your coverage will continue at a
reduced level. See "Guarantee Enhancement Rider" at page [31] below for more
information.
17. CAN I GET AN ILLUSTRATION TO HELP ME UNDERSTAND HOW POLICY VALUES
CHANGE WITH INVESTMENT EXPERIENCE?
At your request we will furnish you with a free, personalized illustration of
Policy Account Values, Surrender Values and Death Benefits. The illustration
will be personalized to reflect the proposed Insured's age, sex, underwriting
classification, proposed Initial Premium, and any available Riders requested.
The illustrated Policy Account Values, Surrender Values and Death Benefits will
be based on certain hypothetical assumed rates of return for the Variable
Account. Your actual investment experience probably will differ, and as a result
the actual values under your Policy at any time may be higher or lower than
those illustrated. The personalized illustrations will follow the methodology
and format of the hypothetical illustrations attached to this prospectus.
PURCHASE OF POLICY AND ALLOCATION OF NET PREMIUMS
APPLICATION FOR A POLICY. You may apply to purchase a Policy by submitting a
written application to us through one of our authorized sales representatives.
We will not issue a Policy to insure someone who is younger than age 30 or older
than age 80. If you select certain Long Term/Convalescent Care Benefit Riders,
different age limits may apply. Before we issue a Policy to you, we will require
you to submit evidence of insurability satisfactory to us. Acceptance of your
application is subject to our underwriting rules. We reserve the right to reject
your application for any reason. If we do not issue a Policy to you, we will
return your Premium to you. We reserve the right to change the terms or
conditions of your Policy to comply with differences in applicable state law.
Variations from the information appearing in this Prospectus due to individual
state requirements are described in supplements that are attached to this
Prospectus or in endorsements to the Policy, as appropriate.
In general, we will issue your Policy when (1) we have received your Initial
Premium and (2) we have determined that your application meets our underwriting
requirements. If you are paying Initial Premium from more than one source, we
will not issue your Policy until all Premiums
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have been received. The Issue Date will be the effective date of your Policy. We
use the Issue Date to determine Policy Anniversaries, Policy Years, and Monthly
Anniversary Days.
We will not accept your Initial Premium with your application if the requested
Specified Amount of your Policy exceeds our then-current limit. In other cases,
you may choose to pay the Initial Premium with your application. If you did not
submit your Initial Premium with your application, we will require you to pay
sufficient Premium before we place your insurance in force.
While your application is in underwriting, if you have paid your Initial Premium
we may provide you with temporary conditional life insurance coverage in
accordance with the terms of our conditional receipt. [The temporary conditional
coverage provides coverage during the underwriting of your application, but only
if you are ultimately approved for coverage on the same basis as the risk
classification and Specified Amount for which you applied. This temporary
conditional coverage starts when you complete your application, pay your Initial
Premium, and complete any medical examination or lab test we require.] We may
decline for any reason to accept your Initial Premium until the Issue Date.
If you pay all or a portion of your Initial Premium prior to the Issue Date, we
will initially hold your Initial Premium in our general account. If we approve
your application, you will earn interest on your Initial Net Premium from the
date of our receipt to the Issue Date. On the Issue Date, we will allocate your
Initial Premium to our Money Market Sub-Account. Subsequently, as described in
"Allocation of Net Premiums" on pages [19-20] below, we will allocate your
Policy Account Value to the Sub-Accounts or the Fixed Account as you have
chosen. We will begin to deduct the Policy charges as of the Issue Date.
If we reject your application, we will not issue you a Policy. We will return
any Premium you have paid. We will not subtract any Policy charges from the
amount we refund to you.
PREMIUMS. You must pay an Initial Premium to purchase a Policy. The minimum
Initial Premium is $10,000. You may pay additional Premiums during the Insured's
lifetime from the Issue Date until the Policy Anniversary following the
Insured's 100th birthday. You may pay additional Premiums, provided the amount
is at least $100. You may pay additional Premium up to the lesser of $5,000 or
10% of your Initial Premium without providing evidence of insurability. Before
we accept additional Premium in excess of that amount, if that Premium increases
the Death Benefit, we may require evidence of insurability satisfactory to us.
We may reject additional Premiums in our discretion. We may refuse any
additional Premium in our discretion; however, you may always pay any additional
Premium necessary to keep your Policy in force. We will not accept any
additional Premium after the Insured reaches age 100.
If you owe any Policy Loan, we will treat any additional payment as a repayment
of the Policy Loan and not as additional Premium unless you instruct us
otherwise in writing. You may pay any Premium at our Administrative Office. Our
agents are authorized to accept Initial Premiums only.
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ALLOCATION OF NET PREMIUMS. We initially allocate your Net Initial Premium (and
any interest) to the Money Market Sub-Account on the Issue Date. Forty days
after the Issue Date, we will allocate your Policy Account Value among the
Sub-Accounts and the Fixed Account in accordance with your instructions. If
there are outstanding requirements when we issue your Policy that prevent us
from placing it in force, your Premiums will not be allocated until all
requirements are satisfied.
You must specify your allocation percentages in your Policy application.
Percentages must be in whole numbers and the total allocation must equal 100%.
You may not allocate less than five percent of your Policy Account Value to any
one option, and you may not allocate all of your Net Premium to the Fixed
Account, except as part of a Dollar Cost Averaging Program. We will allocate
your Net Premiums in those percentages, until you give us new allocation
instructions.
We generally will allocate your subsequent Net Premiums to the Sub-Accounts and
the Fixed Account as of the date we receive your Premium in our Administrative
Office. If a Premium requires underwriting, however, we may delay allocation
until after we have completed underwriting. We will follow the allocation
instructions in our file, unless you send us new allocation instructions with
your Premium. When the Insured reaches age 100, we will transfer all of your
Variable Account Value to the Fixed Account and you no longer may transfer
Policy Account Value to the Sub-Accounts.
We will make all valuations in connection with the Policy, other than the
Initial Premium and other Premiums requiring underwriting, on the date we
receive your Premium or request for other action at our Administrative Office,
if that date is a Valuation Day. Otherwise we will make that determination on
the next succeeding day that is a Valuation Day.
POLICY ACCOUNT VALUE. Your Policy Account Value is the sum of the value of your
interest in the Sub-Accounts you have chosen, plus your Fixed Account Value,
plus your Loan Account Value. Your Policy Account Value may increase or decrease
daily to reflect the performance of the Sub-Accounts you have chosen, the
addition of interest credited to the Fixed Account and the Loan Account, the
addition of Net Premium, and the subtraction of partial withdrawals and charges
assessed. There is no minimum guaranteed Policy Account Value.
On the Issue Date, your Policy Account Value will equal the initial Net Premium
(plus any interest credited prior to the Issue Date), less the Monthly Deduction
for the first Policy Month.
On each Valuation Day, the value of your interest in each Sub-Account will
equal:
1. The total value of your Accumulation Units in the Sub-Account;
plus
2. Any Net Premium received from you and allocated to the
Sub-Account during the current Valuation Period; plus
3. Any Policy Account Value transferred to the Sub-Account during
the current Valuation Period; minus
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4. Any Policy Account Value transferred from the Sub-Account during
the current Valuation Period; minus
5. Any amounts withdrawn by you (plus the applicable Partial
Withdrawal Charge) from the Sub-Account during the current
Valuation Period; minus
6. The portion of any Monthly Deduction allocated to the Sub-Account.
All values under the Policy equal or exceed those required by law. Detailed
explanations of methods of calculation are on file with the appropriate
regulatory authorities.
ACCUMULATION UNIT VALUE. The Accumulation Unit Value for each Sub-Account will
vary to reflect the investment experience of the corresponding Portfolio and the
deduction of certain expenses. We will determine the Accumulation Unit Value for
each Sub-Account on each Valuation Day. A Sub-Account's Accumulation Unit Value
for a particular Valuation Day will equal: (a) the total value of the Portfolio
shares in the Sub-Account plus any dividend or distribution paid during the
Valuation Period; minus (b) the daily equivalent of the mortality and expense
risk charge and any charge or credit imposed with respect to taxes that we paid
or reserved regarding the operation of the Variable Account; divided by (c) the
number of units for that Sub-Account at the beginning of the Valuation Period.
You should refer to the Prospectuses for the Portfolios, which accompany this
Prospectus, for a description of how the assets of each Portfolio are valued,
since that determination directly affects the investment experience of the
corresponding Sub-Account and, therefore, your Policy Account Value.
TRANSFER OF POLICY ACCOUNT VALUE. While your Policy is in force, you may
transfer Policy Account Value among the Fixed Account and Sub-Accounts in
writing or by telephone. You may not request a transfer of less than $100 from a
single Sub-Account, unless the amount requested is your entire balance in the
Sub-Account. If less than $100 would remain in a Sub-Account after a transfer,
we may decline to effect the transfer. We reserve the right to change these
minimums.
We charge a transfer fee of $25 on each transfer after the first twelve
transfers in any Policy Year, excluding Dollar Cost Averaging and Asset
Rebalancing Transfers. We may change the number of free transfers and the
transfer fee at any time, but you will always be able to make at least twelve
free transfers per year and the transfer fee will never exceed $25.
As a general rule, we only make transfers on days when the NYSE is open for
business. If we receive your request on one of those days, we will make the
transfer that day. Otherwise, we will make the transfer on the first subsequent
day on which the NYSE is open. Transfers pursuant to a Dollar Cost Averaging or
Asset Rebalancing program will be made at the intervals you have selected in
accordance with the procedures and requirements we establish.
You may make transfers from the Fixed Account to the Sub-Accounts at any time
subject to the limitations described above. In addition, the total amount
transferred from the Fixed Account in
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any one Policy Year may not exceed 25% of the Fixed Account Value on the most
recent Policy Anniversary, unless the transfers are made as part of a Dollar
Cost Averaging program. Your Policy permits us to defer transfers from the Fixed
Account for up to six months from the date you ask us.
We reserve the right at any time to terminate, suspend or modify the transfer
privileges under your Policy, if they are exercised by a market timing firm or
other third party authorized to effect transfers on behalf of multiple Policy
owners. We will not take any of these steps unless transfers initiated by market
timers or other third parties could potentially disadvantage or impair the
rights of other Policy owners.
TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone, unless
you advise us in writing not to accept telephonic transfer instructions. The cut
off time for telephone transfer requests is 4:00 p.m. Eastern time. Timely
requests will be processed on that day at that day's price.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses. We may suspend, modify or terminate the telephone
transfer privilege at any time without notice.
DOLLAR COST AVERAGING. Under our Dollar Cost Averaging Program, while your
Policy is in force you may authorize us periodically to transfer an amount from
the Fixed Account or the Money Market Sub-Account to the Sub-Accounts of your
choice in accordance with the procedures and requirements that we establish. You
must allocate at least $6,000 of Policy Account Value to your source account to
start a Dollar Cost Averaging Program. The transfers will continue no longer
than twelve months. They may end sooner if you instruct us to stop, your chosen
source of transfer payments is exhausted, or you make a transfer from your
source account outside of the Dollar Cost Averaging Program. From time to time,
we may credit a higher interest rate to Fixed Account Value that is part of a
Dollar Cost Averaging program. Transfers under the Dollar Cost Averaging Program
currently do not count toward the limit on free transfers. See "Transfer Fee" on
page [39].
Your request to participate in this program will be effective when we receive
your completed application at our Administrative Office at the address given on
the first page of this Prospectus. Call or write us for a copy of the
application and additional information concerning the program. We may change,
terminate, limit or suspend Dollar Cost Averaging at any time.
The theory of dollar cost averaging is that by spreading your investment over
time, you may be able to reduce the effect of transitory market conditions on
your investment. In addition, because a given dollar amount will purchase more
units when the unit prices are relatively low rather than when the prices are
higher, in a fluctuating market, the average cost per unit may be less than the
average of the unit prices on the purchase dates. However, participation in this
program does not
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assure you of a greater profit from your purchases under the program; nor will
it prevent or necessarily reduce losses in a declining market. Moreover, other
investment programs may not work in concert with Dollar Cost Averaging.
Therefore, you should monitor your use of these programs, as well as other
transfers or withdrawals, while Dollar Cost Averaging is being used. You may not
participate in both the Dollar Cost Averaging and Asset Rebalancing Programs at
the same time.
ASSET REBALANCING. Asset Rebalancing allows you to readjust the percentage of
your Policy Account Value allocated to each Sub-Account to maintain a pre-set
level. Over time, the variations in each Sub-Account's investment results will
shift the balance of your Policy Account Value allocations. Under the Asset
Rebalancing feature, we periodically will transfer your Policy Account Value,
including new Net Premiums (unless you specify otherwise), back to the
percentages you specify in accordance with procedures and requirements that we
establish. All of your Policy Account Value allocated to the Sub-Accounts must
be included in an Asset Rebalancing program. You cannot include your Fixed
Account balance in an Asset Rebalancing program. Transfers under an Asset
Rebalancing program do not count toward the transfer limit. See "Transfer Fee"
at page [39].
You may request Asset Rebalancing when you apply for your Policy or by
submitting a completed written request to us at our Administrative Office.
Please call or write us for a copy of the request form and additional
information concerning Asset Rebalancing.
Asset Rebalancing is consistent with maintaining your allocation of investments
among market segments, although it is accomplished by reducing your Policy
Account Value allocated to the better performing segments. Other investment
programs may not work in concert with Asset Rebalancing. Therefore, you should
monitor your use of these programs, as well as other transfers or withdrawals,
while Asset Rebalancing is being used. We may change, terminate, limit, or
suspend Asset Rebalancing at any time. You may not participate in both the
Dollar Cost Averaging and Asset Rebalancing Program at the same time. In
addition, your Asset Rebalancing Program will terminate automatically if you
make a transfer outside the Asset Rebalancing Program.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
VARIABLE ACCOUNT INVESTMENTS
PORTFOLIOS. Each of the Sub-Accounts invests in the shares of one of the
Portfolios. Each Portfolio is an open-end management investment company
registered under the Investment Company Act of 1940 or a separate investment
series of a registered open-end management investment company. We briefly
describe the Portfolios below. You should read the current Prospectuses for the
Portfolios for more detailed and complete information concerning the Portfolios,
their investment objectives and strategies, and the investment risks associated
with the Portfolios. If you do not have a Prospectus for a Portfolio, contact us
and we will send you a copy.
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Each Portfolio holds its assets separate from the assets of the other
Portfolios, and each Portfolio has its own distinct investment objective and
policies. Each Portfolio operates as a separate investment fund, and the income,
gains, and losses of one Portfolio generally have no effect on the investment
performance of any other Portfolio.
The Portfolios that currently are the permissible investments of the Variable
Account under the Policy are Lincoln National Bond Fund, Inc., Lincoln National
Money Market Fund, Inc. and separate series of Delaware Group Premium Fund
("Delaware Fund"). The investment objectives of the Portfolios are briefly
described below.
[INSERT PORTFOLIO DESCRIPTIONS]
PORTFOLIOS OF DELAWARE FUND AND VARIABLE
ACCOUNT SUB-ACCOUNTS
TREND SERIES. Long-term capital appreciation, by investing primarily in
small-cap common stocks and convertible securities of emerging and other growth
oriented companies that the adviser believes are responsive to changes within
the marketplace and possess fundamental characteristics to support continued
growth.
GROWTH AND INCOME SERIES (FORMERLY DECATUR TOTAL RETURN SERIES). Highest
possible total rate of return by selecting issues that exhibit the potential for
capital appreciation while providing higher than average dividend income.
SELECT GROWTH SERIES. Long-term capital appreciation, by investing in common
stocks of companies that the adviser believes have the potential for high
earnings growth. The Portfolio invests, but not exclusively, in common stocks
and income producing securities convertible into common stocks, consistent with
the Portfolio's objective.
INTERNATIONAL EQUITY SERIES. Long-term growth without undue risk to principal,
by investing in equity securities that provide the potential for capital
appreciation and income. As an international fund, under normal circumstances
the Portfolio will invest at least 65% of its total assets in equity securities
of companies from at least three foreign countries.
PORTFOLIOS OF LINCOLN NATIONAL FUNDS
AND VARIABLE ACCOUNT SUB-ACCOUNTS
BOND FUND. Maximum current income consistent with prudent investment strategy.
The Portfolio invests primarily in medium and long-term corporate and government
bonds.
MONEY MARKET FUND. Maximum current income consistent with the preservation of
capital. The Portfolio invests in short-term obligations issued by U.S.
corporations, the U.S. Government, and federally chartered bankers and U.S.
branches of foreign banks.
Not all Sub-Accounts may be available under your Policy. You should contact your
representative for further information on the availability of the Sub-Accounts.
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DELAWARE MANAGEMENT COMPANY ("DELAWARE MANAGEMENT") is the investment manager to
each Portfolio of the Delaware Fund except the International Equity Series.
Delaware Management and its predecessors have been managing funds since 1938.
DELAWARE INTERNATIONAL ADVISERS LTD. ("DELAWARE INTERNATIONAL"), an affiliate of
Delaware Management, is the investment manager for the International Equity
Series. Delaware International began operating in 1990.
LINCOLN INVESTMENT MANAGEMENT, INC. ("LIM") is the investment adviser to the
Lincoln Funds. LIM has acted as an investment adviser to mutual funds for many
years. Delaware Management, Delaware International, and LIM are indirect
wholly-owned subsidiaries of Lincoln National Corp., which is also First
Penn-Pacific's ultimate parent.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Sub-Accounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Sub-Accounts invest. You bear that risk. YOU SHOULD
CAREFULLY REVIEW THE PORTFOLIOS' PROSPECTUSES BEFORE ALLOCATING AMOUNTS TO THE
SUB-ACCOUNTS.
Each Portfolio is subject to certain investment restrictions and policies that
may not be changed without the approval of a majority of the shareholders of the
Portfolio. See the accompanying Prospectuses of the Portfolios for further
information.
We automatically reinvest all dividends and capital gains distributions from the
Portfolios in shares of the distributing Portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Sub-Account are separate and are credited to or charged against the particular
Sub-Account without regard to income, gains or losses from any other Sub-Account
or from any other part of our business. We will use the Net Premiums you
allocate to a Sub-Account to purchase shares in the corresponding Portfolio and
will redeem shares in the Portfolios to meet Policy obligations or make
adjustments in reserves. The Portfolios are required to redeem their shares at
net asset value and to make payment within seven days.
Certain of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Policy Owners will not bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Sub-Account to which you have allocated
your Policy Account Value. Under current interpretations, however, you are
entitled to give us instructions on how to vote those shares on certain matters.
We will notify you when your instructions are needed and will
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provide proxy materials or other information to assist you in understanding the
matter at issue. We will determine the number of votes for which you may give
voting instructions as of the record date set by the relevant Portfolio for the
shareholder meeting at which the vote will occur.
As a general rule, you are the person entitled to give voting instructions.
However, if you assign your Policy, the assignee may be entitled to give voting
instructions. Retirement plans determine the rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Policy. If you do not send us
written instructions, we will vote the shares attributable to your Policy in the
same proportions as we vote the shares for which we have received instructions
from other Policy Owners. We will vote shares that we hold in the same
proportions as we vote the shares for which we have received instructions from
other Policy Owners.
We may, when required by state insurance regulatory authorities, disregard
Policy Owner voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of one or more of the Portfolios or to approve or disapprove an investment
advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Policy Owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Policy Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Variable Account or
if, in our judgment, further investment in the shares of a Portfolio is no
longer preferable, we may add or substitute shares of another Portfolio or
mutual fund for Portfolio shares already purchased or to be purchased in the
future by Premiums under the Policy. Any substitution will comply with the
requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Variable Account and the Sub-Accounts:
(a) to operate the Variable Account in any form permitted by law;
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(b) to take any action necessary to comply with applicable law or
obtain and continue any exemption from applicable laws;
(c) to transfer assets from one Sub-Account to another, or from any
Sub-Account to our general account;
(d) to add, combine, or remove Sub-Accounts in the Variable Account;
(e) to assess a charge for taxes attributable to the operation of the
Variable Account or for other taxes, as described in "Deductions
and Charges - Other Variable Account Charge" on page [37] below;
and
(f) to change the way in which we assess other charges, as long as the
total other charges do not exceed the maximum guaranteed charges
under the Policies.
If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT. THE PORTION OF THE POLICY RELATING TO THE FIXED ACCOUNT IS
NOT REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") AND THE FIXED
ACCOUNT IS NOT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY
ACT OF 1940 (THE "1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY
INTERESTS IN THE FIXED ACCOUNT ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF
THE 1933 ACT OR THE 1940 ACT, AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS
NOT BEEN REVIEWED BY THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE
STATEMENTS ABOUT THE FIXED ACCOUNT IN THIS PROSPECTUS MAY BE SUBJECT TO
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS REGARDING
ACCURACY AND COMPLETENESS.
You may allocate part of your Net Premiums to the Fixed Account. Under this
option, we credit interest to the Fixed Account, as described below. From time
to time we will set a current interest rate applicable to Net Premiums and
transfers allocated to the Fixed Account. We determine interest rates in
accordance with then-current market conditions and other factors. The rates of
interest that we set will never be less than an annual effective rate of 4%. We
may credit interest at a higher rate, but we are not obligated to do so.
Amounts allocated to the Fixed Account become part of the general account of
First Penn-Pacific. First Penn-Pacific invests the assets of the general account
in accordance with applicable laws governing the investments of insurance
company general accounts.
We may delay payment of partial or full withdrawals from the Fixed Account for
up to 6 months from the date we receive your written withdrawal request. If we
defer payment for more than 30 days, we will pay interest (if required) on the
deferred amount at such rate as may be required by the applicable state or
jurisdiction.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT. While your Policy is in force, we will pay the Death Benefit
proceeds to the Beneficiary upon the death of the Insured. As described below in
"Proceeds Options", on pages
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[34-35], we will pay the Death Benefit proceeds in a lump sum or apply them
under an optional payment plan.
The Death Benefit proceeds payable to the Beneficiary equal the Death Benefit,
less:
- any Loan Account Value as of the date of death,
- any unpaid loan interest through the end of the Policy Month of death;
- any unpaid and due charges; and
- the total benefits paid under our Long Term/Convalescent Care Benefit
Riders, if you have received any.
We will determine the amount of the Death Benefit proceeds as of the date of the
Insured's death. We will usually pay the Death Benefit proceeds within seven
days after we have received due proof of death and all other requirements we
deem necessary have been satisfied.
The Death Benefit will be the greater of: (a) the Specified Amount of your
Policy; or (b) the Policy Account Value multiplied by the applicable death
benefit factor as described below. The death benefit factors are intended to
enable your Policy to be meet the definition of "life insurance contract" under
the Tax Code, so that it will qualify for favorable federal income tax
treatment. The death benefit factors are stated in your Policy Schedule. They
vary according to the age of the Insured. Under this formula, an increase in
Policy Account Value due to favorable investment experience may increase the
Death Benefit above the Specified Amount, and a decrease in Policy Account Value
due to unfavorable investment experience may decrease the Death Benefit (but not
below the Specified Amount). As explained on pages [33-34], we will reduce the
Specified Amount if you take a partial withdrawal. If your Policy includes our
Convalescent Care Rider, a partial withdrawal also will reduce the Benefit Limit
under your Rider. See "Convalescent Care Benefits Rider on pages [30-31].
EXAMPLES:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Example A Example B
- -----------------------------------------------------------------------------
<S> <C> <C>
Specified Amount $50,000 $50,000
- -----------------------------------------------------------------------------
Insured's Age 60 60
- -----------------------------------------------------------------------------
Policy Account Value on Date of Death $40,000 $25,000
- -----------------------------------------------------------------------------
Applicable Death Benefit Factor 130% 130%
- -----------------------------------------------------------------------------
Death Benefit $52,000 $50,000
- -----------------------------------------------------------------------------
</TABLE>
In Example A, the Death Benefit equals $52,000, I.E., the greater of $50,000
(the Specified Amount) and $52,000 (the Policy Account Value at the date of
death of $40,000, multiplied by the Death Benefit Factor of 130%). This amount,
less any Loan Account Value and Long
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Term/Convalescent Care benefits paid, constitutes the Death Benefit proceeds
that we would pay to the Beneficiary.
In Example B, the Death Benefit is $50,000, i.e., the greater of $50,000 (the
Specified Amount) or $32,500 (the Policy Account Value of $25,000 multiplied by
the Death Benefit Factor of 130%). This amount, less any Loan Account Value and
Long Term/Convalescent Care benefits paid, constitutes the Death Benefit
proceeds that we would pay to the Beneficiary.
CHANGE IN THE SPECIFIED AMOUNT. While the Policy is in force, you may change the
Specified Amount. Write or call our Administrative Office to obtain the
necessary form. The change will take effect on the first Monthly Anniversary Day
after we approve your request.
[If you request a decrease in Specified Amount, we will first apply it to
coverage provided by the most recent increase in Specified Amount, then to the
next most recent increase successively and finally to the Specified Amount under
the original application.] We will not permit a decrease in the Specified Amount
of your Policy if afterward the Specified Amount remaining in force would be
less than the Minimum Specified Amount shown in your Policy Schedule. The
Minimum Specified Amount will reflect the Insured's age at issue, sex, rating
class and history of tobacco use.
To apply for an increase in the Specified Amount, you must submit to us a
supplemental application, accompanied by a satisfactory evidence of
insurability. We will not permit any increase in Specified Amount after the
Insured's 80th birthday. You may not increase the Specified Amount of your
Policy more often than once every twelve months.
We may decline a request for a change in Specified Amount in our discretion. You
may not change the Specified Amount if the Insured is not living on the
effective date of the change or your policy is in the Grace Period.
You should be aware that an increase in the Specified Amount of your Policy will
affect the cost of insurance charges applicable to your Policy. We will deduct a
larger amount of cost of insurance charges, because an increase in the Specified
Amount also will increase the net amount at risk under your Policy. [We will not
approve a request for a Specified Amount increase if the Surrender Value is too
small to pay the Monthly Deduction for the Policy Month following the increase.]
OPTIONAL INSURANCE BENEFITS. You may ask to add one or more Riders to your
Policy to provide additional optional insurance benefits. We may require
evidence of insurability before we issue a Rider to you. We will deduct the
premiums for any Rider as part of the Monthly Deduction. For more information
concerning what options we may offer, please ask your sales representative or
contact us at 800-xxx-xxxx. In our discretion we may offer Riders or stop
offering any Rider at any time.
Not all of these Riders may be available in your state, and the terms of these
benefits may differ in some states. Contact us for more information.
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LONG-TERM/CONVALESCENT CARE BENEFITS RIDERS.
Under these Riders, we will reimburse you for certain long-term care expenses if
the Insured becomes Chronically Ill, as defined in the Riders. Other conditions
apply. To obtain these benefits, you must purchase the Convalescent Care
Benefits Rider described below. You may add one of the two Extension of Benefits
Riders described below to tailor your coverage to your needs. THESE RIDERS MAY
NOT COVER ALL OF THE LONG-TERM CARE EXPENSES INCURRED BY THE INSURED DURING THE
PERIOD OF COVERAGE. ACCORDINGLY, WE STRONGLY ADVISE YOU TO REVIEW CAREFULLY ALL
POLICY AND RIDER LIMITATIONS. Amounts deducted to pay for these Riders may be
taxable to you as ordinary income. For more information, see "Federal Tax
Considerations: Long Term/Convalescent Care Benefits Rider" at page [46] below.
CONVALESCENT CARE BENEFITS RIDER. This Rider provides the basic long-term care
expenses coverage that we offer in connection with the Policy. The maximum total
benefit payable under the Rider (the "Benefit Limit") is equal to the Death
Benefit as of the date we approve your claim for benefits under the Rider, less
the Loan Account Value. The payment of benefits under this Rider in effect is a
prepayment of the Death Benefit, since each benefit payment reduces the Death
Benefit payable by an equal amount. Accordingly, if you receive total benefits
under this Rider equal to the Death Benefit under your Policy, the Policy will
lapse and no Death Benefit will be payable upon the Insured's death. Likewise,
if the Insured dies while collecting benefits under this Rider, the Death
Benefit will be reduced to reflect the total Benefits paid under this Rider.
Benefit payments also may not exceed the daily benefit limit (the "Daily
Maximum"). We offer two levels of Daily Maximum. One in effect provides for
payment of the maximum daily benefit over a two-year period. The other in effect
provides for payment of a lower maximum daily benefit over a three-year period.
We use the two and three year periods solely as a guide in setting the Daily
Maximum for your Rider. If your covered expenses are less than the applicable
Daily Maximum, we will continue to pay benefits until the total benefit payments
reach the Benefit Limit. However, if you wish to ensure the availability of
coverage for longer periods, you may purchase one of the Extension of Benefit
Riders described below.
If you take a Policy Loan or partial withdrawal while you are collecting
benefits under this Rider, we will reduce the Benefit Limit and the Daily
Maximum as described in the Rider.
The types of expenses covered by the Rider are as follows: Care Planning
expenses; Caregiver Training expenses; Adult Day Care expenses; Home Health Care
expenses; Homemaker Services expenses; Hospice Services expenses; Respite Care
expenses; Nursing Home Care expenses; Bed Reservation expenses; Assisted Living
Facility expenses; and Alternative Care Services expenses. Covered expenses, and
any restrictions on the types and levels of services and expenses covered, are
described in more detail in the Rider.
Subject to the terms and conditions of this Rider, benefits are payable under
this Rider once the Insured has been Chronically Ill for at least 90 days. We
may require verification of eligibility for benefits, including a review of
medical facts or an examination of the Insured by a physician of our choice.
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To submit a claim, you must give us written notice at our administrative office
within 60 days of when you first incur an expense covered by the Rider, or as
soon thereafter as is reasonably possible. We will then send you a Claim Form to
fill out and return to us. Be aware that your Benefit Limit is determined as of
the date when we approve your claim, not the date on which you file your claim.
A decrease in your Policy Account Value while your claim is pending may reduce
your Benefit Limit, if your Policy's Death Benefit is higher than the Specified
Amount. See "Death Benefit" at pages [27-28]. To avoid that risk, you may wish
to transfer part or all of your Policy Account Value to the Fixed Account while
your claim is pending.
When we approve your claim, we will transfer the entire Policy Account Value to
the Fixed Account. You may not transfer Policy Account Value from the Fixed
Account as long as you continue to claim benefits under this Rider. We will
continue to deduct charges from your Policy Account Value while you are claiming
benefits under this Rider. The charges will reflect the decreases in the Death
Benefit and the Policy Account Value resulting from the benefit payments under
the Rider. You may also take Policy Loans and Partial Withdrawals. Each benefit
payment will reduce the Net Policy Account Value in proportion to the reduction
in the Net Death Benefit.
If your Policy lapses while you are collecting benefits under the Rider, your
coverage under the Rider will not cease. Instead, we will continue to pay
benefits to you under the Rider until your total benefit payments equal the
Benefit Limit. However, if the Insured is ineligible for benefits for 30
consecutive days (excluding any hospital stay), the Rider also will lapse.
EXTENSION OF CONVALESCENT CARE BENEFITS RIDER. This Rider provides additional
Long-Term/Convalescent Care Benefits. This Rider covers the same types of
expenses the Convalescent Care Benefits Rider
Under this Rider, we will reimburse additional covered expenses in the amount of
the Additional Benefits Limit shown in your Policy Schedule. The Additional
Benefit Limit is payable when you reach the Benefit Limit in your Convalescent
Care Rider. The Additional Benefit Limit is a fixed amount. It is not affected
by changes in your Policy's Net Death Benefit or the Benefit Limit in your
Convalescent Care Rider. This Rider also has its own Daily Maximums. It is not
affected by any changes to the Daily Maximums in your Convalescent Care Rider.
In addition, after your Policy and this Rider have been in effect for three
years, a benefit is payable under this Rider even if a qualifying claim begins
after your Policy and this Rider lapse. In this circumstance the Benefit Limit
will equal the greater of the premium paid for the Rider or 30 times the Daily
Maximum for Nursing Home Care in effect as of the date of lapse.
EXTENSION OF CONVALESCENT CARE BENEFITS RIDER WITH AUTOMATIC INCREASING
BENEFITS. This Rider provides the same type of benefits as the Extension of
Convalescent Care Benefits Rider, except that on each Rider Anniversary the
Additional Benefit Limit and Daily Maximum for the Rider increases by 5%.
GUARANTEE ENHANCEMENT RIDER.
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<PAGE>
While this Rider is in effect, if your Policy Account Value is insufficient to
pay a Monthly Deduction when due, your Policy will not lapse. Instead we will
reduce the Specified Amount of your Policy (and the Benefit Limit of any
Convalescent Care Benefits Rider) to the Guaranteed Minimum Benefit. To qualify
for this Benefit you must meet the following conditions:
- You must not have taken any Policy Loan;
- You must not have taken any partial withdrawal;
- You must not have changed the Specified Amount of your Policy or added
benefits, except upon our written recommendation; and
- You must agree to the reduction in Specified Amount described above.
This Rider may not be available in all states.
POLICY LOANS. While your Policy is in force, you may borrow money from us using
the Policy as the only security for your loan. Loans have priority over the
claims of any assignee or any other person. The minimum loan amount is the
lesser of $500 or the minimum required in your state. We may change this limit.
In addition, if you have named an irrevocable Beneficiary, you must also obtain
his or her written consent before we make a Policy Loan to you.
We will treat as a Preferred Loan your total Policy Loans (including accrued and
unpaid interest) up to the "gain" in your Policy. Your "gain" equals your Policy
Account Value minus your Premiums paid, plus any partial withdrawals. Any
additional Policy Loan balances are treated as Regular Loans. The effective
interest rate on Preferred Loans and Regular Loans is 8% annually. Interest on
Policy Loans is due at the end of each month. If you do not pay the interest on
a Policy Loan when due, the unpaid interest will be added to your Policy Loan
balance and will accrue interest at the applicable rate.
When we make a Policy Loan to you, we will transfer to the Loan Account a
portion of the Policy Account Value equal to the loan amount. We will credit
interest to your Loan Account Value at the rates shown on your Policy Schedule.
Currently we credit interest at the rate of 8% annually on Loan Account Value
attributable to Preferred Loans and 6% annually on Loan Account Value
attributable to Regular Loans. If you do not pay loan interest when due, we will
transfer to the Loan Account an amount of Policy Account Value equal to the
amount by which the interest due on your loan exceeds the interest credited to
your Loan Account Value in the previous month. We will take the transfers pro
rata from the Fixed Account and the Sub-Accounts, unless you instruct us
otherwise in writing.
If you purchase a Policy in exchange for another life insurance policy under
which a loan is outstanding, in our discretion we may permit you to continue
that loan under your Policy. We will advise you of the applicable interest rate.
You may repay all or any part of any Policy Loan while the Policy is still in
effect and the Insured is living. If you have a Policy Loan outstanding, we will
treat any payment we receive from you as a loan repayment, unless you instruct
us otherwise in writing. We will deduct an amount equal to your loan repayment
from the Loan Account and allocate your payment among
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<PAGE>
the Sub-Accounts and the Fixed Account in accordance with your then current
Premium allocation, unless you instruct us otherwise.
A Policy Loan, whether or not repaid, will have a permanent effect on the Policy
Account Value because the investment results of each Sub-Account and the
interest paid on the Fixed Account will apply only to the amounts remaining in
those accounts. The longer a loan is outstanding, the greater the effect is
likely to be. The effect could be favorable or unfavorable. If the Sub-Accounts
and/or Fixed Account earn more than the annual interest rate charged on your
Policy Loan, your Policy Account Value will not increase as rapidly as it would
if you had not taken a Policy Loan. If the Sub-Accounts and/or Fixed Account
earn less than that rate, then your Policy Account Value will be greater than it
would have been if you had not taken a Policy Loan. Also, if you do not repay a
Policy Loan, your Loan Account Value will be subtracted from the Death Benefit
and Surrender Value otherwise payable.
You may realize taxable income when you take a Policy Loan. In most instances, a
Policy is treated as a "modified endowment contract" for federal tax purposes.
As a result, Policy Loans usually are treated as withdrawals for tax purposes,
and the amount of the loan may be treated as taxable income to you. In addition,
you may also incur an additional ten percent penalty tax. You should also be
aware that interest on Policy Loans is generally not deductible. If your Policy
lapses while a Policy Loan is outstanding and your Policy is not a MEC, you may
owe taxes or suffer other adverse tax consequences. Accordingly, before you take
a Policy Loan, you should consult your tax adviser and carefully consider the
potential impact of a Policy Loan on your rights and benefits under the Policy.
AMOUNT PAYABLE ON SURRENDER OF THE POLICY. While your Policy is in force, you
may fully surrender your Policy. Upon surrender, we will pay you the Surrender
Value determined as of the day we receive your written request at our
Administrative Office, together with your Policy. Your Policy will terminate on
the day we receive your written request. Before we pay a full surrender, you
must provide us with tax withholding information.
The Surrender Value equals the Policy Account Value, minus any applicable
Surrender Charge, minus any Loan Account Value. We will determine the Surrender
Value as of the end of the Valuation Period during which we received your
request for surrender. We generally will pay you the Surrender Value of the
Policy within seven days of our receiving your complete written request or on
the effective surrender date you have requested, whichever is later. The
determination of the Surrender Charge is described on pages [38-39].
You may receive the Surrender Value in a lump sum or under any of the proceeds
options described in "Proceeds Options" on pages [34-35].
The tax consequences of surrendering the Policy are discussed in "Federal Tax
Considerations," beginning on page [42].
PARTIAL WITHDRAWALS. You may receive a portion of the Surrender Value by making
a partial withdrawal from your Policy. You may not withdraw less than $500 at
one time. You must request the partial withdrawal in writing, unless you
previously provided us with written
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authorization to request partial withdrawals by telephone. Your request will be
effective on the date we receive it at our Administrative Office. Before we pay
any partial withdrawal, you must provide us with tax withholding information.
When you request a partial withdrawal, we will pay you the amount requested and
subtract the amount requested plus any applicable Partial Withdrawal Charge from
your Policy Account Value. The Partial Withdrawal Charge does not apply to
certain withdrawals. The determination of the Partial Withdrawal Charge is
described on page [39]. We will take your partial withdrawal pro rata from the
Sub-Accounts and/or the Fixed Account.
A partial withdrawal will reduce the Specified Amount of your Policy as well as
the Policy Account Value. We will reduce the Specified Amount by the amount of
the partial withdrawal. We will not permit a partial withdrawal that would
reduce the Specified Amount below the Minimum Specified Amount shown in your
Policy Schedule. [If you have previously increased the Specified Amount of your
Policy, your partial withdrawals will first reduce the Specified Amount of the
most recent increase, then the next most recent increases successively, then the
Specified Amount of the original Policy. We will notify you of any change in the
Specified Amount in our next quarterly or annual report to you.]
The tax consequences of partial withdrawals are discussed in "Federal Tax
Considerations" beginning on page [42].
PROCEEDS OPTIONS. We will pay the Surrender Value or Death Benefit proceeds
under the Policy in a lump sum or under one of the proceeds options that we then
offer. Our consent is needed for any payment option that would result in
installment payments of less than $50. Unless we consent in writing, the
proceeds options described below are not available if the payee is an assignee,
administrator, executor, trustee, association, partnership, or corporation. We
will not permit surrenders or partial withdrawals after payments under a
proceeds option commence. We will transfer to our general account any amount
placed under a proceeds option and it will not be affected by the investment
performance of the Variable Account.
You may request a proceeds option by writing to us at our Administrative Office
before the death of the Insured.
The following proceeds options are available under the Policy:
OPTION A - PAYMENTS FOR A FIXED NUMBER OF YEARS. We will pay equal monthly
installments for a period selected by you of not less than five and not more
than 25 years. Payments are based on a guaranteed interest rate of 4% compounded
annually.
OPTION B - LIFE INCOME WITH A GUARANTEE MINIMUM PAYMENT PERIOD. We will pay
proceeds in equal monthly payments to the payee for as long as the payee is
alive. If the payee dies before the end of the Guarantee Period, we will
continue payments to a named beneficiary until the end of the Guarantee Period.
We offer Guarantee Periods of ten years, fifteen years or twenty years. The
amount of the payment will be determined from Option Table B in your Policy.
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OPTION C - PROCEEDS LEFT ON DEPOSIT. We will return the proceeds on deposit
while the payee is alive. We will disburse the proceeds as requested by the
payee. We will credit interest to unpaid balances at an annual effective rate of
4%. The amount left on deposit must equal at least $2,500 unless we agree
otherwise.
OPTION D - PAYMENTS OF FIXED AMOUNT UNTIL PROCEEDS ARE EXHAUSTED. We will pay
equal monthly installments until the proceeds are exhausted. We will credit
interest to unpaid balances at an annual effective rate of 4%.
When we begin to make payments under Options A, B and D, we will tell you the
amount of your installment payment. Your installment payment will never be less
than the amounts determined using the tables in the Policy. It may be higher.
In our discretion, from time to time we may credit interest in addition to the
interest guaranteed under the proceeds options. If the Payee dies, under Options
A and B, we will pay the commuted value of the remaining payments to the Payee's
estate; under Options C and D, we will pay the unpaid balance left with us plus
any unpaid interest.
In addition, we may agree to other proceeds option plans. Write or call us to
obtain information about them.
POLICY AFTER AGE 100. The Policy does not have a maturity date. When the Insured
reaches age 100 and the Policy is in force, we will make the following changes
to your Policy:
- We will transfer all of your Variable Account Value to the Fixed
Account. We will continue to credit interest to the Fixed Account as
described above.
- We will discontinue charging a cost of insurance charge, and we will
not deduct any other charge.
- You may not pay additional Premiums.
The other provisions of the Policy will continue in force.
TERMINATION AND GRACE PERIOD. The Policy will terminate and life insurance
coverage will end when one of the following events first occurs:
(a) you surrender your Policy;
(b) the Grace Period ends without payment of sufficient additional
Premium and your Policy does not have an in force Guarantee
Enhancement Rider; or
(c) the Insured dies.
Your Policy will enter the Grace Period if on a Monthly Anniversary Day the
Surrender Value is insufficient to pay the Monthly Deduction or the Loan Account
Value exceeds the Surrender
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Value. You will be given a 61-day Grace Period in which to pay an amount
sufficient to keep your Policy in force after the end of the Grace Period.
At least 30 days before the end of the Grace Period, we will send you and any
assignee a notice telling you that you must pay at least the amount shown in the
notice by the end of the Grace Period to prevent your Policy from terminating.
The amount shown in the notice will approximately equal three Monthly
Deductions. You may pay a larger amount if you wish. If you do not pay us the
amount shown in the notice before the end of the Grace Period, your Policy will
end at the end of the Grace Period unless your Policy has an in force Guarantee
Enhancement Rider. See "Guarantee Enhancement Rider" at page [31] above.
Your Policy will continue in effect through the Grace Period. If the Insured
dies during the Grace Period, we will pay a Death Benefit in accordance with
your instructions. However, we will reduce the proceeds by an amount equal to
the Monthly Deductions due and unpaid. See "Death Benefit," on pages [27-28].
REINSTATEMENT. If your Policy lapses during the life of the Insured, you may
apply for reinstatement of your Policy by paying us the reinstatement Premium.
You must request reinstatement within five years from the end of the Grace
Period while the Insured is living. The reinstatement Premium is equal to any
charges due and unpaid on the date of lapse plus an amount sufficient to keep
your Policy from entering the Grace Period for two months. If you choose, you
may pay a larger amount. If any Policy Loan was outstanding at the time of
lapse, you must either repay or reinstate the loan before we will reinstate your
Policy. In addition, you must provide evidence of insurability satisfactory to
us. The Policy Account Value on the reinstatement date will reflect the Premium
paid at the time of reinstatement. We will advise you of the Surrender Charge,
if any, that will apply to surrender of your Policy after reinstatement. All
Policy charges will continue to be based on your original Issue Date.
CANCELLATION. You may cancel your Policy by returning it to us within thirty
days after you receive it. If you return your Policy, it terminates and we will
pay you an amount equal to your Premium. We will pay the refund within seven
days of receiving your request. No Surrender Charge is imposed upon return of
your Policy within the right to return period.
POSTPONEMENT OF PAYMENTS. We may defer for up to fifteen days the payment of any
amount attributable to a Premium paid by check to allow the check a reasonable
time to clear. We ordinarily will pay any amount attributable to the Policy
Account Value allocated to the Variable Account within seven days, except:
- whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
- when trading on the NYSE is restricted or an emergency exists, as
determined by the SEC, so that disposal of the Variable Account's
investments or determination of the value of its net assets is not
reasonable practicable; or
- at any other time permitted by the SEC for your protection.
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In addition, we may delay payment of Policy Account Value in the Fixed Account
for up to six months or a shorter period if required by law. If we defer payment
for more than 30 days we will pay interest (if required) on the deferred amount
at such rate as may be required by the applicable state or jurisdiction.
DEDUCTIONS AND CHARGES
We assess charges and deductions under your Policy against Premiums, the
Sub-Accounts and the Policy Account Value. Additional deductions and expenses
are paid out of the Portfolios' assets, as described in the Prospectuses of the
Portfolios.
PREMIUM EXPENSE CHARGE. We charge a premium expense charge of 3.5% of each
Premium paid. The premium expense charge is intended to cover a portion of our
state premium tax expenses, certain federal tax liabilities resulting from the
receipt of Premiums, and a portion of our distribution expenses. State premium
tax rates vary from 0% to 4.0%. We do not vary this charge to reflect the actual
premium tax rate in individual states or the absence of premium tax in certain
states. Accordingly, the portion of this charge attributable to state premium
taxes may be more or less than the premium taxes assessed in your state.
MORTALITY AND EXPENSE RISK CHARGE. On each Valuation Day, we will take a
deduction from the Sub-Accounts to compensate First Penn-Pacific for certain
expenses incurred in connection with this Policy. The mortality and expense risk
charge will be calculated at an annual effective rate equivalent to 1.00% of
average daily net assets of each Sub-Account, as described in the table of
Policy Charges and Deductions on pages [9-11]. The amount deducted will be
determined on each Valuation Day.
The mortality and expense risk charge is intended to compensate us for incurring
certain expenses and assuming certain mortality risks under the Policies. The
mortality risk assumed in relation to the Policy includes the risk that the cost
of insurance charges specified in the Policy will be insufficient to meet
claims. We also assume a risk that, on the Monthly Anniversary Day preceding the
death of an Insured, the Death Benefit will exceed the amount on which the cost
of insurance charges were based. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will exceed the
administrative charges set in the Policy.
OTHER VARIABLE ACCOUNT CHARGE. We currently are not maintaining a provision for
taxes attributable to the operations of the Variable Account (as opposed to the
federal tax related to the receipt of Premiums under the Policies). In the
future, however, we may make such a charge. Charges for other taxes, if any,
attributable to the Variable Account or to this class of Policies may also be
made.
MONTHLY DEDUCTION. Each month on the Monthly Anniversary Day we will take a
Monthly Deduction from your Policy Account Value. The Monthly Deduction will
consist of a cost of insurance charge, a Monthly Expense Charge, and any charges
for optional benefit Riders. We deduct the Monthly Deduction pro rata from your
interests in the Sub-Accounts and your Fixed Account balance.
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COST OF INSURANCE CHARGE. The cost of insurance charge is intended to pay for
the cost of providing life insurance coverage for the Insured. We guarantee that
this charge will not exceed the maximum cost of insurance charge determined on
the basis of the rates shown in the mortality table guaranteed in your Policy.
The current monthly cost of insurance charge is equal to the current cost of
insurance rate times the net amount at risk. The net amount at risk is (a) -
(b), where:
(a) is the Death Benefit on the first day of the Policy Month divided by
1.0032737; and
(b) the Policy Account Value on that day before the deduction of the
monthly Cost of Insurance.
Rates may differ based on the age, sex, rating class and history of tobacco use
of the Insured. Your guaranteed cost of insurance rates are set forth in the
mortality tables in your Policy. Because the net amount for which we are at risk
under your Policy may vary monthly, your cost of insurance charge is likely to
differ each month. If the Insured is still living and your Policy is in effect
on the first Policy Anniversary after the Insured's 100th birthday, we will
discontinue charging you a cost of insurance charge.
We determine the cost of insurance charge separately for the initial Specified
Amount and each subsequent increase. The current cost of insurance charge covers
our anticipated mortality costs for standard and substandard risks. We determine
the current cost of insurance rates based on our expectations as to our future
mortality experience and other factors. We guarantee, however, that we will
never charge you a cost of insurance charge higher than the amount determined
using the maximum guaranteed cost of insurance rates shown in the Policy. We
base our cost of insurance rates on the Insured's sex, attained age or, for the
first seven Policy Years, issue age and duration, rating class, and history of
tobacco use. However, we issue unisex Policies in Montana. Our cost of insurance
rates are based on the 1980 Commissioners Standard Ordinary ("1980 CSO")
Mortality Table based on the Insured's sex, age last birthday, and history of
tobacco use.
MONTHLY EXPENSE CHARGE. We charge a Monthly Expense Charge of $6.00 per month.
We may raise or lower this charge, but it will never exceed $8.00 per month. The
Monthly Expense Charge is intended to compensate us for administrative expenses
such as salaries, postage, telephone, office equipment and periodic reports.
RIDER CHARGES. If you select our Long Term/Convalescent Care Riders or Guarantee
Enhancement Rider, each month we will deduct a charge for each Rider. The charge
is intended to cover our anticipated costs for providing the benefits offered
under the Rider(s) you have selected. The monthly charge will depend on the type
of Rider you select and the level of coverage provided. The monthly charge for
our base Long-Term/Convalescent Care Rider also is based on the Insured's Age.
The monthly charge for our other Long-Term/Convalescent Care Riders reflects the
Insured's Age at issue. The monthly charge for our Guarantee Enhancement Rider
is a percentage of Policy Account Value.
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PORTFOLIO EXPENSES. You indirectly bear the charges and expenses of the
Portfolios whose shares are held by the Sub-Accounts to which you allocate your
Policy Account Value. The Variable Account purchases shares of the Portfolios at
net asset value. Each Portfolio's net asset value reflects investment advisory
fees and administrative expenses already deducted from the Portfolio's assets.
For a summary of current estimates of these charges and expenses, see page [11]
above. For more information concerning the investment advisory fees and other
charges against the Portfolios, see the Prospectuses and the statements of
additional information for the Portfolios, which are available upon request.
We may receive compensation from the investment advisers or administrators of
the Portfolios. Such compensation will be consistent with the services we
provide or the cost savings resulting from the arrangement and therefore may
differ between Portfolios.
SURRENDER CHARGE. If you surrender your Policy, you may pay a Surrender Charge.
The Surrender Charge equals the amount shown in the table in your Policy for the
Policy Year in which surrender occurs. The Surrender Charge equals a percentage
of your Initial Premium. The applicable Surrender Charge percentages are shown
in the table on page [9] above. The applicable percentage is based on the
Insured's age at issue and the number of complete years elapsed since the Issue
Date. The amount of the Surrender Charge decreases over time. After the 14th
Policy Year, the Surrender Charge is 0%. Payment of additional Premiums does not
affect the Surrender Charge.
The Surrender Charge is imposed to cover a portion of our actual distribution
expenses, which include agents' sales commissions and other sales and
distribution expenses. We expect to recover total sales expenses of the Policies
over the life of the Policies. However, to the extent distribution costs are not
recovered by the Surrender Charge, Partial Withdrawal Charge or the premium
expense charge, we may make up any shortfall from the assets of our general
account, which includes funds derived from the mortality and expense risk
charges charged to the Sub-Accounts and other fees and charges under the
Policies.
If you take a partial withdrawal, we will reduce the Surrender Charge in that
Policy Year by the amount of any Partial Withdrawal Charge. In addition, the
Surrender Charge in subsequent years will be reduced proportionately. For
example, assume you pay a $25 Partial Withdrawal Charge when the Surrender
Charge shown in the table is $500. If later that year you surrender your Policy,
the Surrender Charge would be $475, I.E., 5% less than the charge shown in the
Table. If you surrender your Policy in a subsequent Policy Year when the
Surrender Charge shown in the Table is $200, then you would pay a Surrender
Charge of $190. Changes in the Specified Amount of your Policy will not affect
the Surrender Charge.
PARTIAL WITHDRAWAL CHARGE. We also charge a Partial Withdrawal Charge on a
partial withdrawal from your Policy. The Partial Withdrawal Charge is $25 on
each partial withdrawal after the first in each Policy Year. The Partial
Withdrawal Charge is used to cover a portion of our distribution expenses and
our administrative expenses in processing partial withdrawal requests. See
"Surrender Charge" on pages [38-39].
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TRANSFER FEE. We charge a maximum transfer fee of $25 per transfer on each
transfer after the first twelve transfers in any Policy Year, excluding
transfers under our Dollar Cost Averaging and Asset Rebalancing Programs. We may
charge the number of free transfers and the transfer fee at any time, but you
will always be able to make at least 12 free transfers per year and the transfer
fee will never exceed $25.
We will deduct the transfer fee from the Policy Account Value remaining in the
Sub-Account or the Fixed Account from which the transfer was made. If that
amount is insufficient to pay the transfer fee, we will subtract it from the
transferred amount.
SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS. Where permitted by state
insurance laws, Policies may be purchased under group or sponsored arrangements.
We may reduce or waive the charges and deductions described above for Policies
issued under these arrangements. Among other things, we may waive Surrender
Charges and deductions to employees, officers, directors, agents, and immediate
family members of the foregoing. We will reduce these charges and deductions in
accordance with our rules in effect when we approve the application for a
Policy. To qualify for a reduction, a group or sponsored arrangement must
satisfy our criteria as to, for example, the size of the group, the expected
number of participants and anticipated Premiums from the group. Generally, the
sales contacts and effort, administrative costs and mortality cost per Policy
vary based on such factors as the size of the group or sponsored arrangements,
the purposes for which Policies are purchased and certain characteristics of the
group's members. The amount of reduction and the criteria for qualification will
reflect the reduced sales effort and administrative costs resulting from, and
the different mortality experience expected as a result of, sales to qualifying
groups and sponsored arrangements.
From time to time, we may modify both the amounts of reductions and the criteria
for qualification. Reductions in these charges will not be unfairly
discriminatory against any person, including the affected Policy Owners and all
other owners of all other policies funded by the Variable Account.
GENERAL POLICY PROVISIONS
STATEMENTS TO POLICY OWNERS. We will maintain all records relating to the
Variable Account and the Sub-Accounts. Each year we will send you a report
showing information concerning your Policy transactions in the past year and the
current status of your Policy. The report will include information such as the
Policy Account Value as of the end of the current and the prior year, the
current Death Benefit, Surrender Value, Loan Account Value, partial withdrawals,
earnings, Premiums paid, and deductions made since the last annual report. We
will also include any information required by state law or regulation. [If you
ask us, we will send you an additional report at any time. We may charge you up
to [$25] for this additional report. We will tell you the current charge before
we send you the report.]
In addition, we will send you the financial statements of the Portfolios and
other reports as specified in the Investment Company Act of 1940, as amended. We
also will mail you confirmation notices or other appropriate notices of Policy
transactions quarterly or more
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frequently within the time periods specified by law. Please give us prompt
written notice of any address change. Please read your statements and
confirmations carefully and verify their accuracy and contact us promptly with
any questions.
LIMIT ON RIGHT TO CONTEST. In the absence of fraud, we may not contest the
insurance coverage under your Policy after it has been in force for two years
while the Insured is alive or for two years after any increase in the Specified
Amount or any reinstatement. The two-year incontestability period may vary in
certain states to comply with the requirements of state insurance laws and
regulations.
In issuing your Policy, we rely on your application. Your statements in that
application and any supplemental applications, in the absence of fraud, are
considered representations and not warranties. In the absence of fraud, we will
not use any statement made in connection with your application to void your
Policy or to deny a claim, unless that statement is a part of the application or
an amendment thereto.
SUICIDE. If the Insured commits suicide while sane or insane within two years of
the Issue Date, the Death Benefit would be limited to the Premiums paid, less
any Loan Account Value, Partial Withdrawals, and the cost of any riders, and the
Policy will end. Likewise, if the Insured dies by suicide while sane or insane
within two years after the effective date of any increase in the Specified
Amount or reinstatement, the amount we will pay you (a) with respect to that
increase will be limited to the Monthly Deductions taken in connection with that
increase; and (b) with respect to the reinstatement will be limited to the
Premiums paid since the reinstatement adjusted as described above. The suicide
provisions may vary in certain states to comply with the requirements of state
insurance laws and regulations.
MISSTATEMENT AS TO AGE AND SEX. If the age or sex of the Insured is incorrectly
stated in the application, we will adjust any proceeds appropriately as
specified in your Policy.
BENEFICIARY. You name the original Beneficiary(ies) in your Policy application.
You may designate numbered classes of Beneficiaries to show priority of payment.
You may assign more than one beneficiary to each class. You may change the
Beneficiaries at any time while the Insured is alive, except irrevocable
Beneficiaries may not be changed without their consent.
You must request a change of Beneficiary in writing. We will provide a form to
be signed and filed with us. Your request for a change in Beneficiary will take
effect as of the date you signed the form after we acknowledge receipt in
writing. Until we acknowledge receipt of your change instructions, we are
entitled to rely on your most recent instructions in our files. Accordingly, we
are not liable for making a payment to the person shown in our files as the
Beneficiary or treating that person in any other respect as the Beneficiary,
even if instructions that we subsequently receive from you seek to change your
Beneficiaries effective as of a date before we made the payment or took the
action in question.
If you name more than one Beneficiary, we will divide the Death Benefit among
your Beneficiaries according to your most recent written instructions. If you
have not given us written instructions, we will pay the Death Benefit in equal
shares to the Beneficiaries. If one of the
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Beneficiaries dies before you, we will divide the Death Benefit among the
surviving Beneficiaries. If no Beneficiary in the highest priority class is
living, we will distribute the proceeds among the next highest class having a
living member. The interest of any revocable Beneficiary is subject to the
interest of any assignee. If no Beneficiary of any class is living, we will pay
the proceeds to the Policy Owner or the Policy Owner's estate.
ASSIGNMENT. While the Insured is alive, you may assign your Policy as collateral
security. You must notify us in writing if you assign your Policy. Until we
receive notice from you, we are not liable for any action we may take or
payments we may make that may be contrary to the terms of your assignment. We
are not responsible for the validity of an assignment. Your rights and the
rights of the Beneficiary may be affected by an assignment. An assignment may
result in income tax and a ten percent penalty tax. You should consult your tax
adviser before assigning your Policy.
DIVIDENDS. We will not pay any dividend under the Policy.
NOTICE AND ELECTIONS. To be effective, all notices and elections under the
Contract must be in writing, signed by you, and received by us at our
Administrative Office. Certain exceptions may apply. Unless otherwise provided
in the Policy, all notices, requests and elections will be effective when
received at our Administrative Office complete with all necessary information.
MODIFICATION. We reserve the right to modify your Policy without your express
consent, in the circumstances described in this Prospectus or as necessary to
conform to applicable law or regulation or any ruling issued by a governmental
agency. The provisions of your Policy will be construed so as to comply with the
requirements of Section 7702 of the Tax Code.
FEDERAL TAX CONSIDERATIONS
NOTE: The following discussion is based upon our understanding of current
federal income tax law applicable to life insurance policies in general. We
cannot predict the probability that any changes in those laws will be made.
Also, we do not guarantee the tax status of the Policies. You bear the complete
risk that the Policies may not be treated as "life insurance contracts" under
federal income tax laws.
In addition, this discussion does not include a detailed description of the
federal income tax consequences of the purchase of these Policies or any
discussion of special tax rules that may apply to certain purchase situations.
We also have not tried to consider any other possibly applicable state or other
tax laws, for example, the estate tax consequences of the Policies. You should
seek tax advice concerning the effect on your personal tax liability of the
transactions permitted under the Policy, as well as any other questions you may
have concerning the tax status of the Policy or the possibility of changes in
the tax law.
TAXATION OF FIRST PENN-PACIFIC AND THE VARIABLE ACCOUNT. First Penn-Pacific is
taxed as a life insurance company under Part I of Subchapter L of the Tax Code.
The operations of the Variable Account are taxed as part of the operations of
First Penn-Pacific. Investment income and realized capital gains are not taxed
to the extent that they are applied under the Policies.
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Accordingly, we do not anticipate that First Penn-Pacific will incur any federal
income tax liability attributable to the operation of the Variable Account (as
opposed to the federal tax related to the receipt of Premiums under the
Policies). Therefore, we are not making any charge or provision for federal
income taxes. However, if the tax treatment of the Variable Account is changed,
we may charge the Variable Account for its share of the resulting federal income
tax.
In several states we may incur state and local taxes on the operations of the
Variable Account. We currently are not making any separate charge or provision
for them against the Variable Account. We do, however, use part of the charges
we receive under the Policies to offset these taxes. If these taxes should be
increased, we may make a charge or provision for them against the Sub-Accounts.
If we do so, the results of the Sub-Accounts will be reduced.
TAX STATUS OF THE POLICY. The Policy is structured to satisfy the definition of
a life insurance contract under the Tax Code using the cash value accumulation
test. As a result, the Death Benefit ordinarily will be fully excluded from the
gross income of the Beneficiary. The Death Benefit will be included in your
gross estate for federal estate tax purposes if the proceeds are payable to your
estate. The Death Benefit will also be included in your estate, if the
Beneficiary is not your estate but you retained incidents of ownership in the
Policy. Examples of incidents of ownership include the right to change
Beneficiaries, to assign the Policy or revoke an assignment, and to pledge the
Policy or obtain a Policy Loan. If you own and are the Insured under a Policy
and if you transfer all incidents of ownership in the Policy more than three
years before your death, the Death Benefit will not be included in your gross
estate. State and local estate and inheritance tax consequences may also apply.
In addition, certain transfers of the Policy or Death Benefit, either during
life or at death, to individuals (or trusts for the benefit of individuals) two
or more generations below that of the transferor may be subject to the federal
generation-skipping transfer tax.
In the absence of final regulations or other pertinent interpretations of the
Tax Code, some uncertainty exists as to whether a substandard risk Policy will
meet the statutory definition of a life insurance contract. If a Policy were
deemed not to be a life insurance contract for tax purposes, it would not
provide most of the tax advantages usually provided by a life insurance
contract. We reserve the right to amend the Policies to comply with any future
changes in the Tax Code, any regulations or rulings under the Tax Code and any
other requirements imposed by the Internal Revenue Service ("IRS").
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Tax Code requires that the
underlying assets of variable life insurance contracts be diversified. The Tax
Code provides that a variable life insurance contract will not be treated as a
life insurance contract for federal income tax purposes for any period and any
subsequent period for which the investments are not adequately diversified. If
the Policy were disqualified for this reason, you would lose the tax deferral
advantages of the Policy and would be subject to current federal income taxes on
all earnings allocable to the Policy.
The diversification standards set forth in the Tax Code and applicable U.S.
Treasury Department Regulations are applied to each Sub-Account of the Variable
Account by looking to the
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investments of the Portfolio underlying the Sub-Account. One of our criteria in
selecting the Portfolios is that their investment managers intend to manage them
in compliance with these diversification requirements. The Internal Revenue
Service has stated, however, that satisfaction of the diversification
requirements by itself does not prevent a contract holder from being treated as
the owner of separate account asset under the "owner control" test discussed
below.
OWNER CONTROL. In certain circumstances, variable life insurance contract owners
will be considered the owners, for tax purposes, of separate account assets
underlying their contracts. In those circumstances, the contract owners could be
subject to taxation on the income and gains from the separate account assets.
In published rulings, the Internal Revenue Service has stated that a variable
insurance contract owner will be considered the owner of separate account
assets, if the owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. As of the date of
this Prospectus, the Treasury Department has not issued guidance on the extent
to which variable contract owners could direct their investments among
Sub-Accounts without being treated as owners of the underlying assets of the
Variable Account. We cannot predict when or whether the Treasury Department will
issue that guidance or what position the Treasury Department will take. In
addition, although regulations are generally issued with prospective effect, it
is possible that regulations may be issued with retroactive effect.
The ownership rights under the Policy are similar in many respects to those
described in IRS rulings in which the contract owners were not deemed to own the
separate account assets. In some respects, however, they differ. For example,
under the Policy you have many more investment options to choose from than were
available under the contracts involved in the published rulings, and you may be
able to transfer Policy Account Value among the investment options more
frequently than in the published rulings. Because of these differences, it is
possible that you could be treated as the owner, for tax purposes, of the
Portfolio shares underlying your Policy and therefore subject to taxation on the
income and gains on those shares. Moreover, it is possible that the Treasury
Department's position, when announced, may adversely affect the tax treatment of
existing Policies. We therefore reserve the right to modify the Policy as
necessary to attempt to prevent you from being considered the owner for tax
purposes of the underlying assets.
The remainder of this discussion assumes that the Policy will be treated as a
life insurance contract for federal tax purposes.
TAX TREATMENT OF LIFE INSURANCE DEATH BENEFIT PROCEEDS. In general, the amount
of the Death Benefit payable under a Policy is excludable from gross income
under the Tax Code. Certain transfers of the Policy, however, may result in a
portion of the Death Benefit being taxable.
If the Death Benefit is not received in a lump sum and is, instead, applied
under one of the proceeds options, payments generally will be prorated between
amounts attributable to the Death Benefit, which will be excludable from the
Beneficiary's income, and amounts attributable to
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interest (occurring after the insured's death), which will be includable in the
beneficiary's income.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Under existing provisions of the Tax
Code, except as described below, any increase in your Policy Account Value is
generally not taxable to you unless you receive or are deemed to receive amounts
from the Policy before the Insured dies. If you surrender your Policy, the Cash
Value (less any Monthly Expense Charge paid upon surrender) will be includable
in your income to the extent the amount received exceeds the "investment in the
contract." The "investment in the contract" generally is the total Premiums and
other consideration paid for the Policy, less the aggregate amount received
under the Policy previously to the extent such amounts received were excludable
from gross income. Whether partial withdrawals (or other amounts deemed to be
distributed) from the Policy constitute income depends, in part, upon whether
the Policy is considered a "modified endowment contract" ("MEC") for federal
income tax purposes.
POLICIES WHICH ARE MECS
CHARACTERIZATION OF A POLICY AS A MEC. In general, this Policy will constitute a
MEC unless (1) it was received in exchange for another life insurance policy
which was not a MEC, (2) no Premiums or other consideration (other than the
exchanged policy) are paid into the Policy during the first seven Policy Years,
and (3) there is no withdrawal or reduction in the Death Benefit during the
first seven Policy Years. In addition, even if the Policy initially is not a
MEC, it may, in certain circumstances become a MEC, if there is a later increase
in benefits or any other "material change" of the Policy within the meaning of
the tax law.
TAX TREATMENT OF WITHDRAWALS, LOANS, ASSIGNMENTS AND PLEDGES UNDER MECS. If your
Policy is a MEC, withdrawals from your Policy will be treated first as
withdrawals of income and then as a recovery of your investment in the Policy.
Thus, you may realize taxable income upon a withdrawal if the Policy Account
Value exceeds the investment in the Policy. You may also realize taxable income
when you take a Policy Loan, because any loan (including unpaid loan interest)
under the Policy will be treated as a withdrawal for tax purposes. In addition,
if you assign or pledge any portion of the value of your Policy (or agree to
assign or pledge any portion), the assigned or pledged portion of your Policy
Account Value will be treated as a withdrawal for tax purposes. Before
assigning, pledging, or requesting a loan under a Policy that is a MEC, you
should consult a qualified tax adviser.
PENALTY TAX. Generally, withdrawals (or the amount of any deemed withdrawals)
from a MEC are subject to a penalty tax equal to ten percent of the portion of
the withdrawal that is includable in income, unless the withdrawals are made:
(1) after you reach age 59 1/2, (2) because you have become disabled (as defined
in the tax law), or (3) as substantially equal periodic payments over your life
or life expectancy (or the joint lives or life expectancies of you and your
beneficiary, as defined in the tax law). Certain other exceptions to the ten
percent penalty tax may apply.
AGGREGATION OF POLICIES. All life insurance policies which are MECs and which
are purchased by the same person from us or any of our affiliates within the
same calendar year will be aggregated
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and treated as one policy for purposes of determining the amount of a withdrawal
(including a deemed withdrawal) that is includable in taxable income.
POLICIES WHICH ARE NOT MECS
TAX TREATMENT OF WITHDRAWALS GENERALLY. If your Policy is not a MEC, the amount
of any withdrawal from the Policy will be treated first as a non-taxable
recovery of Premiums and then as income from the Policy. Thus, only the portion
of a withdrawal that exceeds the investment in the Policy immediately before the
withdrawal will be includable in taxable income.
CERTAIN DISTRIBUTIONS REQUIRED BY THE TAX LAW IN THE FIRST 15 POLICY YEARS.
Where cash distributions are required under the Tax Code in connection with a
reduction in benefits during the first 15 years after the Policy is issued (or
if withdrawals are made in anticipation of a reduction in benefits, within the
meaning of the Tax Code, during this period), some or all of such amounts may be
includable in taxable income.
TAX TREATMENT OF LOANS. If your Policy is not a MEC, a loan received under the
Policy generally will be treated as indebtedness for tax purposes, rather than a
withdrawal of Policy Account Value. As a result, you will not realize taxable
income on any part of the loan as long as the Policy remains in force. If you
surrender your Policy, however, any outstanding loan balance will be treated as
an amount received by you as part of the Surrender Value. Accordingly, you may
be subject to taxation on the loan amount at that time. Generally, you may not
deduct interest paid on loans under the Policy, even if you use the loan
proceeds in your trade or business.
LONG-TERM/CONVALESCENT CARE BENEFITS RIDER. The Riders are intended to be
"qualified long-term care insurance contracts" under Section 7702B(b) of the Tax
Code. Benefits paid under such qualified contracts will be excludable from
income. Under current law, amounts deducted to pay for these Riders are treated
for tax purposes as distributions from your Policy. Accordingly, if your Policy
is a MEC or in certain circumstances if your Policy is not a MEC, the Rider
charges assessed against the Policy Account Value may be taxable to you as
income. Furthermore, if your Policy is a MEC, these deductions may be subject to
a 10% penalty tax described above.
The Riders may be issued in certain states as "non-qualified" Riders.
"Non-qualified" means that the Rider does not constitute qualified long term
care insurance under section 7702B(b) of the Tax Code. The first page of your
Rider will state whether it is issued as a qualified or non-qualified Rider. The
tax treatment of the charges for and the benefits received from such a Rider,
are uncertain. Accordingly, you should consult a tax advisor before adding a
non-qualified Rider to your Policy or requesting benefits from such a Rider.
STATUS OF POLICY AFTER AGE 100. As described above, at the Insured's age 100 we
transfer the Variable Account Value to the Fixed Account and make certain other
changes to the Policy. We believe that the Policy will continue to qualify as
life insurance under the Tax Code. However, there is some uncertainty as to this
treatment. It is possible, therefore, that you would be viewed as constructively
receiving the Surrender Value in the year in which the Insured attains age 100
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and would realize taxable income at that time, even if the Policy proceeds were
not distributed at that time.
ACTIONS TO ENSURE COMPLIANCE WITH THE TAX LAW. We believe that the maximum
amount of Premiums we intend to permit for the Policies will comply with the Tax
Code definition of a life insurance contract. We reserve the right to increase
the Death Benefit (which may result in larger charges under a Policy) or to take
any other action deemed necessary to ensure the compliance of the Policy with
the federal tax definition of a life insurance contract.
FEDERAL INCOME TAX WITHHOLDING. When we process a partial withdrawal or a
surrender under your Policy, we will ask you whether you want us to withhold and
remit to the federal government a part of the taxable portion of the amount
withdrawn or surrender proceeds. If you are subject to backup withholding,
withholding is required. As a Policy Owner, you will be responsible for the
payment of any taxes and early distribution penalties that may be due on the
amounts received under the Policy, whether or not you choose withholding. You
may also be required to pay penalties under the estimated tax rules, if your
withholding and estimated tax payments are insufficient to satisfy your total
tax liability.
TAX ADVICE. This summary is not a complete discussion of the tax treatment of
the Policy. You should seek tax advice from an attorney who specializes in tax
issues.
DESCRIPTION OF FIRST PENN-PACIFIC AND THE VARIABLE ACCOUNT
FIRST PENN-PACIFIC. First Penn-Pacific was incorporated on June 19, 1963 as a
stock life insurance company under the laws of the Commonwealth of Pennsylvania.
It redomesticated to the State of Indiana effective January 1, 1993. Its
executive and administrative offices are located at 1801 South Meyers Road,
Oakbrook Terrace, Illinois 60181-5214.
First Penn-Pacific is licensed to do business in the District of Columbia and
every state except New York. First Penn-Pacific writes deferred annuities,
universal life insurance, and term life insurance. It distributes its products
through stockbrokers, financial planners, banks and personal producing general
agents. It also manufactures deferred annuity products for its parent, Lincoln
National Life Insurance Company for distribution through its career agents and
banks. We intend to market the Policies everywhere in the United States we
conduct life insurance business.
First Penn-Pacific is a member of the Insurance Marketplace Standards
Association ("IMSA"). Accordingly, we may use the IMSA logo and membership in
IMSA in advertisements. Being a member means that First Penn-Pacific has chosen
to participate in IMSA's Life Insurance Ethical Market Conduct Program.
First Penn-Pacific is a wholly-owned subsidiary of Lincoln National Insurance
Company, which is in turn a wholly-owned subsidiary of Lincoln National
Corporation ("LNC"). Through its subsidiaries LNC operates multiple insurance
and investment management businesses.
A fidelity bond in the amount of $100 million in the aggregate per year covers
the officers and employees of First Penn-Pacific.
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OFFICERS AND DIRECTORS OF FIRST PENN-PACIFIC. Our directors and officers are
listed below, together with information as to their dates of election and
principal business occupations during the past five years (if other than their
present occupation). Where no dates are given, the person has held that position
for at least the past five years.
ROLAND C. BAKER, President, January 1995 to date; Director, February 1995 to
date.
MARCIA L. DUMOND, Vice President and General Counsel, August 1995 to date; Vice
President, Government Relations, Lincoln National Corporation, August 1990 to
August 1995.
THOMAS W. FITCH, Senior Vice President, Sales and Distribution, July 1999 to
date; Director, November 1999 to date; Senior Vice President, Marketing,
Financial Markets Division, July 1997 to July 1999, Vice President, Marketing,
December 1986 to July 1997.
JOHN H. GOTTA, Director, January 2000 to date; Chief Executive Officer of Life
Insurance, Senior Vice President and Assistant Secretary, Lincoln National Life
Insurance Company, December, 1999 to date; Senior Vice President and Assistant
Secretary, Lincoln National Life Insurance Company, April, 1998 to December
1999; Senior Vice President, Lincoln National Life Insurance Company, February
1998 to April 1998; Vice President and General Manager, Lincoln National Life
Insurance Company, January 1998 to February 1998; Senior Vice President, CIGNA,
March 1996 to December 1997; Vice President, Connecticut Mutual/Mass Mutual Life
Insurance Company, August 1994 to March 1996.
RICHARD C. KLEIN, Senior Vice President and Chief Actuary, July 1999 to date;
Director, November 1999 to date; Senior Vice President, Product Development
Financial Markets Division, July 1997 to July 1999; Vice President, Product
Development, December 1987 to July 1997.
STEPHEN J. MAC DONALD, Vice President Business Acquisition Services, July 1999
to date; Vice President, New Business, Brokerage Division, February 1995 to July
1999;
MARK J. OBERHELLMAN, Vice President Product Development, July 1999 to date; Vice
President Product Development, Brokerage Division, February 1998 to July 1999;
Second Vice President Product Development, Brokerage Division, February 1995 to
February 1998.
LAWRENCE T. ROWLAND, Director, November 1999 to date; Chairman, CEO, President
and Director, Lincoln National Reassurance Company, October 1996 to date;
Executive Vice President and Director, Lincoln National Life Insurance Company,
October 1996 to date; Chairman, President and Director, Lincoln Re S.A., October
1996 to date; Senior Vice President, Lincoln National Life Reinsurance Company,
October 1995 to October 1996; Vice President, Lincoln National Life Reinsurance
Company, October 1991 to October 1995
STEVEN W. ROGERS, Second Vice President and Chief Financial Officer, November
1999 to date; Second Vice President and Controller, July 1992 to November 1999.
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MAUREEN T. SLOAN, Vice President, Life and Annuity Client Services and Claims,
July 1999 to date; Vice President, Life Client Services and Claims, January 1999
to July 1999; Vice President, Annuity Product Development and Administration
July 1997 to January 1999; Second Vice President, Annuity Product Development
and Administration July 1991 to July 1997.
TODD R. STEPHENSON, Director, November 1999 to date; Senior Vice President,
Chief Financial Officer, Lincoln National Life Insurance Company, March 1999 to
date; Director, Annuity Net, Inc. and AnnuityNet Insurance Agency, Inc., March
1999 to date; Vice President and Director, Lincoln Realty Capital Corp., January
1999 to date; Senior Vice President and COO, Lincoln Life and Annuity
Distributors, Inc., January 1998 to March 1999; Senior Vice President and COO,
Lincoln Financial Advisors Corp, January 1998 to March 1999; Senior Vice
President, Treasurer, Director and Chief Financial Officer, American States
Insurance Co., February 1995 to December 1997.
The business address of each of the foregoing officers and directors is 1801
South Meyers Road, Oakbrook Terrace, Illinois 60181-5214.
VARIABLE ACCOUNT. First Penn-Pacific Variable Life Insurance Separate Account
was originally established on May 25, 1995, as a segregated asset account of
First Penn-Pacific, under the laws of the State of Indiana. The Variable Account
meets the definition of a "separate account" under the federal securities laws
and is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940. The SEC does not supervise the management of the Variable
Account or First Penn-Pacific.
We own the assets of the Variable Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Policy
Account Value of the Policies offered by this Prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Variable Account are credited to or charged against the Variable Account without
regard to our other income, gains, or losses. Our obligations arising under the
Policies are general corporate obligations of First Penn-Pacific.
The Variable Account is divided into Sub-Accounts. The assets of each
Sub-Account are invested in the shares of one of the Portfolios. We do not
guarantee the investment performance of the Variable Account, its Sub-Accounts
or the Portfolios. Values allocated to the Variable Account will rise and fall
with the values of shares of the Portfolios and are also reduced by Policy
charges. In the future, we may use the Variable Account to fund other variable
universal life insurance policies. We will account separately for each type of
variable life insurance policy funded by the Variable Account.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS. We hold the assets of the Variable
Account. We keep those assets physically segregated and held separate and apart
from our general account assets. We maintain records of all purchases and
redemptions of shares of the Portfolios.
STATE REGULATION OF FIRST PENN-PACIFIC. We are subject to the laws of Indiana
and regulated by the Indiana Division of Insurance. Every year we file an annual
statement with the Division of
50
<PAGE>
Insurance covering our operations for the previous year and our financial
condition as of the end of the year. We are inspected periodically by the
Division of Insurance to verify our contract liabilities and reserves. Our books
and records are subject to review by the Division of Insurance at all times. We
are also subject to regulation under the insurance laws of every jurisdiction in
which we operate.
DISTRIBUTION OF POLICIES
First Penn-Pacific Securities, Inc. ("FPPSI") serves as distributor of the
Policies. FPPSI is located at 1801 South Meyers Road, Oakbrook Terrace, Illinois
60181. FPPSI is our wholly-owned subsidiary. It is registered as a broker-dealer
under the Securities Exchange Act of 1934, and is a member of the National
Association of Securities Dealers, Inc.
The Policies described in this Prospectus are sold by registered representatives
of broker-dealers or bank employees who are licensed insurance agents appointed
by the Company, either individually or through an incorporated insurance agency.
FPPSI enters into selling agreements with affiliated and unaffiliated
broker-dealers and banks whose personnel participate in the offer and sale of
the Policies. In some states, Policies may be sold by representatives or
employees of banks that may be acting as broker-dealers without separate
registration under the Securities Exchange Act of 1934, pursuant to legal and
regulatory exceptions.
Generally, representatives will receive a commission of [not more than ___% of
the Premiums received in the first year. Representatives also will generally
receive a commission on a Specified Amount increase. In addition we may pay or
permit other promotional incentives in cash, or credit or other compensation. We
also may pay asset-based expense allowances and services fees.]
The distribution agreement with FPPSI provides for indemnification of FPPSI by
First Penn-Pacific for liability to owners arising out of services rendered or
policies issued.
The name and position of each officer and director of FPPSI as of January 1,
2000, is as follows:
Michael P. Jeanfreau President and Director
Maureen A. Klouda Chief Compliance Officer and Vice President
Steven W. Rogers Treasurer and Chief Financial Officer
Thomas W. Fitch Director
Roland C. Baker Director
Marcia L. DuMond Corporate Secretary
The principal business address of the officers and managers of FPPSI is 1801
South Meyers Road, Oakbrook Terrace, Illinois 60181.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Variable Account. First
Penn-Pacific is involved in various pending or threatened legal proceedings
arising from the conduct of its
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<PAGE>
business. Most of these proceedings are routine in nature and in the ordinary
course of business. In some instances, they include claims for unspecified
punitive damages and similar fines of relief in addition to amounts for
equitable relief. After consultation with legal counsel and a review of
available facts, it is management's opinion that the ultimate liability, if any,
under these suits will not have a material adverse effect on the financial
position of First Penn-Pacific.
First Penn-Pacific is presently defending one lawsuit in which Plaintiff seeks
to represent a national class of policyholders in connection with alleged
violations of California's Insurance Code and Business and Professional Code
related to premium collection. As of the date of this prospectus, the court has
not certified a class in this suit. Plaintiff seeks unspecified damages and
penalties for himself and on behalf of the putative class and equitable relief.
Since this case is in the preliminary stages of litigation, it is premature to
make assessments about potential loss, if any. Management is defending this suit
vigorously. The amount of liability, if any, that may ultimately arise as a
result of this suit cannot be reasonably determined at this time.
LEGAL MATTERS
All matters of Indiana law pertaining to the Policy, including the validity of
the Policy and our right to issue the Policy under Indiana law, have been passed
upon by Marcia DuMond, Esq., General Counsel. The law firm of Jorden Burt Boros
Cicchetti Berenson & Johnson, 1025 Thomas Jefferson St., Suite 400, East Lobby,
Washington, D.C. 20007-5201, serve as special counsel to First Penn-Pacific with
regard to the federal securities laws.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, Washington, D.C., under the
Securities Act of 1933 as amended, with respect to the Policies offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the registration statement and the exhibits filed as part of the registration
statement. You should refer to the registration statement and the exhibits for
further information concerning the Variable Account, First Penn-Pacific, and the
Policies. The descriptions in this Prospectus of the Policies and other legal
instruments are summaries. You should refer to those instruments as filed for
their precise terms.
EXPERTS
The financial statements of First Penn-Pacific as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999 included
in this Prospectus have been audited by [accounting firm], independent auditors,
as stated in their report appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such Firm as experts in
accounting and auditing.
FINANCIAL STATEMENTS
No financial statements are included for the Variable Account. It has not yet
commenced operations, has no assets or liabilities, and has received no income
or incurred any expense. The financial statements of First Penn-Pacific that are
included should be considered only as bearing
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<PAGE>
upon First Penn-Pacific's ability to meet its contractual obligations under the
Policies. First Penn-Pacific's financial statements do not bear on the
investment experience of the assets held in the Variable Account.
[financial statements to be added by pre-effective amendment.]
53
<PAGE>
ILLUSTRATIONS OF POLICY ACCOUNT VALUES,
SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under Policies
change with investment experience. The tables illustrate how Policy Account
Values, Surrender Values, and Death Benefits under a Policy issued on an Insured
of a given age would vary over time if the hypothetical gross investment rates
of return on the Portfolios' assets were a uniform, gross, after tax, annual
rate of 0%, 6%, and 12%. If the hypothetical gross investment rate of return
averages 0%, 6%, or 12%, but fluctuates over or under those averages throughout
the years, the Policy Account Values, Surrender Values and Death Benefits may be
different.
The amounts shown for the Policy Account Value, Surrender Value and Death
Benefit as of each Policy Anniversary reflect the fact that the net investment
return on the assets held in the Sub-Accounts is lower than the gross after-tax
return on the assets held in the Portfolios, as a result of expenses paid by the
Portfolios and charges levied against the Sub-Accounts. The values shown reflect
a daily charge to the Sub-Accounts of 1.00% of average daily net assets to
compensate First Penn-Pacific for assuming mortality and expense risks under the
Policies. The illustrations also reflect the deduction of the Premium Expense
Charge of 3.5% of each Premium.
In addition, the net investment returns also reflect the deduction of the
Portfolio investment advisory fees and other Portfolio expenses at an annual
effective rate of __%, which is the arithmetic average of the actual and
estimated fees and expenses for all of the Portfolios, including any expense
reimbursements or fee waivers. Without expense reimbursements and fee waivers,
the annual effective rate would have been _____%. First Penn-Pacific anticipates
that the expense reimbursement and fee waiver arrangements will continue past
the current year. If there should be an increase or decrease in the expense
reimbursements and fee waivers of a Portfolio that has such arrangements, that
change will be reflected in the net asset value of the corresponding Portfolio.
The tables also reflect applicable charges including monthly cost of insurance
charges and a monthly expense charge of $6.00 per month on a current basis and
$8.00 per month as a guaranteed maximum. For each hypothetical gross investment
rate of return, tables are provided reflecting current and guaranteed cost of
insurance charges and monthly expense charges. After deduction of these amounts
(other than the cost of insurance charges, monthly expense charges and premium
expense charges), hypothetical gross average investment rates of return of 0%,
6% and 12% correspond to approximate net annual investment rates of return of
__%, __% and __%, respectively or both a current and guaranteed basis. Cost of
insurance rates vary by issue age (or attained age in the case of increases in
Specified Amount), sex, tobacco use, rating class and Policy Year and,
therefore, cost of insurance charges are not reflected in the approximate net
annual investment rate of return stated above.
The tables illustrate the Policy Account Values, Surrender Values, and Death
Benefits that would result based upon the hypothetical investment rates of
return if no Premium other than the
I-1
<PAGE>
indicated Initial Premium is paid, if the entire Initial Premium is allocated to
the Separate Account, and if no Policy loans are taken. The tables also assume
that no partial withdrawals or transfers have been made.
Values are shown for Policies that are issued to standard class Insureds. Values
for Policies issued on a basis involving a higher mortality risk would result in
lower Policy Account Values, Surrender Values and Death Benefits than those
illustrated. Females generally have a more favorable guaranteed rate structure
than males.
Where the Surrender Value shown in an illustration is zero, the Policy may lapse
in accordance with the Grace Period provisions if you do not pay sufficient
additional premium.
The tables reflect the fact that no charges for Federal, state or other income
taxes are currently made against the Separate Account. If such a charge is made
in the future, it will take a higher gross rate of return than illustrated to
produce the net after-tax returns shown in the tables.
The benefit Riders described in the prospectus are available to add optional
insurance benefits to your Policy. The charges for benefit Riders are deducted
from your Policy Account Value as part of the Monthly Deduction. The attached
illustrations do not include any optional insurance benefits.
Upon request, First Penn-Pacific will furnish a comparable illustration based on
the proposed Insured's age, sex, underwriting classification, proposed Initial
Premium, and any available Riders requested.
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<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER ISSUE AGE 65
$XX,XXX INITIAL PREMIUM
$XX,XXX SPECIFIED AMOUNT
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
INITIAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUM ----------------------- ----------------------- -----------------------
PLUS POLICY POLICY POLICY
POLICY INTEREST ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
35
</TABLE>
ASSUMPTIONS:
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
I-3
<PAGE>
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND GUARANTEED
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE CASH VALUE ACCUMULATION TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE POLICY MIGHT LAPSE IN ACCORDANCE
WITH THE GRACE PERIOD PROVISIONS UNLESS SUFFICIENT ADDITIONAL PREMIUM
IS PAID.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND SURRENDER
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY FIRST PENN-PACIFIC LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
I-4
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE STANDARD NON-SMOKER ISSUE AGE 65
$XX,XXX INITIAL PREMIUM
$XX,XXX SPECIFIED AMOUNT
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
INITIAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUM ----------------------- ----------------------- -----------------------
PLUS POLICY POLICY POLICY
POLICY INTEREST ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
35
</TABLE>
I-5
<PAGE>
ASSUMPTIONS:
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND CURRENT MONTHLY
EXPENSE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE CASH VALUE ACCUMULATION TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE POLICY MIGHT LAPSE IN ACCORDANCE
WITH THE GRACE PERIOD PROVISIONS UNLESS SUFFICIENT ADDITIONAL PREMIUM
IS PAID.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND SURRENDER
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY FIRST PENN-PACIFIC LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
I-6
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE STANDARD NON-SMOKER ISSUE AGE 65
$XX,XXX INITIAL PREMIUM
$XX,XXX SPECIFIED AMOUNT
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
INITIAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUM ----------------------- ----------------------- -----------------------
PLUS POLICY POLICY POLICY
POLICY INTEREST ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
35
</TABLE>
ASSUMPTIONS:
I-7
<PAGE>
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
(2) VALUES REFLECT GUARANTEED COST OF INSURANCE CHARGES AND GUARANTEED
MONTHLY EXPENSE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE CASH VALUE ACCUMULATION TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, THE POLICY MIGHT LAPSE IN ACCORDANCE
WITH THE GRACE PERIOD PROVISIONS UNLESS SUFFICIENT ADDITIONAL PREMIUM
IS PAID.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND SURRENDER
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY FIRST PENN-PACIFIC LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
I-8
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE STANDARD NON-SMOKER ISSUE AGE 65
$XX,XXX INITIAL PREMIUM
$XX,XXX SPECIFIED AMOUNT
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
INITIAL GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
PREMIUM ----------------------- ----------------------- -----------------------
PLUS POLICY POLICY POLICY
POLICY INTEREST ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- ----- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
30
35
</TABLE>
ASSUMPTIONS:
(1) ASSUMES NO POLICY LOANS HAVE BEEN MADE.
I-9
<PAGE>
(2) VALUES REFLECT CURRENT COST OF INSURANCE CHARGES AND CURRENT MONTHLY
EXPENSE CHARGES.
(3) NET INVESTMENT RETURNS ARE CALCULATED AS THE HYPOTHETICAL GROSS
INVESTMENT RETURN LESS ALL CHARGES AND DEDUCTIONS.
(4) DEATH BENEFIT REFLECTS CURRENT INTERNAL REVENUE CODE REQUIREMENTS BASED
ON THE CASH VALUE ACCUMULATION TEST.
(5) WHEN THE SURRENDER VALUE IS ZERO, IS PAID, THE POLICY MIGHT LAPSE IN
ACCORDANCE WITH THE GRACE PERIOD PROVISIONS UNLESS SUFFICIENT
ADDITIONAL PREMIUM IS PAID.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN
OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, POLICY ACCOUNT VALUE AND SURRENDER
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6% AND 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY FIRST PENN-PACIFIC LIFE INSURANCE COMPANY THAT THESE HYPOTHETICAL RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
I-10
