<PAGE>
As filed with the Securities and Exchange Commission on December 19, 2000
Registration No. 333-31116
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-6
Post-Effective Amendment No. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------
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, Esq.
Jorden Burt Boros Cicchetti
Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007-5201
Securities being offered - variable portion of flexible
premium variable life insurance policies
It is proposed that this filing will become effective
(check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_X_ on December 19, 2000 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a) (1)
___ on (date) pursuant to paragraph (a) (1)
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
The registrant is registering an indefinite amount of securities, by reason of
Section 24(f) of the Investment Company Act of 1940.
-------------------------------
:76247-1
<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.
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
<TABLE>
<CAPTION>
ORGANIZATION AND GENERAL INFORMATION
<S> <C> <C>
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
ii
<PAGE>
INFORMATION CONCERNING SECURITIES UNDERLYING TRUST'S SECURITIES
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 ...................... Deduction 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 withdrawl ............................................... 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 Policy
holder ........................................................................ 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
iii
<PAGE>
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 descriptionof 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
security of trust. (All underlying securities are shares Value
in registered 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
iv
<PAGE>
50. Lien on trust assets .......................................................... Variable Account
INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
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
</TABLE>
*Items not listed are not applicable to this Registration Statement.
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 5048
HARTFORD, CONNECTICUT 06102-5048
1-888-633-2205
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 [30-32] 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.
The Policy is a modified endowment contract for Federal income tax purposes,
except in certain cases described in "Federal Tax Considerations" beginning on
page [41]. 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.
(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.
THE DATE OF THIS PROSPECTUS IS DECEMBER 19, 2000.
<PAGE>
The Policy currently offers thirty-four 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
- AIM V.I. Growth Fund
- AIM V.I. International Equity Fund
- AIM V.I. Value Fund
AMERICAN FUNDS INSURANCE SERIES (ALSO KNOWN
AS AMERICAN VARIABLE INSURANCE SERIES)
- Global Small Capitalization Fund--Class 2
- Growth Fund--Class 2
- Growth-Income Fund--Class 2
DELAWARE GROUP PREMIUM FUND
- Devon Series--Standard Class
- Emerging Markets Series--Standard Class
- High Yield Series--Standard Class (formerly Delchester Series)
- REIT Series--Standard Class
- Small Cap Value Series--Standard Class
- Trend Series--Standard Class
DEUTSCHE ASSET MANAGEMENT VIT FUNDS TRUST
(FORMERLY BT INSURANCE FUNDS TRUST)
- EAFE-Registered Trademark- Equity Index Fund
- Equity 500 Index Fund
- Small Cap Index Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
- Growth Portfolio--Service Class
- High Income Portfolio--Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- Contrafund Portfolio--Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
- Growth Opportunities Portfolio--Service Class
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST
- Templeton Growth Securities Fund--Class 2 (formerly Templeton Stock Fund)
- Templeton International Securities Fund--Class 2 (formerly Templeton
International Fund)
JANUS ASPEN SERIES
- Janus Aspen Series Balanced Portfolio--Service Shares
- Janus Aspen Series Worldwide Growth Portfolio--Service Shares
LINCOLN NATIONAL ("LN") FUNDS
- LN Bond Fund, Inc.
- LN Capital Appreciation Fund, Inc.
- LN Equity-Income Fund, Inc.
- LN Global Asset Allocation Fund, Inc.
- LN Money Market Fund, Inc.
- LN Social Awareness Fund, Inc.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST
- MFS Emerging Growth Series
- MFS Total Return Series
- MFS Utilities Series
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- AMT Mid-Cap Growth Portfolio
- AMT Partners Portfolio
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.
2
<PAGE>
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.
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.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
DEFINITIONS................................................. 6
FEES AND EXPENSES........................................... 8
QUESTIONS AND ANSWERS ABOUT YOUR POLICY..................... 12
PURCHASE OF POLICY AND ALLOCATION OF NET PREMIUMS........... 18
Application for a Policy.................................. 18
Premiums.................................................. 19
Allocation of Net Premiums................................ 19
Policy Account Value...................................... 19
Accumulation Unit Value................................... 20
Transfer of Policy Account Value.......................... 20
Transfers Authorized by Telephone......................... 21
Dollar Cost Averaging..................................... 21
Asset Rebalancing......................................... 22
THE INVESTMENT AND FIXED ACCOUNT OPTIONS.................... 22
Variable Account Investments.............................. 22
Portfolios.............................................. 22
Voting Rights........................................... 27
Additions, Deletions, and Substitutions of Securities... 28
The Fixed Account......................................... 28
POLICY BENEFITS AND RIGHTS.................................. 29
Death Benefit............................................. 29
Change in the Specified Amount............................ 30
Optional Insurance Benefits............................... 30
Long Term/Convalescent Care Benefits Riders............. 30
Guarantee Enhancement Rider............................. 32
Policy Loans.............................................. 32
Amount Payable on Surrender of the Policy................. 33
Partial Withdrawals....................................... 34
Proceeds Options.......................................... 34
Policy after Age 100...................................... 35
Termination and Grace Period.............................. 35
Reinstatement............................................. 36
Cancellation.............................................. 36
Postponement of Payments.................................. 36
DEDUCTIONS AND CHARGES...................................... 36
Premium Expense Charge.................................... 36
Mortality and Expense Risk Charge......................... 37
Other Variable Account Charge............................. 37
Monthly Deduction......................................... 37
Cost of Insurance Charge................................ 37
Monthly Expense Charge.................................. 38
Rider Charges........................................... 38
Portfolio Expenses........................................ 38
Surrender Charge.......................................... 38
Partial Withdrawal Transaction Fee........................ 38
Transfer Fee.............................................. 38
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Special Provisions for Group or Sponsored Arrangements.... 39
GENERAL POLICY PROVISIONS................................... 39
Statements to Policy Owners............................... 39
Limit on Right to Contest................................. 39
Suicide................................................... 40
Misstatement as to Age and Sex............................ 40
Beneficiary............................................... 40
Assignment................................................ 40
Dividends................................................. 40
Notice and Elections...................................... 40
Modification.............................................. 40
FEDERAL TAX CONSIDERATIONS................................ 41
Taxation of First Penn-Pacific and the Variable Account... 41
Tax Status of the Policy.................................. 41
Diversification Requirements............................ 42
Owner Control........................................... 42
Tax Treatment of Life Insurance Death Benefit Proceeds.... 42
Tax Deferral During Accumulation Period................... 43
Policies Which Are MECs................................. 43
Policies Which Are Not MECs............................. 43
Long Term/Convalescent Care Benefits Riders............... 44
Status of Policy after Age 100............................ 44
Actions to Ensure Compliance with the Tax Law............. 44
Federal Income Tax Withholding............................ 44
Tax Advice................................................ 44
DESCRIPTION OF FIRST PENN-PACIFIC AND THE VARIABLE
ACCOUNT................................................... 45
First Penn-Pacific........................................ 45
Officers and Directors of First Penn-Pacific.............. 45
Variable Account.......................................... 46
Safekeeping of the Variable Account's Assets.............. 47
State Regulation of First Penn-Pacific.................... 47
DISTRIBUTION OF POLICIES.................................... 47
LEGAL PROCEEDINGS........................................... 48
LEGAL MATTERS............................................... 48
REGISTRATION STATEMENT...................................... 48
EXPERTS..................................................... 49
FINANCIAL STATEMENTS........................................ 49
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.
5
<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.
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.
6
<PAGE>
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.
7
<PAGE>
FEES AND EXPENSES
The following tables are designed to help you understand the fees and
expenses that you bear, directly or indirectly, as a Policy Owner. The first
table labeled "Policy Charges and Deductions" describes the Policy charges and
deductions you directly bear under the Policy. The second table labeled
"Portfolio Expenses" describes the fees and expenses of the Portfolios that you
bear indirectly when you purchase a Policy. (See "Deductions and Charges",
beginning on page [36]).
POLICY CHARGES AND DEDUCTIONS
CHARGES DEDUCTED FROM POLICY ACCOUNT VALUE(5)
<TABLE>
<CAPTION>
Monthly Cost of Insurance Charge:(1)
<S> <C>
Current Guaranteed
Ranges from $.08 per $1,000 of net amount Ranges from $.10 per $1,000 of net amount at
at risk to $55.29 per $1,000 of net amount risk to $83.33 per $1,000 of net amount at
at risk. 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
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE 30-50 51-65 66-80
----------------- -------- -------- --------
<S> <C> <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>
<TABLE>
<CAPTION>
Partial Withdrawal Transaction Fee: Lesser of $25 or 2% of amount withdrawn per
partial withdrawal
<S> <C>
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
</TABLE>
------------------------
(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 [37].
(2) Transfers under our Dollar Cost Averaging and Asset Rebalancing programs do
not count against the twelve free transfer limit. See "Transfer Fee" on
pages [38-39].
(3) The Surrender Charge is a percentage of the Initial Premium only. Payment of
additional premiums does not affect the Surrender Charge. The Surrender
Charge declines to 0% after the fourteenth Policy Year. The Surrender Charge
is imposed to cover a portion of the sales expense we incur in distributing
the Policies. See "Surrender Charge," on page [38].
8
<PAGE>
(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 [37].
(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 [38].
PORTFOLIO EXPENSES
(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(1) 12B-1 FEES EXPENSES EXPENSES
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
AIM V.I. Growth Fund................................. 0.63% None 0.10% 0.73%
AIM V.I. International Equity Fund................... 0.75% None 0.22% 0.97%
AIM V.I. Value Fund.................................. 0.61% None 0.15% 0.76%
AFIS Global Small Capitalization Fund--Class 2....... 0.79% 0.25% 0.02% 1.06%
AFIS Growth Fund--Class 2............................ 0.38% 0.25% 0.01% 0.64%
AFIS Growth-Income Fund--Class 2..................... 0.34% 0.25% 0.01% 0.60%
Delaware Devon Series-Standard Class(2a)............. 0.65% None 0.12% 0.77%
Delaware Emerging Markets Series-Standard
Class(2b).......................................... 1.19% None 0.28% 1.47%
Delaware High Yield Series (formerly
Delchester)-Standard Class(2c)..................... 0.65% None 0.09% 0.74%
Delaware REIT Series-Standard Class(2d).............. 0.64% None 0.21% 0.85%
Delaware Small Cap Value Series-Standard Class(2e)... 0.75% None 0.10% 0.85%
Delaware Trend Series-Standard Class(2f)............. 0.75% None 0.07% 0.82%
Deutsche VIT EAFE-Registered Trademark- Equity Index
Fund(3)............................................ 0.26% None 0.39% 0.65%
Deutsche VIT Equity 500 Index Fund(3)................ 0.14% None 0.16% 0.30%
Deutsche VIT Small Cap Index Fund(3)................. 0.13% None 0.32% 0.45%
Fidelity VIP Growth Portfolio-Service Class(4)....... 0.58% 0.10% 0.09% 0.77%
Fidelity VIP High Income Portfolio-Service
Class(4)........................................... 0.58% 0.10% 0.11% 0.79%
Fidelity VIP II Contrafund Portfolio-Service
Class(4)........................................... 0.58% 0.10% 0.10% 0.78%
Fidelity VIP III Growth Opportunities
Portfolio-Service Class(4)......................... 0.58% 0.10% 0.11% 0.79%
JAS Balanced Portfolio-Service Shares(5)............. 0.65% 0.25% 0.02% 0.92%
JAS Worldwide Growth Portfolio-Service Shares(5)..... 0.65% 0.25% 0.05% 0.95%
LN Bond Fund......................................... 0.45% None 0.08% 0.53%
LN Capital Appreciation Fund......................... 0.72% None 0.06% 0.78%
LN Equity-Income Fund................................ 0.72% None 0.07% 0.79%
LN Global Asset Allocation Fund...................... 0.72% None 0.19% 0.91%
</TABLE>
9
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<TABLE>
<CAPTION>
TOTAL TOTAL
PORTFOLIO PORTFOLIO
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES(1) 12B-1 FEES EXPENSES EXPENSES
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
LN Money Market Fund................................. 0.48% None 0.11% 0.59%
LN Social Awareness Fund............................. 0.33% None 0.05% 0.38%
MFS Emerging Growth Series(6)........................ 0.75% None 0.09% 0.84%
MFS Total Return Series(6)........................... 0.75% None 0.15% 0.90%
MFS Utilities Series(6).............................. 0.75% None 0.16% 0.91%
Neuberger Berman AMT Mid-Cap Growth Portfolio(7)..... 0.85% None 0.15% 1.00%
Neuberger Berman AMT Partners Portfolio.............. 0.80% None 0.07% 0.87%
Templeton Growth Securities Fund-Class 2(8a,b,c)..... 0.83% 0.25% 0.05% 1.13%
Templeton International Securities
Fund-Class 2(8b,d)................................. 0.69% 0.25% 0.19% 1.13%
</TABLE>
------------------------
(1) Certain of the Portfolio advisers reimburse the company for administrative
costs incurred in connection with administering the Portfolios as variable
funding options under the Policy. These reimbursements are generally paid by
the advisers from their revenues and are not charged to investors.
(2) (a) The investment adviser for the Devon Series is Delaware Management
Company ("DMC"). Effective November 1, 2000 through April 30, 2001, DMC
has voluntarily agreed to waive its management fee and reimburse this
Portfolio for expenses to the extent that total expenses exceed 0.80%.
In 1999, DMC did not waive its management fee or reimburse expenses for
this Portfolio. The management fee and total expenses for this Portfolio
have been restated to reflect the effect of a new management fee
effective May 1, 1999.
(b) The investment adviser for the Emerging Markets Series is Delaware
International Advisers Ltd. ("DIAL"). Effective November 1, 2000 through
April 30, 2001, DIAL has voluntarily agreed to waive its management fee
and reimburse this Portfolio for expenses to the extent that total
expenses exceed 1.50%. Without such an arrangement, the total annual
operating expenses for the Portfolio would have been 1.53%.
(c) The investment adviser for the High Yield Series is DMC. Effective
November 1, 2000 through April 30, 2001, DMC has voluntarily agreed to
waive its management fee and reimburse this Portfolio for expenses to the
extent that total expenses exceed 0.80%. In 1999, DMC did not waive its
management fee or reimburse expenses for this Portfolio. The management
fee and total expenses for this Portfolio have been restated to reflect
the effect of a new management fee effective May 1, 1999.
(d) The investment adviser for the REIT Series is DMC. Effective
November 1, 2000 through April 30, 2001, DMC has voluntarily agreed to
waive its management fee and reimburse this Portfolio for expenses to the
extent that total expenses exceed 0.85%. Without such an arrangement, the
total management fee, other expenses, and annual operating expenses for
this Portfolio would have 0.75%, 0.21% and 0.96%, respectively.
(e) The investment adviser for the Small Cap Value Series is DMC. Effective
November 1, 2000 through April 30, 2001, DMC has voluntarily agreed to
waive its management fee and reimburse this Portfolio for expenses to the
extent that total expenses exceed 0.85%. In 1999, DMC did not waive its
management fee or reimburse expenses for this Portfolio.
(f) The investment adviser for the Trend Series is DMC. Effective
November 1, 2000 through April 30, 2001, DMC has voluntarily agreed to
waive its management fee and reimburse this
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<PAGE>
Portfolio for expenses to the extent that total expenses exceed 0.85%. In
1999, DMC did not waive its management fee or reimburse expenses for this
Portfolio.
(3) Bankers Trust Company, the adviser to these Portfolios, has voluntarily
undertaken to waive its fee and to reimburse the Portfolios for certain
expenses so that the total operating expenses of the EAFE Equity Index Fund,
Equity 500 Index Fund, and Small Cap Index Fund will not exceed 0.65%,
0.30%, and 0.45%, respectively, of average daily net assets. Without such an
arrangement, the management fee, other expenses, and total operating
expenses of these Portfolios would have been: 0.45%, 0.70%, and 1.15%,
respectively, for the EAFE Equity Index Fund; 0.20%, 0.23%, and 0.43%,
respectively, for the Equity 500 Index Fund, and 0.35%, 0.83%, and 1.18%,
respectively, for the Small Cap Index Fund.
(4) A portion of the brokerage commissions that certain of these Portfolios'
paid was used to reduce these Portfolios' expenses. In addition, through
arrangements with certain Portfolios', or FMR on behalf of certain
Portfolios', custodians, credits realized as a result of uninvested cash
balances were used to reduce a portion of each applicable Portfolio's
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 0.78% of average daily net assets for VIP III Growth
Opportunities Portfolio.
(5) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Worldwide
Growth and Balanced Portfolios.
(6) Each of these Portfolios has an expense offset arrangement which reduces the
Portfolio's custodian fee based on the amount of cash maintained by the
Portfolio with its custodian and dividend disbursing agent. Each Portfolio
may enter into other such arrangements and directed brokerage arrangements,
which would also have the effect of reducing the Portfolios' expenses.
"Other Expenses" do not take into account these expense reductions, and are
therefore higher than the actual expenses of the Portfolios. Had the fee
reductions been taken into account, Total Expenses would have been lower for
these Portfolios and would equal 0.83% for Emerging Growth Series, 0.89% for
Total Return Series, and 0.90% for Utilities Series.
(7) Expenses reflect expense reimbursement. Neuberger Berman Management Inc.
("NBMI") has undertaken through May 1, 2001 to reimburse certain operating
expenses, including the compensation of NBMI and excluding taxes, interest,
extraordinary expenses, brokerage commissions and transaction costs, that
exceed in the aggregate 1.0% of the AMT Mid-Cap Growth Portfolio's average
daily net asset value. Absent such reimbursement, Total Annual Expenses for
the Portfolio for the year ended December 31, 1999, would have been 1.08%.
(8) (a) The Portfolio's administration fee is paid indirectly through the
management fee.
(b) The Portfolio's Class 2 distribution plan or "Rule 12b-1 plan" is
described in the Portfolio's prospectus. While the maximum amount payable
under the Portfolio's Class 2 Rule 12b-1 plan is 0.35% per year of the
Portfolio's average daily net assets, the Board of Trustees of Franklin
Templeton Variable Insurance Products Trust has set the current rate at
0.25% per year.
(c) On February 8, 2000, shareholders approved a merger and reorganization
that combined the Portfolio with a similar fund of the Templeton Variable
Products Series Fund, effective May 1, 2000. The table shows total
expenses based on the Portfolio's assets as of December 31, 1999, and not
the assets of the combined fund. However, if the table reflected combined
assets, the Portfolio's expenses after May 1, 2000 would be estimated as:
Management Fees 0.80%, Distribution and Service Fees 0.25%, Other
Expenses, 0.05%, and Total Annual Expenses 1.10%.
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<PAGE>
(d) On February 8, 2000, shareholders approved a merger and reorganization
that combined the Portfolio with the Templeton International Equity Fund.
The shareholders of that fund approved new management fees, which apply
to the combined fund effective May 1, 2000. The table shows restated
total expenses based on the new fees and the assets of the Portfolio as
of May 31, 1999, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the
Portfolio's expenses after May 1, 2000 would be estimated as: Management
Fees 0.65%, Distribution and Service Fees 0.25%, Other Expenses 0.20%,
and Total Annual Expenses 1.10%.
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 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 page [34].
4. WHAT ARE THE LONG-TERM/CONVALESCENT CARE BENEFIT RIDERS?
These Riders provide primarily for reimbursement of certain care expenses
during the life of the Insured if he or she becomes Chronically Ill, as defined
in the Rider. You may select our base Rider and add additional Riders providing
additional benefits. The base Rider provides for a maximum benefit equal to the
Death Benefit under your Policy, less any loans, determined as of the date we
approve your claim for benefits under the Rider. The payment of benefits under
the base Rider in effect is a prepayment of the Death Benefit, since each
benefit payment reduces the Death Benefit
12
<PAGE>
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 [30-32] 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 [44] below.
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.
13
<PAGE>
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.
If we reject your application, we will not issue you a Policy. We will
return any Premiums you have paid without any interest. We will not subtract any
Policy charges from the amount we refund to you.
9. HOW ARE MY NET PREMIUMS ALLOCATED?
Before your Premiums are allocated to the Policy Account Value, we deduct a
Premium Expense Charge of 3.5% of each Premium. This charge covers a portion of
our distribution expenses, state premium tax expenses and certain federal tax
liabilities associated with the receipt of Premiums. For more detail, see
"Premium Expense Charge" on page [36]. The remaining amount is called the Net
Premium.
When you apply for the Policy, you specify in your application how to
allocate your Net Premiums among the Sub-Accounts and the Fixed Account. 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 $2,500. 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
1-888-633-2205. We may charge a fee of $25 per transfer request (a request may
involve more than a single transfer) after the first 12 transfer requests in any
Policy Year, not counting Dollar Cost Averaging 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 [20-21].
You may also use our automatic Dollar Cost Averaging program or our Asset
Rebalancing program. Under the Dollar Cost Averaging program, periodically
amounts are automatically transferred to the Sub-Accounts at regular intervals
from the account of your choice. For more detail, see "Dollar Cost Averaging",
on page [21].
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
percentages at the frequency that you specify. For more detail, see "Asset
Rebalancing", on page [22].
14
<PAGE>
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
- AIM V.I. Growth Fund
- AIM V.I. International Equity Fund
- AIM V.I. Value Fund
AMERICAN FUNDS INSURANCE SERIES (ALSO KNOWN
AS AMERICAN VARIABLE INSURANCE SERIES)
- AFIS Global Small Capitalization Fund--Class 2
- AFIS Growth Fund--Class 2
- AFIS Growth-Income Fund--Class 2
DELAWARE GROUP PREMIUM FUND
- Devon Series--Standard Class
- Emerging Markets Series--Standard Class
- High Yield Series--Standard Class (formerly Delchester Series)
- REIT Series--Standard Class
- Small Cap Value Series--Standard Class
- Trend Series--Standard Class
DEUTSCHE ASSET MANAGEMENT VIT FUNDS TRUST
(FORMERLY BT INSURANCE FUNDS TRUST)
- EAFE-Registered Trademark- Equity Index Fund
- Equity 500 Index Fund
- Small Cap Index Fund
FIDELITY VIP FUND, FIDELITY VIP FUND II, AND FIDELITY VIP FUND II
- VIP Growth Portfolio-Service Class
- VIP High Income-Service Class
- VIP II Contrafund Portfolio-Service Class
- VIP III Growth Opportunities Portfolio-Service Class
FRANKLIN TEMPLETON VARIABLE
INSURANCE PRODUCTS TRUST
- Templeton Growth Securities Fund--Class 2 (formerly Templeton Stock Fund)
- Templeton International Securities Fund--Class 2 (formerly Templeton
International Fund)
JANUS ASPEN SERIES
- JAS Balanced Portfolio--Service Shares
- JAS Worldwide Growth Portfolio--Service Shares
LINCOLN NATIONAL ("LN") FUNDS
- LN Bond Fund, Inc.
- LN Capital Appreciation Fund, Inc.
- LN Equity-Income Fund, Inc.
- LN Global Asset Allocation Fund, Inc.
- LN Money Market Fund, Inc.
- LN Social Awareness Fund, Inc.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST
- MFS Emerging Growth Series
- MFS Total Return Series
- MFS Utilities Series
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- AMT Mid-Cap Growth Portfolio
- AMT Partners Portfolio
15
<PAGE>
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies,
which are described in the accompanying Prospectuses for the Portfolios.
In addition, the Fixed Account is available.
11. MAY I TAKE OUT A POLICY LOAN?
Yes, you may borrow money from us using your Policy as security for the
loan. Because Policies usually are treated as "modified endowment contracts"
("MECs") for tax purposes, in most instances Policy Loans are treated as
distributions for Federal tax purposes. Therefore, you may incur tax liabilities
if you borrow a Policy Loan. For more detail, see "Policy Loans", on pages
[32-33], and "Policies Which Are MECs", on page [43].
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 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 [38].
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 [8-9] and
described in more detail in "Deductions and Charges", beginning on page [36].
16
<PAGE>
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 more detail, see "Amount Payable on Surrender of the Policy"
and "Partial Withdrawals", on pages [33-34].
We may deduct a Surrender Charge on a surrender and a Partial Withdrawal
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 [8] 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 [38].
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 [41], and consult your tax adviser.
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.
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<PAGE>
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 [32] 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 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.
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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. On the Issue
Date, we will allocate your Initial Premium to our Money Market Sub-Account.
Subsequently, as described below in "Allocation of Net Premiums," 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 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.
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.
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<PAGE>
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
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
proportionately among the other Sub-Accounts and Fixed Account 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 transfers 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.
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<PAGE>
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 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 unaffiliated 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
pages [38-39].
Your request to participate in this program will be effective when we
receive your completed application at our Administrative Office at the address
given on the first page of this Prospectus. An election is effective within 10
business days but only if there is sufficient value in the source accounts.
Under our current procedures, we effect all dollar cost averaging transfers
under all Policies on the same day each month. 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 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.
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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 pages [38-39].
You may request Asset Rebalancing when you apply for your Policy or by
submitting a completed written request to us at our Administrative Office. 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.
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 LN Bond Fund, Inc., LN Capital
Appreciation Fund, Inc., LN Equity-Income Fund, Inc., LN Global Asset Allocation
Fund, Inc., LN Money Market Fund, Inc., LN Social Awareness Fund, Inc.
(collectively the "LN Funds"), and separate series of AIM Variable Insurance
Funds, Inc. ("AIM Funds"), American Funds Insurance Series (also known as
American Variable Insurance Series) ("AFIS"), Delaware Group Premium Fund
("Delaware Fund"), Deutsche Asset Management VIT Funds Trust ("Deutsche VIT"),
Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products
Fund II, and Fidelity Insurance Products Fund III ("Fidelity VIP Funds"),
Franklin Templeton Variable Insurance Products Trust ("Franklin Templeton VIP
Trust"), Janus Aspen Series ("JAS"), MFS Variable Insurance Trust ("MFS VIT"),
and Neuberger Berman Advisers Management Trust ("Neuberger Berman AMT"). The
investment objectives of the Portfolios are briefly described below.
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PORTFOLIOS OF AIM FUNDS AND
VARIABLE ACCOUNT SUB-ACCOUNTS
AIM V.I. GROWTH FUND. Seeks growth of capital primarily by investing in
seasoned and better capitalized companies considered to have strong earnings
momentum. Focus is on companies that have experienced above-average growth in
earnings and have excellent prospects for future growth.
AIM V.I. INTERNATIONAL EQUITY FUND. Seeks to achieve long-term growth of
capital by investing in a diversified portfolio of international equity
securities whose issuers are considered to have strong earnings momentum.
AIM V.I. VALUE FUND. Seeks to achieve long-term growth of capital by
investing primarily in equity securities judged by its investment adviser to be
undervalued relative to the investment adviser's appraisal of current or
projected earnings of the companies issuing the securities, or relative to
current market values of assets owned by the companies issuing the securities or
relative to the equity markets generally, income is a secondary objective.
PORTFOLIOS OF AFIS (CLASS 2 SHARES) AND
VARIABLE ACCOUNT SUB-ACCOUNTS
AFIS-GLOBAL SMALL CAPITALIZATION FUND. The Portfolio seeks to make your
investment grow over time by investing primarily in stocks of smaller companies
located around the world that typically have market capitalizations of
$50 million to $1.5 billion. The Portfolio is designed for investors seeking
capital appreciation through stocks. Investors in the Portfolio should have a
long-term perspective and be able to tolerate potentially wide price
fluctuations.
AFIS-GROWTH FUND. The Portfolio seeks to make your investment grow over
time by investing primarily in common stocks of companies that appear to offer
superior opportunities for growth of capital. The Portfolio is designed for
investors seeking capital appreciation through stocks. Investors in the
Portfolio should have a long-term perspective and be able to tolerate
potentially wide price fluctuations.
AFIS-GROWTH-INCOME FUND. The Portfolio seeks to make your investment grow
and provide you with income over time by investing primarily in common stocks or
other securities which demonstrate the potential for appreciation and/or
dividends. The Portfolio is designed for investors seeking both capital
appreciation and income.
PORTFOLIOS OF DELAWARE FUND (STANDARD CLASS) AND
VARIABLE ACCOUNT SUB-ACCOUNTS
DELAWARE GROUP DEVON SERIES. Seeks growth and income by investing primarily
in income producing stocks that the manager believes have the potential for
above-average dividend increases over time. This Portfolio blends traditional
growth and value investment styles.
Effective March 1, 2001, the investment objective of this Portfolio will
change to seeking total return, which the Portfolio will pursue by investing
primarily in common stocks that the manager believes have the potential for
above-average earnings per share growth combined with a high degree of earnings
consistency. This Portfolio will continue to blend traditional growth and value
investment styles.
DELAWARE GROUP EMERGING MARKETS SERIES. Seeks long-term growth by investing
primarily in stocks of companies located or operating in emerging or developing
countries.
DELAWARE GROUP HIGH YIELD SERIES (FORMERLY DELCHESTER SERIES). Seeks total
return and, as a secondary objective, high current income. The Portfolio invests
in rated and unrated corporate bonds (including high-risk, high-yield bonds
commonly known as junk bonds), foreign bonds, U.S.
23
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Government securities and commercial paper. An investment in this Portfolio may
involve greater risks than an investment in a portfolio comprised primarily of
investment-grade bonds.
DELAWARE GROUP REIT SERIES. Seeks to achieve maximum long-term total return
by investing primarily in the securities of real estate investment trusts and
real estate operating companies.
DELAWARE GROUP SMALL CAP VALUE SERIES. Seeks growth by investing primarily
in stocks of small cap companies whose market values appear low relative to
underlying value or future earnings and growth potential.
DELAWARE GROUP TREND SERIES. Sees long-term growth by investing primarily
in stocks of small companies and convertible securities of emerging and
growth-oriented companies.
PORTFOLIOS OF DEUTSCHE VIT FUND TRUST AND
VARIABLE ACCOUNT SUB-ACCOUNTS
DEUTSCHE VIT EAFE-REGISTERED TRADEMARK- EQUITY INDEX FUND. Seeks to
replicate as closely as possible (before the deduction of expenses) the total
return of the Europe, Australia, Far East Index (the EAFE-Registered Trademark-
Index), a capitalization-weighted index containing approximately 1,100 equity
securities of companies located outside the United States.
DEUTSCHE VIT EQUITY 500 INDEX FUND. The investment objective is to
replicate as closely as possible the performance of the Standard & Poor's 500
Composite Stock Price Index, before the deduction of Fund expenses.
DEUTSCHE VIT SMALL CAP INDEX FUND. The investment objective is to replicate
as closely as possible (before the deduction of expenses) the total return of
the Russell 2000 Small Stock Index (the "Russell 2000"), an index consisting of
approximately 2,000 small capitalization common stocks.
PORTFOLIOS OF FIDELITY VIP FUNDS (SERVICE CLASS)
AND VARIABLE ACCOUNT SUB-ACCOUNTS
VIP GROWTH PORTFOLIO. Seeks long-term capital appreciation. The Portfolio
normally purchases common stocks.
VIP HIGH INCOME PORTFOLIO. Seeks high current income by investing at least
65% of total assets in income-producing debt securities, with an emphasis on
lower quality securities.
VIP II CONTRAFUND PORTFOLIO. Seeks long-term capital appreciation by
investing primarily in securities of companies whose value the adviser believes
is not fully recognized by the public.
VIP III GROWTH OPPORTUNITIES PORTFOLIO. Seeks capital growth by investing
primarily in common stocks.
PORTFOLIOS OF JAS (SERVICE SHARES) AND
VARIABLE ACCOUNT SUB-ACCOUNTS
JAS BALANCED PORTFOLIO. Seeks long-term growth of capital, consistent with
the preservation of capital and balanced by current income. The Portfolio
normally invests 40-60% of its assets in securities selected primarily for their
growth potential and 40-60% of its assets in securities selected primarily for
their income potential.
JAS WORLDWIDE GROWTH PORTFOLIO. To seek long-term growth of capital in a
manner consistent with the preservation of capital. Pursues objective by
investing primarily in common stocks of companies of any size throughout the
world. The Portfolio normally invests in issuers from at least five different
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countries, including the U.S. The Portfolio may at times invest in fewer than
five countries or even a single country.
PORTFOLIOS OF LN FUNDS AND
VARIABLE ACCOUNT SUB-ACCOUNTS
LN BOND FUND. Seeks maximum current income consistent with prudent
investment strategy. The Portfolio invests primarily in medium- and long-term
corporate and government bonds.
LN CAPITAL APPRECIATION FUND. Seeks long-term growth of capital in a manner
consistent with preservation of capital. The Portfolio primarily buys stocks in
a large number of companies of all sizes if the companies are competing well and
if their products and services are in high demand. It may also buy some money
market securities and bonds, including junk (high risk) bonds.
LN EQUITY-INCOME FUND. Seeks reasonable income by investing primarily in
income-producing equity securities. The Portfolio invests mostly in high-income
stocks with some high-yielding bonds (including junk bonds).
LN GLOBAL ASSET ALLOCATION FUND. Long-term return consistent with
preservation of capital. The Portfolio allocates its assets among several
categories of equity and fixed-income securities, both of U.S. and foreign
insurers.
LN MONEY MARKET FUND. Seeks maximum current income consistent with the
preservation of capital. The Portfolio invests in short-term obligations issued
by U.S. corporations, the U.S. government, and federally-chartered banks and
U.S. branches of foreign banks.
LN SOCIAL AWARENESS FUND. Long-term capital appreciation. The Portfolio
buys stocks of established companies which adhere to certain specific social
criteria.
PORTFOLIOS OF MFS VIT AND
VARIABLE ACCOUNT SUB-ACCOUNTS
MFS EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
MFS TOTAL RETURN SERIES. Seeks primarily to provide above-average income
(compared to a portfolio invested entirely in equity securities) consistent with
the prudent employment of capital, and secondarily to provide a reasonable
opportunity for growth of capital and income.
MFS UTILITIES SERIES. Seeks capital growth and current income (income above
that available from a portfolio invested entirely in equity securities).
PORTFOLIOS OF NEUBERGER BERMAN AMT AND
VARIABLE ACCOUNT SUB-ACCOUNTS
NB AMT MID-CAP GROWTH PORTFOLIO. Seeks capital appreciation by investing
primarily in common stocks of medium-capitalization companies, using a
growth-oriented investment approach.
NB AMT PARTNERS PORTFOLIO. Seeks capital growth by investing mainly in
common stocks of mid-to large capitalization established companies using the
value-oriented investment approach.
------------------------
1 "Standard and Poors," "S&P", "S&P 500", "Standard and Poor's 500" and "500"
are trademarks of the McGraw-Hill Companies, Inc. and have been licensed for
use by Fidelity Distributors Corporation.
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PORTFOLIOS OF FRANKLIN TEMPLETON VIP TRUST (CLASS 2) AND
VARIABLE ACCOUNT SUB-ACCOUNTS
TEMPLETON GROWTH SECURITIES FUND (FORMERLY TEMPLETON STOCK FUND). Seeks
long-term capital growth. It invests primarily in stocks of companies in various
nations throughout the world, including the U.S. and emerging markets.
TEMPLETON INTERNATIONAL SECURITIES FUND (FORMERLY TEMPLETON INTERNATIONAL
FUND). Seeks long-term capital growth. It invests primarily in stocks of
companies outside the United States, including emerging markets.
Several of the Portfolios may invest in non-investment grade, high-yield,
high-risk debt securities (commonly referred to as "junk bonds"), as detailed in
the individual Portfolio prospectuses. Please review the prospectuses carefully.
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.
CAPITAL RESEARCH AND MANAGEMENT COMPANY is the adviser to each Portfolio of
the AFIS Fund.
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.
BANKERS TRUST COMPANY, an indirect wholly-owned subsidiary of Deutsche Bank
AG, is the investment manager for the Deutsche VIT Funds.
FIDELITY MANAGEMENT & RESEARCH COMPANY ("FMR") is the manager of each of the
Fidelity VIP Portfolios.
JANUS CAPITAL CORP. is the manager of each of the JAS Portfolios.
LINCOLN INVESTMENT MANAGEMENT, INC. ("LIM") is the investment adviser to the
LN Funds. LIM has acted as an investment adviser to mutual funds for many years.
Certain of the LN Funds are subadvised by the following firms:
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER
--------- -----------
<S> <C>
LN Capital Appreciation Fund, Inc. Janus Capital Corp.
LN Equity-Income Fund, Inc. Fidelity Management Trust Co.
LN Global Asset Allocation Fund, Inc. Putnam Investment Management, Inc.
LN Social Awareness Fund, Inc. Vantage Investment Advisors, Inc.
("Vantage")
</TABLE>
Delaware Management, Delaware International, LIM and Vantage are indirect
wholly-owned subsidiaries of Lincoln National Corp., which is also First
Penn-Pacific's ultimate parent.
LIM and Vantage have informed the Portfolios to which they provide advisory
services that they each intend to integrate with a newly created series of their
affiliate, Delaware Management Business Trust (the "DMB Trust"). In connection
with this integration, Vantage will become the adviser to LN Social Awareness
Fund, Inc., and LIM no longer will be involved in the management of this
Portfolio. LIM and Vantage do not expect the integration to result in any change
in the level of advisory services that they provide to these Portfolios. The
integration will be effective as of January 1, 2001. After the effective date of
the integration, LIM will be known as the Delaware Lincoln Investment Advisers
Series of the DMB Trust, and Vantage will be known as the Vantage Investment
Advisers Series of the DMB Trust. See the prospectuses for these Portfolios for
more information.
MASSACHUSETTS FINANCIAL SERVICES COMPANY is the adviser to each Portfolio of
the MFS Funds.
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NEUBERGER BERMAN MANAGEMENT INCORPORATED is the adviser to each Portfolio of
the AMT Funds. NEUBERGER BERMAN, LLC, its affiliate, serves as investment
sub-adviser to the AMT Partners Portfolio.
TEMPLETON GLOBAL ADVISORS LIMITED serves as investment adviser to the
Templeton Growth Securities Fund. TEMPLETON INVESTMENT COUNSEL, INC. serves as
investment adviser to the Templeton International Securities Fund.
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 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
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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;
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer assets from one Sub-Account to another, or from any
Sub-Account to our general account;
(d) to add, combine, or remove Sub-Accounts in the Variable Account;
(e) to assess a charge for taxes attributable to the operation of the
Variable Account or for other taxes, as described in "Deductions and
Charges--Other Variable Account Charge" on page [37] below; and
(f) to change the way in which we assess other charges, as long as the total
other charges do not exceed the maximum guaranteed charges under the
Policies.
If we take any of these actions, we will comply with the then applicable
legal requirements.
THE FIXED ACCOUNT. THE PORTION OF THE POLICY RELATING TO THE FIXED ACCOUNT
IS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") AND THE
FIXED ACCOUNT IS NOT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT
COMPANY ACT OF 1940 (THE "1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR
ANY INTERESTS IN THE FIXED ACCOUNT ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS
OF THE 1933 ACT OR THE 1940 ACT, AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT
HAS NOT BEEN REVIEWED BY THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION.
THE STATEMENTS ABOUT THE FIXED ACCOUNT IN THIS PROSPECTUS MAY BE SUBJECT TO
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS REGARDING
ACCURACY AND COMPLETENESS.
You may allocate part of your Net Premiums to the Fixed Account. Under this
option, we credit interest to the Fixed Account, as described below. From time
to time we will set a current interest rate applicable to Net Premiums and
transfers allocated to the Fixed Account. We determine interest rates in
accordance with then-current market conditions and other factors. The rates of
interest that we set will never be less than an annual effective rate of 4%. We
may credit interest at a higher rate, but we are not obligated to do so.
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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 [34-35], we will pay the Death Benefit proceeds in
a lump sum or apply them under an optional payment plan.
The Death Benefit proceeds payable to the Beneficiary equal the Death
Benefit, less:
- any Loan Account Value as of the date of death,
- any unpaid loan interest through the end of the Policy Month of death;
- any unpaid and due charges; and
- the total benefits paid under our Long Term/Convalescent Care Benefit
Riders, if you have received any.
We will determine the amount of the Death Benefit proceeds as of the date of
the Insured's death. We will usually pay the Death Benefit proceeds within seven
days after we have received due proof of death and all other requirements we
deem necessary have been satisfied.
The Death Benefit will be the greater of: (a) the Specified Amount of your
Policy; or (b) the Policy Account Value multiplied by the applicable death
benefit factor as described below. The death benefit factors are intended to
enable your Policy to 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 page [34], we will reduce the
Specified Amount if you take a partial withdrawal. If your Policy includes our
Convalescent Care Rider, a partial withdrawal also will reduce the Benefit Limit
under your Rider. See "Long Term/Convalescent Care Benefits Rider on
pages [30-32].
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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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 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 1-888-633-2205. 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.
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
[44] below.
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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.
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 [29-30]. 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.
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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 Benefit Limit shown in your Policy Schedule. The
Additional Benefit Limit is payable when you reach the Benefit Limit in your
Convalescent Care Rider. The Additional Benefit Limit is a fixed amount. It is
not affected by changes in your Policy's Net Death Benefit or the Benefit Limit
in your Convalescent Care Rider. This Rider also has its own Daily Maximums. It
is not affected by any changes to the Daily Maximums in your Convalescent Care
Rider.
In addition, after your Policy and this Rider have been in effect for three
years, a benefit is payable under this Rider even if a qualifying claim begins
after your Policy and this Rider lapse. In this circumstance the Benefit Limit
will equal the greater of the premium paid for the Rider or 30 times the Daily
Maximum for Nursing Home Care in effect as of the date of lapse.
EXTENSION OF CONVALESCENT CARE BENEFITS RIDER WITH AUTOMATIC INCREASING
BENEFITS. This Rider provides the same type of benefits as the Extension of
Convalescent Care Benefits Rider, except that on each Rider Anniversary the
Additional Benefit Limit and Daily Maximum for the Rider increases by 5%.
GUARANTEE ENHANCEMENT RIDER.
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 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.
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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 current 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 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 [38].
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You may receive the Surrender Value in a lump sum or under any of the
proceeds options described in "Proceeds Options" below.
The tax consequences of surrendering the Policy are discussed in "Federal
Tax Considerations," beginning on page [41].
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. Total partial withdrawals 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 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. Total
partial withdrawals may not exceed 90% of the Surrender Value of the Policy. 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 [41].
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 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 the 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 [32] above.
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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 [29-30].
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.
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.
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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 page [8]. 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.
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.
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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.
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 pages
[9-10] 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 [8] 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, Partial Withdrawal Transaction
Fee 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" above.
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.
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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 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.
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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 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.
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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.
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").
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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 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 interest (occurring after the
insured's death), which will be includable in the beneficiary's income.
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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 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
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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 adviser 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 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.
44
<PAGE>
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 Life
Insurance Company ("LN Life"), which is in turn a wholly-owned subsidiary of
Lincoln National Corporation ("LNC"). Through its subsidiaries LNC operates
multiple insurance and investment management businesses.
First Penn-Pacific has been rated by A.M. Best and Company ("A.M. Best"),
Standard and Poor's, Moody's and Fitch. These independent insurance ratings
agencies provide opinions of an insurance company's relative financial strength
and ability to meet its contractual obligations to its policyholders. These
ratings are not intended to reflect the financial strength or investment
experience of the Variable Account. However, these ratings may nevertheless be
relevant to you because some of our contractual obligations to you are not based
on the assets held in the Separate Account. We may from time to time advertise
these ratings in our sales literature.
A.M. Best has assigned First Penn-Pacific an "A" rating. The A.M. Best A
rating is the third highest of 15 ratings and reflects First Penn-Pacific's
strategic affiliation with its parent, LN Life. This rating acknowledges First
Penn-Pacific's favorable performance, adequate capitalization, and the support
offered by LN Life's financial resources. Standard and Poor's rates First
Penn-Pacific "AA-". The Standard and Poor's AA- rating is its fourth highest of
21 ratings, and means that First Penn-Pacific's capacity to meet policyholder
obligations is deemed "Very Strong". This rating also is based on First
Penn-Pacific's affiliation with LN Life, its strong capitalization and good
operating performance. Moody's rates First Penn-Pacific "A1", which is the fifth
highest of Moody's 25 ratings. This rating means that First Penn-Pacific's
financial capacity to meeting policyholder obligations is deemed "Good". This
rating is based on its support from and strategic relationship with LN Life.
Fitch rates First Penn-Pacific "AA". This rating is the third highest of Fitch's
24 ratings. It means that First Penn-Pacific's claims-paying ability is deemed
to be "Very Strong" based on its affiliation with LN Life.
A fidelity bond in the amount of $100 million in the aggregate per year
covers the officers and employees of First Penn-Pacific.
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.
45
<PAGE>
THOMAS W. FITCH, Senior Vice President, Sales and Distribution, July 1999 to
date; Director, November 1999 to date; Senior Vice President, Marketing,
Financial Markets Division, July 1997 to July 1999; Vice President, Marketing,
December 1986 to July 1997.
JOHN H. GOTTA, Director, January 2000 to date; Chief Executive Officer of
Life Insurance, Senior Vice President and Assistant Secretary, Lincoln National
Life Insurance Company, December, 1999 to date; Senior Vice President and
Assistant Secretary, Lincoln National Life Insurance Company, April, 1998 to
December 1999; Senior Vice President, Lincoln National Life Insurance Company,
February 1998 to April 1998; Vice President and General Manager, Lincoln
National Life Insurance Company, January 1998 to February 1998; Senior Vice
President, CIGNA, March 1996 to December 1997; Vice President, Connecticut
Mutual/Mass Mutual Life Insurance Company, August 1994 to March 1996.
RICHARD C. KLEIN, Senior Vice President and Chief Actuary, July 1999 to
date; Director, November 1999 to date; Senior Vice President, Product
Development Financial Markets Division, July 1997 to July 1999; Vice President,
Product Development, December 1987 to July 1997.
STEPHEN J. MAC DONALD, Vice President Business Acquisition Services,
July 1999 to date; Vice President, New Business, Brokerage Division,
February 1995 to July 1999.
MARK J. OBERHELLMAN, Vice President Product Development, July 1999 to date;
Vice President Product Development, Brokerage Division, February 1998 to
July 1999; Second Vice President Product Development, Brokerage Division,
February 1995 to February 1998.
LAWRENCE T. ROWLAND, Director, November 1999 to date; Chairman, CEO,
President and Director, Lincoln National Reassurance Company, October 1996 to
date; Executive Vice President and Director, Lincoln National Life Insurance
Company, October 1996 to date; Chairman, President and Director, Lincoln Re
S.A., October 1996 to date; Senior Vice President, Lincoln National Life
Reinsurance Company, October 1995 to October 1996; Vice President, Lincoln
National Life Reinsurance Company, October 1991 to October 1995.
STEVEN W. ROGERS, Second Vice President and Chief Financial Officer,
November 1999 to date; Second Vice President and Controller, July 1992 to
November 1999.
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.
46
<PAGE>
We own the assets of the Variable Account, but we hold them separate from
our other assets. To the extent that these assets are attributable to the Policy
Account Value of the Policies offered by this Prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Variable Account are credited to or charged against the Variable Account without
regard to our other income, gains, or losses. Our obligations arising under the
Policies are general corporate obligations of First Penn-Pacific.
The Variable Account is divided into Sub-Accounts. The assets of each
Sub-Account are invested in the shares of one of the Portfolios. We do not
guarantee the investment performance of the Variable Account, its Sub-Accounts
or the Portfolios. Values allocated to the Variable Account will rise and fall
with the values of shares of the Portfolios and are also reduced by Policy
charges. In the future, we may use the Variable Account to fund other variable
universal life insurance policies. We will account separately for each type of
variable life insurance policy funded by the Variable Account.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS. We hold the assets of the
Variable Account. We keep those assets physically segregated and held separate
and apart from our general account assets. We maintain records of all purchases
and redemptions of shares of the Portfolios.
STATE REGULATION OF FIRST PENN-PACIFIC. We are subject to the laws of
Indiana and regulated by the Indiana Division of Insurance. Every year we file
an annual statement with the Division of Insurance covering our operations for
the previous year and our financial condition as of the end of the year. We are
inspected periodically by the Division of Insurance to verify our contract
liabilities and reserves. Our books and records are subject to review by the
Division of Insurance at all times. We are also subject to regulation under the
insurance laws of every jurisdiction in which we operate.
DISTRIBUTION OF POLICIES
First Penn-Pacific Securities, Inc. ("FPPSI") serves as distributor of the
Policies. FPPSI is located at 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 commissions 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 service 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.
47
<PAGE>
The name and position of each officer and director of FPPSI as of
December 1, 2000, is as follows:
<TABLE>
<S> <C>
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
Diann L. Eggleston Assistant Secretary
Randy E. Grawcock Assistant Secretary
</TABLE>
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 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 LLP, 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.
48
<PAGE>
EXPERTS
The December 31, 1999 statutory-basis financial statements of First
Penn-Pacific appearing 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 upon their authority
as experts in accounting and auditing.
The September 30, 2000 statutory-basis financial statements of First
Penn-Pacific appearing in this Prospectus and Registration Statement have not
been audited. The September 30, 2000 statutory-basis financial statements do not
contain complete notes.
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 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. 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.
49
<PAGE>
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
========== ==========
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.
50
<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.
51
<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.
52
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
(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.
53
<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.
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.
54
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
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.
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.
55
<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>
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.
56
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
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.
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.
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
57
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS (CONTINUED)
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.
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>
58
<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.
59
<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>
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.
60
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
4. FEDERAL INCOME TAXES (CONTINUED)
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.
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.
61
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
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>
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.
62
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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.
63
<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.
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
64
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
11. IMPACT OF THE YEAR 2000 (UNAUDITED) (CONTINUED)
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.
65
<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
66
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
BALANCE SHEET--STATUTORY BASIS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
2000
--------------
(IN THOUSANDS)
<S> <C>
ADMITTED ASSETS
Cash and investments:
Bonds..................................................... $1,038,854
Redeemable preferred stocks............................... 14,531
Affiliated common stock................................... 90
Mortgage loans............................................ 243,179
Policy loans.............................................. 48,411
Short-term investments.................................... 19,874
Cash...................................................... 475
----------
Total cash and invested assets.............................. 1,365,414
Reinsurance balances recoverable............................ 6,098
Deferred and uncollected life premiums, less loading........ 6,991
Accrued investment income................................... 19,603
Receivable from The Lincoln National Life Insurance
Company................................................... 10,546
Due from investment broker.................................. 1,410
Federal income tax recoverable.............................. 1,516
Other admitted assets....................................... 2,841
----------
Total admitted assets....................................... $1,414,419
==========
</TABLE>
SEE ACCOMPANYING NOTES.
67
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
BALANCE SHEET--STATUTORY BASIS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
2000
--------------
(IN THOUSANDS)
<S> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy and contract liabilities:
Life policy reserves.................................... $1,207,772
Annuity reserves........................................ 68,504
Policy and contract claims.............................. 10,318
Supplementary contracts without life contingencies...... 743
----------
Total policy and contract liabilities....................... 1,287,337
Accrued expenses............................................ 17,655
Remittances and items not allocated......................... 5,220
Asset valuation reserve..................................... 12,565
Interest maintenance reserve................................ 2,480
Amounts due to investment broker............................ 8,137
Other liabilities........................................... 5,904
----------
Total liabilities........................................... 1,339,298
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
Paid-in surplus........................................... 12,916
Unassigned surplus........................................ 59,705
----------
Total capital and surplus................................... 75,121
----------
Total liabilities and capital and surplus................... $1,414,419
==========
</TABLE>
SEE ACCOMPANYING NOTES.
68
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
REVENUES
Life insurance premiums..................................... $119,110 $134,369
Annuity premiums............................................ 2,973 3,397
Net investment income....................................... 77,150 72,806
Commissions and expense allowances on reinsurance ceded..... 37,965 31,728
Fees for administrative services from The Lincoln National
Life Insurance Company.................................... 5,617 7,682
-------- --------
Total revenues.............................................. 242,815 249,982
BENEFITS PAID OR PROVIDED
Death benefits.............................................. 37,931 28,974
Annuity benefits............................................ 2,708 2,210
Surrender benefits.......................................... 49,717 46,550
Increase in policy and contract reserves.................... 44,613 70,473
Other benefits.............................................. 604 911
-------- --------
Total benefits paid or provided............................. 135,573 149,118
INSURANCE EXPENSES
Commissions and service fees................................ 46,677 45,766
General expenses............................................ 45,322 42,003
Insurance taxes, licenses, and fees......................... 6,228 5,377
-------- --------
Total insurance expenses.................................... 98,227 93,146
-------- --------
Total benefits and insurance expenses....................... 233,800 242,264
-------- --------
Net gain from operations before federal income taxes and net
realized capital gains.................................... 9,015 7,718
Federal income taxes........................................ 1,270 3,908
-------- --------
Net gain from operations before net realized capital
gains..................................................... 7,745 3,810
Net realized capital gains, less income taxes and amounts
transferred to the interest maintenance reserve........... 7 --
-------- --------
Net income.................................................. $ 7,752 $ 3,810
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
69
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Common stock at beginning and end of year................... $ 2,500 $ 2,500
Additional paid-in surplus at beginning and end of year..... 12,916 12,916
Unassigned surplus at beginning of year..................... 57,352 54,178
Net income.................................................. 7,752 3,810
Change in net unrealized gain (loss) of investments......... 101 (1,843)
Decrease (increase) in asset valuation reserve.............. (2,267) 161
Change in nonadmitted assets................................ (3,233) 1,297
------- -------
Unassigned surplus at end of year........................... 59,705 57,603
------- -------
Total capital and surplus at end of year.................... $75,121 $73,019
======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
70
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds, and other considerations
received.................................................. $122,760 $142,475
Allowance and reserve adjustments received on reinsurance
ceded..................................................... 36,967 29,418
Net investment income received.............................. 75,992 70,136
Benefits paid............................................... (83,912) (82,580)
Insurance expenses paid..................................... (98,599) (93,929)
Federal income taxes paid................................... (1,896) (4,671)
Fees for administrative services received from The Lincoln
National Life Insurance Company........................... 5,617 7,795
Other....................................................... (2,914) (1,390)
-------- --------
Net cash provided by operating activities................... 54,015 67,254
INVESTING ACTIVITIES
Total investment proceeds................................... 123,780 77,288
Total investments acquired.................................. (186,083) (152,867)
Federal income taxes recovered (paid) on capital gains and
losses.................................................... 1,046 (141)
Net decrease in policy loans................................ 441 475
-------- --------
Net cash used in investment activities...................... (60,816) (75,245)
FINANCING ACTIVITIES
Change in receivable from/payable to The Lincoln National
Life Insurance Company.................................... (7,190) (7,840)
Other....................................................... 2,168 6,506
-------- --------
Net cash used in financing activities....................... (5,022) (1,334)
-------- --------
Decrease in cash and short-term investments................. (11,823) (9,325)
Cash and short-term investments at beginning of year........ 32,172 28,855
-------- --------
Cash and short-term investments at end of year.............. $ 20,349 $ 19,530
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
71
<PAGE>
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying statutory-basis financial statements have been prepared in
conformity with accounting practices prescribed or permitted by the Indiana
Department of Insurance ("Insurance Department"), except that they do not
contain complete notes. These financial statements are unaudited and include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results. For further information, refer to the
statutory-basis financial statements and notes as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999 included
in this Registration Statement.
Operating results for the nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2000.
72
<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 0.81%, 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
-1.81%% and 8.19%, 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 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 $25 per transaction after the
first in each Policy Year. 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.
I-1
<PAGE>
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 the
lifetime minimum benefits shown as long as the following specified conditions
are met: (1) the illustrated 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; and (3) you have made no
partial withdrawals or loans from the Policy.
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.
Unless a Guarantee Enhancement Rider is in effect, where the Surrender Value
shown in an illustration 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-2
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR)
MALE STANDARD NON-SMOKER ISSUE AGE 65
$42,578 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
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 65 $42,578 $39,100 $36,185 $73,000 $146,000
2 66 0 37,006 34,091 73,000 146,000
3 67 0 34,788 31,873 73,000 146,000
4 68 0 32,422 29,506 73,000 146,000
5 69 0 29,873 26,957 73,000 146,000
6 70 0 27,090 24,175 73,000 146,000
7 71 0 24,032 21,117 73,000 146,000
8 72 0 20,643 17,728 73,000 146,000
9 73 0 16,828 13,913 73,000 146,000
10 74 0 12,486 9,570 73,000 146,000
11 75 0 7,510 5,177 73,000 146,000
12 76 0 1,769 20 73,000 146,000
13 77 0 0 0 0 0
14 78 0 0 0 0 0
15 79 0 0 0 0 0
16 80 0 0 0 0 0
17 81 0 0 0 0 0
18 82 0 0 0 0 0
19 83 0 0 0 0 0
20 84 0 0 0 0 0
21 85 0 0 0 0 0
22 86 0 0 0 0 0
23 87 0 0 0 0 0
24 88 0 0 0 0 0
25 89 0 0 0 0 0
26 90 0 0 0 0 0
27 91 0 0 0 0 0
28 92 0 0 0 0 0
29 93 0 0 0 0 0
30 94 0 0 0 0 0
31 95 0 0 0 0 0
32 96 0 0 0 0 0
33 97 0 0 0 0 0
34 98 0 0 0 0 0
35 99 0 0 0 0 0
<CAPTION>
10% HYPOTHETICAL
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
1 $ 43,188 $ 40,272 $ 74,045 $147,045
2 45,409 42,494 75,982 148,982
3 47,739 44,823 78,010 151,010
4 50,177 47,261 80,119 153,119
5 52,723 49,807 82,305 155,305
6 55,369 52,454 84,559 157,559
7 58,121 55,206 86,900 159,900
8 60,981 58,065 89,326 162,326
9 63,937 61,021 91,819 164,819
10 66,983 64,068 94,390 167,390
11 70,125 67,792 97,050 170,050
12 73,365 71,615 99,805 172,805
13 76,712 75,546 102,662 175,662
14 80,171 79,588 105,617 178,617
15 83,747 83,747 108,673 181,673
16 87,442 87,442 111,829 184,829
17 91,246 91,246 115,071 188,071
18 95,150 95,150 118,405 191,405
19 99,149 99,149 121,835 194,835
20 103,237 103,237 125,366 198,366
21 107,420 107,420 129,013 202,013
22 111,706 111,706 132,782 205,782
23 116,110 116,110 136,688 209,688
24 120,653 120,653 140,738 213,738
25 125,360 125,360 144,937 217,937
26 130,254 130,254 149,285 222,285
27 135,372 135,372 153,795 226,795
28 140,755 140,755 158,463 231,463
29 146,443 146,443 163,281 236,281
30 152,451 152,451 168,198 241,198
31 158,748 158,748 173,137 246,137
32 165,217 165,217 177,967 250,967
33 171,622 171,622 182,497 255,497
34 177,631 177,631 186,564 259,564
35 183,997 183,997 191,357 264,357
</TABLE>
I-3
<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-4
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR)
MALE STANDARD NON-SMOKER ISSUE AGE 65
$42,578 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
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 65 $42,578 $39,124 $36,209 $73,000 $146,000
2 66 0 37,078 34,162 73,000 146,000
3 67 0 34,940 32,024 73,000 146,000
4 68 0 32,699 29,784 73,000 146,000
5 69 0 30,347 27,431 73,000 146,000
6 70 0 27,872 24,956 73,000 146,000
7 71 0 25,261 22,345 73,000 146,000
8 72 0 22,929 20,014 73,000 146,000
9 73 0 20,397 17,482 73,000 146,000
10 74 0 17,616 14,700 73,000 146,000
11 75 0 14,542 12,210 73,000 146,000
12 76 0 11,136 9,387 73,000 146,000
13 77 0 7,342 6,176 73,000 146,000
14 78 0 3,092 2,509 73,000 146,000
15 79 0 0 0 0 0
16 80 0 0 0 0 0
17 81 0 0 0 0 0
18 82 0 0 0 0 0
19 83 0 0 0 0 0
20 84 0 0 0 0 0
21 85 0 0 0 0 0
22 86 0 0 0 0 0
23 87 0 0 0 0 0
24 88 0 0 0 0 0
25 89 0 0 0 0 0
26 90 0 0 0 0 0
27 91 0 0 0 0 0
28 92 0 0 0 0 0
29 93 0 0 0 0 0
30 94 0 0 0 0 0
31 95 0 0 0 0 0
32 96 0 0 0 0 0
33 97 0 0 0 0 0
34 98 0 0 0 0 0
35 99 0 0 0 0 0
<CAPTION>
10% HYPOTHETICAL
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
1 $ 43,213 $ 40,297 $ 74,088 $147,088
2 45,482 42,566 76,104 149,104
3 47,885 44,970 78,249 151,249
4 50,433 47,518 80,529 153,529
5 53,139 50,223 82,955 155,955
6 56,016 53,101 85,547 158,547
7 59,080 56,165 88,334 161,334
8 62,600 59,685 91,698 164,698
9 66,317 63,401 95,237 168,237
10 70,232 67,317 98,968 171,968
11 74,357 72,024 102,908 175,908
12 78,705 76,956 107,071 180,071
13 83,291 82,125 111,466 184,466
14 88,128 87,545 116,099 189,099
15 93,234 93,234 120,983 193,983
16 98,618 98,618 126,122 199,122
17 104,288 104,288 131,519 204,519
18 110,249 110,249 137,194 210,194
19 116,510 116,510 143,168 216,168
20 123,083 123,083 149,466 222,466
21 129,984 129,984 156,112 229,112
22 137,232 137,232 163,125 236,125
23 144,856 144,856 170,529 243,529
24 152,888 152,888 178,339 251,339
25 161,364 161,364 186,564 259,564
26 170,324 170,324 195,211 268,211
27 179,817 179,817 204,288 277,288
28 189,900 189,900 213,791 286,791
29 200,633 200,633 223,702 296,702
30 212,056 212,056 233,959 306,959
31 224,172 224,172 244,491 317,491
32 235,602 235,602 253,783 326,783
33 247,038 247,038 262,692 335,692
34 259,201 259,201 272,236 345,236
35 272,465 272,465 283,364 356,364
</TABLE>
I-5
<PAGE>
ASSUMPTIONS:
(1) assumes no Policy loans have been made.
(2) values reflect current cost of insurance charges and current monthly expense
charges.
(3) net investment returns are calculated as the hypothetical gross investment
return less all charges and deductions.
(4) Death Benefit reflects current Internal Revenue Code requirements based on
the cash value accumulation test.
(5) when the Surrender Value is zero, the Policy might lapse in accordance with
the Grace Period provisions unless sufficient additional Premium is paid.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY
AN OWNER AND ACTUAL EXPENSES. THE DEATH BENEFIT, POLICY ACCOUNT VALUE, 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-6
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR)
FEMALE STANDARD NON-SMOKER ISSUE AGE 65
$38,392 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
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 65 $38,392 $35,363 $32,381 $73,000 $146,000
2 66 0 33,620 30,638 73,000 146,000
3 67 0 31,814 28,832 73,000 146,000
4 68 0 29,939 26,957 73,000 146,000
5 69 0 27,977 24,995 73,000 146,000
6 70 0 25,901 22,919 73,000 146,000
7 71 0 23,682 20,700 73,000 146,000
8 72 0 21,280 18,298 73,000 146,000
9 73 0 18,635 15,653 73,000 146,000
10 74 0 15,689 12,707 73,000 146,000
11 75 0 12,387 10,001 73,000 146,000
12 76 0 8,651 6,862 73,000 146,000
13 77 0 4,400 3,207 73,000 146,000
14 78 0 0 0 0 0
15 79 0 0 0 0 0
16 80 0 0 0 0 0
17 81 0 0 0 0 0
18 82 0 0 0 0 0
19 83 0 0 0 0 0
20 84 0 0 0 0 0
21 85 0 0 0 0 0
22 86 0 0 0 0 0
23 87 0 0 0 0 0
24 88 0 0 0 0 0
25 89 0 0 0 0 0
26 90 0 0 0 0 0
27 91 0 0 0 0 0
28 92 0 0 0 0 0
29 93 0 0 0 0 0
30 94 0 0 0 0 0
31 95 0 0 0 0 0
32 96 0 0 0 0 0
33 97 0 0 0 0 0
34 98 0 0 0 0 0
35 99 0 0 0 0 0
<CAPTION>
10% HYPOTHETICAL
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
1 $ 39,039 $ 36,057 $ 74,229 $147,229
2 41,154 38,172 76,154 149,154
3 43,392 40,410 78,180 151,180
4 45,762 42,780 80,305 153,305
5 48,269 45,287 82,518 155,518
6 50,910 47,928 84,815 157,815
7 53,688 50,706 87,198 160,198
8 56,599 53,616 89,664 162,664
9 59,631 56,649 92,201 165,201
10 62,783 59,801 94,823 167,823
11 66,059 63,673 97,542 170,542
12 69,458 67,669 100,353 173,353
13 72,987 71,794 103,266 176,266
14 76,649 76,053 106,281 179,281
15 80,448 80,448 109,398 182,398
16 84,381 84,381 112,610 185,610
17 88,440 88,440 115,914 188,914
18 92,612 92,612 119,305 192,305
19 96,890 96,890 122,790 195,790
20 101,269 101,269 126,375 199,375
21 105,752 105,752 130,072 203,072
22 110,347 110,347 133,890 206,890
23 115,063 115,063 137,834 210,834
24 119,914 119,914 141,909 214,909
25 124,918 124,918 146,122 219,122
26 130,098 130,098 150,484 223,484
27 135,484 135,484 154,993 227,993
28 141,107 141,107 159,651 232,651
29 146,998 146,998 164,448 237,448
30 153,175 153,175 169,350 242,350
31 159,603 159,603 174,274 247,274
32 166,168 166,168 179,090 252,090
33 172,635 172,635 183,613 256,613
34 178,687 178,687 187,684 260,684
35 185,093 185,093 192,497 265,497
</TABLE>
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.
I-7
<PAGE>
(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-8
<PAGE>
INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WITH LTC BENEFITS RIDER (2 YEAR)
FEMALE STANDARD NON-SMOKER ISSUE AGE 65
$38,392 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
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR AGE PREMIUM VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 65 $38,392 $35,387 $32,405 $73,000 $146,000
2 66 0 33,668 30,686 73,000 146,000
3 67 0 31,886 28,904 73,000 146,000
4 68 0 30,035 27,053 73,000 146,000
5 69 0 28,097 25,115 73,000 146,000
6 70 0 26,059 23,077 73,000 146,000
7 71 0 23,905 20,923 73,000 146,000
8 72 0 22,147 19,165 73,000 146,000
9 73 0 20,264 17,282 73,000 146,000
10 74 0 18,232 15,250 73,000 146,000
11 75 0 16,018 13,633 73,000 146,000
12 76 0 13,598 11,809 73,000 146,000
13 77 0 10,929 9,736 73,000 146,000
14 78 0 7,980 7,383 73,000 146,000
15 79 0 4,687 4,687 73,000 146,000
16 80 0 975 975 73,000 146,000
17 81 0 0 0 0 0
18 82 0 0 0 0 0
19 83 0 0 0 0 0
20 84 0 0 0 0 0
21 85 0 0 0 0 0
22 86 0 0 0 0 0
23 87 0 0 0 0 0
24 88 0 0 0 0 0
25 89 0 0 0 0 0
26 90 0 0 0 0 0
27 91 0 0 0 0 0
28 92 0 0 0 0 0
29 93 0 0 0 0 0
30 94 0 0 0 0 0
31 95 0 0 0 0 0
32 96 0 0 0 0 0
33 97 0 0 0 0 0
34 98 0 0 0 0 0
35 99 0 0 0 0 0
<CAPTION>
10% HYPOTHETICAL
GROSS INVESTMENT RETURN
------------------------------------------
POLICY ACCOUNT SURRENDER DEATH LTC
YEAR VALUE VALUE BENEFIT BENEFIT
--------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
1 $ 39,064 $ 36,082 $ 74,277 $147,277
2 41,205 38,223 76,250 149,250
3 43,472 40,490 78,324 151,324
4 45,873 42,890 80,498 153,498
5 48,411 45,429 82,761 155,761
6 51,095 48,113 85,124 158,124
7 53,937 50,955 87,602 160,602
8 57,298 54,316 90,773 163,773
9 60,859 57,877 94,100 167,100
10 64,629 61,647 97,611 170,611
11 68,613 66,227 101,313 174,313
12 72,828 71,038 105,221 178,221
13 77,281 76,089 109,342 182,342
14 81,994 81,397 113,691 186,691
15 86,973 86,973 118,270 191,270
16 92,230 92,230 123,085 196,085
17 97,770 97,770 128,143 201,143
18 103,600 103,600 133,460 206,460
19 109,726 109,726 139,059 212,059
20 116,160 116,160 144,959 217,959
21 122,920 122,920 151,189 224,189
22 130,023 130,023 157,765 230,765
23 137,490 137,490 164,700 237,700
24 145,347 145,347 172,007 245,007
25 153,625 153,625 179,703 252,703
26 162,363 162,363 187,804 260,804
27 171,600 171,600 196,309 269,309
28 181,383 181,383 205,220 278,220
29 191,762 191,762 214,526 287,526
30 202,775 202,775 224,189 297,189
31 214,424 214,424 234,134 307,134
32 226,002 226,002 243,578 316,578
33 238,034 238,034 253,170 326,170
34 251,046 251,046 263,686 336,686
35 265,304 265,304 275,917 348,917
</TABLE>
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.
I-9
<PAGE>
(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-10
<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 Premium 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 Mark J. Oberhellman, Vice President Product Development of
the Company, and are included in reliance upon his 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
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 (3)
(b) Specimen Convalescent Care Benefits Rider (3)
(c) Specimen Extension of Convalescent Care Benefits Rider (3)
(d) Specimen Extension of Convalescent Care Benefits Rider
with Automatic Increasing Benefits (3)
(e) Specimen Guarantee Enhancement Rider (3)
(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
II-2
<PAGE>
(8) Participation Agreements
(a)(1) Form of Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and
First Penn-Pacific Life Insurance Company (filed
herewith)
(a)(2) Form of Service Contract by and between Fidelity
Distributors Corporation and First Penn-Pacific
Securities, Inc. (filed herewith)
(a)(3) Form of Service Agreement by and between Fidelity
Inestments Institutional Operations Company, Inc. and
First Penn-Pacific Securities, Inc. (filed herewith)
(b) Form of Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation, and
First Penn-Pacific Life Insurance Company (filed herewith)
(c) Form of Participation Agreement between First Penn-Pacific
Life Insurance Company and Lincoln National Money Market
Fund, Inc. (filed herewith)
(d) Form of Participation Agreement between First Penn-Pacific
Life Insurance Company and Lincoln National Bond Fund,
Inc. (filed herewith)
(e)(1) Form of Participation Agreement by and among AIM Variable
Insurance Funds, Inc., AIM Distributors, Inc., First
Penn-Pacific Life Insurance Company, on behalf of itself
and its separate accounts, and _______________ (filed
herewith)
(e)(2) Form of Administrative Services Agreement by and between
First Penn-Pacific Life Insurance Company and AIM
Advisors, Inc. (filed herewith)
(f) Form of Participation Agreement among Delaware Group
Premium Fund, First Penn-Pacific Life Insurance Company,
and Delaware Distributors, LP(3)
(g) Form of Participation Agreement by and among First
Penn-Pacific Life Insurance Company, American Variable
Insurance Series, American Funds Distributors, Inc., and
Capital Research and Management Company (filed herewith)
(h)(1) Form of Participation Agreement by and among Deutsche
Asset Management VIT Funds, Bankers Trust Company, and
First Penn Pacific Life Insurance Company (filed herewith)
(h)(2) Form of Administrative Services Agreement by and between
Bankers Trust Company and First Penn Pacific Life
Insurance Company (filed herewith)
(i) Form of Participation Agreement among Variable Insurance
Products Fund III, Fidelity Distributors Corporation, and
First Penn-Pacific Life Insurance Company (filed herewith)
(j)(1) Form of Participation Agreement by and among Franklin
Templeton Variable Insurance Products Trust, Franklin
Templeton Distributors, Inc., and First Penn-Pacific Life
Insurance Company (filed herewith)
(j)(2) Form of Administrative Services Agreement by and
between Franklin Templeton Services, Inc. and First
Penn-Pacific Life Insurance Company
II-3
<PAGE>
(k)(1) Form of Participation Agreement by and between Janus Aspen
Series and First Penn-Pacific Life Insurance Company
(filed herewith)
(k)(2) Form of Distribution and Shareholder Services Agreement -
Service Shares of Janus Aspen Series (filed herewith)
(l) Form of Participation Agreement between First Penn-Pacific
Life Insurance Company and Lincoln National Capital
Appreciation Fund, Inc. (filed herewith)
(m) Form of Participation Agreement between First Penn-Pacific
Life Insurance Company and Lincoln National Equity-Income
Fund, Inc. (filed herewith)
(n) Form of Participation Agreement between First Penn-Pacific
Life Insurance Company and Lincoln National Global Asset
Allocation Fund, Inc. (filed herewith)
(o) Form of Participation Agreement between First Penn-Pacific
Life Insurance Company and Lincoln National Social
Awareness Fund, Inc. (filed herewith)
(p) Form of Participation Agreement by and among MFS Variable
Insurance Trust, First Penn-Pacific Life Insurance
Company, and Massachussetts Financial Services Company
(filed herewith)
(q)(1) Form of Participation Agreement by and among Neuberger
Berman Advisors Management Trust, Neuberger Berman
Management Inc., and First Penn-Pacific Life Insurance
Company (filed herewith)
(q)(2) Form of Services Agreement by and between Neuberger Berman
Management Inc. and First Penn-Pacific Life Insurance
Company (filed herewith)
(9) Other Material Contracts (not applicable)
(10)(a) Specimen Application for Life Insurance (3)
(b) Specimen Application for Life Insurance (3)
(c) Specimen Supplemental Application for Variable Life Insurance (3)
(d) Specimen Supplement Application for Long Term Care Rider (3)
2. Opinion and Consent of Counsel (3)
4. All financial statements omitted from the Prospectus (not applicable)
5. Not applicable
6. Financial Data Schedule (not applicable)
7. [Reserved])
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)
II-4
<PAGE>
(2) Incorporated by reference to Amendment No. 1 to Registration Statement on
Form N-8b-2 of First Penn Pacific Life Insurance Separate Account, filed this
date (File No. 811-9827)
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form S-6 of First Penn-Pacific Variable Life Insurance Separate
Account, filed June 1, 2000 (File No. 333-31116)
II-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant certificates that this Post-Effective Amendment No. 1 meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Pre-Effective Amendment No. 1 to be signed on its behalf in the City of
Schaumburg, State of Illinois on the 19th of December, 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:
/S/ ROLAND C. BAKER
-----------------------
Roland C. Baker President and Director December 19, 2000
(Chief Executive Officer)
/S/ STEVEN W. ROGERS
-----------------------
Steven W. Rogers Second Vice President and December 19, 2000
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/S/ THOMAS W. FITCH
-----------------------
Thomas W. Fitch Senior Vice President December 19, 2000
and Director
II-6
<PAGE>
/S/ RICHARD C. KLEIN
-----------------------
Richard C. Klein Senior Vice President December 19, 2000
and Director
/S/ JOHN H. GOTTA
-----------------------
John H. Gotta Director December 19, 2000
/S/ LAWRENCE T. ROWLAND
-----------------------
Lawrence T. Rowland Director December 19, 2000
/S/ TODD R. STEPHENSON
-----------------------
Todd R. Stephenson Director December 19, 2000
II-7
<PAGE>
EXHIBIT LIST
1.(8)(a)(1) Form of Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation, and First
Penn-Pacific Life Insurance Company
1.(8)(a)(2) Form of Service Contract by and between Fidelity Distributors
Corporation and First Penn-Pacific Securities, Inc.
1.(8)(a)(3) Form of Service Agreement by and between Fidelity Inestments
Institutional Operations Company, Inc. and First Penn-Pacific
Securities, Inc.
1.(8)(b) Form of Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation, and First Penn-Pacific
Life Insurance Company
1.(8)(c) Form of Participation Agreement between First Penn-Pacific Life
Insurance Company and Lincoln National Money Market Fund, Inc.
1.(8)(d) Form of Participation Agreement between First Penn-Pacific Life
Insurance Company and Lincoln National Bond Fund, Inc.
1.(8)(e)(1) Form of Participation Agreement by and among AIM Variable
Insurance Funds, Inc., AIM Distributors, Inc., First Penn-Pacific
Life Insurance Company, on behalf of itself and its separate
accounts, and _______________
1.(8)(e)(2) Form of Administrative Services Agreement by and between First
Penn-Pacific Life Insurance Company and AIM Advisors, Inc.
1.(8)(g) Form of Participation Agreement by and among First Penn-Pacific
Life Insurance Company, American Variable Insurance Series,
American Funds Distributors, Inc., and Capital Research and
Management Company
1.(8)(h)(1) Form of Participation Agreement by and among Deutsche Asset
Management VIT Funds, Bankers Trust Company, and First Penn
Pacific Life Insurance Company
1.(8)(h)(2) Form of Administrative Services Agreement by and between Bankers
Trust Company and First Penn Pacific Life Insurance Company
1.(8)(i) Form of Participation Agreement among Variable Insurance Products
Fund III, Fidelity Distributors Corporation, and First
Penn-Pacific Life Insurance Company
1.(8)(j)(1) Form of Participation Agreement by and among Franklin Templeton
Variable Insurance Products Trust, Franklin Templeton
Distributors, Inc., and First Penn-Pacific Life Insurance Company
1.(8)(j)(2) Form of Administrative Services Agreement by and
between Franklin Templeton Services, Inc. and First
Penn-Pacific Life Insurance Company
1.(8)(k)(1) Form of Participation Agreement by and between Janus Aspen Series
and First Penn-Pacific Life Insurance Company
1.(8)(k)(2) Form of Distribution and Shareholder Services Agreement - Service
Shares of Janus Aspen Series
1.(8)(l) Form of Participation Agreement between First Penn-Pacific Life
Insurance Company and Lincoln National Capital Appreciation Fund,
Inc.
<PAGE>
1.(8)(m) Form of Participation Agreement between First Penn-Pacific Life
Insurance Company and Lincoln National Equity-Income Fund, Inc.
1.(8)(n) Form of Participation Agreement between First Penn-Pacific Life
Insurance Company and Lincoln National Global Asset Allocation
Fund, Inc.
1.(8)(o) Form of Participation Agreement between First Penn-Pacific Life
Insurance Company and Lincoln National Social Awareness Fund,
Inc.
1.(8)(p) Form of Participation Agreement by and among MFS Variable
Insurance Trust, First Penn-Pacific Life Insurance Company, and
Massachussetts Financial Services Company
1.(8)(q)(1) Form of Participation Agreement by and among Neuberger Berman
Advisors Management Trust, Neuberger Berman Management Inc., and
First Penn-Pacific Life Insurance Company
1.(8)(q)(2) Form of Services Agreement by and between Neuberger Berman
Management Inc. and First Penn-Pacific Life Insurance Company
9 Actuarial Opinion and Consent
10 Consent of Ernst & Young LLP, Independent Auditors
76247.1
