<PAGE>
As filed with the Securities and Exchange Commission on June 1, 2000
Registration No. 333-31116
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-----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
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FIRST PENN-PACIFIC VARIABLE LIFE INSURANCE SEPARATE ACCOUNT
(Exact Name of Trust)
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
(Name of Depositor)
10 N. Martingale Road
Schaumburg, Illinois 60173
(Complete Address of Depositor's Principal Executive Offices)
Marcia L. DuMond, Esq.
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
10 N. Martingale Road
Schaumburg, Illinois 60173
(Name and Complete Address of Agent for Service)
Copies to:
Joan E. Boros, Esq.
Christopher S. Petito
Jorden Burt Boros Cicchetti
Berenson & Johnson
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007-5201
Securities being offered -- variable portion of flexible premium variable life
insurance policies.
-----------
Approximate date of proposed public offering: as soon as practicable after the
effective date of this registration statement.
The registrant is registering an indefinite amount of securities, by reason of
Section 24(f) of the Investment Company Act of 1940.
The registrant hereby amends this registration statement on such dates as may be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
-----------------------------------------------
<PAGE>
CROSS REFERENCE SHEET TO PROSPECTUS
Cross reference sheet pursuant to Rule 404(c) showing location in Prospectus of
information required by Items of Form N-8B-2.
<TABLE>
<CAPTION>
Item Number in Form N-8B-2 Caption in Prospectus
-------------------------- ---------------------
<S> <C>
ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust..................................................... Cover, Definitions
(b) Title of each class of securities issued.......................... Cover, Purchase of Policy and
Allocation of Net Premiums
2. Name & address of each depositor........................................ Cover, First Penn-Pacific Life
Insurance Company
3. Name & address of custodian............................................. Variable Account
4. Name & address of principal underwriter................................. Distribution of Policies
5. State in which organized................................................ Variable Account
6. Date of organization.................................................... Variable Account
9. Material litigation..................................................... Legal Proceedings
GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
GENERAL INFORMATION CONCERNING SECURITIES AND RIGHTS OF HOLDERS
10. (a), (b)Type of Securities.............................................. Cover, Purchase of Policy and
Allocation of Net Premiums
(c) Rights of security holders........................................ Cover, Amount Payable on
re: withdrawal or redemption Surrender of the Policy, Policy
Loans, Cancellation
(d) Rights of security holders........................................ Cover, Cancellation, Amount
re: conversion, transfer or partial withdrawal Payable on Surrender of the
Policy, Partial Withdrawals,
Allocation of Net Premiums,
Transfer of Policy Account
Value
(e) Rights of security holders........................................ Termination and Grace Period,
re: lapses, default, & reinstatement Reinstatement
(f) Provisions re: voting rights...................................... Voting Rights
(g) Notice to security holders........................................ Statements to Policy Owners
(h) Consent of security holders....................................... Additions, Deletions, and
Substitutions of Securities,
Allocation of Net Premiums
(i) Other principal features.......................................... Deductions and Charges, Policy
Benefits and Rights, Policy
Account Value
</TABLE>
ii
<PAGE>
<TABLE>
INFORMATION CONCERNING SECURITIES UNDERLYING TRUST'S SECURITIES
<S> <C>
11. Unit of specified securities in which security holders have an interest Cover, Portfolios
12. (a)-(d) Name of company, name & address of its custodian................ Cover, Portfolios
INFORMATION CONCERNING LOADS, FEES, CHARGES & EXPENSES
13. (a) With respect to each load, fee, charge & expense.................. Deductions and Charges
(b) Deductions for sales charges...................................... Surrender Charge
(c) Sales load as percentage of amount invested....................... Surrender Charge
(d)-(g) Other loads, fees & expenses.................................... Deductions and Charges
INFORMATION CONCERNING OPERATION OF TRUST
14. Procedure for applications for & issuance of trust's securities......... Application for a Policy,
Allocation of Net Premiums,
Distribution of Policies
15. Procedure for receipt of payments from purchases of trust's securities.. Application for a Policy,
Allocation of Net Premiums,
Premiums, Transfer of Policy
Account Value
16. Acquisition and disposition of underlying securities.................... Cover, Portfolios
17. (a) Procedure for withdrawal.......................................... Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation
(b) Redemption or repurchase.......................................... Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation
(c) Cancellation or resale............................................ Not Applicable
18. (a) Income of the Trust............................................... Portfolios, Allocation of Net
Premiums
19. Procedure for keeping records & furnishing information to security Portfolios, Statements to
holders Policy Owners
21. (a) & (b) Loans to security holders..................................... Policy Loans
23. Bonding arrangements for depositor...................................... Safekeeping of the Variable
Account's Assets
24. Other material provisions............................................... General Policy Provisions
ORGANIZATION, PERSONNEL & AFFILIATED PERSONS OF DEPOSITOR
ORGANIZATION & OPERATIONS OF DEPOSITOR
25. Form, state & date of organization of depositor......................... First Penn-Pacific Life
Insurance Company
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
27. General character of business of depositor.............................. First Penn-Pacific Life
Insurance Company
28. (a) Officials and affiliates of the depositor......................... First Penn-Pacific Life
Insurance Company, Officers and
Directors of First Penn-Pacific
(b) Business experience of officers and directors of the depositor.... Officers and Directors of First
Penn-Pacific
COMPANIES OWNING SECURITIES OF DEPOSITOR
29. Each company owning 5% of voting securities of depositor................ First Penn-Pacific Life
Insurance Company
CONTROLLING PERSONS
30. Control of depositor.................................................... First Penn-Pacific Life
Insurance Company
DISTRIBUTION & REDEMPTIONS OF SECURITIES
DISTRIBUTION OF SECURITIES
35. Distribution............................................................ First Penn-Life Insurance
Company, Distribution of
Policies
38. (a) General description of method of distribution of securities....... Distribution of Policies
(b) Selling agreement between trust or depositor & underwriter........ Distribution of Policies
(c) Substance of current agreements................................... Distribution of Policies
PRINCIPAL UNDERWRITER
39. (a) & (b) Principal Underwriter......................................... Distribution of Policies
41. Character of Underwriter's business..................................... Distribution of Policies
OFFERING PRICE OR ACQUISITION VALUE OF SECURITIES OF TRUST
44. Information concerning offering price or acquisition valuation of Portfolios, Policy Account
securities of trust. (All underlying securities are shares in registered Value
investment companies.)..................................................
REDEMPTION VALUATION OF SECURITIES OF TRUST
46. Information concerning redemption valuation of securities of trust. (All Portfolios, Policy Account
underlying securities are shares in a registered investment company.)... Value
PURCHASE & SALE OF INTERESTS IN UNDERLYING SECURITIES
47. Maintenance of Position................................................. Cover, Variable Account,
Portfolios, Allocation of Net
Premiums
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
48. Custodian of trust...................................................... Variable Account
50. Lien on trust assets.................................................... Variable Account
</TABLE>
iv
<PAGE>
<TABLE>
INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
<S> <C>
51. (a) Name & address of insurer......................................... Cover, First Penn-Pacific Life
Insurance Company
(b) Types of Contracts................................................ Cover, Purchase of Policy and
Allocation of Net Premiums,
Federal Tax Considerations
(c) Risks insured & excluded.......................................... Death Benefit, Optional
Insurance Benefits,
Misstatement as to Age and Sex,
Suicide
(d) Coverage.......................................................... Cover, Purchase of Policy and
Allocation of Net Premiums
(e) Beneficiaries..................................................... Death Benefit, Beneficiary
(f) Terms of cancellations & reinstatement............................ Termination
(g) Method of determining amount of premium paid by holder............ Purchase of Policy and
Allocation of Net Premiums
POLICY OF REGISTRANT
52. (a) & (c) Selection of Portfolio securities............................. Additions, Deletions, and
Substitutions of Securities
REGULATED INVESTMENT COMPANY
53. (a) Taxable status of trust........................................... Taxation of First Penn-Pacific
and the Variable Account
FINANCIAL AND STATISTICAL INFORMATION
59. Financial Statements.................................................... Financial Statements
*Items not listed are not applicable to this Registration Statement.
</TABLE>
v
<PAGE>
PROSPECTUS
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
10 N. MARTINGALE ROAD
SCHAUMBURG, ILLINOIS 60173
ADMINISTRATIVE OFFICE
P.O. BOX 150482
HARTFORD, CT 06115-0482
1-800-444-2363
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)
------------------------------------------------------------------------------
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 JUNE 1, 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 [43]. 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 eighteen 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:
AIM VARIABLE INSURANCE FUNDS, INC.
- AIM V.I. Value Fund
- AIM V.I. Growth & Income Fund
- AIM V.I. International Equity Fund
- AIM V.I. Capital Appreciation Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B SHARES)
- Premier Growth Portfolio
- Growth & Income Portfolio
- Growth Portfolio
- Technology Portfolio
DELAWARE GROUP PREMIUM FUND
- Trend Series
- Growth and Income Series
- Select Growth Series
- International Equity Series
FIDELITY VIP FUND
- VIP II Contrafund Portfolio (Service Class)
- VIP II Index 500 Portfolio (Initial Class)
- VIP Growth Portfolio (Service Class)
- VIP Overseas Portfolio (Service Class)
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....................................................................8
FEES AND EXPENSES.............................................................10
QUESTIONS AND ANSWERS ABOUT YOUR POLICY.......................................12
PURCHASE OF POLICY AND ALLOCATION OF NET PREMIUMS.............................19
Application for a Policy...................................................19
Premiums...................................................................20
Allocation of Net Premiums.................................................21
Policy Account Value.......................................................21
Accumulation Unit Value....................................................22
Transfer of Policy Account Value...........................................22
Transfers Authorized by Telephone..........................................23
Dollar Cost Averaging......................................................23
Asset Rebalancing..........................................................24
THE INVESTMENT AND FIXED ACCOUNT OPTIONS......................................24
Variable Account Investments...............................................24
Portfolios..............................................................24
Voting Rights...........................................................26
Additions, Deletions, and Substitutions of Securities...................27
The Fixed Account..........................................................28
POLICY BENEFITS AND RIGHTS....................................................28
Death Benefit..............................................................28
Change in the Specified Amount.............................................30
Optional Insurance Benefits................................................30
Long Term/Convalescent Care Benefits Riders.............................31
Guarantee Enhancement Rider.............................................33
Policy Loans...............................................................33
Amount Payable on Surrender of the Policy..................................34
Partial Withdrawals........................................................34
Proceeds Options...........................................................35
Policy after Age 100.......................................................36
Termination and Grace Period...............................................36
Reinstatement .............................................................37
Cancellation ..............................................................37
Postponement of Payments ..................................................37
DEDUCTIONS AND CHARGES........................................................38
Premium Expense Charge.....................................................38
Mortality and Expense Risk Charge .........................................38
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Other Variable Account Charge .............................................38
Monthly Deduction..........................................................38
Cost of Insurance Charge................................................39
Monthly Expense Charge..................................................39
Rider Charges...........................................................39
Portfolio Expenses.........................................................40
Surrender Charge...........................................................40
Partial Withdrawal Transaction Fee.........................................40
Transfer Fee...............................................................41
Special Provisions for Group or Sponsored Arrangements ....................41
GENERAL POLICY PROVISIONS.....................................................41
Statements to Policy Owners................................................41
Limit on Right to Contest..................................................42
Suicide....................................................................42
Misstatement as to Age and Sex.............................................42
Beneficiary................................................................42
Assignment.................................................................43
Dividends..................................................................43
Notice and Elections.......................................................43
Modification...............................................................43
FEDERAL TAX CONSIDERATIONS....................................................43
Taxation of First Penn-Pacific and the Variable Account....................43
Tax Status of the Policy ..................................................44
Diversification Requirements.............................................44
Owner Control............................................................45
Tax Treatment of Life Insurance Death Benefit Proceeds.....................45
Tax Deferral During Accumulation Period....................................46
Policies Which Are MECs..................................................46
Policies Which Are Not MECs..............................................47
Long Term/Convalescent Care Benefits Riders................................47
Status of Policy after Age 100.............................................47
Actions to Ensure Compliance with the Tax Law..............................48
Federal Income Tax Withholding.............................................48
Tax Advice.................................................................48
DESCRIPTION OF FIRST PENN-PACIFIC AND THE VARIABLE ACCOUNT....................48
First Penn-Pacific.........................................................48
Officers and Directors of First Penn-Pacific...............................49
Variable Account...........................................................50
Safekeeping of the Variable Account's Assets...............................50
State Regulation of First Penn-Pacific.....................................50
DISTRIBUTION OF POLICIES......................................................51
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
LEGAL PROCEEDINGS.............................................................51
LEGAL MATTERS.................................................................52
REGISTRATION STATEMENT........................................................52
EXPERTS.......................................................................52
FINANCIAL STATEMENTS..........................................................52
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.
8
<PAGE>
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.
9
<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 [38]).
POLICY CHARGES AND DEDUCTIONS
CHARGES DEDUCTED FROM POLICY ACCOUNT VALUE(5)
Monthly Cost of Insurance Charge:(1)
Current Guaranteed
Ranges from $.08 per $1,000 of net Ranges from $.10 per $1,000 of net
amount at risk to $55.29 per $1,000 amount at risk to $83.33 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 request after the first
twelve transfer requests in each Policy
Year(2)
DEFERRED SALES CHARGE
Maximum Surrender Charge: As a percentage of your Initial Premium(3)
<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
Transaction Fee: Lesser of $25 or 2% of the amount withdrawn
per partial withdrawal
10
<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 (4)
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 page [39].
(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 [41].
(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. See "Surrender Charge," on page
[40].
(4) 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
[38].
(5) 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 [39].
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 OTHER ANNUAL
PORTFOLIO FEES 12B-1 FEES EXPENSES EXPENSES
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM V.I. Value Fund(2) 0.61% None 0.15% 0.76%
---------------------------------------------------------------------------------------------------------
AIM V.I. Growth & Income Fund(2) 0.61% None 0.16% 0.77%
---------------------------------------------------------------------------------------------------------
AIM V.I. International Equity Fund(2) 0.75% None 0.22% 0.97%
---------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund(2) 0.62% None 0.11% 0.73%
---------------------------------------------------------------------------------------------------------
Alliance V.P. Premier Growth Portfolio- 1.00% 0.25 0.04% 1.29%
Class B
---------------------------------------------------------------------------------------------------------
Alliance V.P. Growth & Income Portfolio- 0.63% 0.25% 0.09% 0.97%
Class B
---------------------------------------------------------------------------------------------------------
Alliance V.P. Growth Portfolio-Class B 0.75% 0.25% 0.12% 1.12%
---------------------------------------------------------------------------------------------------------
Alliance V.P. Technology Portfolio-Class B(3) 1.00% 0.25% 0.27% 1.52%
---------------------------------------------------------------------------------------------------------
Delaware Group Premium Trend Series(4) 0.75% None 0.07% 0.82%
---------------------------------------------------------------------------------------------------------
Delaware Group Premium Growth and Income 0.60% None 0.11% 0.71%
Series(4)
---------------------------------------------------------------------------------------------------------
Delaware Group Premium Select Growth 0.75% None 0.06% 0.81%
Series(4)
---------------------------------------------------------------------------------------------------------
Delaware Group Premium International 0.83% None 0.09% 0.92%
Equity Series(4)
---------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio-Service 0.58% 0.10% 0.10% 0.78%
Class(5)
---------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio-Initial 0.24% None 0.04% 0.28%
Class(5),(6)
---------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio-Service Class 0.58% 0.10% 0.09% 0.77%
(5)
---------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio-Service Class 0.73% 0.10% 0.18% 1.01%
(5)
---------------------------------------------------------------------------------------------------------
Lincoln National Bond Fund 0.45% None 0.08% 0.53%
---------------------------------------------------------------------------------------------------------
Lincoln National Money Market Fund 0.48% None 0.11% 0.59%
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) All Portfolio Expenses are based on 1999 expenses. Since Delaware
Group Premium Select Growth Series commenced operations on May 3,
1999, its expenses are estimated and annualized.
(2) AIM Advisors, Inc. ("AIM") may from time to time waive or reduce its
fees. Effective May 1, 1998, the AIM Portfolios reimburse AIM in an
amount up to 0.25% of the average net asset value of each AIM
Portfolio for expenses incurred in providing or assuring that
participating insurance companies provide certain administrative
services. The Total Fund Other Expenses for the AIM Portfolios include
reimbursements paid for this purpose.
(3) These figures are based on this Portfolio's annualized expenses for
1999, restated to reflect the termination of a voluntary expense
limitation effective May 1, 2000.
(4) Effective May 1, 2000 through October 31, 2000, Delaware Management
has voluntarily agreed to waive its management fees and reimburse the
expenses of the Delaware Trend Series, Select Growth Series, and
Growth and Income Series, to the extent that such Portfolios' total
operating expenses, exceed 0.85%, 0.80%, and 0.85%, respectively, of
average daily net assets. Effective May 1, 2000 through October 31,
2000, Delaware International has voluntarily agreed to waive its
management fee and reimburse the expenses of the Delaware
International Equity Series to the extent that such Portfolio's total
expenses exceed 0.95% of average daily net assets. Delaware
Management has voluntarily agreed to waive its management fee for
Delaware Growth and Income Series in excess of 0.60% of average daily
net assets. Delaware Management may end this waiver at any time.
Without such waivers and/or reimbursements, the Management Fees, Other
Expenses, and total Annual Expenses for those Portfolios would have
been: 0.80%, 0.11% and 0.91%, respectively, of average daily net assets
for Delaware Growth and Income Series; and 0.85%, 0.09%, and 0.09%,
respectively, of average daily net assets for Delaware International
Equity Series. In 1999, Delaware Management did not waive its
management fees or reimburse expenses for the Delaware Trend Series
and Select Growth Series.
(5) A portion of the brokerage commissions that certain Fidelity
Portfolios paid was used to reduce each of these Portfolios expenses.
In addition, certain Portfolios, or FMR on behalf of VIP II Index 500
Portfolio, entered into arrangements with their custodians whereby
credits realized against uninvested cash balances were used to reduce
custodian expenses. Including those reductions, Total Expenses would
have been 0.75% of average daily net assets for VIP II Contrafund
Portfolio and VIP Growth Portfolio, and 0.98% of average daily net
assets for VIP Overseas Portfolio.
(6) Effective August 27, 1992, FMR voluntarily agreed to reimburse
Initial Class of the VIP II Index 500 Portfolio to the extent that total
operating expenses (with the exceptions noted below) exceed 0.28% of
its average net assets. Expenses eligible for reimbursement do not
include interest, taxes, brokerage commissions or extraordinary
expenses. In addition, sub-advisory fees paid by VIP II Index 500
Portfolio associated with securities lending are not eligible for
reimbursement. This arrangement can be terminated by FMR at any time.
Before these reimbursements and the expense reductions described in
note (5) above, the total annual operating expenses for the VIP II Index
500 Portfolio were 0.34%
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
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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 [34-35].
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 [31-32] 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 [47] below.
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<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 page [30].
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.
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<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 [38]. 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. The
amount allocated to any Sub-Account must be in whole percentages and result
in a Sub-Account Value of at least $100 or a Fixed Account Value of $2500.
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, on the Issue Date, your initial Net Premium 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
1-800-444-2363. We may charge a fee of $25 per transfer request (a request
may involve more than a single transfer) after the first 12 transfers in any
Policy Year, not counting Dollar Cost Averaging requests and Asset Rebalancing
transfers. We may change the number of free transfer requests at any time,
subject to the contractual limit described above, but the transfer fee will
never exceed $25 per transfer request. 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 pages [22-23].
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 pages [23-24].
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 [24].
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:
AIM VARIABLE INSURANCE FUNDS, INC.
- AIM V.I. Value Fund
- AIM V.I. Growth and Income Fund
- AIM V.I. International Equity Fund
- AIM V.I. Capital Appreciation Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B SHARES)
- Growth Portfolio
- Premier Growth Portfolio
- Growth and Income Portfolio
- Technology Portfolio
DELAWARE GROUP PREMIUM FUND
- Trend Series
- Growth and Income Series
- Select Growth Series
- International Equity Series
FIDELITY VIP FUND
- VIP II Contrafund Portfolio (Service Class)
- VIP II Index 500 Portfolio (Initial Class)
- VIP Growth Portfolio (Service Class)
- VIP Overseas Portfolio (Service Class)
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 [33-34], and
"Policies Which Are MECs", on page [46-47].
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 request, excluding Asset
Rebalancing and Dollar Cost Averaging transfers, after the 12th transfer
request in any Policy Year. We may change the number of free transfer requests
and the transfer fee at any time, but you will always be able to make at least
12 free transfer requests per Policy 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 page [40].
PARTIAL WITHDRAWAL TRANSACTION FEE. We impose a Partial Withdrawal
Transaction Fee of $25 on each partial withdrawal (-not to exceed 2% of the
amount withdrawn). The Partial Withdrawal Transaction Fee is used to cover a
portion of our administrative expenses.
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 [10-11] and
described in more detail in "Deductions and Charges", beginning on page [38].
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, and your partial
withdrawal may not exceed 90% of the then-current Surrender Value. 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
17
<PAGE>
more detail, see "Amount Payable on Surrender of the Policy" and "Partial
Withdrawals", on pages [34-35].
We may deduct a Surrender Charge on a surrender and a Partial Withdrawal
Transaction Fee 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 [10] of this
Prospectus. The applicable rate depends on the Insured's issue age, and the
number of years elapsed since issuance.
PARTIAL WITHDRAWAL TRANSACTION FEE. We charge a $25 Partial Withdrawal
Transaction Fee (not to exceed 2% of the amount withdrawn) on each partial
withdrawal.
We do not charge the Partial Withdrawal Transaction Fee for payments made under
the Long-Term/Convalescent Care Riders.
For more detail, see "Surrender Charge", on page [40].
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 [43], and consult your tax adviser.
18
<PAGE>
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 [33] 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
19
<PAGE>
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 your Initial Premium for any reason 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 we will credit interest on your Initial Net Premium
from the date of receipt to the Issue Date where required by state Law. On
the Issue Date, we will allocate your Initial Premium (and interest, if any)
to our Money Market Sub-Account. Subsequently, as described in "Allocation of
Net Premiums" on page [21] 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 at our discretion. We may refuse any
additional Premium at 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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<PAGE>
ALLOCATION OF NET PREMIUMS. We initially allocate your Net Initial Premium
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%, and result in a Sub-Account Value of at least $100 or a Fixed Account
Value of $2500. 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, 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 Transaction Fee) 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 and until the
Insured reaches age 100, 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 reallocate this amount
proportionally among the other Sub-Accounts and Fixed Accounts in which you
have Policy Account Value. We reserve the right to change these minimums.
We charge a transfer fee of $25 on each transfer request after the first
twelve transfer requests in any Policy Year, excluding Dollar Cost Averaging
and Asset Rebalancing Transfers. We may change the number of free transfer
requests and the transfer fee at any time, but you will always be able to
make at least twelve free transfer requests per Policy 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. Written transfer requests received at the Administrative Office by
the close of the NYSE (usually 4:00 p.m., Eastern Time) on a Valuation Day
will be effective as of that day. Otherwise, requests will be effective as
of the next Valuation Day. 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 [41].
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. An election is effective within ten
business days but only if there is sufficient value in the source accounts.
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
23
<PAGE>
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 [41].
You may request Asset Rebalancing when you apply for your Policy or by
submitting a completed written request to us at our Administrative Office.
Your election will be effective within 10 business days after our
Administrative Office receives your request. 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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<PAGE>
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 which currently are the permissible investments of the
Variable Account under this Policy are Lincoln National Bond Fund, Inc.,
Lincoln National Money Market Fund, Inc. and separate series of AIM Variable
Insurance Funds, Inc. ("AIM Funds"), Alliance Variable Products Series Fund
("Alliance Fund"), Delaware Group Premium Fund ("Delaware Fund"), and
Fidelity Variable Insurance Products Fund and Fidelity Variable Insurance
Products Fund II ("Fidelity VIP Funds"). The investment objectives of the
Portfolios are briefly described below.
PORTFOLIOS OF AIM FUNDS AND VARIABLE ACCOUNT
SUB-ACCOUNTS
AIM V.I. VALUE FUND. Long-term growth of capital. Income is a secondary
objective. The Portfolio seeks to meet its objectives by investing primarily
in equity securities judged by the fund's investment adviser to be
undervalued relative to the adviser's appraisal of the current or projected
earnings of the companies issuing the securities, or relative to the equity
market generally.
AIM V.I. GROWTH AND INCOME FUND. Growth of capital with a secondary
objective of current income, by investing at least 65% of its net assets in
income-producing securities.
AIM V.I. INTERNATIONAL EQUITY FUND. Long-term growth of capital. The
Portfolio seeks to meet this objective by investing in a diversified
portfolio of international equity securities whose issuers are considered to
have strong earnings momentum.
AIM V.I. CAPITAL APPRECIATION FUND. Growth of capital. The Portfolio seeks
to meet this objective by investing principally in common stocks of companies
the portfolio managers believe are likely to benefit from new innovative
products, services or processes, as well as those that have experienced above
average, long-term growth in earnings and have excellent prospects for future
growth.
PORTFOLIOS OF ALLIANCE FUND (CLASS B SHARES) AND
VARIABLE ACCOUNT SUB-ACCOUNTS
GROWTH PORTFOLIO. Long-term growth of capital. The Portfolio invests
primarily in equity securities of companies with favorable earnings outlooks
and whose long-term growth rates are expected to exceed that of the U.S.
economy over time. The Portfolio emphasizes investments in large- and
mid-cap companies. Current income is only an incidental consideration.
PREMIER GROWTH PORTFOLIO. Growth of capital by pursuing aggressive
investment policies. The Portfolio invests primarily in equity securities of
U.S. companies. The Portfolio focuses on a relatively small number of
intensively researched companies.
GROWTH AND INCOME PORTFOLIO. Reasonable current income and reasonable
opportunity for appreciation through investments primarily in dividend-paying
common stocks of good quality. The Portfolio invests primarily in
dividend-paying common stocks of large, well-established "blue chip"
companies.
TECHNOLOGY PORTFOLIO. Growth of capital and capital appreciation and only
incidentally current income. The Portfolio invests primarily in securities
of companies that use technology extensively in the development of new or
improved products or processes.
PORTFOLIOS OF DELAWARE FUND AND VARIABLE
ACCOUNT SUB-ACCOUNTS
TREND SERIES. Long-term capital appreciation. The Portfolio invests
primarily in stock of small, growth-oriented or emerging companies that the
adviser believes are responsive to changes within the marketplace and possess
the fundamental characteristics to support continued growth.
GROWTH AND INCOME 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. The Portfolio invests
primarily in common stocks of companies that the adviser believes have the
potential for high earnings growth based on the adviser's analysis of their
historic or projected growth rate, price to earnings ratio and cash flows.
INTERNATIONAL EQUITY SERIES. Long-term growth without undue risk to
principal. The Portfolio invests primarily in foreign equity securities that
provide the potential for capital appreciation and income. 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 FIDELITY VIP FUNDS AND VARIABLE
ACCOUNT SUB-ACCOUNTS
VIP II CONTRAFUND PORTFOLIO (SERVICE CLASS). Long-term capital appreciation.
The Portfolio normally invests primarily in common stocks and invests in
securities of companies whose value the adviser believes is not fully
recognized by the public.
VIP II INDEX 500 PORTFOLIO (INITIAL CLASS). Investment results that
correspond to the total return of common stocks publicly traded in the
United States, as represented by the S&P 500.(1)
VIP GROWTH PORTFOLIO (SERVICE CLASS). Capital appreciation. The Portfolio
normally invests primarily in common stocks and invests in companies that the
adviser believes have above-average growth potential.
VIP OVERSEAS PORTFOLIO (SERVICE CLASS). Long-term growth of capital. The
Portfolio normally invests at least 65% of its total assets in foreign
securities and normally invests primarily in common stocks.
PORTFOLIOS OF LINCOLN NATIONAL FUNDS
AND VARIABLE ACCOUNT SUB-ACCOUNTS
BOND FUND. Maximum current income (yield) consistent with prudent investment
strategy. The Portfolio invests primarily in a diverse group of domestic
fixed-income securities.
MONEY MARKET FUND. Maximum current income while providing stability of net
asset value and the preservation of capital. The Portfolio invests in a
diverse group of high quality short-term money market securities.
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.
AIM ADVISORS, INC. ("AIM") is the investment adviser to each Portfolio of the
AIM Funds. AIM has operated as an investment adviser since 1976.
ALLIANCE CAPITAL MANAGEMENT, L.P. ("ALLIANCE") is the adviser to each
Portfolio of the Alliance Fund.
------------------------
(1) "Standard & Poors,"S&P", "S&P 500", "Standard & Poor's 500" and "500" are
trade marks of the McGraw-Hill Companies, Inc. and have been licensed for use
by Fidelity Distributors Corporation.
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<PAGE>
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.
FIDELITY MANAGEMENT & RESEARCH COMPANY ("FMR") is the manager of each of the
Fidelity VIP Portfolios. Fidelity Management & Research (U.K.) Inc. ("FMR
U.K."), an affiliate of FMR, serves as sub-adviser of Contrafund Portfolio.
FMR U.K. was formed in 1986 to provide investment research and advice to FMR.
Fidelity Management & Research Far East Inc. ("FMR Far East"), an affiliate
of FMR serves as sub-adviser of Contrafund Portfolio. FMR Far East was
formed in 1986 to provide investment research and advice to FMR. Bankers Trust
Company, an indirect wholly-owned subsidiary of Deutsche Bank AG, serves as
sub-adviser and custodian for Index 500 Portfolio.
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
26
<PAGE>
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;
27
<PAGE>
(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 [38] 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
28
<PAGE>
[35-36], 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 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 [34-35], 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 [31-32].
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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<PAGE>
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 at 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 1-800-444-2363. At 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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<PAGE>
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 [47] 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 [28-30]. 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 as 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%.
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GUARANTEE ENHANCEMENT RIDER.
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. You may borrow up to 100% of
the Surrender Value at the time a Policy Loan is made. We may, however, limit
the amount of the loan so that the total Policy indebtedness will not exceed
90% of the Policy Account Value less any Surrender Charge that would be
imposed on a Full Surrender. 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 any Policy Loan that does not exceed the
"gain" in your Policy when the Loan is made. Your "gain" equals your Net
Policy Account Value minus your Premiums paid, plus any partial withdrawals.
Any other Policy Loan is treated as a Regular Loan. The effective interest
rate on Preferred Loans and Regular Loans is 8% annually. Interest on Policy
Loans is due at the end of each Policy Year. If you do not pay the interest
on a Policy Loan when due, the unpaid interest will be treated as a new
Policy Loan 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. Periodically, the interest credited to
your Loan Account will be transferred to the Fixed Account and the
Sub-Accounts based on your curent premium allocation percentages.
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 interest due on your
loan. We will take the transfers pro rata from the Fixed Account and the
Sub-Accounts.
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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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 page [40].
You may receive the Surrender Value in a lump sum or under any of the proceeds
options described in "Proceeds Options" on pages [35-36].
The tax consequences of surrendering the Policy are discussed in "Federal Tax
Considerations," beginning on page [43].
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. Your partial withdrawal may not exceed 90% of the Surrender
Value of the Policy on the day on which we accept your withdrawal request.
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 a $25 Partial Withdrawal Transaction
Fee (not to exceed 2% of the amount withdrawn) from your Policy Account
Value. We will take your partial withdrawal pro rata from the Sub-Accounts
and/or the Fixed Account, unless you instruct us otherwise in writing.
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 [43].
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.
- We will not accept any additional Premium.
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 notice will state the amount of Premium or repayment of
Policy Loans necessary such that the Net Policy Account Value is at least
equal to two times the Monthly Deduction Amount. 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 [33] 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 [28-30].
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
reasonably 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 [10-11]. 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 the first day of the Policy Month prior
to the deduction of the monthly Cost of Insurance and any rider
costs based on 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 [12]
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 [10] 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. Changes
in the Specified Amount of your Policy will 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 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.
PARTIAL WITHDRAWAL TRANSACTION FEE. We also charge a Partial Withdrawal
Transaction Fee on a partial withdrawal from your Policy. The Partial
Withdrawal Transaction Fee is $25 on each partial withdrawal. The Partial
Withdrawal Transaction Fee is used to cover a portion of our administrative
expenses in processing partial withdrawal requests. See "Surrender Charge" on
page [40].
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TRANSFER FEE. We charge a maximum transfer fee of $25 per transfer request
after the first twelve transfer requests in any Policy Year, excluding
transfers under our Dollar Cost Averaging and Asset Rebalancing Programs. We
may change the number of free transfer requests and the transfer fee at any
time, but you will always be able to make at least 12 free transfer requests
per Policy 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 10 N. Martingale Road,
Schaumburg, Illinois 60173.
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. MACDONALD, 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 10 N.
Martingale Road, Schaumburg, Illinois 60173.
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 Department of Insurance. Every year we file an
annual statement with the Indiana Department of
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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
Indiana Department of Insurance to verify our contract liabilities and reserves.
Our books and records are subject to review by the Indiana Department 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 10 N. Martingale Road, Schaumburg, Illinois
60173. 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 6.5% of
the Premiums received in the first year. Representatives also will generally
receive a commission on a Specified Amount increase. We may pay asset-based
commissions in the future, the amount of which will depend on the amount of
the front-end commission paid. In addition, certain overrides and production
and managerial bonuses may be paid. These additional amounts may constitute
a substantial portion of total commissions and fees paid. Firms to which
service fees and commissions may be paid include affiliated broker-dealers.
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 10 N.
Martingale Road, Schaumburg, Illinois 60173.
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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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 a 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 statutory-basis financial statements of First Penn-Pacific included in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report which also appears
elsewhere in this document and in the Registration Statement. The
statutory-basis financial statements audited by Ernst & Young LLP have been
included in this document in reliance on their report given on their
authority 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 statutory-basis financial statements of First
Penn-Pacific that are included should be considered only as bearing
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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. The most
current financial statements of First Penn-Pacific are those as of the end
of the most recent fiscal year. First Penn-Pacific does not prepare such
financial statements more often than annually and believes that any
incremental benefit to prospective Policy Owners that may result from
preparing and delivering more current financial statements, though unaudited,
does not justify the additional cost that would be incurred. First
Penn-Pacific represents that there have been no adverse material changes in
First Penn-Pacific's financial position or operations between the end of the
most recent fiscal year and the date of this Prospectus.
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First Penn-Pacific Life Insurance Company
Balance Sheets--Statutory Basis
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---------------------------
(IN THOUSANDS)
<S> <C> <C>
ADMITTED ASSETS
Cash and investments:
Bonds $ 1,000,920 $ 943,281
Redeemable preferred stocks 14,531 14,531
Affiliated common stock 20 -
Mortgage loans 222,221 184,859
Policy loans 48,852 49,048
Short-term investments 26,784 23,442
Cash 5,387 5,413
---------------------------
Total cash and invested assets 1,318,715 1,220,574
Reinsurance balances recoverable 8,238 3,369
Deferred and uncollected life premiums, less loading
(1999--$11,829,000; 1998--$9,507,000) 7,439 11,309
Accrued investment income 18,534 16,961
Receivable from The Lincoln
National Life Insurance Company 3,356 5,841
Due from investment broker - 570
Other admitted assets 3,031 2,836
---------------------------
Total admitted assets $ 1,359,313 $1,261,460
===========================
</TABLE>
<PAGE>
First Penn-Pacific Life Insurance Company
Balance Sheets--Statutory Basis
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy and contract liabilities:
Life policy reserves $1,154,295 $1,051,051
Annuity reserves 77,210 86,587
Policy and contract claims 8,541 7,206
Supplementary contracts without life contingencies 1,214 1,817
---------------------------
Total policy and contract liabilities 1,241,260 1,146,661
Accrued expenses 18,808 18,011
Remittances and items not allocated 6,844 5,529
Federal income taxes payable 626 506
Asset valuation reserve 10,297 9,965
Interest maintenance reserve 4,778 5,227
Other liabilities 3,932 5,967
---------------------------
Total liabilities 1,286,545 1,191,866
Commitments and contingencies
Capital and surplus:
Common stock--Par value $12.50 per share:
Authorized, issued, and outstanding, 200,000 shares
(owned by The Lincoln National Life Insurance Company) 2,500 2,500
Paid-in surplus 12,916 12,916
Unassigned surplus 57,352 54,178
---------------------------
Total capital and surplus 72,768 69,594
---------------------------
Total liabilities and capital and surplus $1,359,313 $1,261,460
===========================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
First Penn-Pacific Life Insurance Company
Statements of Operations--Statutory Basis
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Life insurance premiums $ 174,994 $ 160,048 $ 138,862
Annuity premiums 4,266 4,333 4,394
Net investment income 97,811 93,661 90,573
Commissions and expense allowances on reinsurance ceded 44,994 42,840 24,908
Fees for administrative services from
The Lincoln National Life Insurance Company 10,661 9,232 8,560
-------------------------------------
Total revenues 332,726 310,114 267,297
BENEFITS PAID OR PROVIDED
Death benefits 38,440 33,272 28,923
Annuity benefits 2,937 3,230 4,758
Surrender benefits 59,158 71,187 72,498
Increase in policy and contract reserves 95,586 76,483 59,642
Other benefits 1,078 1,188 1,496
-------------------------------------
Total benefits paid or provided 197,199 185,360 167,317
INSURANCE EXPENSES
Commissions and service fees 59,991 58,471 42,704
General expenses 58,348 56,535 41,574
Insurance taxes, licenses, and fees 6,728 6,203 5,331
-------------------------------------
Total insurance expenses 125,067 121,209 89,609
-------------------------------------
Total benefits and insurance expenses 322,266 306,569 256,926
-------------------------------------
Net gain from operations before federal
income taxes and net realized capital gains (losses) 10,460 3,545 10,371
Federal income taxes 6,767 3,721 5,387
-------------------------------------
Net gain (loss) from operations before
net realized capital gains (losses) 3,693 (176) 4,984
Net realized capital gains (losses), less income taxes and
amounts transferred to the interest maintenance reserve - (341) 147
-------------------------------------
Net income (loss) $ 3,693 $ (517) $ 5,131
=====================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
First Penn-Pacific Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock at beginning and end of year $ 2,500 $ 2,500 $ 2,500
Additional paid-in surplus at beginning and end of year 12,916 12,916 12,916
Unassigned surplus at beginning of year 54,178 55,241 52,338
Net income (loss) 3,693 (517) 5,131
Change in net unrealized gain (loss) of investments (1,826) 198 (447)
Increase in asset valuation reserve (332) (876) (617)
Change in nonadmitted assets 1,639 132 (1,164)
-------------------------------------
Unassigned surplus at end of year 57,352 54,178 55,241
-------------------------------------
Total capital and surplus at end of year $ 72,768 $ 69,594 $ 70,657
=====================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
First Penn-Pacific Life Insurance Company
Statements of Cash Flows--Statutory Basis
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1998
-------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds,
and other considerations received $ 180,593 $ 156,698 $ 137,585
Allowance and reserve adjustments
received on reinsurance ceded 42,860 42,295 24,908
Net investment income received 95,690 93,109 88,130
Benefits paid (102,442) (108,084) (108,287)
Insurance expenses paid (122,519) (114,374) (86,054)
Federal income taxes paid (6,647) (4,502) (7,526)
Fees for administrative services received from
The Lincoln National Life Insurance Company 10,661 9,232 8,560
Other (1,829) (1,651) (1,688)
-------------------------------------
Net cash provided by operating activities 96,367 72,723 55,628
INVESTING ACTIVITIES
Total investment proceeds 101,313 132,001 281,111
Total investments acquired (197,845) (175,302) (342,952)
Federal income taxes (paid) recovered on capital gains and losses (173) 704 (2,332)
Net (increase) decrease in policy loans 196 (582) 3,031
-------------------------------------
Net cash used in investment activities (96,509) (43,179) (61,142)
FINANCING ACTIVITIES
Change in receivable from/payable to
The Lincoln National Life Insurance Company 2,485 (821) 343
Other 973 (1,896) 1,629
-------------------------------------
Net cash provided by (used in) financing activities 3,458 (2,717) 1,972
-------------------------------------
Increase (decrease) in cash and short-term investments 3,316 26,827 (3,542)
Cash and short-term investments at beginning of year 28,855 2,028 5,570
-------------------------------------
Cash and short-term investments at end of year $ 32,171 $ 28,855 $ 2,028
=====================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
ORGANIZATION AND OPERATIONS
First Penn-Pacific Life Insurance Company ("First Penn") is domiciled in the
state of Indiana. First Penn is a wholly owned subsidiary of The Lincoln
National Life Insurance Company ("Lincoln Life"), which is a wholly owned
subsidiary of Lincoln National Corporation ("LNC").
First Penn specializes in interest-sensitive and term life insurance products.
Universal life accounted for approximately 80.5% of First Penn's 1999 premium.
Premium for term life insurance accounted for approximately 16.9% of First
Penn's 1999 premium. First Penn also receives fees for the marketing and
administration of deferred annuity, universal life and term life products
underwritten by Lincoln Life. Sales operations are conducted through marketing
companies that distribute products through broker-dealers, financial
institutions, payroll deduction specialists, and independent life agents. First
Penn is licensed and writes business in all states, except for New York, with
its primary markets being California, Florida, Illinois, and Ohio.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements of First Penn have been prepared in
conformity with accounting practices prescribed or permitted by the Indiana
Department of Insurance (the "Department"), which practices vary from generally
accepted accounting principles ("GAAP"). The more significant variances from
GAAP are as follows:
INVESTMENTS
Investments in bonds are reported at cost or amortized cost or fair value
based on their National Association of Insurance Commissioners ("NAIC")
rating. For GAAP, First Penn's bonds are classified as available-for-sale
and, accordingly, are reported at fair value with changes in the fair values
reported directly in shareholder's equity after adjustments for related
amortization of deferred acquisition costs, additional policyholder
commitments, and deferred income taxes.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
Under a formula prescribed by the NAIC, First Penn defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining
period to maturity of the individual security sold. The net deferral is
reported as the Interest Maintenance Reserve ("IMR") in the accompanying
balance sheets. Realized capital gains and losses are reported in income net
of federal income tax and transfers to the IMR. Under GAAP, realized capital
gains and losses are reported in the income statement on a pretax basis in
the period in which the asset giving rise to the gain or loss is sold.
The asset valuation reserve ("AVR") is determined by an NAIC-prescribed
formula and is reported as a liability rather than unassigned surplus. Under
GAAP, valuation allowances are provided when there has been a decline in
value deemed other than temporary, in which case, the provision for such
declines is charged to income.
POLICY ACQUISITION COSTS
The costs of acquiring and renewing business are expensed when incurred.
Under GAAP, deferred policy acquisition costs related to term life insurance,
to the extent recoverable from future policy revenues, are deferred and
amortized over the premium-paying period of the related policies using
assumptions consistent with those used in computing policy benefit reserves.
Under GAAP, deferred policy acquisition costs for universal life insurance,
annuity, and other investment-type products, to the extent recoverable from
future gross profits, are amortized generally in proportion to the present
value of expected gross profits from surrender charges and investment,
mortality, and expense margins.
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally agents' balances and
furniture and equipment, are excluded from the balance sheets and are charged
directly to unassigned surplus.
PREMIUMS
Revenues for universal life policies and annuities consist of premiums rather
than policy charges. Under GAAP, premiums received in excess of policy
charges are not recognized as premium revenue.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
PREMIUMS
Revenues for universal life policies and annuities consist of premiums rather
than policy charges. Under GAAP, premiums received in excess of policy
charges are not recognized as premium revenue.
Premiums and deposits with respect to annuity and other investment-type
contracts are reported as premium revenues, whereas, under GAAP, such
premiums and deposits are treated as liabilities and policy charges represent
revenues.
POLICY AND CONTRACT LIABILITIES
Certain policy and contract liabilities are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience and actual account balances. Policy and contract liabilities are
reported net, rather than gross, of reinsured amounts.
REINSURANCE
Premiums, claims and policy benefits and contract liabilities are reported in
the accompanying financial statements net of reinsurance amounts. For GAAP,
all assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis. Commissions on business ceded are reported as
income when received rather than deferred and amortized with deferred policy
acquisition costs.
INCOME TAXES
Deferred income taxes are not provided for differences between the financial
statement and tax bases of assets and liabilities.
STATEMENTS OF CASH FLOWS
Cash and short-term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
A reconciliation of First Penn's net income (loss) and capital and surplus
determined on a statutory basis with amounts determined in accordance with GAAP
is as follows:
<TABLE>
<CAPTION>
CAPITAL AND SURPLUS NET INCOME (LOSS)
-------------------------------------------------------------------
DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998 1997
-------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amounts reported on
a statutory-basis $ 72,768 $ 69,594 $ 3,693 $ (517) $ 5,131
GAAP adjustments:
Deferred policy
acquisition costs 224,350 154,617 32,060 38,178 23,159
Policy and
contract reserves (65,342) (59,715) (10,581) (10,984) (9,878)
Interest maintenance
reserve 4,778 5,227 (771) (1,062) (1,223)
Deferred income taxes (13,799) (22,203) (4,698) (6,083) (2,577)
Asset valuation reserve 10,297 9,965 - - -
Net realized gain (loss)
on investments (2,497) (1,150) (851) (1,161) 2,845
Unrealized gain (loss)
on investments (27,545) 46,333 - - -
Nonadmitted assets,
including nonadmitted
investments 6,563 6,318 - - -
Other, net (13,536) (10,672) 2,881 3,401 1,491
-------------------------------------------------------------------
Net increase 123,269 128,720 18,040 22,289 13,817
-------------------------------------------------------------------
Amounts on a GAAP basis $ 196,037 $ 198,314 $ 21,733 $ 21,772 $ 18,948
===================================================================
</TABLE>
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
Other significant accounting practices are as follows:
INVESTMENTS
Bonds not backed by loans are principally stated at amortized cost and the
discount or premium is amortized using the interest method.
Mortgage-backed bonds are valued at amortized cost and income is recognized
using a constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is recalculated
to reflect actual payments to date and anticipated future payments. The net
investment in the securities is adjusted to the amount that would have existed
had the new effective yield been applied since the acquisition of the
securities.
Short-term investments include investments with maturities of less than one year
at the date of acquisition. The carrying amounts for these investments
approximate their fair value.
Redeemable preferred stocks are reported at cost or amortized cost.
Investment in affiliated common stock, consisting of First Penn's broker-dealer
subsidiary, is reported at GAAP-basis net equity, adjusted for certain items
which would be non-admitted under statutory accounting principles.
Mortgage loans on real estate are reported at unpaid balances, less allowances
for impairments.
Policy loans are reported at unpaid balances.
Realized investment gains and losses on investments sold are determined using
the specific identification method. Changes in admitted asset carrying amounts
of bonds, mortgage loans, and redeemable preferred stocks are credited or
charged directly in unassigned surplus.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
FURNITURE AND EQUIPMENT
Data processing equipment is reported at depreciated cost, with depreciation
recorded on a straight-line basis using estimated useful lives of three to seven
years. Accumulated depreciation amounted to $4,200,000 and $4,070,000 at
December 31, 1999 and 1998, respectively.
Nonadmitted furniture and equipment are depreciated on a straight-line basis
using an estimated useful life of 7 to 10 years.
PREMIUMS
Life insurance and annuity premiums are recognized as revenue when due.
BENEFITS
Life and annuity policy reserves are developed by actuarial methods that will
provide, in the aggregate, reserves that are greater than or equal to the
minimum or guaranteed policy cash values or the amounts required by law.
The tabular interest, tabular less actual reserve released, and the tabular cost
have been determined by formula or from the basic data for such items. Tabular
interest funds not involving life contingencies were determined using the actual
interest credited to the funds plus the change in accrued interest.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified to
conform with the 1999 presentation.
REINSURANCE
Reinsurance premiums and life and annuity benefits are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Premiums and benefits are reported net
of reinsured amounts.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
CODIFICATION OF STATUTORY ACCOUNTING POLICIES
In 1998, the NAIC adopted codified statutory accounting principles
(Codification), effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that First Penn uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for First Penn, the Indiana Department of Insurance
("Department") must adopt Codification as the prescribed basis of accounting on
which domestic insurers must report their statutory-basis results to the
insurance departments. At this time, it is anticipated that the Department will
adopt Codification. Management has not yet determined the impact of Codification
on First Penn's statutory-basis financial statements.
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
First Penn's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Department.
"Prescribed" statutory accounting practices include state laws, regulations, and
general administrative rules, as well as a variety of publications of the NAIC.
"Permitted" statutory accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from state to state, may
differ from company to company within a state, and may change in the future.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
3. INVESTMENTS
Investments in bonds and redeemable preferred stocks are summarized as follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1999:
U.S. Treasury $ 8,523 $ 26 $ 168 $ 8,381
Foreign governments 28,202 452 2,079 26,575
Corporate securities 814,023 6,723 30,454 790,292
Mortgage-backed securities 150,172 1,675 2,564 149,283
---------------------------------------------------
Total bonds 1,000,920 8,876 35,265 974,531
Redeemable preferred stocks 14,531 94 1,672 12,953
---------------------------------------------------
Total bonds and
Redeemable preferred stocks $ 1,015,451 $ 8,970 $ 36,937 $ 987,484
===================================================
</TABLE>
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1998:
U.S. Treasury $ 8,732 $ 508 $ - $ 9,240
Foreign governments 30,360 1,202 3,699 27,863
Corporate securities 742,056 44,665 4,546 782,175
Mortgage-backed securities 162,133 7,335 183 169,285
---------------------------------------------------
Total bonds 943,281 53,710 8,428 988,563
Redeemable preferred stocks 14,531 224 75 14,680
---------------------------------------------------
Total bonds and
Redeemable preferred stocks $ 957,812 $ 53,934 $ 8,503 $ 1,003,243
===================================================
</TABLE>
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
3. INVESTMENTS (CONTINUED)
The carrying amount and fair value of bonds at December 31, 1999, by contractual
maturity, are as follows. Expected maturities differ from contractual maturities
because certain borrowers have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------------------------
(IN THOUSANDS)
<S> <C> <C>
Years to maturity:
In 2000 $ 35,107 $ 35,385
In 2001-2004 149,537 147,732
In 2005-2009 311,661 300,295
After 2009 354,443 341,836
Mortgage-backed securities 150,172 149,283
=========================
$1,000,920 $ 974,531
=========================
</TABLE>
Proceeds from sales of investments in bonds during 1999, 1998 and 1997 were
$91,544,372, $51,106,000, and $198,404,000, respectively. At December 31, 1999,
investments in bonds, with an admitted asset value of $2,098,000, were on
deposit with state insurance departments to satisfy regulatory requirements.
First Penn invests in commercial real estate mortgage loans. At December 31,
1999, $98,054,000 of First Penn's mortgages were collateralized by properties
located in California, Michigan, Texas, and New Jersey. Such investments consist
of first-mortgage liens on completed income-producing properties. The mortgage
outstanding on any individual property does not exceed $10,000,000. The maximum
and minimum lending rates for mortgage loans issued in 1999 were 8.55% and
6.55%, respectively. The maximum percentage of any one loan to the value of the
security at the time of the loan exclusive of insured or guaranteed or purchase
money mortgages was 75%. Fire insurance at least equal to the excess of the loan
over the maximum loan which would be permitted by law on the land without the
building is required on all properties covered by mortgage loans. At December
31, 1999, there were no mortgages with interest more than one year overdue, and
during 1999 First Penn did not reduce interest rates on any mortgage loans.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
3. INVESTMENTS (CONTINUED)
Net realized capital gains (losses) on investments are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds:
Gross gains $ 1,316 $ 1,738 $ 6,032
Gross losses (821) (4,353) (709)
----------------------------------
495 (2,615) 5,323
Mortgage loans - 411 772
Real estate - 500 (10)
Other invested assets - 1 243
----------------------------------
495 (1,703) 6,328
Less:
Amounts transferred to the
interest maintenance reserve 321 (658) 3,848
Federal income taxes 174 (704) 2,333
----------------------------------
Net realized capital gains (losses) $ - $ (341) $ 147
==================================
</TABLE>
Major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Bonds $ 75,589 $ 71,966 $ 69,229
Preferred stocks 1,192 1,197 1,207
Mortgage loans on real estate 16,214 15,092 16,240
Real estate - 121 -
Policy loans 3,430 3,354 3,465
Short-term investments and cash 1,489 1,552 430
Amortization of interest maintenance reserve 771 1,062 1,223
Other 304 694 621
----------------------------------
Total investment income 98,989 95,038 92,415
Investment expenses 1,178 1,377 1,842
----------------------------------
Net investment income $ 97,811 $ 93,661 $ 90,573
==================================
</TABLE>
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
4. FEDERAL INCOME TAXES
First Penn is included in the consolidated life-nonlife federal income tax
return of LNC. First Penn's allocation of the 1999 and 1998 consolidated federal
income tax liability of LNC is computed as if First Penn filed a separate
federal income tax return.
In 1999, 1998, and 1997, First Penn's effective tax rates in the accompanying
statutory-basis financial statements are higher than the maximum corporate tax
rate. The difference is due principally to the deferral, for tax return
purposes, of specified costs and amortization of these costs over periods of up
to 10 years, which results in increased taxable income.
Under prior income tax law, one-half of the excess of a life insurance company's
income from operations over its taxable investment income was not taxed, but was
set aside in a special tax account designated as "Policyholders' Surplus." First
Penn has approximately $4,844,000 of untaxed "Policyholders' Surplus" on which
no payment of federal income taxes will be required unless it is distributed as
a dividend, or under other specified conditions. Barring the passage of
unfavorable legislation, First Penn does not believe that any significant
portion of the account will be taxed in the foreseeable future and no related
tax liability has been recognized. If the entire balance of the account became
taxable under the current federal income tax rate, the tax would be
approximately $1,695,000.
First Penn has incurred federal income taxes of $10,123,000 that are available
for recoupment in the event of future losses.
5. REINSURANCE
Certain premiums and benefits are assumed from and ceded to other insurance
companies under various reinsurance agreements. Those ceded reinsurance
agreements principally provide First Penn with increased capacity to write
larger risks.
In 1999, 1998, and 1997, premium income excludes premiums ceded to affiliated
insurance companies of $6,527,000, $9,070,000, and $7,789,000, respectively, and
to nonaffiliated insurance companies of $85,097,000, $64,259,000, and
$36,498,000 in 1999, 1998, and 1997, respectively. In 1999, 1998, and 1997,
benefits paid or provided are net of amounts recovered from reinsurers totaling
$42,718,000, $23,014,000, and $23,450,000, respectively. At December 31, 1999
and 1998, insurance reserves and claims have been shown net after deducting
$223,207,275 and $231,831,000, respectively, for reinsurance ceded to both
affiliated and unaffiliated companies.
First Penn would remain liable to the extent that the reinsuring companies are
unable to meet their obligations.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
6. TRANSACTIONS WITH RELATED PARTIES
First Penn participates in a short-term financing pool sponsored by LNC. At
December 31, 1999 and 1998 First Penn had a net investment of $26,784,000 and
$23,442,000 respectively, under this arrangement. Interest was earned at
variable rates equal to the short-term investment yield of the pool.
First Penn also utilizes, on a fee basis, various affiliates as investment
advisors and for other corporate services. First Penn paid $5,157,000,
$3,400,000, and $4,026,000 in 1999, 1998, and 1997, respectively, for these
services.
First Penn administers a block of annuity, universal life, and term business for
Lincoln Life. Fees earned for these services in 1999, 1998, and 1997 were
$9,540,000, $9,232,000, and $8,560,000, respectively.
First Penn participates in LNC's defined-benefit plans which provide retirement
pension, medical, dental, and life insurance benefits. The plans cover
substantially all of First Penn's employees meeting prescribed requirements for
plan participation. First Penn's benefit plan expense was $704,400, $481,000,
and $380,000 in 1999, 1998, and 1997, respectively.
7. ANNUITY RESERVES
At December 31, 1999, First Penn's annuity reserves and supplementary contracts
without life contingencies that are subject to discretionary withdrawal
(with adjustment), subject to discretionary withdrawal (without adjustment),
and not subject to discretionary withdrawal provisions are summarized as
follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
-------------------------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal:
At book value less current
surrender charge of 5% or more $ 10,263 4.6%
At book value (with minimal or no charge adjustment) 210,012 93.4
-------------------------
Total subject to discretionary withdrawal 220,275 98.0
Not subject to discretionary withdrawal 4,538 2.0
-----------
Total annuity reserves before reinsurance 224,813 100.0%
Less reinsurance ceded 146,389 ===========
-----------
Net annuity reserves and supplementary contracts without
life contingencies $ 78,424
===========
</TABLE>
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
8. CAPITAL AND SURPLUS
Under Indiana insurance regulations, at December 31, 1999, First Penn is
required to maintain minimum capital of $1,000,000 and minimum surplus of
$250,000. First Penn exceeds the NAIC's risk-based capital requirements at
December 31, 1999.
The payment of dividends by First Penn to its stockholder is limited and cannot
be made except from earned profits of First Penn and, in certain circumstances,
without prior approval of the Department. Ordinary dividends to the stockholder
are restricted to the greater of 1999 statutory-basis net income or 10% of
statutory-basis capital and surplus at December 31, 1999. In 1999, First Penn
can pay dividends of $7,200,000 without the prior approval of the Indiana
Insurance Commissioner.
9. COMMITMENTS AND CONTINGENCIES
First Penn is involved in various pending or threatened legal proceedings
arising from the conduct of business. Most of these proceedings are routine in
the ordinary course of business. First Penn maintains professional liability
insurance coverage for claims in excess of $5,000,000. The degree of
applicability of this coverage will depend on the specific facts of each
proceeding. In some instances, these proceedings include claims for compensatory
and punitive damages and similar types of relief in addition to amounts for
alleged contractual liability or requests 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.
Two lawsuits involving alleged fraud in the sale of interest-sensitive universal
life have been filed against First Penn. Plaintiffs seek unspecified damages and
penalties. While the relief sought in these cases is substantial, it is
premature to make assessments about the potential loss, if any, because the
status of the cases is in the early stages of litigation. Management intends to
defend these suits vigorously. The amount of liability, if any, which may arise
as a result of these suits cannot be reasonably estimated at this time.
First Penn leases its office space under a noncancelable lease expiring in 2010
and various other equipment leases. In 1998, First Penn entered into a new lease
agreement for office space which is effective in 2000. The previous lease will
terminate at that time. Future minimum lease payments including those associated
with the new lease agreement are $3,237,000 in 2000, $3,004,000 in 2001,
$2,890,000 in 2002, $2,937,000 in 2003, and $3,000,000 in 2004 and $16,977,000
thereafter. Rental expense in 1999, 1998 and 1997 was $3,353,000, $3,462,000,
and $2,462,000, respectively.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Periodically, First Penn is assessed by various state guaranty funds as part of
those funds' activities to collect funds from solvent insurance companies to
cover certain losses to policyholders that resulted from the insolvency or
rehabilitation of other insurance companies. At December 31, 1999 and 1998,
First Penn has established a liability for guaranty funds assessments of
$2,350,000 and $2,500,000, respectively, for those insolvencies or
rehabilitations that have actually occurred prior to that date. There are many
uncertainties regarding the ultimate assessments that will be assessed.
Assessments charged to expense in 1999, 1998 and 1997 for guaranty fund payments
were $150,000, $319,000, and $461,000, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair values of First Penn's financial instruments.
Considerable judgment is required to develop these fair values. Accordingly, the
estimates shown are not necessarily indicative of the amounts that would be
realized in a one-time, current market exchange of all First Penn's financial
instruments.
CASH, SHORT-TERM INVESTMENTS, AND ACCRUED INVESTMENT INCOME
The carrying amounts reported in the balance sheets for these instruments
approximate their fair values.
INVESTMENT SECURITIES
The fair values for bonds and redeemable preferred stocks are based on quoted
market prices, where available. For bonds not actively traded, fair values are
estimated using values obtained from independent pricing services.
MORTGAGE LOANS
The fair values for mortgage loans are estimated using a discounted cash flow
method based on rating, maturity, and future income when compared to the
expected yield for mortgages having similar characteristics. The rating for
mortgages in good standing is based on property type, location, market
conditions, occupancy, debt service coverage, loan to value, caliber of tenancy,
borrower, and payment record. Problem mortgages are valued to reflect their
monetary value to First Penn considering various items such as the degree of
default, whether payments are still being made, interest rate, maturity, and
operating performance of the underlying collateral.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
POLICY LOANS
The estimated fair value of investments in policy loans is calculated using a
composite discounted cash flow basis using Treasury interest rates consistent
with the maturity durations assumed. These durations were based on historical
experience.
INVESTMENT-TYPE INSURANCE CONTRACTS
The fair values of First Penn's liabilities under investment-type insurance
contracts are equal to the cash surrender value of the contracts.
The carrying amounts and fair values of First Penn's financial instruments are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Bonds $ 1,000,920 $ 974,531 $ 943,281 $ 988,563
Redeemable preferred stocks 14,531 12,953 14,531 14,680
Affiliated common stock 20 20 - -
Mortgage loans 222,221 216,443 184,859 194,406
Policy loans 48,852 51,240 49,048 54,475
Short-term investments 26,784 26,784 23,442 23,442
Cash 5,387 5,387 5,413 5,413
Accrued investment income 18,534 18,534 16,961 16,961
LIABILITIES
Investment-type
insurance contracts 77,210 78,299 86,587 88,349
</TABLE>
The fair value for First Penn's insurance contracts other than investment
contracts is not required to be disclosed. However, the fair value of
liabilities under all insurance contracts is taken into consideration in First
Penn's overall management of interest rate risk, such that First Penn's exposure
to changing interest rates is minimized through the matching of investment
maturities with amounts due under insurance contracts.
<PAGE>
First Penn-Pacific Life Insurance Company
Notes to Financial Statements--Statutory Basis (continued)
11. IMPACT OF THE YEAR 2000 (UNAUDITED)
The Year 2000 issue was complex and affected many aspects of First Penn's
business. First Penn was particularly concerned with Year 2000 issues that
related to First Penn's computer systems and interfaces with the computer
systems of vendors, suppliers, customers and business partners. From 1996-1999,
Fist Penn redirected a large portion of internal Information Technology ("IT")
efforts and contracted with outside consultants to update systems to address
Year 2000 issues. Experts were engaged to assist in developing work plans and
cost estimates and to complete remediation activities.
For the year ended December 31, 1999, First Penn identified expenditures of
$1,605,000 to address this issue. Lincoln Life has reimbursed First Penn for a
portion of the Year 2000 expenses incurred in 1999. The amount Lincoln Life
reimbursed First Penn was $1,420,000, therefore, only $185,000 of Year 2000
expenses are actually included in First Penn's expenses for 1999. This brings
the expenditures for 1996 through 1999 before reimbursement to $2,231,000 and
after reimbursement to $811,000. Because updating systems and procedures is an
integral part of First Penn's on-going operations, most of the expenditures
shown above for 1999 are expected to continue after all Year 2000 issues have
been resolved. All Year 2000 expenditures have been funded from operating cash
flows.
The scope of the overall Year 2000 program included the following four major
project areas: 1) addressing the readiness of business applications, operating
systems and hardware on mainframe, personal computer and local area network
platforms (IT); 2) addressing the readiness of non-IT embedded software and
equipment (non-IT); 3) addressing the readiness of key business partners and 4)
establishing Year 2000 contingency plans. First Penn completed these projects
prior to December 31, 1999.
First Penn has not identified any major problems in its business processing.
Minor problems have been resolved quickly. First Penn has not experienced any
significant interruption in service to clients or business partners or in
reporting to regulators.
12. SUBSEQUENT EVENT
On February 25, 2000, First Penn filed Registration Statement Form N-8 with the
Securities and Exchange Commission ("SEC") to register the First Penn-Pacific
Variable Life Insurance Separate Account ("Variable Account") as an investment
company under the Investment Company Act of 1940, as amended. The Variable
Account will issue the variable portion of flexible premium variable life
insurance policies ("policies"). On February 25, 2000, First Penn filed
Registration Statement Form S-6 with the SEC to register the variable portion of
the policies under the Securities Act of 1933, as amended. The policies will be
underwritten by First Penn-Pacific Securities, Inc., a wholly-owned subsidiary
of First Penn.
<PAGE>
[LETTERHEAD]
Report of Independent Auditors
Board of Directors
First Penn-Pacific Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of First
Penn-Pacific Life Insurance Company (a wholly owned subsidiary of The Lincoln
National Life Insurance Company) as of December 31, 1999 and 1998, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1, the accompanying financial statements have been prepared
in conformity with accounting practices prescribed or permitted by the Indiana
Department of Insurance, which is a comprehensive basis of accounting other than
accounting principles generally accepted in the United States. The variances
between such practices and accounting principles generally accepted in the
United States and the effects on the accompanying financial statements are
described in Note 1.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of First Penn-Pacific Life Insurance Company at December
31, 1999 and 1998, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1999.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Penn-Pacific
Life Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting practices prescribed or
permitted by the Indiana Department of Insurance.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
March 15, 2000
<PAGE>
ILLUSTRATIONS OF POLICY ACCOUNT VALUES,
SURRENDER VALUES, DEATH BENEFITS,
AND LONG-TERM/CONVALESCENT CARE 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, Death Benefits, and Long-Term/Convalescent Care
Benefits ("LTC 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% and 10%.
If the hypothetical gross investment rate of return averages 0% or 10%, but
fluctuates over or under those averages throughout the years, the Policy Account
Values, Surrender Values, Death Benefits, and LTC Benefits may differ.
The amounts shown for the Policy Account Value, Surrender Value, Death Benefit,
and LTC 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 0.85%, 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 0.87%. 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 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%
and 10% correspond to approximate net annual investment rates of return of
-1.85%% and 8.15%, respectively on 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. Surrender Values reflect a
surrender charge that is applicable during the first fourteen Policy Years.
The tables illustrate the Policy Account Values, Surrender Values, Death
Benefits, and maximum LTC Benefits that would result based upon the hypothetical
investment rates of return
I-1
<PAGE>
if no Premium other than the indicated Initial Premium is paid, if the entire
Initial Premium is allocated to the Separate Account, if no Policy loans are
taken, and if no LTC Benefits are paid. The tables also assume that no
partial withdrawals or transfers have been made. Partial withdrawals are
subject to a charge of the lesser of $25 or 2% of the amount withdrawn per
transaction. Partial withdrawals and loans will reduce the Death Benefit and
LTC Benefits payable.
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, Death Benefits, and LTC Benefits
than those illustrated. Females generally have a more favorable guaranteed rate
structure than males.
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 illustrated Policy has a LTC Benefits Rider that prepays the Death
Benefit to reimburse expenses for long-term/convalescent care. The
illustrated Policy also has an Extension of Benefits Rider ("EOB Rider") that
provides additional long-term care benefits after the entire Death Benefit
amount has been exhausted. The LTC Benefits shown in the attached tables
reflect the total benefits payable under the LTC Benefits Rider and the EOB
Rider. Monthly benefit payments can begin after a 90-day deductible period.
Long-term care benefits are subject to special federal tax requirements,
which are described in the prospectus in "Federal Tax Considerations:
Long-Term/Convalescent Care Benefits Rider."
LTC Benefits payable under these riders are subject to a daily benefit limit.
The initial daily benefit limits under the illustrated LTC Benefits Rider and
EOB Rider are as follows:
<TABLE>
<S> <C>
Initial Home Health Care Daily Benefit: $ 100.00
Initial Nursing Home Care Daily Benefit: $ 100.00
Initial Home Assisted Living Daily Benefit: $ 100.00
Initial Home Adult Day Care Daily Benefit: $ 100.00
</TABLE>
The LTC Benefits Rider illustrated in effect provides for payment of the maximum
daily benefit over a two-year period. Accordingly, the actual maximum daily
amount payable under the LTC Benefits Rider equals the Death Benefit at the time
of the claim divided by 730. The EOB Rider illustrated in effect provides for
payment of the maximum daily benefit for an additional two years. The amount of
the benefits payable under the EOB Rider is not affected by changes in the Death
Benefit.
We also offer a Guarantee Enhancement Rider. This Rider provides for lifetime
minimum benefits regardless of changes in the Policy Account Value, as long as
the following conditions are met: (1) the specified Initial Premium is paid in
full; (2) you have followed our recommendations, if any, to reduce the Specified
Amount and LTC Benefit amount, but never below the minimum shown in your Policy
Schedule; and (3) you have made no partial withdrawals or loans from the Policy.
I-2
<PAGE>
The charges for optional benefit Riders are deducted from your Policy Account
Value as part of the Monthly Deduction. These riders are described in more
detail in the prospectus.
Where the Surrender Value shown in these illustrations is zero, the Policy
(including any LTC Benefits or EOB Rider) may lapse in accordance with the Grace
Period provisions if you do not pay sufficient additional Premium. However, if
your Policy lapses while you are collecting LTC Benefits, we will continue to
pay you LTC Benefits as provided in your Riders, while you continue to qualify
for LTC 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.
I-3
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR) AND EOB RIDER (2 YEAR)
MALE STANDARD NON-SMOKER ISSUE AGE 65
$42,566 INITIAL PREMIUM
$73,000 SPECIFIED AMOUNT
$73,000 LTC BENEFIT UNDER EOB RIDER
$146,000 TOTAL INITIAL LTC BENEFIT
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 10% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- -----------------------
POLICY ACCOUNT SURRENDER DEATH LTC ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT VALUE VALUE BENEFIT BENEFIT
---- --- ------- ----- ----- ------- ------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 65 42,566 39,072 36,157 73,000 146,000 43,159 40,243 74,016 147,016
2 66 0 36,963 34,047 73,000 146,000 45,361 42,445 75,922 148,922
3 67 0 34,729 31,814 73,000 146,000 47,669 44,754 77,916 150,916
4 68 0 32,348 29,433 73,000 146,000 50,084 47,168 79,990 152,990
5 69 0 29,785 26,869 73,000 146,000 52,603 49,688 82,140 155,140
6 70 0 26,989 24,073 73,000 146,000 55,222 52,306 84,355 157,355
7 71 0 23,918 21,002 73,000 146,000 57,943 55,028 86,644 159,644
8 72 0 20,516 17,600 73,000 146,000 60,770 57,855 89,017 162,017
9 73 0 16,688 13,772 73,000 146,000 63,690 60,775 91,464 164,464
10 74 0 12,333 9,418 73,000 146,000 66,699 63,783 93,989 166,989
11 75 0 7,345 5,013 73,000 146,000 69,799 67,467 96,600 169,600
12 76 0 1,593 0 0 0 72,995 71,245 99,302 172,302
13 77 0 0 0 0 0 76,295 75,129 102,104 175,104
14 78 0 0 0 0 0 79,703 79,120 105,001 178,001
15 79 0 0 0 0 0 83,225 83,225 107,995 180,995
16 80 0 0 0 0 0 86,861 86,861 111,085 184,085
17 81 0 0 0 0 0 90,603 90,603 114,261 187,261
18 82 0 0 0 0 0 94,442 94,442 117,523 190,523
19 83 0 0 0 0 0 98,371 98,371 120,877 193,877
20 84 0 0 0 0 0 102,386 102,386 124,331 197,331
21 85 0 0 0 0 0 106,492 106,492 127,897 200,897
22 86 0 0 0 0 0 110,695 110,695 131,581 204,581
23 87 0 0 0 0 0 115,013 115,013 135,397 208,397
24 88 0 0 0 0 0 119,465 119,465 139,351 212,351
25 89 0 0 0 0 0 124,074 124,074 143,451 216,451
26 90 0 0 0 0 0 128,866 128,866 147,695 220,695
27 91 0 0 0 0 0 133,876 133,876 152,094 225,094
28 92 0 0 0 0 0 139,142 139,142 156,648 229,648
29 93 0 0 0 0 0 144,707 144,707 161,344 234,344
30 94 0 0 0 0 0 150,583 150,583 166,136 239,136
31 95 0 0 0 0 0 157,424 157,424 171,693 244,693
32 96 0 0 0 0 0 165,387 165,387 178,150 251,150
33 97 0 0 0 0 0 174,633 174,633 185,700 258,700
34 98 0 0 0 0 0 185,282 185,282 194,600 267,600
35 99 0 0 0 0 0 197,328 197,328 205,222 278,222
</TABLE>
I-4
<PAGE>
ASSUMPTIONS:
(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, SURRENDER
VALUE, AND LTC BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0% AND 10% 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-5
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR) AND EOB RIDER (2 YEAR)
MALE STANDARD NON-SMOKER ISSUE AGE 65
$42,566 INITIAL PREMIUM
$73,000 SPECIFIED AMOUNT
$73,000 LTC BENEFIT UNDER EOB RIDER
$146,000 TOTAL INITIAL LTC BENEFIT
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 10% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- -----------------------
POLICY ACCOUNT SURRENDER DEATH LTC ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT VALUE VALUE BENEFIT BENEFIT
---- --- ------- ----- ----- ------- ------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 65 42,566 39,097 36,181 73,000 146,000 43,184 40,268 74,059 147,059
2 66 0 37,034 34,119 73,000 146,000 45,433 42,518 76,044 149,044
3 67 0 34,881 31,965 73,000 146,000 47,816 44,900 78,155 151,155
4 68 0 32,626 29,710 73,000 146,000 50,340 47,424 80,400 153,400
5 69 0 30,260 27,344 73,000 146,000 53,019 50,104 82,790 155,790
6 70 0 27,771 24,855 73,000 146,000 55,868 52,952 85,342 158,342
7 71 0 25,147 22,232 73,000 146,000 58,900 55,985 88,075 161,075
8 72 0 22,805 19,889 73,000 146,000 62,385 59,469 91,382 164,382
9 73 0 20,262 17,346 73,000 146,000 66,063 63,147 94,871 167,871
10 74 0 17,470 14,554 73,000 146,000 69,936 67,020 98,550 171,550
11 75 0 14,387 12,054 73,000 146,000 74,014 71,681 102,433 175,433
12 76 0 10,971 9,222 73,000 146,000 78,311 76,562 106,535 179,535
13 77 0 7,168 6,001 73,000 146,000 82,841 81,675 110,864 183,864
14 78 0 2,909 2,326 73,000 146,000 87,617 87,034 115,428 188,428
15 79 0 0 0 0 0 92,656 92,656 120,234 193,234
16 80 0 0 0 0 0 97,969 97,969 125,290 198,290
17 81 0 0 0 0 0 103,560 103,560 130,601 203,601
18 82 0 0 0 0 0 109,436 109,436 136,182 209,182
19 83 0 0 0 0 0 115,604 115,604 142,053 215,053
20 84 0 0 0 0 0 122,078 122,078 148,244 221,244
21 85 0 0 0 0 0 128,871 128,871 154,775 227,775
22 86 0 0 0 0 0 136,003 136,003 161,664 234,664
23 87 0 0 0 0 0 143,502 143,502 168,935 241,935
24 88 0 0 0 0 0 151,399 151,399 176,602 249,602
25 89 0 0 0 0 0 159,729 159,729 184,674 257,674
26 90 0 0 0 0 0 168,532 168,532 193,157 266,157
27 91 0 0 0 0 0 177,854 177,854 202,057 275,057
28 92 0 0 0 0 0 187,753 187,753 211,374 284,374
29 93 0 0 0 0 0 198,287 198,287 221,084 294,084
30 94 0 0 0 0 0 209,494 209,494 231,131 304,131
31 95 0 0 0 0 0 221,377 221,377 241,443 314,443
32 96 0 0 0 0 0 232,572 232,572 250,519 323,519
33 97 0 0 0 0 0 243,764 243,764 259,212 332,212
34 98 0 0 0 0 0 255,664 255,664 268,523 341,523
35 99 0 0 0 0 0 268,643 268,643 279,389 352,389
</TABLE>
I-6
<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, SURRENDER
VALUE, AND LTC BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0% AND 10% 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-7
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR) AND EOB RIDER (2 YEAR)
FEMALE STANDARD NON-SMOKER ISSUE AGE 65
$38,393 INITIAL PREMIUM
$73,000 SPECIFIED AMOUNT
$73,000 LTC BENEFIT UNDER EOB RIDER
$146,000 TOTAL INITIAL LTC BENEFIT
VALUES--GUARANTEED COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 10% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- -----------------------
POLICY ACCOUNT SURRENDER DEATH LTC ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT VALUE VALUE BENEFIT BENEFIT
---- --- ------- ----- ----- ------- ------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 65 38,393 35,350 32,368 73,000 146,000 39,025 36,043 74,202 147,202
2 66 0 33,593 30,611 73,000 146,000 41,124 38,142 76,097 149,097
3 67 0 31,773 28,791 73,000 146,000 43,344 40,362 78,090 151,090
4 68 0 29,885 26,903 73,000 146,000 45,695 42,713 80,182 153,182
5 69 0 27,911 24,929 73,000 146,000 48,179 45,197 82,363 155,363
6 70 0 25,824 22,842 73,000 146,000 50,796 47,814 84,626 157,626
7 71 0 23,595 20,613 73,000 146,000 53,547 50,565 86,969 159,969
8 72 0 21,183 18,201 73,000 146,000 56,427 53,445 89,392 162,392
9 73 0 18,527 15,545 73,000 146,000 59,427 56,445 91,887 164,887
10 74 0 15,572 12,590 73,000 146,000 62,544 59,562 94,462 167,462
11 75 0 12,261 9,876 73,000 146,000 65,781 63,395 97,129 170,129
12 76 0 8,517 6,728 73,000 146,000 69,138 67,349 99,891 172,891
13 77 0 4,258 3,065 73,000 146,000 72,621 71,429 102,752 175,752
14 78 0 0 0 0 0 76,235 75,639 105,711 178,711
15 79 0 0 0 0 0 79,981 79,981 108,766 181,766
16 80 0 0 0 0 0 83,857 83,857 111,914 184,914
17 81 0 0 0 0 0 87,855 87,855 115,150 188,150
18 82 0 0 0 0 0 91,962 91,962 118,470 191,470
19 83 0 0 0 0 0 96,171 96,171 121,881 194,881
20 84 0 0 0 0 0 100,477 100,477 125,388 198,388
21 85 0 0 0 0 0 104,882 104,882 129,003 202,003
22 86 0 0 0 0 0 109,395 109,395 132,735 205,735
23 87 0 0 0 0 0 114,025 114,025 136,589 209,589
24 88 0 0 0 0 0 118,784 118,784 140,572 213,572
25 89 0 0 0 0 0 123,690 123,690 144,687 217,687
26 90 0 0 0 0 0 128,768 128,768 148,944 221,944
27 91 0 0 0 0 0 134,045 134,045 153,346 226,346
28 92 0 0 0 0 0 139,551 139,551 157,891 230,891
29 93 0 0 0 0 0 145,319 145,319 162,570 235,570
30 94 0 0 0 0 0 151,364 151,364 167,347 240,347
31 95 0 0 0 0 0 158,412 158,412 172,973 245,973
32 96 0 0 0 0 0 166,606 166,606 179,563 252,563
33 97 0 0 0 0 0 176,092 176,092 187,290 260,290
34 98 0 0 0 0 0 186,981 186,981 196,395 269,395
35 99 0 0 0 0 0 199,269 199,269 207,240 280,240
</TABLE>
I-8
<PAGE>
ASSUMPTIONS:
(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% AND 10% 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-9
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR) AND EOB RIDER (2 YEAR)
FEMALE STANDARD NON-SMOKER ISSUE AGE 65
$38,393 INITIAL PREMIUM
$73,000 SPECIFIED AMOUNT
$73,000 LTC BENEFIT UNDER EOB RIDER
$146,000 TOTAL INITIAL LTC BENEFIT
VALUES--CURRENT COST OF INSURANCE
<TABLE>
<CAPTION>
0% HYPOTHETICAL 10% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- -----------------------
POLICY ACCOUNT SURRENDER DEATH LTC ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT VALUE VALUE BENEFIT BENEFIT
---- --- ------- ----- ----- ------- ------- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 65 38,393 35,374 32,392 73,000 146,000 39,050 36,068 74,249 147,249
2 66 0 33,641 30,659 73,000 146,000 41,176 38,194 76,193 149,193
3 67 0 31,845 28,863 73,000 146,000 43,424 40,442 78,234 151,234
4 68 0 29,982 27,000 73,000 146,000 45,805 42,823 80,375 153,375
5 69 0 28,032 25,050 73,000 146,000 48,321 45,339 82,606 155,606
6 70 0 25,982 23,000 73,000 146,000 50,981 47,999 84,934 157,934
7 71 0 23,817 20,835 73,000 146,000 53,795 50,813 87,373 160,373
8 72 0 22,050 19,068 73,000 146,000 57,125 54,143 90,498 163,498
9 73 0 20,158 17,176 73,000 146,000 60,652 57,670 93,781 166,781
10 74 0 18,118 15,136 73,000 146,000 64,383 61,401 97,240 170,240
11 75 0 15,896 13,510 73,000 146,000 68,325 65,940 100,886 173,886
12 76 0 13,468 11,679 73,000 146,000 72,493 70,704 104,739 177,739
13 77 0 10,793 9,600 73,000 146,000 76,896 75,703 108,800 181,800
14 78 0 7,837 7,241 73,000 146,000 81,552 80,956 113,084 186,084
15 79 0 4,538 4,538 73,000 146,000 86,470 86,470 117,591 190,591
16 80 0 821 821 73,000 146,000 91,661 91,661 122,329 195,329
17 81 0 0 0 0 0 97,128 97,128 127,304 200,304
18 82 0 0 0 0 0 102,878 102,878 132,532 205,532
19 83 0 0 0 0 0 108,918 108,918 138,036 211,036
20 84 0 0 0 0 0 115,259 115,259 143,835 216,835
21 85 0 0 0 0 0 121,917 121,917 149,956 222,956
22 86 0 0 0 0 0 128,911 128,911 156,415 229,415
23 87 0 0 0 0 0 136,261 136,261 163,225 236,225
24 88 0 0 0 0 0 143,991 143,991 170,401 243,401
25 89 0 0 0 0 0 152,131 152,131 177,955 250,955
26 90 0 0 0 0 0 160,720 160,720 185,903 258,903
27 91 0 0 0 0 0 169,797 169,797 194,246 267,246
28 92 0 0 0 0 0 179,405 179,405 202,983 275,983
29 93 0 0 0 0 0 189,597 189,597 212,104 285,104
30 94 0 0 0 0 0 200,407 200,407 221,569 294,569
31 95 0 0 0 0 0 211,836 211,836 231,308 304,308
32 96 0 0 0 0 0 223,186 223,186 240,543 313,543
33 97 0 0 0 0 0 234,976 234,976 249,918 322,918
34 98 0 0 0 0 0 247,725 247,725 260,196 333,196
35 99 0 0 0 0 0 261,692 261,692 272,160 345,160
</TABLE>
I-10
<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, SURRENDER
VALUE, AND LTC BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL RATES OF RETURN AVERAGED 0% AND 10% 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-11
<PAGE>
PART II - OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, as amended, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION AS TO FEES AND CHARGES
First Penn-Pacific Life Insurance Company hereby represents that the fees and
charges deducted under the Flexible Payment Variable Universal Life Insurance
Policies hereby registered by this Registration Statement in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by First Penn-Pacific Life Insurance Company.
REPRESENTATION PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company Act of
1940, as amended (the "1940 Act").
UNDERTAKING AS TO INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors, officers
and controlling persons of the Registrant, the Registrant has been advised that,
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
REPRESENTATION AS TO ACTUARIAL MATTERS
Actuarial matters included in this registration statement, including the
hypothetical Policy illustrations included in the Prospectus filed herewith,
have been examined by May Lee Low, Second Vice President and Actuary of the
Company, and are included in reliance upon her opinion as to their
reasonableness.
II-1
<PAGE>
CONTENTS OF THIS REGISTRATION STATEMENT
This Registration Statement consists of the following papers and documents:
Facing Sheet
Cross-Reference Sheet
Prospectus consisting of ___ pages
Undertaking to File Reports
Undertaking As To Indemnification
Representation As To Fees and Charges
Representation Pursuant to Rule 6e-3(T)
Signature Pages
Exhibits
EXHIBIT LIST
1. Exhibits required by paragraph A of the instructions as to Exhibits of
Form N-8B-2
(1) Resolution of the Board of Directors of First Penn-Pacific
Life Insurance Company authorizing establishment of First
Penn-Pacific Variable Life Insurance Separate Account, as
amended and restated on February 22, 2000 (1)
(2) Custodian Agreement (not applicable)
(3) (a) Form of Distribution Agreement (1)
(b) Form of Broker-Dealer and General Agent Sales
Agreement (1)
(c) Schedule of Sales Commissions (2)
(4) Other Agreements between the depositor, principal underwriter,
and custodian with respect to Registrant or its securities
(not applicable)
(5) (a) Specimen Policy (filed herewith)
(b) Specimen Convalescent Care Benefits Rider
(filed herewith)
(c) Specimen Extension of Convalescent Care Benefits
Rider (filed herewith)
(d) Specimen Extension of Convalescent Care Benefits
Rider with Automatic Increasing Benefits
(filed herewith)
(e) Specimen Guarantee Enhancement Rider (filed herewith)
II-2
<PAGE>
(6) (a) Articles of Incorporation of First Penn-Pacific
Life Insurance Company (1)
(b) By-laws of First Penn-Pacific Life Insurance Company
(1)
(7) Not applicable
(8) Participation Agreements
(8)(a) Form of Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and
_____________________________ (filed herewith)
(8)(b) Form of Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
_____________________________ (filed herewith)
(8)(c) Form of Participation Agreement between _____________
_______________ and Lincoln National Money Market
Fund, Inc. (filed herewith)
(8)(d) Form of Participation Agreement between ____________________
_________________________ and Lincoln National Bond
Fund, Inc. (filed herewith)
(8)(e) Form of Participation Agreement by and among AIM Variable
Insurance Funds, Inc., AIM Distributors, Inc., __________
___________________, on behalf of itself
and its separate accounts, and __________ (filed herewith)
(8)(f) Form of Participation Agreement among Delaware Group
Premium Fund, ______________________, and Delaware
Distributors, LP (filed herewith)
(8)(g) Form of Participation Agreement among _______, _________,
Alliance Capital Management L.P., and Alliance Fund
Distrubutors, Inc.
(9) Other Material Contracts (not applicable)
(10) (a) Specimen Application for Life Insurance
(filed herewith)
(b) Specimen Application for Life Insurance
(filed herewith)
(c) Specimen Supplemental Application for Variable Life
Insurance (filed herewith)
(d) Specimen Supplemental Application for Long Term Care
Rider (filed herewith)
2. Opinion and Consent of Counsel (filed herewith)
5. All financial statements omitted from the Prospectus (not applicable)
6. Not applicable
7. Financial Data Schedule (not applicable)
8. [Reserved]
9. Actuarial Opinion and Consent (filed herewith)
10. Consent of Ernst & Young LLP, Independent Auditors (filed herewith)
-------------------------
(1) Incorporated by reference to Registration Statement on Form S-6
of First Penn-Pacific Variable Life Insurance Separate Account,
filed February 25, 2000 (File No. 333-31116).
(2) Incorporated by reference to Amendment No. 1 to Registration
Statement on Form N-8b-2 of First Penn-Pacific Variable Life
Insurance Separate Account, filed this date (File No. 811-9827).
II-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the registrant has duly caused this Pre-Effective Amendment to
the Registration Statement to be signed on its behalf in the City of Schaumburg,
State of Illinois on the 30th of May, 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
As required by the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated:
<TABLE>
<S> <C> <C>
/s/ Roland C. Baker
-----------------------
Roland C. Baker President and Director May 30, 2000
(Chief Executive Officer)
/s/ Steven W. Rogers
-----------------------
Steven W. Rogers Second Vice President and May 30, 2000
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Thomas W. Fitch
-----------------------
Thomas W. Fitch Senior Vice President and Director May 30, 2000
/s/ Richard C. Klein
-----------------------
Richard C. Klein Senior Vice President and Director May 30, 2000
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
/s/ John H. Gotta
-----------------------
John H. Gotta Director May 30, 2000
/s/ Lawrence T. Rowland
-----------------------
Lawrence T. Rowland Director May 30, 2000
/s/ Todd R. Stephenson
-----------------------
Todd R. Stephenson Director May 30, 2000
</TABLE>
II-5
<PAGE>
EXHIBIT LIST
1.5(a) Specimen Policy
1.5(b) Specimen Convalescent Care Benefits Rider
1.5(c) Specimen Extension of Convalescent Care Benefits Rider
1.5(d) Specimen Extension of Convalescent Care Benefits Rider with
Automatic Increasing Benefits
1.5(e) Specimen Guarantee Enhancement Rider
1.(8)(a) Form of Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and
_______________________________.
1.(8)(b) Form of Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
__________________________________.
1.(8)(c) Form of Participation Agreement between ______________
__________________ and Lincoln National Money Market
Fund, Inc.
1.(8)(d) Form of Participation Agreement between_______________
________________ and Lincoln National Bond Fund, Inc.
1.(8)(e) Form of Participation Agreement by and among AIM Variable
Insurance Funds, Inc., AIM Distributors, Inc., _________
__________________________, on behalf of itself and
its separate accounts, and __________________________.
1.(8)(f) Form of Participation Agreement among Delaware Group
Premium Fund, ________________ and Delaware Distributors, LP
1.(8)(g) Form of Participation Agreement among ___________________,
______________________, Alliance Capital Management L.P.
and Alliance Fund Distributors, Inc.
1.10(a) Specimen Application for Life Insurance
1.10(b) Specimen Application for Life Insurance
1.10(c) Specimen Supplemental Application for Life Insurance
1.10(d) Specimen Supplemental Application for Long Term Care Rider
2 Opinion and Consent of Counsel
9 Actuarial Opinion and Consent
10 Consent of Ernst & Young LLP, Independent Auditors
66424.3
II-6
