<PAGE>
File Nos. 333-12197
811-4092
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X]
Pre-Effective Amendment No. 1 [ X]
Post-Effective Amendment No.___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23 [ X]
FIRST VARIABLE ANNUITY FUND E
(Exempt Name of Registrant)
FIRST VARIABLE LIFE INSURANCE COMPANY
(Name of Depositor)
10 Post Office Square 12th Floor
Boston, MA 02109
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's telephone number including area code: (617) 457-6700
NAME AND ADDRESS OF AGENT FOR SERVICE
Arnold R. Bergman
Vice President - Legal and Administration
First Variable Life Insurance Company
10 Post Office Square, 12th Floor
Boston, MA 02109
Copies to:
Lynn K. Stone
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
$500 - Registrant is registering an indefinite number of securities under
the Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2.
______________________________________________________________________________
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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FIRST VARIABLE ANNUITY FUND E
CROSS REFERENCE SHEET
(Pursuant to Rule 495(a))
ITEM NO. IN
FORM N-4
- -----------
PART A LOCATION
- ------ --------
Item 1. Cover Page Cover Page
Item 2. Definitions Definitions
Item 3. Synopsis or Highlights Highlights
Item 4. Condensed Financial Information Accumulation Unit Data;
Financial Statements
Item 5. General Description of Registrant, The Company; The Separate
Depositor and Portfolio Companies Account; Variable Investors
Series Trust; Federated
Insurance Series
Item 6. Deductions Charges and Deductions
Item 7. General Description of Variable The Contracts
Annuity Contracts
Item 8. Annuity Period Annuity Provisions
Item 9. Death Benefit The Contracts; Annuity
Provisions
Item 10. Purchases and Contract Value Purchase Payments; Contract
Value
Item 11. Redemptions Withdrawals
Item 12. Taxes Tax Considerations
Item 13. Legal Proceedings Legal Proceedings
Item 14. Table of Contents of Statement of Table of Contents of
Additional Information Statement of Additional
Information
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ITEM NO. IN
FORM N-4
- ------------
PART B LOCATION
- ------ ---------
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History Company
Item 18. Services Service Provider
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distributor
Item 21. Calculation of Performance Data Performance
Information
Item 22. Annuity Payment Annuity Provisions
Item 23. Financial Statements Financial Statements
PART C
- ------
Information required to included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
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PART A
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[Logo]
Marketing and Executive Office: Variable Service Center:
10 Post Office Square P.O. Box 1317
Boston, MA 02109 Des Moines, IA 50305-1317
(800) 845 - 0689
CAPITAL SIX VA
A VARIABLE ANNUITY CONTRACT
FUNDED IN
FIRST VARIABLE ANNUITY FUND E
Prospectus
Dated:
This Prospectus describes the Capital 6 contract (the "Contract"), an
individual flexible payment deferred variable annuity contract issued by
First Variable Life Insurance Company (the "Company"). The Contract provides
for accumulation of Contract Values and payment of monthly annuity payments
on a fixed and variable basis. The Contract is designed for use by
individuals in tax-qualified retirement plans (a "Qualified Contract") or for
other long term savings and retirement purposes (a "Non-Qualified Contract").
Purchase Payments for a Contract may be allocated to the Company's segregated
investment account called First Variable Annuity Fund E (the "Separate
Account") or to the Company's Fixed Account. The Separate Account invests in
selected Portfolios of two mutual funds: Variable Investors Series Trust
("VIST") and Federated Insurance Series ("Federated"). The Portfolios
currently available under a Contract are: VIST High Income Bond, VIST
Multiple Strategies, VIST Common Stock, VIST U.S. Government Bond, VIST Tilt
Utility, VIST World Equity, VIST Growth & Income, VIST Small Cap and
Federated Prime Money Fund II. (See "Investment Options.") The Company
reserves the right, under certain circumstances, to delay the investment of
initial Purchase Payments in VIST Portfolios, but does not currently do so.
(See "Application and Issuance of a Contract.")
AN INVESTMENT IN A CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY FINANCIAL INSTITUTION, NOR IS A CONTRACT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN THE CONTRACT IS SUBJECT TO RISK
THAT MAY CAUSE THE VALUE OF THE OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE
CONTRACT IS SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE
PAYMENT.
This Prospectus contains information that an investor should know before
investing. A Statement of Additional Information about the Contract and the
Separate Account, which has the same date as this Prospectus, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The table of contents of the Statement of Additional Information
can be found on page __ of this Prospectus. For a copy of the Statement of
Additional Information, which is available at no cost, write the Company at
its Variable Service Center or call the number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
PAGE
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DEFINITIONS
HIGHLIGHTS
FEE TABLE AND EXAMPLES
ACCUMULATION UNIT DATA
THE COMPANY
THE SEPARATE ACCOUNT
INVESTMENT OPTIONS
Variable Investors Series Trust
Federated Insurance Series
Fixed Account Option
Transfers Among Investment Options
Prior to the Annuity Date
During the Annuity Period
General Requirements
Systematic Transfers - Dollar Cost Averaging
Asset Rebalancing Program
Telephone Requests
Restrictions on Transfers
Automatic Transfer of Small Accounts
Changes to Investment Options
CHARGES AND DEDUCTIONS
Administrative Charge
Annual Contract Maintenance Charge
Mortality and Expense Risk Charge
Optional Enhanced Death Benefit Charge
Premium Taxes
Withdrawal Charge
Withdrawal Charge Percentages
Partial Withdrawals
Free Withdrawal Amount
Waiver of Withdrawal Charge
Other Charges and Expenses
Fund Expenses
Income Taxes
Special Service Fees
Elimination or Reduction of Charges and Expenses
THE CONTRACT
Application and Issuance of a Contract
Free Look Right
Delayed Investment Start Date
Purchase Payments
General Requirements
Conversion to Accumulation Units
Automatic Investment Plan
Contract Value
Accumulation Unit Value
Reports
Ownership
Assignment
Change of Designations
Owner
Annuitant
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Beneficiary
Restrictions on Qualified Contracts
Minimum Value Requirements
Termination of Small Accounts
Transfer of Small Contract Value
DEATH BENEFIT PROVISIONS
Death of the Annuitant
Death of the Owner
Basic Death Benefit
Bonus Death Benefit
Optional Enhanced Death Benefit
Payment of Death Benefit
Owners Other than a Single Person
Beneficiaries
ANNUITY PROVISIONS
Annuity Date
Annuity Payments
Allocation
Amount
Annuitization Bonus
Variable Annuity Payments
Annuity Options
Option A. Life Annuity
Option B. Life Annuity with Periods Certain of 60, 120, 180 or
240 Months
Option C. Joint and Survivor Annuity
Option D. Joint and Contingent Annuity
Option E. Fixed Payments for a Period Certain
Misstatement of Age or Sex
WITHDRAWALS
Partial Withdrawals
Systematic Withdrawals
Tax Penalties and Restrictions
Texas Optional Retirement Program
Suspension of Payments or Transfers
PERFORMANCE INFORMATION
TAX CONSIDERATIONS
General
Death Benefits
Diversification
Contracts Owned by Other than Natural Person
Multiple Contracts
Income Tax Withholding
Withdrawals from Non-Qualified Contracts
Qualified Plans
H.R. 10 Plans
403(b) Annuities
Individual Retirement Annuities
Corporate Pension and Profit-Sharing Plans
Section 457 Plans
Withdrawals from Qualified Contracts
Tax Sheltered Annuity - Withdrawal Limitations
OTHER MATTERS
Financial Statements
Distribution
Legal Proceedings
Transfers by Company
Voting Rights
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
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DEFINITIONS
ACCOUNT - Fixed Account and/or one or more of the Sub-Accounts of the
Separate Account.
ACCUMULATION PERIOD - The period during which Purchase Payments may be made
prior to the Annuity Date.
ACCUMULATION UNIT - A unit of measure used to calculate the Contract Value of
a Sub-Account of the Separate Account prior to the Annuity Date.
ACCUMULATION UNIT VALUE or AUV - The value of an Accumulation Unit on a
Business Day.
ANNUITANT - The natural person on whose life Annuity Payments are based.
ANNUITY DATE - The date on which Annuity Payments begin.
ANNUITY PAYMENTS - The series of payments made to the Annuitant, or other
payee selected by the Owner, after the Annuity Date under the Annuity Option
elected.
ANNUITY PERIOD - The period after the Annuity Date during which Annuity
Payments are made.
ANNUITY UNIT - A unit of measure used to calculate Variable Annuity Payments
after the Annuity Date.
BENEFICIARY - The person(s) or entity who will receive the death benefit.
BUSINESS DAY - Each day that the New York Stock Exchange is open for trading,
which is Monday through Friday, except for normal business holidays.
COMPANY - First Variable Life Insurance Company.
CONTRACT ANNIVERSARY - An anniversary of the Issue Date.
CONTRACT QUARTER - One quarter of a Contract Year. The first Contract
Quarter begins on the Issue Date and ends on the last Business Day of the
third contract month.
CONTRACT VALUE - The sum of the Owner's interest in the Sub-Accounts of the
Separate Account and in the Fixed Account.
CONTRACT YEAR - One year from the Issue Date and from each Contract
Anniversary.
DISTRIBUTOR - First Variable Capital Services, Inc., 10 Post Office Square,
Boston, MA 02109.
FIXED ACCOUNT - The Company's general investment account which contains all
the assets of the Company with the exception of the Separate Account and
other segregated asset accounts.
FIXED ACCOUNT VALUE - The Owner's interest in the Fixed Account during the
Accumulation Period.
FIXED ANNUITY PAYMENTS- A series of payments made during the Annuity Period
which are guaranteed as to dollar amount by the Company.
FUNDS - Variable Investors Series Trust and Federated Insurance Series, each
of which is an open-end management investment company in which the Separate
Account invests.
INVESTMENT OPTION - The Fixed Account or any of the Sub-Accounts of the
Separate Account which can be selected by the Owner of a Contract.
ISSUE DATE - The date on which the first Contract Year begins.
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NON-QUALIFIED CONTRACTS - Contracts issued under retirement plans, or for
other purposes, which do not receive favorable tax treatment under Sections
401, 403(b) 408, or 457 of the Internal Revenue Code.
OWNER - The person, persons or entity entitled to all the ownership rights
under a Contract and in whose name a Contract has been issued.
PORTFOLIO - A Fund's separate and distinct class of shares that is available
as an underlying investment under a Contract.
PURCHASE PAYMENT - An amount paid to the Company to provide benefits under
the Contracts.
QUALIFIED CONTRACTS - Contracts issued under retirement plans which receive
favorable tax treatment under Sections 401, 403(b) 408, or 457 of the
Internal Revenue Code.
SEPARATE ACCOUNT - A separate investment account of the Company, designated
as First Variable Annuity Fund E, into which Purchase Payments or Contract
Values may be allocated.
SUB-ACCOUNT - A segment of the Separate Account which invests in a specified
Portfolio of one of the Funds.
VALUATION PERIOD - The period of time between the close of one Business Day
and the close of business for the next succeeding Business Day.
VARIABLE ACCOUNT VALUE - The Owner's interest in the Sub-Accounts of the
Separate Account during the Accumulation Period, which vary in amount with
the investment experience of each applicable Sub-Account.
VARIABLE ANNUITY PAYMENTS - A series of payments made during the Annuity
Period which vary in amount with the investment experience of each applicable
Sub-Account.
VARIABLE SERVICE CENTER - The Company's administrative service center for a
Contract is P.O. Box 1317, 1206 Mulberry Street, Des Moines, IA 50305-1317.
WITHDRAWAL VALUE - The value of a Contract that is available during the
Accumulation Period upon withdrawal or surrender. The Withdrawal Value is
also used to determine Annuity Payments that begin during the first 2
Contract Years. Withdrawal Value equals the Contract Value as of the date the
Company prices the transaction, less:
- - any applicable taxes not previously deducted; less
- - the Withdrawal Charge, if any; less
- - the Annual Contract Maintenance Charge, if any; less
- - the Optional Enhanced Death Benefit Charge, if any.
HIGHLIGHTS
The Capital Six VA is an individual flexible payment variable annuity
contract (the "Contract.") The Owner may allocate Purchase Payments among
ten Investment Options under a Contract issued by First Variable Life
Insurance Company (the "Company.") Nine of these options are Sub-Accounts of
First Variable Annuity Fund E (the "Separate Account"), a segregated
investment account of the Company. Purchase Payments may also be allocated to
the Fixed Account of the Company.
Each Sub-Account invests exclusively in shares of a corresponding Portfolio
of a selected mutual fund (a "Fund.") The selected Funds are Variable
Investors Series Trust ("VIST") and Federated Insurance Series ("Federated.")
The Portfolios currently available are: VIST Common Stock, VIST Growth &
Income, VIST High Income Bond, VIST Multiple Strategies, VIST Small Cap, VIST
Tilt Utility, VIST U.S. Government Bond, VIST World Equity, and Federated
Prime Money Fund II (see "Investment Options.") Owners bear the investment
risk for any amounts allocated to a Sub-Account.
2
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Owners have the right to return a Contract according to the terms of its
"free-look" right. The Company reserves the right to delay initial
investments of Purchase Payments in the VIST Portfolios in certain instances,
but it does not currently do so. (See "Application and Issuance of a
Contract.")
Purchase Payments and other Contract Value allocated to the Fixed Account are
guaranteed by the Company as to safety of principal and are credited a
minimum 3% rate of interest on an annual basis. The Company, in its
discretion, may credit a higher "current" interest rate. (See "Fixed Account
Option.")
There is a daily Administrative Charge which is equal to a percentage of the
daily net assets in each Sub-Account of the Separate Account for this class
of Contract. The annual rate for this charge is .25%. This charge
compensates the Company for costs associated with the administration of a
Contract and the Separate Account. (See "Charges and
Deductions--Administrative Charge.")
There is an Annual Contract Maintenance Charge of $30 each Contract Year
during the Accumulation Period. However, if the Contract Value on a Contract
Anniversary is at least $100,000, then no charge is taken. (See "Charges and
Deductions--Annual Contract Maintenance Charge.")
There is a daily Mortality and Expense Risk Charge which is equal to a
percentage of the daily net assets in each Sub-Account of the Separate
Account for this class of Contract. The annual rate for this charge is
1.25%. This charge compensates the Company for assuming the mortality and
expense risks under the Contracts. (See "Charges and Deductions--Mortality
and Expense Risk Charge.")
The Contract provides different forms of Death Benefits if the Owner dies
before the Annuity Date. (See "Death Benefit Provisions.") If an Optional
Enhanced Death Benefit is elected, there is a charge which is taken on each
Contract Anniversary during the Accumulation Period up to the earlier of the
Annuity Date or the Owner's 80th birthday. The charge is .35% of the
Contract Value on the Contract Anniversary. The charge is also taken on the
Annuity Date if the Annuity Date is other than a Contract Anniversary or at
the time of surrender if a Contract is surrendered during a Contract Year,
based on the Contract Value at that time. (See "Charges and Deductions --
Optional Enhanced Death Benefit Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Purchase Payments or Contract Values. (See
"Charges and Deductions-- Premium Taxes.")
A Withdrawal Charge of up to 7% of Purchase Payments may be deducted during
the first 6 Contract Years for a withdrawal or surrender of all or a portion
of the Contract Value. The Withdrawal Charge will also apply if Contract
Value is applied to an Annuity Option within the first 2 Contract Years (See
"Annuity Provisions.") No Withdrawal Charge will be taken in any Contract
Year on a partial withdrawal unless the amount withdrawn exceeds the annual
Free Withdrawal Amount. The annual Free Withdrawal Amount is equal to 15% of
Purchase Payments. The Withdrawal Charge will vary in amount, depending upon
the Contract Year in which the Purchase Payment being surrendered was made.
(See "Charges and Deductions--Withdrawal Charge.")
A ten percent (10%) federal income tax penalty may be applied to the income
portion of any distribution from a Non-Qualified Contract before the Owner
reaches age 59 1/2, with certain exceptions. Separate tax withdrawal
penalties and restrictions apply to a Qualified Contract. Special
restrictions apply to distributions from a 403(b) annuity. (See "Tax
Considerations--Withdrawals from Non-Qualified Contracts," and "Withdrawals
from Qualified Contracts," and "Withdrawal Limitations on 403(b) Annuities.")
For a further discussion on the taxation of a Contract, see "Tax
Considerations" and "Tax Considerations--Diversification" for a discussion of
owner control of the underlying investments in a variable annuity contract.
VARIOUS CONTRACT RIGHTS, BENEFITS, AND INVESTMENT OPTIONS DESCRIBED IN THIS
PROSPECTUS MAY NOT BE AVAILABLE IN ALL JURISDICTIONS, OR MAY DIFFER BETWEEN
JURISDICTIONS TO MEET APPLICABLE LOCAL LAWS AND/OR REGULATIONS.
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FEE TABLE AND EXAMPLES
The charges and deductions under a Contract are summarized in the following
table. This table is designed to help an Owner understand direct and
indirect costs for a Contract, but should be read only in conjunction with
the detailed descriptions in the "Charges and Deductions" section of this
prospectus. The table assumes that the entire Contract Value is invested in
the Separate Account, and reflects expenses of the Separate Account as well
as the Portfolios. Owners should read the accompanying prospectuses of the
Funds carefully for further information of the expenses shown for each
Portfolio. In addition to the expenses listed below, a charge for premium
taxes may be applicable.
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (See Note 1 below) 7%, Reducing by 1% each Contract Year
(as a percentage of Purchase Payment) after the Issue Date until the
beginning of the seventh Contract
Year, when the charge is 0%.
ANNUAL CONTRACT MAINTENANCE CHARGE $30 per Contract Year if Contract
Value on a Contract Anniversary is
less than $100,000.
OPTIONAL ENHANCED DEATH BENEFIT .35% (as a percentage of Contract
CHARGE (see Note 2 below) Value at the time the charge is
taken each Contract Year until
earlier of surrender, Annuity Date
or the Owner's 80th birthday)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average Variable Account Value)
MORTALITY AND EXPENSE RISK CHARGE 1.25%
ADMINISTRATIVE CHARGE .25%
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Total Separate Account Annual Expenses 1.50%
FUNDS' ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
Federated
VIST VIST VIST VIST VIST VIST VIST VIST Prime
Common Growth Hi. Inc. Multiple Small Tilt US Gov. World Money
Stock & Income Bond Strat. Cap Utility Bond Equity Fund II
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mgmt. Fees .70% .75% .70% .70% .85% .65% .60% .70% .55%
Other Operating
Expenses -
After Expense
Reimbursement .47% .50% .50% .50% .50% .50% .25% .50% .25%
(see Note 3)
Total Annual Expenses 1.17% 1.25% 1.20% 1.20% 1.35% 1.15% .85% 1.20% .80%
</TABLE>
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EXAMPLES
An Owner would pay the following expenses on a $1,000 investment in a
Contract, assuming a 5% annual return on assets and allocation of 100% of
Purchase Payments to the Portfolio shown:
a) upon surrender at the end of each time period (or if the
Contract is annuitized during the first 2 Contract Years);
b) if the Contract is not surrendered: (or if the Contract is
annuitized after the first 2 Contract Years).
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 Year 3 Years
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VIST Common Stock a) $122 $222
b) $ 57 $174
VIST Growth & Income a) $123 $224
b) $ 58 $176
VIST High Income Bond a) $122 $223
b) $ 58 $175
VIST Multiple Strategies a) $122 $223
b) $ 58 $175
VIST Small Cap a) $124 $227
b) $ 59 $179
VIST Tilt Utility a) $122 $222
b) $ 57 $173
VIST U.S. Government Bond a) $119 $213
b) $ 54 $164
VIST World Equity a) $122 $223
b) $ 58 $175
Federated Prime Money Fund II a) $118 $211
b) $ 54 $163
NOTES ON FEE TABLES AND EXAMPLES
1. After the second Contract Year, the entire Contract Value may be applied
to an Annuity Option and no Withdrawal Charge will be taken. In each
Contract Year during the Accumulation Period, an Owner may request a "partial
withdrawal" of an amount of up to 15% of Purchase Payments without a
Withdrawal Charge. Amounts so withdrawn do not reduce the Purchase Payments
subject to a withdrawal charge. The 15% free withdrawal has not been
factored into the Examples above, and is not available on a full surrender.
2. If an Optional Enhanced Death Benefit is elected by the Owner at time of
application for a Contract, the Company deducts an annual charge on each
Contract Anniversary during the Accumulation Period until the earlier of the
Annuity Date or the Owner's 80th birthday. Also, the charge is taken if the
Annuity Date is other than a Contract Anniversary or if a Contract is
surrendered during a Contract Year, based on the Contract Value at that time.
(See "Charges and Deductions -Optional Enhanced Death Benefit Charge.")
3. First Variable Advisory Services Corp. ( "Investment Adviser" ) has
agreed through April 1, 1997 to reimburse Variable Investors Series Trust for
all operating expenses (exclusive of management fees) in excess of .50% of a
Portfolio's average net assets (.25% in the case of the U.S. Government Bond
Portfolio). Had the Investment Adviser not reimbursed expenses of the
Portfolios, for the year ended December 31, 1995, the VIST Annual Expenses
were 1.19% for the Common Stock Portfolio; 2.04% for the High Income Bond
Portfolio; 1.33% for the Multiple Strategies Portfolio; 1.51% for the Tilt
Utility Portfolio; 1.59% for the U.S. Government Bond Portfolio; and 1.67%
for the World Equity Portfolio.
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ACCUMULATION UNIT DATA
On the date of this Prospectus, sales of the Contract had not commenced and,
accordingly, the value of Accumulation Units is not shown.
THE COMPANY
First Variable Life Insurance Company (the "Company") is a stock life
insurance company which was organized under the laws of the State of Arkansas
in 1968. The Company is principally engaged in the annuity business. The
Company is licensed in 49 states, the District of Columbia and the U.S.
Virgin Islands. The Company is a wholly-owned subsidiary of Irish Life of
North America, Inc. ("ILoNA") which in turn is beneficially owned by Irish
Life plc ("Irish Life"). ILoNA also owns Interstate Assurance Company
("Interstate") of Des Moines, IA. Irish Life was formed in 1939 through a
consolidation of a number of Irish and British Life offices transacting
business in Ireland. In terms of assets, Irish Life controls over 50% of the
Irish domestic life insurance market. As Ireland's leading institutional
investor, it owns in excess of 10% of the leading Irish publicly traded
stocks. Irish Life, through its international subsidiaries, conducts
business in Ireland, the United Kingdom, the United States and France. As of
the end of 1995, the Irish Life consolidated group had in excess of $11
billion in assets. ILoNA is a Delaware corporation, incorporated as Carrig
International, Inc. in 1986, which is the holding company for Interstate and
the Company.
The Company has an A- (Excellent) rating from A.M. Best, an independent firm
that analyzes insurance carries. This rating is assigned to companies that
have a strong ability to meet obligations to policyholders over a long period
of time. The Company also has an AA- rating from Standard and Poor's and an
AA rating from Duff & Phelps Credit Rating Co. on claims paying ability. The
financial strength of the Company may be relevant with respect of the
Company's ability to satisfy its Fixed Account obligations under the
Contracts.
THE SEPARATE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to Arkansas insurance law on December 4,
1979. This account has been designated First Variable Annuity Fund E (the
"Separate Account"). The Company has registered the Separate Account with
the Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to the reserves and other
contract liabilities with respect to the Separate Account, are not chargeable
with liabilities arising out of any other business the Company may conduct.
Income, gains and losses, whether or not realized, are, in accordance with
the Contracts, credited to or charged against the Separate Account without
regard to other income, gains or losses of the Company. The Company's
obligations arising under a Contract are general obligations.
The Separate Account meets the definition of a "separate account" under the
federal securities laws.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one Portfolio of a selected Fund. Owners bear the
complete investment risk for Purchase Payments and Contract Value allocated
or transferred to a Sub-Account. Contract Values fluctuate in accordance
with the investment performance of the Sub-Account(s), and reflect the
imposition of fees and charges assessed under a Contract.
INVESTMENT OPTIONS
Owners of a Contract may allocate Purchase Payments and Contract Value to one
or more Sub-Accounts of the Separate Account and to the Fixed Account. Each
Sub-Account invests exclusively in a Portfolio of a selected Fund. A brief
summary of the Funds and the investment objectives of the currently available
Portfolios is set forth below. More comprehensive information, including a
discussion of potential risks, is found in the current prospectuses for the
Portfolios which are included with this prospectus. The prospectuses for the
Funds may describe other portfolios that are not available under a Contract.
THERE IS NO ASSURANCE THAT THE AVAILABLE PORTFOLIOS WILL ACHIEVE THEIR STATED
OBJECTIVES. Investors should read this prospectus and the prospectuses for
the Funds carefully before investing. To obtain prospectuses for the Funds
write the Company at its Variable Service Center or call the number shown on
the cover page.
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VARIABLE INVESTORS SERIES TRUST
Variable Investors Series Trust ("VIST") is an open-end management investment
company that was formed as a series trust to provide funding options for
variable life insurance and variable annuity contracts. Effective April 1,
1994, VIST retained First Variable Advisory Services Corp. ("FVAS") to manage
its assets. FVAS is a wholly-owned subsidiary of the Company and retains the
services of sub-advisers under agreements to manage the assets of the VIST
Portfolios. The sub-advisers for the VIST Portfolios currently available
under a Contract are: Value Line, Inc. with respect to VIST Common Stock and
Multiple Strategies; Warburg, Pincus Counsellors, Inc. with respect to VIST
Growth & Income; Federated Investment Counseling with respect to VIST High
Income Bond; Pilgrim Baxter & Associates, Ltd. with respect to VIST Small
Cap; State Street Bank and Trust Company with respect to VIST Tilt Utility;
Strong Capital Management, Inc. with respect to VIST U.S. Government Bond;
and Keystone Investment Management Co. with respect to VIST World Equity.
Prior to April 1, 1994, INVESCO Capital Management, Inc. was the investment
adviser of VIST and managed its assets.
Each Portfolio has a distinct investment objective and policy. The
investment objectives of the Portfolios available under a Contract are:
VIST COMMON STOCK. The investment objective of this Portfolio is capital
growth which it seeks to achieve through a policy of investing primarily in a
diversified portfolio of common stocks and securities convertible into or
exchangeable for common stock. The secondary objective is current income
when consistent with its primary objective.
VIST GROWTH & INCOME. The investment objectives of this Portfolio are to
provide current income and growth of capital. The Portfolio seeks to achieve
its objectives by investing in equity securities, fixed income securities and
money market instruments. The portion of the Portfolio invested at any given
time in each of these asset classes will vary depending on market conditions,
and there may be extended periods when the Portfolio is primarily invested
in one of them. In addition, the amount of income derived from the Portfolio
will fluctuate depending on the composition of the Portfolio's holdings and
will tend to be lower when a higher portion of the Portfolio is invested in
equity securities. The Portfolio may also purchase without limitation
dollar-denominated American Depository Receipts ("ADRs.") ADRs are issued by
domestic banks and evidence ownership of underlying foreign securities.
VIST HIGH INCOME BOND. The investment objective of this Portfolio is to
obtain as high a level of current income as is believed to be consistent with
prudent investment management. As a secondary objective, the Portfolio seeks
capital appreciation when consistent with its primary objective. The
Portfolio seeks to achieve its investment objectives by investing primarily
in fixed-income securities rated lower than A. Many of the high yield
securities in which the Portfolio may invest are commonly referred to as
"junk bonds." For special risks involved with investing in such securities
(including among others, risk of default and illiquidity) see "Investment
Objectives and Policies of the Portfolios - High Income Bond Portfolio" in
the VIST prospectus.
VIST MULTIPLE STRATEGIES. The investment objective of this Portfolio is to
seek as high a level of total return over an extended period of time as is
considered consistent with prudent investment risk by investing in equity
securities, bonds, and money market instruments in varying proportions.
VIST SMALL CAP. The investment objective of this Portfolio is to seek
capital appreciation. The Portfolio will invest, under normal conditions, at
least 65% of its total assets in securities of companies with market
capitalization or annual revenues under $1 billion at the time of purchase.
VIST TILT UTILITY. The investment objective of this Portfolio is to seek
capital appreciation and current income by investing in a diversified
portfolio of common stock and income securities issued by companies engaged
in the utilities industry ("Utility Securities.") Under normal market
conditions, at least 80% of the Portfolio's assets will be invested in
Utility Securities. The Portfolio is intended to achieve investment returns
that are higher than the Standard & Poor's Utilities Index with equivalent
risk, diversification and price volatility. Prior to April 1, 1994, the Tilt
Utility Portfolio was known as the Equity Income Portfolio and had different
investment objectives, policies and restrictions.
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VIST U.S. GOVERNMENT BOND. The investment objective of this Portfolio is to
seek current income and preservation of capital through investment primarily
in securities issued or guaranteed as to principal and interest by the U.S.
Government or by its agencies, authorities, or instrumentalities.
VIST WORLD EQUITY. The investment objective of this Portfolio is to maximize
long-term total return by investing primarily in common stocks, and
securities convertible into common stocks, traded in securities markets
located in countries around the world, including the United States. See
"Foreign Investments" under "Policies and Techniques Applicable to all
Portfolios" in the VIST prospectus for a discussion of the risks involved in
investing in foreign securities.
FEDERATED INSURANCE SERIES
Federated Insurance Series ("Federated") is an open-end investment management
company that was formed as a series trust to provide funding options for
variable life insurance and variable annuity contracts. Pursuant to an
investment advisory contract with Federated, investment decisions for
Federated are made by Federated Advisers, an affiliate of Federated
Investment Counseling.
FEDERATED PRIME MONEY FUND II. The investment objective of the Portfolio is
to provide current income consistent with stability of principal and
liquidity. The Fund pursues its investment objective by investing
exclusively in a portfolio of money market instruments maturing in 397 days
or less. An investment in the Federated Prime Money Fund II Portfolio is
neither insured nor guaranteed by the U.S Government.
FIXED ACCOUNT OPTION
This Prospectus is generally intended to describe the Contract and Separate
Account. Because of certain exemptive and exclusionary provisions, interests
in the Fixed Account are not registered under the Securities Act of 1933 and
the Fixed Account is not registered as an investment company under the
Investment Company Act of 1940, as amended. Accordingly, neither the Fixed
Account nor any interests therein are subject to the provisions of these
Acts, and the Company has been advised that the staff of the Securities and
Exchange Commission has not reviewed the disclosures in the Prospectus
relating to the Fixed Account.
The Company guarantees that it will credit interest to Contract Value in the
Fixed Account at minimum rate of 3% per year. Additional amounts of
"current" interest may be credited by the Company in its sole discretion.
The initial current interest rate will be guaranteed for at least one year.
New Purchase Payments and transfers from the Separate Account allocated to
the Fixed Account may each receive different current interest rate(s) than
the current interest rate(s) credited to Contract Value existing in the Fixed
Account. The Company determines current interest rates in advance, and
credits interest daily to Fixed Account Value.
TRANSFERS AMONG INVESTMENT OPTIONS
An Owner may transfer Contract Value among Investment Options each Contract
Year without a Transfer Fee.
PRIOR TO THE ANNUITY DATE. Contract Value to be transferred from the Fixed
Account to other Investment Options in any Contract Year may not exceed:
- - 25% of the Fixed Account Value on the Issue Date for transfers during the
first Contract Year; or
- - for transfers after the first Contract Year, the greater of 25% of Fixed
Account Value on the immediately preceding Contract Anniversary or 100%
of the Fixed Account Value transferred to other Investment Options during
the immediately preceding Contract Year.
DURING THE ANNUITY PERIOD. The Owner may make a transfer once each Contract
Year: (i) from one or more Sub-Accounts to other Sub-Accounts; or (ii) to the
Fixed Account. No transfers will be permitted from the Fixed Account to the
Separate Account. Amounts transferred from a Sub-Account to the Fixed
Account are subject to certain procedures set out in the Contract.
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GENERAL REQUIREMENTS. All transfers are subject to the following:
- - The minimum amount which may be transferred is the lesser of (a) $1,000;
or (ii) the Owner's entire interest in the applicable Sub-Account or Fixed
Account.
- - Any transfer instruction must clearly specify the amount which is to be
transferred and the Accounts which are to be affected.
- - The Company reserves the right at any time and without prior notice to
any party to modify, suspend or terminate the transfer privileges,
including, but not limited to, the description in "Suspension of Payments
or Transfers".
SYSTEMATIC TRANSFERS - DOLLAR COST AVERAGING. The Company permits
systematic transfers, such as a dollar cost averaging program, that an Owner
may elect by written request. Through systematic transfers, amounts are
systematically transferred each month or quarter from a selected Investment
Option to other per-selected Investment Options. The dollar cost averaging
program permits transfers from the Federated Prime Money Fund II Sub-Account
or the Fixed Account to other Sub-Account(s) on a regularly scheduled basis.
Through use of systematic transfers, instead of transfers of the total
Contract Value at one particular time, an Owner may be less susceptible to
the impact of market fluctuations. The minimum amount which may be
transferred is $250. The Company may require a minimum amount of Contract
Value before permitting systematic transfers. The Company requires $6,000 of
Contract Value to be in the Prime Money Fund II Sub-Account or the Fixed
Account, as applicable, before a "dollar cost averaging" program may begin.
All systematic transfers are made on the same day of each month or quarter
(or the next Business Day if the same day of the month or quarter is not a
Business Day). Under certain circumstances, the Company may impose
restrictions on an Owner's ability to participate in the dollar cost
averaging program and limitations on the amounts that can be transferred from
the Fixed Account to any Sub-Accounts under a systematic transfer program.
An Owner participating in the dollar cost averaging program may not
participate in the systematic withdrawal program. (See
"Withdrawals--Systematic Withdrawals.")
ASSET REBALANCING PROGRAM. The Company administers an asset rebalancing
program that an Owner may elect by written request to the Company at its
Variable Service Center. The asset rebalancing program enables the Owner to
indicate to the Company the percentage levels of Contract Value he or she
would like to maintain in particular Sub-Accounts. On the last Business Day
of each Contract Quarter, the Contract Value will be automatically rebalanced
to maintain the indicated percentages by transfers among the Separate Account
Investment Options. All Contract Value allocated to the Separate Account
Investment Options must be included in the asset rebalancing program. Other
investment programs, such as systematic transfers and systematic withdrawals,
or other transfers or withdrawals may not work in concert with the asset
rebalancing program. Therefore, Owners should monitor their use of these
programs and other transfers or withdrawals while the asset rebalancing
program is being used.
TELEPHONE REQUESTS. Prior to the Annuity Date, an Owner may elect to make
transfers by telephone. If there are Joint Owners, unless the Company is
informed to the contrary, instructions will be accepted from either one of
the Joint Owners. The Company will use reasonable procedures to confirm that
instructions communicated by telephone are genuine. If it does not, the
Company may be liable for any losses due to unauthorized or fraudulent
instructions. The Company tape records all telephone instructions.
RESTRICTIONS ON TRANSFERS. Programmed or other frequent requests to transfer
Investment Options by, or on behalf of, an Owner may have a detrimental
effect on the Fund share values held in the Separate Account. The Company
may therefore limit the number of permitted transfers in any Contract Year,
or refuse to honor any transfer request on behalf of an Owner or a group of
Owners if it is informed that the purchase or redemption of shares of one or
more of the Portfolios is to be restricted because of excessive trading, or
if a specific transfer or group of transfers is deemed to have a detrimental
effect on AUV or Portfolio share prices.
The Company may also at any time suspend or cancel its acceptance of third
party authorizations on behalf of an Owner or restrict the Investment Options
that will be available for transfers. Notice will be provided to the third
party in advance of the restrictions. The restrictions will not be imposed,
however, if the Company is given satisfactory evidence that: (a) the third
party has been appointed by the Owner to act on the Owner's behalf for all
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financial affairs; or (b) the third party has been appointed by a court of
competent jurisdiction to act on the Owner's behalf.
AUTOMATIC TRANSFER OF SMALL ACCOUNTS. The Company reserves the right, to the
extent permitted by law, on any Business Day to transfer Contract Value held
in any Investment Option if the Contract Value in that Investment Option is
less than $250, to the Investment Option with the then highest Contract
Value. (See "The Contract--Minimum Value Requirements.")
CHANGES TO INVESTMENT OPTIONS
New Sub-Accounts may be established and additional Portfolios or mutual funds
may be made available by the Company when, in its sole discretion, it
determines that conditions so warrant. Any new Sub-Accounts may be made
available to existing Owners on a basis to be determined by the Company.
Each additional Sub-Account will purchase shares in a Portfolio of a Fund, or
in another mutual fund or investment vehicle.
The Company does not guarantee that continued purchase of Portfolio shares
will remain appropriate in view of the purposes of the Separate Account. If
shares of a Portfolio are no longer available for investment by the Separate
Account or, if in the judgment of the Company, further investment in the
shares should become inappropriate in view of the purpose of the Contracts,
the Company may limit further purchase of these shares or may substitute
shares of another Portfolio, or mutual fund or other investment option for
shares already purchased or to be purchased in the future. No substitution
of securities may take place without prior approval of the Securities and
Exchange Commission and under the requirements it may impose. The Company
will send prior notice of any substitution to Contract Owners.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Value and the Separate
Account. These are:
ADMINISTRATIVE CHARGE
The Company deducts on each Business Day, both prior to and during the
Annuity Period, an Administrative Charge which is equal to a percentage of
the daily net assets in each Sub-Account for this class of Contract. The
annual rate for this charge is .25%. This charge, together with the Annual
Contract Maintenance Charge (see below), compensates the Company for costs
associated with the administration of a Contract and the Separate Account.
The Company does not intend to profit from this charge.
ANNUAL CONTRACT MAINTENANCE CHARGE
During the Accumulation Period, the Company deducts an Annual Contract
Maintenance Charge of $30 from the Contract Value on each Contract
Anniversary. However, if the Contract Value on a Contract Anniversary is at
least $100,000, then no Annual Contract Maintenance Charge will be deducted.
If a total withdrawal is made on other than a Contract Anniversary, and the
Contract Value at the time is less than $100,00, the Annual Contract
Maintenance Charge will be deducted.
This charge is to reimburse the Company for its administrative expenses.
This charge is deducted by subtracting values from the Fixed Account and/or
canceling Accumulation Units from each applicable Sub-Account in the ratio
that the value of each Account bears to the total Contract Value. If the
Annuity Date is not a Contract Anniversary, the Annual Contract Maintenance
Charge will be deducted on the Annuity Date. After the Annuity Date, no
Annual Contract Maintenance Charge is taken. The Company does not intend to
profit from this charge.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts on each Business Day, both prior to and during the
Annuity Period, a Mortality and Expense Risk Charge which is equal to a
percentage of the daily net assets in each Sub-Account of the Separate
Account for this class of Contract. The annual rate for this charge is
1.25%. The mortality risks assumed by the Company arise
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from its contractual obligation to make annuity payments after the Annuity
Date for the life of the Annuitant and to waive the Withdrawal Charge in the
event of the death of the Owner. The Company also bears a mortality risk with
respect to the death benefit. The expense risk assumed by the Company is
that all actual expenses involved in administering the Contracts, including
Contract maintenance costs, administrative costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees and the costs of
other services may exceed the amount recovered from the Annual Contract
Maintenance Charge and the Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be a profit to the
Company. The Company expects a profit from this charge. If the actual costs
for distribution of the Contract exceed the amount realized by the Company
from the Withdrawal Charge, the deficiency will be met from the Company's
general assets which may include amounts, if any, derived from the Mortality
and Expense Risk Charge. The Mortality and Expense Risk Charge is guaranteed
by the Company and cannot be increased.
OPTIONAL ENHANCED DEATH BENEFIT CHARGE
An Owner may elect an enhanced death benefit at the time of application for a
Contract. This benefit guarantees that upon death of the Owner while the
enhanced death benefit is in effect, the death benefit payable under the
Contract will be at least equal to the sum of Purchase Payments less amounts
attributable to Withdrawals (including applicable charges), accumulated at an
annual rate of 4.5% up to a maximum amount equal to twice the sum of Purchase
Payments. The enhanced death benefit ends on the earliest of: (a) the date
of the Owner's death; (b) the Owner's 80th birthday; or (c) the Annuity Date.
The enhanced death benefit may also end if a new owner is designated. If
this option is elected, the Company deducts an Enhanced Death Benefit Charge
on each Contract Anniversary prior to earlier of the Annuity Date or the
Owner's 80th birthday based on the Contract Value on the Contract
Anniversary. The charge is also deducted on the Annuity Date if the Annuity
Date is on a date other than a Contract Anniversary, at the time of
surrender, or if the Contract is surrendered based on the Contract Value at
that time. The Enhanced Death Benefit Charge is equal to .35% of the
Contract Value at the time the charge is taken. The charge is assessed
pro-rata among the Investment Options under a Contract, and will result in a
cancellation of Accumulation Units credited to a Contract and reduction in
Fixed Account Value. (See "Death of the Owner.")
PREMIUM TAXES
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. The Company currently intends
to deduct premium taxes when incurred. Some states assess premium taxes at
the time Purchase Payments are made; others assess premium taxes at the time
annuity payments begin. Premium taxes generally range from 0% to 4%.
WITHDRAWAL CHARGE
The Company incurs expenses in connection with the promotion, sale and
distribution of the Contract. To recover these expenses, the Company imposes
a Withdrawal Charge on the withdrawal or surrender of Contract Value during
the first 6 Contract Years (see "Withdrawals.") The Withdrawal Charge is also
imposed on the Annuity Date if the Annuity Date is within the first 2
Contract Years. (See "Annuity Provisions--Annuity Date.") To the extent
that the Withdrawal Charge is insufficient to cover the actual cost of
distribution, the Company may use any of its corporate assets, including
potential profit which may arise from the Mortality and Expense Risk Charge,
to provide for any difference.
The Withdrawal Charge is determined by applying the Withdrawal Charge
percentages shown below to the Purchase Payments deemed withdrawn,
surrendered, or applied to an Annuity Option. The charge will vary depending
on the Contract Year. Purchase Payments are deemed withdrawn in the order in
which they are made. The amount deducted from the Contract Value will be
determined by subtracting values from the Fixed Account and/or canceling
Accumulation Units from each applicable Sub-Account in the ratio that the
value of each Account bears to the total Contract Value, unless another
method is requested and the Company approves the request.
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WITHDRAWAL CHARGE PERCENTAGES. The Withdrawal Charge percentages are:
Contract Year 1 2 3 4 5 6 7+
Withdrawal Charge Percentage 7% 6% 5% 4% 3% 2% 0%
PARTIAL WITHDRAWALS. Prior to the Annuity Date, an Owner may make partial
withdrawals each Contract Year provided that the minimum Contract Value after
each partial withdrawal is $1,000. A partial withdrawal must be for at least
$1,000 or, if less, the Owner's entire interest in the Investment Option from
which the partial withdrawal is requested to be taken. (See
"Withdrawals--Systematic Withdrawals.") The Withdrawal Charge on a partial
withdrawal is deducted from the remaining Contract Value, if sufficient;
otherwise it is deducted from the amount withdrawn. Unless the Owner
requests otherwise, partial withdrawals will ordinarily result in the
cancellation of Accumulation Units from each Sub-Account and a reduction in
Fixed Account Value in the ratio that each Sub-Account and the Fixed Account
bears to the total Contract Value (See "Withdrawals.")
Withdrawal requests that would result in remaining Withdrawal Value of less
than $1,000 may be deemed a surrender and termination of the Contract (See
"Minimum Value Requirements - Termination of Small Accounts.")
FREE WITHDRAWAL AMOUNT. No Withdrawal Charge will be taken on a partial
withdrawal unless the amount withdrawn exceeds the Free Withdrawal Amount.
In any Contract Year, the annual Free Withdrawal Amount for partial
withdrawals is equal to 15% of Purchase Payments. These 15% withdrawals do
not reduce Purchase Payments for purposes of computing the Withdrawal Charge.
The Withdrawal Charge will apply to the amount withdrawn or surrendered
during any of the first 6 Contract Years that exceeds 15% of Purchase
Payments. The unused portion of the Free Withdrawal Amount for one Contract
Year will not carry-over to the next Contract Year. The Free Withdrawal
Amount is not available on a total surrender or on withdrawal requests that
fail to meet the minimum remaining Contract Value requirement for a partial
withdrawal. (See "Minimum Value Requirements - Termination of Small
Accounts.")
WAIVER OF WITHDRAWAL CHARGE. The Company will waive the Withdrawal Charge:
- - If any death benefits are paid; or
- - If the Contract Value is applied after the first 2 Contract Years
to an Annuity Option. (See "Annuity Provisions.")
Subject to state availability, the Company will also waive the Withdrawal
Charge:
- - If the Owner or Owner's spouse is diagnosed with a terminal illness. The
Company may require evidence of such illness, including an examination by a
licensed physician of the Company's choice. Or,
- - After the first Contract Year if the Owner or the Owner's spouse is
confined for the immediately preceding 90 consecutive days in a
qualifying nursing home.
To qualify for a waiver of charges based on confinement in a qualifying
nursing home, the Owner or the Owner's spouse, as the case may be, must never
have been confined in a qualifying nursing home on or before the date of
application for the Contract.
Owners should review their Contracts carefully for a complete description of
the terminal illness and nursing home waiver of charges requirements.
OTHER CHARGES AND EXPENSES
FUND EXPENSES. There are other deductions from, and expenses paid out of,
the assets of the Portfolios of a Fund which are described in the
accompanying prospectuses for the Funds.
INCOME TAXES. While the Company is not currently reducing Contract Value for
federal income taxes of the Separate Account, the Company reserves the right
to do so if it determines, in its sole discretion, that it will incur a
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tax as a result of the operation of the Separate Account. The Company will
deduct for any income taxes incurred by it as a result of the operation of
the Separate Account whether or not there was a Company reserve for taxes and
whether or not it was sufficient.
The Company will deduct any withholding taxes required by applicable law when
amounts are distributed from a Contract. (See "Tax Status--Income Tax
Withholding.")
SPECIAL SERVICE FEES. The Company may charge Owners for special services,
such as additional reports, systematic withdrawals, dollar cost averaging,
the asset rebalancing program, and minimum distributions. As of the date of
this Prospectus, it does not charge for these special services.
ELIMINATION OR REDUCTION OF CHARGES AND EXPENSES. The charges and expenses
on a Contract may be reduced or eliminated, in whole or in part, when sales
of a Contracts are made to individuals or to a group of individuals in a
manner that results in savings of sales or administration expenses. Any
reduction will be determined by the Company after examination of relevant
factors such as:
- - the size and type of group to which sales are to be made because the
expenses for a larger group are generally less than for a smaller
group since large numbers of Contracts may be implemented with fewer
contacts;
- - the total amount of Purchase Payments to be received because expenses are
likely to be less on larger Purchase Payments than on smaller ones;
- - any prior or existing relationship with the Company because of the
likelihood of implementing the Contract with fewer contacts; and
- - other circumstances, of which the Company is not presently aware, which
could result in reduced expenses.
Charges may also be eliminated when a Contract is issued to an officer,
director or employee of the Company or any of its affiliates. In no event
will reductions or elimination of the charges be permitted where reductions
or elimination will be unfairly discriminatory to any person.
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THE CONTRACT
APPLICATION AND ISSUANCE OF A CONTRACT
An application, or other request form acceptable to the Company, must be
completed and submitted to the Company to purchase a Contract, together with
the minimum required initial Purchase Payment. (See "Purchase Payments -
General Requirements.") A Contract ordinarily will be issued in respect of
Owners and Annuitants up to Age 85. Investors in Qualified Contracts for
Owners and Annuitants beyond Age 70 1/2 should consult with qualified tax
advisers on the impact of minimum distribution requirements under their
retirement plans. Any required annual minimum distribution amount should be
withdrawn from an existing retirement plan before amounts are transferred to
purchase a Qualified Contract. (See "Tax Considerations - Withdrawals from
Qualified Contracts.")
The Owner, Annuitant, and Beneficiary on a Contract are initially designated
by the applicant and subject to the Company's underwriting rules. If the
application for a Contract is in good order, the Company will apply the
Purchase Payment within 2 business days of receipt: (a) to the Separate
Account and credit the Contract with Accumulation Units; and/or (b) to the
Fixed Account and credit the Contract with dollars. If the application for a
Contract is not in good order, the Company will attempt to get it in good
order or the Company will return the application and the Purchase Payment
within 5 business days. The Company will not retain a Purchase Payment for
more than 5 business days while processing an incomplete application unless
it has been authorized by the purchaser. The Company may decline any
application.
FREE LOOK RIGHT. An Owner has the right to review a Contract during an
initial inspection period specified in the Contract and, if dissatisfied, to
return it to the Company or to the agent through whom it was purchased. When
the Contract is returned to the Company during the permitted period, it will
be voided as if it had never been in force. The Company will ordinarily
refund the Contract Value (which may be greater or less than the Purchase
Payments received) on a Contract returned during the permitted period, unless
a different amount is required. The "free look" period is typically 10 days,
and may be greater depending on state requirements.
DELAYED INVESTMENT START DATE. Initial Purchase Payments are allocated to
the Sub-Accounts or to the Fixed Account as selected by the Owner. On the
date of this Prospectus, the Company does not delay investment start dates
and will allocate Purchase Payments to the selected Investment Options upon
issuance of a Contract. The Company reserves the right, however, to allocate
initial Purchase Payments to the Prime Money Fund II Sub-Account for an
investment delay period before they will be invested (together with any
investment gain) in any other Sub-Account(s) designated by the Owner. If the
Company elects to delay such initial investments in Sub-Accounts, the delay
would apply where a Contract is issued subject to a requirement that Purchase
Payments be refunded upon the exercise of the Free Look Right. Allocation to
the Sub-Account(s) designated by the Owner would be made at the end of the
free look' inspection period. The investment delay period would be measured
from the date a Contract is issued from the Variable Service Center. It would
include up to 5 days to provide time for mail or other delivery of the
Contract to the Owner in addition to the applicable "free look" inspection
period.
Should the Company elect to delay investment start dates, it will so advise
prospective investors in a Contract.
PURCHASE PAYMENTS
GENERAL REQUIREMENTS. The initial Purchase Payment is due on the Issue Date.
Unless the Owner participates in the automatic investment plan described
below, the minimum initial Purchase Payment is $5,000 for Non-Qualified
Contracts and $2,000 for Qualified Contracts. The minimum amount for each
subsequent Purchase Payment is $200, unless an automatic investment plan is
in effect. The Company reserves the right to decline any Purchase Payment.
Unless the Company consents otherwise, the maximum amount of cumulative
Purchase Payments is $1,000,000.
CONVERSION TO ACCUMULATION UNITS. Purchase Payments allocated to the
Sub-Account(s) of the Separate Account are converted into Accumulation Units
and credited to a Contract on the basis of Accumulation Unit Value next
determined after receipt of a Purchase Payment. Calculations of Accumulation
Unit Value for each Sub-Account are made as of the end of each Business Day.
This is done by dividing each Purchase Payment allocated to a Sub-
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Account by the dollar value of an Accumulation Unit of that Sub-Account as of
the end of the Business Day. Initial Purchase Payments are converted into
Accumulation Units when a Contract is issued.
AUTOMATIC INVESTMENT PLAN. An Owner may elect to make Purchase Payments to a
Contract by pre-authorized transfers from a checking account. The checking
account must be with a bank that is a member of the Automated Clearing House
(ACH). Purchase Payments under this method may be allocated to a Sub-Account,
but not to the Fixed Account (see "Investment Options.") If an automatic
investment plan is elected, the Company will lower its Purchase Payment
requirements as follows:
- - For a Non-Qualified Contract, the initial Purchase Payment may be as
low as $1,000 if the applicant furnishes bank draft instructions for
subsequent Purchase Payments of at least $100 each.
- - For a Qualified Contract, the initial Purchase Payment may be as low as
$500 if the applicant furnishes bank draft instructions for subsequent
Purchase Payments of at least $100 each.
- - The Company may further reduce the minimum Purchase Payment requirement on
automatic investment plans for a Contract issued under certain group
sponsored arrangements. Participation in the automatic investment plan
may be suspended or terminated if there are insufficient funds in the
checking account to cover any transfer.
CONTRACT VALUE
The Contract Value on any Business Day is the sum of the Owner's interest in
the Sub-Accounts of the Separate Account and in the Fixed Account. The
Owner's interest in a Sub-Account is determined by multiplying the number of
that Sub-Account's Accumulation Units credited to a Contract by the
Accumulation Unit Value, or "AUV," for the Sub-Account.
ACCUMULATION UNIT VALUE. AUVs for each Valuation Period fluctuate to reflect
the performance of the Sub-Accounts. The AUV for a Sub-Account on any
Business Day is priced by the Company as follows:
- - The Accumulation Unit Value of the Sub-Account is based on the net asset
value per share of the underlying Portfolio.
- - Any applicable charge (or credit) for federal and state taxes attributable
to the Sub-Account is subtracted (or added).
- - The cumulative unpaid Mortality and Expense Risk Charge, and the
cumulative unpaid Administrative Charge is subtracted.
- - The result is divided by the total number of Accumulation Units held in
the Sub-Account, before the purchase or redemption of any Accumulation
Units at the end of the current Business Day.
The AUV for one Sub-Account may differ from the AUV of a different
Sub-Account and may increase or decrease from Business Day to Business Day.
REPORTS. The Company will provide the Owner with reports on Contract Value
at least annually. Additional reports may be requested by the Owner. The
Company reserves the right to impose a charge for the cost of providing any
additional reports, but does not currently do so.
OWNERSHIP
The Owner has all rights and may receive all benefits under the Contract. The
Owner is the person designated by the applicant, unless changed. Upon the
death of the Owner, the Beneficiary is the Owner.
ASSIGNMENT. The Owner may, at any time during his or her lifetime, assign his
or her rights under the Contract. The Company will not be bound by any
assignment until written notice is received by the Company at its Variable
Service Center. The Company is not responsible for the validity or tax
consequences of any assignment. The Company will not be liable as to any
payment or other settlement made by the Company before receipt of the
assignment. Assignment of a Non-Qualified Contract may be considered a
distribution subject to federal income taxes including, with certain
exceptions, a 10% penalty tax before age 59 1/2. Owners of Qualified
Contracts
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should consult a competent tax adviser as to any mandatory restrictions on
assignment in their retirement plans and the impact of income taxes on
permitted assignments. (See "Tax Considerations.")
CHANGE OF DESIGNATIONS
A request to change the designated Owner, Annuitant, or Beneficiary must be
made in writing and received by the Company at the Variable Service Center.
The change will become effective as of the date the written request is
signed. A new designation will not apply to any payment made or action
taken by the Company prior to the time it records the change.
A permitted change of a designation will automatically revoke any prior
designation of the same type (e.g., a change of Owner revokes a prior change
of Owner; a change of Annuitant revokes a prior change of Annuitant; a change
of Beneficiary revokes a prior change of Beneficiary).
OWNER. The Owner may change the Owner at any time prior to the Annuity Date.
ANNUITANT. A new Annuitant may be designated by the Owner prior to the
Annuity Date, but not if the Contract is owned by a non-natural person. The
Owner may automatically become the Annuitant if a new Annuitant is not
designated within 30 days of the death of the Annuitant prior to the Annuity
Date. (See "Death of Annuitant.")
BENEFICIARY. Subject to the rights of any irrevocable Beneficiary(ies), the
Owner may change the primary Beneficiary(ies) or contingent Beneficiary(ies).
RESTRICTIONS ON QUALIFIED CONTRACTS. Any Qualified Contract may have
restrictions on changes of Owner, Annuitant or Beneficiary. An Owner should
consult a competent tax adviser as to the tax consequences which may result.
MINIMUM VALUE REQUIREMENTS
TERMINATION OF SMALL ACCOUNTS. A withdrawal request that would cause the
remaining Withdrawal Value to be less than $1,000 may be deemed a surrender
of the Contract by the Company. The Company reserves the right to terminate
the Contract. In such event, the Company will pay the Withdrawal Value to
the Owner.
The Company also reserves the right to terminate a Contract if the Withdrawal
Value on any Business Day falls below $1,000 and no Purchase Payments were
received by the Company during the current Contract Year and the preceding 2
Contract Years. Prior to terminating small accounts for failure to pay
Purchase Payments, the Company will provide Owners with 30 day notice, and an
opportunity to make an additional Purchase Payment to increase the Contract
Value above the minimum amount during this period.
Payments resulting from the termination of a Contract may be considered a
taxable distribution and may be subject, with certain exceptions, to a 10%
penalty tax for distributions before age 59 1/2. (See "Tax Considerations.")
TRANSFER OF SMALL CONTRACT VALUE. The Company reserves the right, to the
extent permitted by law, to transfer the amount of Contract Value held in a
particular Investment Option if, on any Business Day, the Contract Value in
that Investment Opion is less than $250, to the Investment Option under a
Contract that has the highest Contract Value.
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DEATH BENEFIT PROVISIONS
DEATH OF THE ANNUITANT
Upon the death of the Annuitant prior to the Annuity Date, the Owner may
designate a new Annuitant. If no designation is made within 30 days of the
death of the Annuitant, the Owner will become the Annuitant. However, if the
Owner is a non-natural person, then the death of the Annuitant will be
treated as the death of the Owner and a new Annuitant may not be designated.
(See "Death of the Owner.")
Upon the death of the Annuitant after the Annuity Date, the Death Benefit, if
any, will be as specified in the Annuity Option elected and will be paid at
least as rapidly as under the method in effect prior to the Owner's death.
(See "Annuity Provisions--Annuity Options.")
DEATH OF THE OWNER
The Contract provides for a Death Benefit to be paid to the Beneficiary upon
the death of an Owner prior to the Annuity Date. Subject to state
availability, the Death Benefit is:
- - the Basic Death Benefit; or
- - if greater and if no withdrawals of Contract Value have been taken
during the Owner's lifetime, the Bonus Death Benefit; or
- - if greater and if elected, the Enhanced Death Benefit.
Upon the death of an Owner on or after the Annuity Date, any remaining
payments under the Contract will be distributed at least as rapidly as under
the method of distribution being used as of the date of the Owner's death.
BASIC DEATH BENEFIT. The Basic Death Benefit is the greater of:
- - Purchase Payments less the sum of any reductions in Contract Value
attributable to partial withdrawals during the Owner's lifetime (including
applicable charges); or
- - the Contract Value.
BONUS DEATH BENEFIT. The Bonus Death Benefit is the greater of:
- - the Basic Death Benefit on the date of the Owner's death; or
- - the Step Up Amount in effect on the date of the Owner's death.
A Step Up Amount is determined at the start of each Bonus Period while a
Contract is in force. The first Bonus Period begins on the Issue Date and
ends on the earlier of the seventh Contract Anniversary or the day on which
the Owner attains Age 80. Each succeeding Bonus Period is for the next 7
Contract Years or, if earlier, until the Owner attains Age 80.
The Step Up Amount at the start of the first Bonus Period is the initial
Purchase Payment. The Step Up Amount at the start of each succeeding Bonus
Period is the greater of:
- - The Step Up Amount at the end of the preceding Bonus Period; or
- - The Contract Value at the end of the preceding Bonus Period.
The Step Up Amount during any Bonus Period is increased by the amount of
Purchase Payments received by the Company during that Bonus Period.
The Step Up Amount on and after the day the Owner attains Age is 80 is zero.
Unless the Company consents otherwise, the Bonus Death Benefit will end if
the Owner is changed.
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OPTIONAL ENHANCED DEATH BENEFIT. The Owner may elect an Enhanced Death
Benefit at the time a Contract is purchased. The Enhanced Death Benefit, up
to the Owner's 80th birthday, is an amount equal to:
- - Purchase Payments, less the sum of any reductions in Contract Value
attributable to partial withdrawals during the Owner's lifetime (including
applicable charges); and
- - interest accumulated at an annual rate of 4.5%
up to a maximum amount equal to two (2) times the sum of Purchase Payments.
The Enhanced Death Benefit on and after the day the Owner attains Age 80 is
zero. Unless the Company consents otherwise, the Enhanced Death Benefit will
end if the Owner is changed.
If the Enhanced Death Benefit is elected by the Owner, the Company deducts an
Enhanced Death Benefit Charge on each Contract Anniversary prior to the
Annuity Date or the Owner's 80th birthday, if earlier. The charge is also
deducted if the Annuity Date is on a date other than a Contract Anniversary
or if the Contract is surrendered, based on the Contract Value at that time.
The Enhanced Death Benefit Charge is equal to .35% of the Contract Value at
the time the charge is taken. (See "Charges and Deductions - Optional
Enhanced Death Benefit Charge.")
In the case of Joint Owners, the BONUS DEATH BENEFIT and the ENHANCED DEATH
BENEFIT are not available.
If the Owner is a non-natural person, the Annuitant will be considered the
Owner for purposes of determining the BASIC DEATH BENEFIT, the BONUS DEATH
BENEFIT and the ENHANCED DEATH BENEFIT.
Owners should refer to their Contract for the applicable Death Benefit
provisions.
PAYMENT OF DEATH BENEFIT
In the event of an Owner's death prior to the Annuity Date, the Death Benefit
will be determined by the Company as of the date of an Owner's death. The
Death Benefit will be paid as of the Valuation Period next following the date
of receipt by the Company of both due proof of death and, if no election of
payment method was previously made by the Owner, an election by the
Beneficiary for the payment method.
If a single sum payment is requested, the proceeds will be paid within seven
(7) days of receipt of proof of death and the election. Payment under an
Annuity Option may only be elected by a Beneficiary during the sixty-day
period beginning with the date of receipt of proof of death or a single sum
payment will be made to the Beneficiary at the end of the sixty-day period.
The entire Death Benefit must be paid within five (5) years of the date of
death unless:
1. the Beneficiary elects to have the Death Benefit payable under an Annuity
Option over the life of the Beneficiary or over a period not extending
beyond the life expectancy of the Beneficiary with distribution beginning
within one year of the date of death; or
2. if the Beneficiary is the spouse of the Owner, the Beneficiary may elect to
become the Owner of the Contract. If this election is made, the Contract
will continue in effect and no determination of Death Benefit will then
be made.
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The dollar amount of each Death Benefit payment made under an Annuity Option
will depend on a number of factors, such as the Annuity Option elected, the
type of Contract (i.e., Qualified Contract or Non-Qualified Contract), the
frequency of payments elected and, for certain Annuity Options, the Age of
the Beneficiary. The Contract contains Annuity Option Tables. These tables
show the dollar amount of periodic Annuity Payments for each $1,000 applied
to an Annuity Option. For example, if a Beneficiary is Age 55 when $100,000
of Death Benefits becomes payable, and elects Annuity Option A (lifetime with
a minimum of 10 years guaranteed), the monthly Fixed Annuity Payment would be
calculated as follows:
Annuity Option A Rate x No. of $1,000's of Death = Minimum Monthly
Proceeds Payment
4.44 x 100 = $444
If, however a Beneficiary is Age 75 when $100,000 of Death Benefits first
becomes payable, and elects the same Annuity Option, the monthly payment
would be calculated as follows:
Annuity Option A Rate x No. of $1,000's of Death = Minimum Monthly
Proceeds Payment
7.20 x 100 = $720
See "Annuity Options" for a description of other payment options available
under a Contract, including Variable Annuity Payments. Available Annuity
Options may be limited to the extent required by law. Because individual
circumstances vary, Owners and Beneficiaries under the Contracts should seek
competent tax advice about the tax consequences of any distribution of Death
Benefits. (See "Tax Considerations.")
OWNERS OTHER THAN A SINGLE PERSON
If there are Joint Owners, any reference to the death of the Owner shall mean
the death of the Owner who dies first. Any Joint Owner must be the spouse of
the other Owner. Upon the death of either Owner, the surviving spouse will
be the primary Beneficiary. Any other Beneficiary designated by the
applicant or as subsequently changed will be treated as a contingent
Beneficiary unless otherwise indicated in writing to the Company.
If the Owner is a non-natural person, then for purposes of the Death Benefit
the Annuitant shall be treated as the Owner and the death of the Annuitant
shall be treated as the death of the Owner.
BENEFICIARIES
Unless the Owner provides otherwise, the Death Benefit will be paid in equal
shares to the survivor(s) as follows: (a) to the primary Beneficiaries who
survive the Owner or Annuitant's death, as applicable; or if there are none,
(b) to the contingent Beneficiaries who survive the Owner or Annuitant's
death as applicable; or if there are none, (c) to the estate of the Owner.
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ANNUITY PROVISIONS
ANNUITY DATE
The Owner selects an Annuity Date at the time of application, and may later
change it by written request at least 30 days prior to the existing Annuity
Date. If the Annuity Date selected is less than 2 Contract Years from the
Issue Date, a Withdrawal Charge will be deducted from Contract Value before
the first annuity payment is made. (See "Charges and Deductions --Withdrawal
Charge.") If the selected Annuity Date occurs when the Annuitant is at an
advanced age, such as over Age 85, it is possible that the Contract will not
be considered an annuity for federal tax purposes. Investors in a Qualified
Contract should select an Annuity Date that is consistent with the
requirements of their retirement plans (See "Tax Considerations - Withdrawals
from Qualified Contracts.") A qualified tax advisor should be consulted for
further information.
ANNUITY PAYMENTS
ALLOCATION. The Owner may elect by written request to the Company at its
Variable Service Center no later than seven (7) calendar days prior to the
Annuity Date, to receive Fixed Annuity Payments, Variable Annuity Payments or
a combination of Fixed Annuity Payments and Variable Annuity Payments. The
Annuitant is the payee, unless a different payee is selected by the Owner by
written request to the Company at its Variable Service Center at least 30
days prior to the Annuity Date. If all of the Contract Value on the seventh
calendar day before the Annuity Date is allocated to the Fixed Account, Fixed
Annuity Payments will be made. If all of the Contract Value on that date is
allocated to the Separate Account, Variable Annuity Payments will be made.
If the Contract Value on that date is allocated to both the Fixed Account and
the Separate Account, a combination of Fixed Annuity Payments and Variable
Annuity Payments will be made to reflect the allocation between the Accounts.
AMOUNT. The total dollar amount of each payment is the sum of the Variable
Annuity Payment and the Fixed Annuity Payment. The Company reserves the
right to pay Annuity Payments in one sum when the remaining payments are less
than $2,000 or other minimum amount established by the Company from time to
time, or when the Annuity Option elected would result in periodic payments of
less than $100.
ANNUITIZATION BONUS. Subject to state availability, the Company intends to
increase the Contract Value on the Annuity Date by an "Annuitization Bonus"
if Contract Value is applied to an Annuity Option. The increase in Contract
Value will be calculated by the Company with respect to Contract Value as of
the immediately preceding Business Day. The increase in Contract Value will
be allocated pro-rata to the Investment Options to which Contract Value is
then allocated, and will be deemed "income" on a Contract for federal income
tax purposes. (See "Tax Considerations.")
The Annuitization Bonus for a Contract will be determined by the Company at
the time of issuance of a Contract, but may be modified, reduced or
eliminated for Contracts subsequently issued. On the date of this
prospectus, the Annuitization Bonus is 3% of Contract Value.
VARIABLE ANNUITY PAYMENTS. The actual dollar amount of Variable Annuity
Payments is dependent upon (a) the Contract Value (plus any Annuitization
Bonus) on the Annuity Date, (b) the annuity table specified in the Contract
for the Annuity Option selected, and (c) the investment performance of the
Sub-Account selected.
The annuity tables contained in the Contract for Variable Annuity Payments
are based on a 3% assumed investment rate. If the actual net investment rate
exceeds 3%, Variable Annuity Payments will increase. Conversely, if the
actual rate is less than 3%, Variable Annuity Payments will decrease.
Variable Annuity Payments will initially reflect the investment performance
of the Separate Account in accordance with the allocation of the Contract
Value to the Sub-Account(s) on the Annuity Date. After the Annuity Date,
allocations may be changed among Sub-Account Investment Options once each
Contract Year. (See "Changes Among Investment Options.")
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ANNUITY OPTIONS
The Annuity Option is elected by the Owner and may be changed by written
request at least 30 days prior to the Annuity Date. If no Annuity Option
election is in effect at least 30 days before the Annuity Date, Annuity
Payments will be made under OPTION B. LIFE ANNUITY with a Period Certain of
120 Months, as described below.
The Annuity Payments payable under the Contract may be made under one of the
following options or any other option acceptable to the Company:
OPTION A. LIFE ANNUITY. An annuity payable monthly during the lifetime of
the Annuitant. Annuity Payments cease at the death of the Annuitant.
OPTION B. LIFE ANNUITY WITH PERIODS CERTAIN OF 60, 120, 180 OR 240 MONTHS.
An annuity payable monthly during the lifetime of the Annuitant and in any
event for 60, 120,180 or 240 months certain as selected.
OPTION C. JOINT AND SURVIVOR ANNUITY. An annuity payable monthly during the
joint lifetime of the Annuitant and a designated second person. At the death
of either Payee, Annuity Payments will continue to be made to the survivor
Payee. The survivor's Annuity Payments will be equal to 100%, 75%, 662 3% or
50% of the amount payable during the joint lifetime, as chosen.
OPTION D. JOINT AND CONTINGENT ANNUITY. An annuity payable monthly during
the lifetime of the Annuitant and continuing during the lifetime of a
designated second person after the Annuitant's death. The second person's
Annuity Payments will be equal to 100%, 75%, 662 3% or 50% of the amount
payable, as chosen.
OPTION E. FIXED PAYMENTS FOR A PERIOD CERTAIN. An annuity payable monthly
for a fixed amount for any specified period (at least 5 years but not
exceeding 30 years), as chosen.
Annuity Options A, B, C & D are available for Fixed Annuity Payments,
Variable Annuity Payments or a combination of both. Annuity Option E is
available for Fixed Annuity Payments only.
If the Annuitant dies during a period certain (Annuity Options B or E), the
remaining Annuity Payments will be made to the Beneficiary. The Beneficiary
may elect to receive the commuted value of the remaining Annuity Payments in
a single sum instead. The Company will determine the commuted value by
discounting the remaining Annuity Payments at its then current interest rate
used for commutation.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, the Company may change
the annuity benefits to those which the Contract Value would have provided
had the correct age and sex been stated. If the misstatement is discovered
after the Annuity Date: (a) the Company will add interest to any
overpayments at the rate of 6% per year, compounded annually and deduct the
amount against remaining annuity payments; and (b) the Company will add
interest to any underpayments at the rate of 6% per year, compounded
annually, and pay the amount in a single sum with the next Annuity Payment.
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WITHDRAWALS
The Owner may make a written request to the Company at its Variable Service
Center to surrender the Contract or to make a partial withdrawal of
Withdrawal Value before the Annuity Date. Contract Value available upon
surrender or withdrawal may be reduced by any applicable: (a) Withdrawal
Charge; (b) taxes not previously deducted; (c) Annual Contract Maintenance
Charge; and (d) Optional Enhanced Death Benefit Charge. (See "Charges and
Deductions"). Partial withdrawals and surrenders will ordinarily result in
the cancellation of Accumulation Units from each applicable Sub-Account of
the Separate Account or a reduction in the Fixed Account Value in the ratio
that the Sub-Account Value and/or the Fixed Account Value bears to the total
Contract Value. The Owner may request in writing in advance if a different
method of cancellation of units and reduction of Fixed Account Value is
desired. The Company will pay the amount of any withdrawal from the Separate
Account within 7 days of receipt of a request in good order, unless the
"Suspension of Payments or Transfers" provision is in effect. (See
"Suspension of Payments or Transfers.")
PARTIAL WITHDRAWALS
Each partial withdrawal must be for an amount which is not less than $1,000.
If a partial withdrawal request is made which would reduce the remaining
Withdrawal Value below $1,000, the Company may deem the Contract surrendered.
In such event, the Contract will terminate and the Company will pay an Owner
the Withdrawal Value of a Contract. (See "The Contract--Minimum Value
Requirements.")
SYSTEMATIC WITHDRAWALS
Subject to any conditions and fees the Company may impose, an Owner may elect
to take partial withdrawals under a systematic withdrawal program. The
Company does not currently impose a fee for systematic withdrawals. Amounts
withdrawn under the program will be subject to a Withdrawal Charge to the
extent that total amounts withdrawn during a Contract Year exceed the Free
Withdrawal Amount. (See "Withdrawal Charge--Free Withdrawal Amount.")
Under the program, systematic withdrawals are made on the same day (or next
Business Day) of each month or quarter. Owners must be 591 2 or older to
participate. Systematic withdrawals are taken pro-rata from the Investment
Options of a Contract and are transferred automatically to an Owner's bank
account, provided the account is maintained at a bank that is a member of the
Automated Clearing House (ACH). Systematic withdrawals are not allowed
simultaneously with the dollar cost averaging program. (See "Systematic
Transfers --Dollar Cost Averaging.")
The Company reserves the right to modify, suspend or eliminate the program at
any time.
TAX PENALTIES AND RESTRICTIONS
Certain tax withdrawal penalties and restrictions may apply to withdrawals
from a Contract. The withdrawal penalties and restrictions differ between a
Non-Qualified Contract and a Qualified Contract. (See "Tax Considerations.")
Special restrictions apply to a Qualified Contract issued as a 403(b)
annuity. (See "Tax Considerations - Withdrawal Limitations on 403(b)
Annuities.")
Owners should consult their own tax counsel or other tax adviser before
requesting any withdrawals.
TEXAS OPTIONAL RETIREMENT PROGRAM
A Contract issued to a participant in the Texas Optional Retirement Program
("ORP") will contain an ORP endorsement that will amend the Contract to
provide: (a) if for any reason a second year of ORP participation is not
begun, the total amount of the State of Texas' first-year contribution will
be returned to the appropriate institute of higher education upon its
request; and (b) no benefits will be payable, through surrender of the
Contract or otherwise, until the participant dies, accepts retirement,
terminates employment in all Texas institutions of higher education or
attains the age of 70 1/2. The value of the Contract may, however, be
transferred to other contracts or
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carriers during the period of ORP participation. A participant in the ORP is
required to obtain a certificate of termination from the participant's
employer before the value of a Contract can be withdrawn.
SUSPENSION OF PAYMENTS OR TRANSFERS
The Company reserves the right to suspend or postpone payments for
withdrawals or transfers from the Sub-Accounts for any period when:
- - the New York Stock Exchange is closed;
- - trading on the New York Stock Exchange is restricted;
- - an emergency exists as a result of which disposal of securities held in the
Separate Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets; or
- - during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Owners.
The Company reserves the right to defer payment for a withdrawal or transfer
from the Fixed Account for the period permitted by law but not for more than
six months after written election is received by the Company.
PERFORMANCE INFORMATION
Performance information for the Sub-Accounts of the Separate Account, except
the Federated Prime Money Fund II Sub-Account, may appear in advertisements,
reports, and promotional literature provided to current or prospective Owners.
Quotations of standardized total return for any Sub-Account will be expressed
in terms of the average annual compounded rate of return on a hypothetical
investment in a Contract over a period of one, five and ten years (or, if
less, up to the life of the Sub-Account), and will reflect the deduction of
the applicable Withdrawal Charge, the Administrative Charge, the Annual
Contract Maintenance Charge, the Mortality and Expense Risk Charge and
deductions for the fees and expenses of the underlying Portfolio.
Quotations of non-standardized total return may simultaneously be shown for
the time periods indicated in the advertisement that may not reflect some or
all of these deductions.
Total return performance information for Sub-Accounts may also be advertised
based on the historical performance of the Portfolio underlying a Sub-Account
for periods beginning prior to the date Accumulation Unit Values were first
calculated for Contracts funded in that Sub-Account. Any such performance
calculation will be based on the assumption that the Sub-Account
corresponding to the applicable Portfolio was in existence throughout the
stated period and that contractual charges and expenses of the Sub-Account
during the period were equal to those currently assessed under the Contract.
The Company may distribute sales literature which compares the percentage
change in share values for any of the Sub-Accounts against established market
indices such as the Standard & Poor's 500 Composite Stock Price Index, the
Dow Jones Industrial Average or other management investment companies which
have investment objectives similar to the Portfolio being compared. The
Standard & Poor's 500 Composite Stock Price Index is an unmanaged, unweighted
average of 500 stocks, the majority of which are listed on the New York Stock
Exchange. The Dow Jones Industrial Average is an unmanaged, weighted average
of thirty blue chip industrial corporations listed on the New York Stock
Exchange. Both the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average assume quarterly reinvestment of dividends.
Unmanaged indices may assume the reinvestment of dividends but generally do
not reflect deductions for administrative and management costs and expenses.
Performance information for any Sub-Account reflects only the performance of
a hypothetical Contract under which Contract Value is allocated to a
Sub-Account during a particular time period on which the calculations are
based. Performance information should be considered in light of the
investment objectives and policies, characteristics, and quality of the
Portfolio in which the Sub-Account invests, and the market conditions during
the given time period and should not be considered as a representation of
what may be achieved in the future. For a
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description of the method used to determine total return for the
Sub-Accounts, see the Statement of Additional Information.
The Company may also distribute sales literature which compares the
performance of the AUVs of a Contract issued through the Separate Account
with the unit values of variable annuities issued through the separate
accounts of other insurance companies. Such information will be derived from
the Lipper Variable Insurance Products Performance Analysis Service,
Morningstar or from the VARDS Report.
The Lipper Variable Insurance Products Performance Analysis Service is
published by Lipper Analytical Services, Inc., a publisher of statistical
data which currently tracks the performance of almost 4,000 investment
companies. The rankings compiled by Lipper may or may not reflect the
deduction of asset-based insurance charges. The Company's sales literature
utilizing these rankings will indicate whether or not such charges have been
deducted. Where the charges have not been deducted, the sales literature
will indicate that if the charges had been deducted, the ranking might have
been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect
the deduction of asset-based insurance charges.
Morningstar rates a variable annuity sub-account against its peers with
similar investment objectives. Morningstar does not rate any Sub-Account that
has less than three years of performance data.
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TAX CONSIDERATIONS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS
OF THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY
NOT BE TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT
SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE
AND THAT SPECIAL RULES NOT DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN
CERTAIN SITUATIONS. MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY
APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is
not taxed on increases in the value of a Contract until distribution occurs,
either in the form of a lump sum payment or as annuity payments under the
Annuity Option selected. For a lump sum payment received as a total
withdrawal (total surrender), the recipient is taxed on the portion of the
payment that exceeds the cost basis of the Contract. For Non-Qualified
Contracts, this cost basis is generally the Purchase Payments, while for
Qualified Contracts there may be no cost basis. The taxable portion of the
lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments
based on a fixed annuity option is determined by multiplying the payment by
the ratio that the cost basis of the Contract (adjusted for any period
certain or refund feature) bears to the expected return under the Contract.
The exclusion amount for payments based on a variable annuity option is
determined by dividing the cost basis of the Contract (adjusted for any
period certain or refund guarantee) by the number of years over which the
annuity is expected to be paid. Payments received after the investment in the
Contract has been recovered (i.e. when the total of the excludable amounts
equals the investment in the Contract) are fully taxable. The taxable
portion is taxed at ordinary income tax rates. For certain types of Qualified
Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under a Contract
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
DEATH BENEFITS
For Death Benefits under the Contract, the Beneficiary will be taxed on the
portion of the Death Benefit which exceeds the cost basis of the Contract.
However, if the Beneficiary elects to receive the Death Benefit under an
Annuity Option, the payments made to the Beneficiary will be taxed as annuity
payments as discussed above.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification
of the Contract as an annuity contract would result in imposition of federal
income tax to the Owner with respect to earnings allocable to the Contract
prior to the receipt of payments under the Contract.
The Company intends that all Portfolios of a Fund underlying a Contract will
be managed by the Fund or its investment adviser to comply with the
diversification requirements set forth in Section 817(h) of the Code and
Treas. Reg. 1.817-5 promulgated thereunder.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of
the investments of the Separate Account will cause the Owner to be treated as
the owner of the assets of the Separate Account, thereby resulting in the
loss of favorable tax treatment for
25
<PAGE>
the Contract. At this time it cannot be determined whether additional
guidance will be provided and what standards may be contained in such
guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Owner to be considered the owner of the assets of the
Separate Account resulting in the imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to receipt of
payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owners
being retroactively determined to be the owners of the assets of the Separate
Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the owner is a non-natural
person, e.g., a corporation, or certain other entities. Such Contracts
generally will not be treated as annuities for federal income tax purposes.
However, this treatment is not applied to Contracts held by a trust or other
entity as an agent for a natural person or to Contracts held by a
tax-qualified retirement plan described in sections 401, 403(a), 403(b), 408,
or 457 of the Code. Purchasers should consult their own tax counsel or other
tax adviser before purchasing a Contract to be owned by a non-natural person.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year to the same contract owner by one company or
its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may
result in adverse tax consequences including more rapid taxation of the
distributed amounts from such combination of contracts. Owners should
consult a tax adviser prior to purchasing more than one non-qualified annuity
contract in any calendar year.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as
wages and at the rate of 10% from non- periodic payments. However, the
Owner, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a
mandatory 20% withholding for federal income tax. The 20% withholding
requirement generally does not apply to: (a) a series of substantially equal
payments made at least annually for the life or life expectancy of the
participant or joint and last survivor expectancy of the participant and a
designated beneficiary, or distributions for a specified period of 10 years
or more; or (b) distributions which are required minimum distributions; or
(c) the portion of the distributions not includible in gross income (i.e.
return of after-tax contributions). Participants should consult their own
tax counsel or other tax adviser regarding withholding requirements.
26
<PAGE>
WITHDRAWALS FROM NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includible in gross income.
It further provides that a ten percent (10%) penalty will apply to the
income portion of any distribution. However, the penalty is not imposed on
amounts received: (a) after the taxpayer reaches age 59 1/2; (b) after the
death of the Owner; (c) if the taxpayer is totally disabled (for this purpose
disability is as defined in Section 72(m)(7) of the Code); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his or her Beneficiary; (e)
under an immediate annuity; or (f) which are allocable to purchase payments
made prior to August 14, 1982.
QUALIFIED PLANS
A Contract offered by this Prospectus is designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that
contributions and benefits under a Qualified Plan may be subject to the terms
and conditions of the plan regardless of the terms and conditions of a
Contract issued pursuant to the plan. Some retirement plans are subject to
distribution and other requirements that are not incorporated into the
Company's administrative procedures. Contract Owners, participants and
beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contract comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not
exhaustive and are for general informational purposes only. The tax rules
regarding Qualified Plans are very complex and will have differing
applications depending on individual facts and circumstances. Each purchaser
should obtain competent tax advice prior to purchasing a Contract issued
under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
in this Prospectus. Generally, Contracts issued pursuant to Qualified Plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in
violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from Qualified Contracts.
(See "Tax Treatment of Withdrawals--Qualified Contracts," below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection
with Qualified Plans will utilize annuity tables which do not differentiate
on the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
H.R. 10 PLANS. Section 401 of the Code permits self-employed individuals to
establish Qualified Plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" plans. Contributions made to the Plan
for the benefit of the employees will not be included in the gross income of
the employees until distributed from the Plan. The tax consequences to
participants may vary depending upon the particular plan design. However, the
Code places limitations and restrictions on all Plans including on such items
as: amount of allowable contributions; form, manner and timing of
distributions; transferability of benefits; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. (See "Tax Treatment
of Withdrawals--Qualified Contracts," below.) Purchasers of Contracts for use
with an H.R. 10 Plan should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
403(B) ANNUITIES. Section 403(b) of the Code permits the purchase of
"403(b)" or "tax-sheltered annuities" by public schools and certain
charitable, educational and scientific organizations described in Section
501(c)(3) of the Code. These qualifying employers may make contributions to
a Contract for the benefit of their employees. Such contributions are not
includible in the gross income of the employees until the employees receive
distributions from
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<PAGE>
the Contracts. The amount of contributions to the tax-sheltered annuity is
limited to certain maximums imposed by the Code. Furthermore, the Code sets
forth additional restrictions governing such items as transferability,
distributions, nondiscrimination and withdrawals. (See "Tax Treatment of
Withdrawals--Qualified Contracts" and "Tax Sheltered Annuities--Withdrawal
Limitations," below.) Any employee should obtain competent tax advice as to
the tax treatment and suitability of such an investment.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408(b) of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" ("IRA"). Under applicable limitations,
certain amounts may be contributed to an IRA which will be deductible from
the individual's gross income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.) Under certain
conditions, distributions from other IRAs and other Qualified Plans may be
rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Contracts for use with IRAs are subject to special requirements imposed by
the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
CORPORATE PENSION AND PROFIT-SHARING PLANS. Sections 401(a) and 401(k) of
the Code permit corporate employers to establish various types of retirement
plans for employees. These retirement plans may permit the purchase of a
Contract to provide benefits under the Plan. Contributions to the Plan for
the benefit of employees will not be includible in the gross income of the
employees until distributed from the Plan. The tax consequences to
participants may vary depending upon the particular plan design. However,
the Code places limitations and restrictions on all plans including on such
items as: amount of allowable contributions; form, manner and timing of
distributions; transferability of benefits; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. Purchasers of
Contracts for use with Corporate Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such
an investment. Unless the Company otherwise permits, participant loans are
not allowed in connection with Contracts purchased in connection with these
plans.
SECTION 457 PLANS. Under Section 457 of the Code, governmental and certain
other tax-exempt employers may establish deferred compensation plans for the
benefit of their employees which may invest in annuity contracts. The Code,
as in the case of Qualified Plans, establishes limitations and restrictions
on eligibility, contributions and distributions. Under these Plans,
contributions made for the benefit of the employees will not be includible
in the employee's gross income until distributed from the Plan. However,
under a Section 457 Plan, all the assets remain solely the property of the
employer subject only to the claims of the employer's general creditors until
such time as made available to the participant or beneficiary.
WITHDRAWALS FROM QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion of
the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain
distributions from a Qualified Contract. Section 72(t) of the Code imposes a
10% penalty tax on the taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified under Code
Sections 401 (H.R. 10 and Corporate Pension and Profit-Sharing Plans), 403(b)
and 408(b) (Individual Retirement Annuities). To the extent amounts are not
includible in gross income because they have been rolled over to an IRA or to
another eligible Qualified Plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a) if distribution is
made on or after the date on which the Owner or Annuitant (as applicable)
reaches age 591 2; (b) distributions following the death or disability of the
Owner or Annuitant (as applicable) (for this purpose disability is as defined
in Section 72(m)(7) of the Code); (c) after separation from service,
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the Owner
or Annuitant (as applicable) or the joint lives (or joint life expectancies)
of such Owner or Annuitant (as applicable) and his or her designated
Beneficiary; (d) distributions to an Owner or Annuitant (as applicable) who
has separated from service after he has attained age 55; (e) distributions
made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (f) distributions made to an alternate
payee pursuant to a qualified
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<PAGE>
domestic relations order; and (g) distributions from an Individual Retirement
Annuity for the purchase of medical insurance (as described in Section
213(d)(1)(D) of the Code) for the Owner and his or her spouse and dependents
if the Owner has received unemployment compensation for at least 12 weeks.
This exception no longer applies after the owner has been re-employed for at
least 60 days. The exceptions stated in (d) and (f) above do not apply in
the case of an Individual Retirement Annuity. The exception stated in (c)
above applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
Generally, distributions from a qualified plan must commence no later than
April 1 of the calendar year, following the year in which the employee
attains age 701 2. Required distributions must be over a period not exceeding
the life expectancy of the individual or the joint lives or life expectancies
of the individual and his or her designated beneficiary. If the required
minimum distributions are not made, a 50% penalty tax is imposed as to the
amount not distributed.
TAX-SHELTERED ANNUITIES--WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (a) attains age 591 2; (b)
separates from service; (c) dies; (d) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (e) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's
Contract Value which represents contributions made by the Owner and does not
include any investment results. The limitations on withdrawals became
effective on January 1, 1989 and apply only to salary reduction contributions
made after December 31, 1988, to income attributable to such contributions
and to income attributable to amounts held as of December 31, 1988. The
limitations on withdrawals do not affect rollovers or transfer between
certain Qualified Plans. Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
OTHER MATTERS
FINANCIAL STATEMENTS
The full financial statements for the Separate Account and the Company are
included in the Statement of Additional Information. As of the date of this
Prospectus, the Separate Account had not commenced sales of the Capital Six
VA.
DISTRIBUTION
First Variable Capital Services, Inc. ("FVCS"), 10 Post Office Square,
Boston, MA 02109, acts as the distributor of the Contracts. FVCS is a
wholly-owned subsidiary of the Company. The Contracts are offered on a
continuous basis through FVCS and approved broker-dealers who are members of
the National Association of Securities Dealers, Inc.
The Company and FVCS have agreements with various broker -dealers under which
the Contracts will be sold by registered representatives of the
broker-dealers. The registered representatives are required to be authorized
under applicable state regulations to sell variable annuity contracts. The
commissions payable to a broker-dealer for sales of the Contract may vary
with the sales agreement, but is not expected to exceed 3.00% of first year
Purchase Payments and annual renewal compensation of up to 1.00% of Contract
Value in later Contract Years. Broker-dealers may also receive expense
allowances, wholesaler fees, bonuses and training fees.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate
Account, the Distributor or the Company is a party.
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<PAGE>
TRANSFERS BY THE COMPANY
The Company may, subject to applicable regulatory approvals, transfer its
obligations under a Contract to another qualified life insurance company
under an assumption reinsurance arrangement without the prior consent of the
Owner.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote
the shares of a Fund held in the Separate Account at regular or special
meetings of the shareholders in accordance with instructions received from
Owners having the voting interest in the affected Portfolio(s) held in the
Separate Account. The number of votes that an Owner has the right to
instruct for a particular Sub-Account is determined by dividing the Contract
Value in the Sub-Account by the net asset value per share of the
corresponding Portfolio in which the Sub-Account invests. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it
has received instructions. A Fund may not hold routine annual meetings of
its shareholders.
The Funds' shares are used solely as the investment vehicle for separate
accounts of insurance companies offering variable annuity contracts and
variable life insurance policies. The use of Funds' shares as investments
for both variable annuity contracts and variable life insurance policies is
referred to as "mixed funding." The use of Funds' shares as investments by
separate accounts of unaffiliated life insurance companies is referred to as
"shared funding."
The Funds intend to engage in mixed funding and shared funding. Although the
Funds do not currently foresee any disadvantage to Contract owners due to
differences in redemption rates, tax treatment, or other considerations
resulting from mixed funding or shared funding, the Trustees of the Funds
will closely monitor the operation of mixed funding and shared funding and
will consider appropriate action to avoid material conflict and take
appropriate action in response to any material conflicts which occur.
The number of shares which an Owner has a right to vote will be determined as
of a date to be chosen by the Company not more than sixty (60) days prior to
a shareholder meeting of a Fund. Each Owner having a voting interest will
receive proxy material, reports, and other materials relating to the
appropriate Portfolio.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
ITEM PAGE
---- ----
Company 2
Independent Auditors 2
Legal Opinions 2
Distributor 2
Service Provider 2
Performance Information 2
Annuity Provisions 5
Variable Annuity 5
Fixed Annuity 5
Annuity Unit 5
Mortality and Expense Guarantee 6
Financial Statements 6
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PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE CONTRACTS
issued by
FIRST VARIABLE ANNUITY FUND E
AND
FIRST VARIABLE LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED ______ FOR THE INDIVIDUAL
FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS WHICH ARE
REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR COPY OF THE PROSPECTUS CALL OR WRITE
THE COMPANY AT 10 Post Office Square, Boston, Massachusetts 02109, (800)
845-0689.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED ______
TABLE OF CONTENTS
PAGE
----
Company 2
Independent Auditors 2
Legal Opinions 2
Distributor 2
Service Provider 2
Performance Information 2
Annuity Provisions 5
Variable Annuity 5
Fixed Annuity 5
Annuity Unit 5
Mortality and Expense Guarantee 6
Financial Statements 6
1
<PAGE>
COMPANY
Information regarding the Company and its ownership is contained in the
Prospectus.
INDEPENDENT AUDITORS
The Company's independent auditor is Ernst & Young LLP, 200 Clarendon Street,
Boston, Massachusetts 02116. The financial statements for the Company as of
December 31, 1995 and 1994 and for the years then ended and the financial
statements for First Variable Annuity Fund E as of December 31, 1995 and for
the periods indicated included in this Statement of Additional Information,
which are incorporated by reference into the Prospectus, have been so
included in reliance on the report of Ernst & Young LLP, independent auditors
given on the authority of said firm as experts in auditing and accounting.
LEGAL OPINIONS
Legal matters in connection with the Contracts have been reviewed by the
Company's Legal Department. Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut, has provided advice on certain matters relating to the federal
securities and tax laws.
DISTRIBUTOR
First Variable Capital Services, Inc. ("FVCS") acts as the distributor. FVCS
is a wholly-owned subsidiary of the Company. The offering is on a continuous
basis.
SERVICE PROVIDER
The Company has retained Alliance-One Services, L.P. ("Alliance") to provide
administrative services on certain previously issued variable annuity
contracts funded through First Variable Annuity Fund E. Such administrative
services include maintenance of Owners' records. The Company will pay all
fees and charges of Alliance. Alliance serves as the administrator to
various insurance companies offering variable and fixed annuity and variable
life insurance contracts. The Company administers other contracts it issues,
including the Contracts described in the Prospectus, through the Variable
Service Center described therein.
PERFORMANCE INFORMATION
From time to time, the Company may advertise standardized performance data of
Sub-Accounts other than the Federated Prime Money Fund II Sub-Account. Any
such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deductions of a 1.25% Mortality and Expense Risk Charge, a .25%
Administrative Charge, the investment advisory fee and expenses for the
underlying Portfolio being advertised and any applicable Withdrawal Charges
and Annual Contract Maintenance Charges.
The hypothetical value of a Contract purchased for the time periods described
in the advertisement will be determined by using the Accumulation Unit Values
for an initial $1,000 purchase payment, and deducting any applicable Annual
Contract Maintenance Charges and Withdrawal Charges to arrive at the ending
hypothetical value. For periods before the date that actual Accumulation
Unit Values were first computed for the Contracts, the Company has prepared
hypothetical Accumulation Unit Value performance which is derived from the
financial statements of the Separate Account (Policy Form 20230). The
average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of time
periods described.
2
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The formula used in these calculations is:
n
[P x (1+T) ] = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year periods at
the end of the 1, 5 or 10 year periods (or fractional
portion thereof).
The standardized average annualized total returns as of September 30, 1996
for 1 year, for 5 years and for the life of the Sub-Account are listed below:
LIFE OF SUB-
1 YEAR 5 YEARS ACCOUNT
------ ------- ------------
Common Stock (inception 5/1/87) 11.39 10.94 12.33
Growth & Income (inception 5/31/95) 1.36 N/A 10.19
High Income Bond (inception 6/1/87) 5.91 9.52 9.83
Multiple Strategies (inception 5/5/87) 6.53 10.67 11.65
Small Cap (inception 5/4/95) 31.41 N/A 46.66
Tilt Utility (inception 5/27/87) -3.98 9.23 10.52
US Govt Bond (inception 5/27/87) -3.64 5.69 6.93
World Equity (inception 6/10/88) -.65 9.56 7.53
3
<PAGE>
The standardized average annualized total returns as of December 31, 1995 and
for 5 years and for the life of the Sub-Account are listed below:
LIFE OF
1 YEAR 5 YEARS SUB-ACCOUNT
------ ------- -----------
Common Stock (inception 5/1/87) 28.085% 11.009% 10.408%
Growth & Income (inception 5/31/95) N/A N/A 5.066%
High Income Bond (inception 6/1/87) 10.211% 11.313% 9.429%
Multiple Strategies (inception 5/5/87) 23.272% 10.441% 10.729%
Small Cap (inception 5/4/95) N/A N/A 22.180%
Tilt Utility (inception 6/16/88) 24.467% 13.370% 13.018%
US Govt Bond (inception 5/27/87) 11.394% 7.263% 8.230%
World Equity (inception 6/10/88) 15.471% 9.315% 7.367%
The Company may also advertise non-standardized performance data of
Sub-Accounts other than the Federated Prime Money Fund II Sub-Account. Any
such advertisement will include total return figures computed under the
formula shown above for the time periods indicated in the advertisement.
Such total return figures may not reflect the deductions of a 1.25% Mortality
and Expense Risk Charge, a .25% Administrative Charge, the investment
advisory fee for the underlying Portfolio being advertised and any applicable
Withdrawal Charges and Annual Contract Maintenance Charges. Non-standardized
performance data may be shown for periods of one, three, five and ten years
(or, if less up to the life of the Sub-Account).
The non-standardized annualized total returns as of December 31, 1995 and for
5 years and for the life of the Sub-Account are listed below:
LIFE OF
1 YEAR 5 YEARS SUB-ACCOUNT
------ ------- -----------
Common Stock (inception 5/1/87) 35.085% 11.311% 10.408%
Growth & Income (inception 5/31/95) N/A N/A 12.066%
High Income Bond (inception 6/1/87) 17.211% 11.611% 9.429%
Multiple Strategies (inception 5/5/87) 30.272% 10.751% 10.729%
Small Cap (inception 5/4/95) N/A N/A 29.180%
Tilt Utility (inception 6/16/88) 31.467% 13.638% 13.018%
US Govt Bond (inception 5/27/87) 18.394% 7.625% 8.230%
World Equity (inception 6/10/88) 22.471% 9.643% 7.367%
The above returns include all applicable charges for the periods shown except
for the applicable Withdrawal Charges and Annual Contract Maintenance Charges.
Owners should note that the investment results of each Sub-Account will
fluctuate over time, and any presentation of the Sub-Account's total return
for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return may be in any future
period.
4
<PAGE>
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments which: (1) are not
predetermined as to dollar amount: and (2) will vary in amount with the net
investment results of the applicable Sub-Account(s) of the Separate Account.
At the Annuity Date, the Contract Value in each Sub-Account will be applied
to the applicable Annuity Tables. The Annuity Table used will depend upon
the Annuity Option chosen. If, as of the Annuity Date, the then current
Annuity Option rates applicable to this class of Contracts provide a first
Annuity Payment greater than guaranteed under the same Annuity Option under
this Contract, the greater payment will be made. The dollar amount of
Annuity Payments after the first is determined as follows:
(1) the dollar amount of the first Annuity Payment is divided by the value
of an Annuity Unit as of the Annuity Date. This establishes the number of
Annuity Units for each monthly payment. The number of Annuity Units remains
fixed during the Annuity Payment period.
(2) the fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month proceeding the month for
which the payment is due. This result is the dollar amount of the payment.
The total dollar amount of each Variable Annuity Payment is the sum of all
Sub-Account Variable Annuity Payments.
FIXED ANNUITY
A fixed annuity is a series of payments made during the Annuity Period which
are guaranteed as to dollar amount by the Company and do not vary with the
investment experience of the Separate Account. The Fixed Account Value on
the day immediately preceding the Annuity Date will be used to determine the
Fixed Annuity monthly payment. The first monthly Annuity Payment will be
based upon the Annuity Option elected and the appropriate Annuity Option
Table.
ANNUITY UNIT
The value of an Annuity Unit for each Sub-Account was arbitrarily set
initially at $10.
The Sub-Account Annuity Unit Value at the end of any subsequent Valuation
Period is determined by subtracting (2) from (1) and dividing the result by
(3) and multiplying the result by a factor which neutralizes the assumed
investment rate of 3% contained in the Annuity Tables where:
1. is the net result of:
a. the assets of the Sub-Account attributable to the Annuity Units; plus or
minus
b. the cumulative charge or credit for taxes reserved which is determined
by the Company to have resulted from the operation or maintenance of the
Sub-Account;
2. is the cumulative unpaid charge for the Mortality and Expense Risk Charge
and for the Administrative Charge.
3. is the number of Annuity Units outstanding at the end of the Valuation
Period.
The value of an Annuity Unit may increase or decrease from Valuation Period
to Valuation Period.
5
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MORTALITY AND EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each Annuity Payment after
the first Annuity Payment will not be affected by variations in mortality or
expense experience.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Contracts.
6
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FINANCIAL STATEMENTS
FIRST VARIABLE LIFE INSURANCE COMPANY--FIRST VARIABLE ANNUITY FUND E
Year ended December 31, 1995
7
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Financial Statements
December 31, 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.......................................................... 1
Financial Statements
Statement of Assets, Liabilities and Contract Owners' Equity............................ 2
Statement of Operations................................................................. 3
Statements of Changes in Net Assets..................................................... 4
Notes to Financial Statements........................................................... 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of First Variable Life Insurance Company
and Contract Owners of First Variable Annuity Fund E
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of First Variable Life Insurance Company--First Variable
Annuity Fund E as of December 31, 1995, and the related statements of operations
for the period then ended and changes in net assets for each period in the two
periods then ended. These financial statements are the responsibility of First
Variable Life Insurance Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
Our procedures included confirmation of the securities owned as of December 31,
1995 by correspondence with Variable Investors Series Trust. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Variable Life
Insurance Company--First Variable Annuity Fund E at December 31, 1995, and the
results of its operations for the period then ended and changes in its net
assets for each of the periods in the two periods then ended, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
January 25, 1996
1
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statement of Assets, Liabilities and
Contract Owners' Equity
December 31, 1995
<TABLE>
<CAPTION>
HIGH
CASH COMMON INCOME MULTIPLE TILT U.S.
MANAGEMENT STOCK BOND STRATEGIES UTILITY GOVERNMENT
TOTAL DIVISION DIVISION DIVISION DIVISION DIVISION BOND DIVISION
---------- ------------ ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in Variable Investors Series
Trust at value (cost $91,636,693)....... $97,347,529 $8,280,967 $15,946,892 $7,573,144 $21,611,312 $13,445,900 $ 8,065,649
Receivable from First Variable Life
Insurance Company....................... 17,618 1,628 1,800 2,905 672 7,941
---------- ------------ ---------- ---------- ---------- ---------- -------------
Total.................................... $97,365,147 $8,280,967 $15,948,520 $7,574,944 $21,614,217 $13,446,572 $ 8,073,590
---------- ------------ ---------- ---------- ---------- ---------- -------------
---------- ------------ ---------- ---------- ---------- ---------- -------------
LIABILITIES
Payable to First Variable Life Insurance
Company................................. $ 20 $ 20
---------- ------------
Total liabilities........................ 20 20
Contract owners' equity:
Annuity contracts in payment period.... 277,508 261,064 $ 16,444
Variable annuity contract owners'
equity............................... 97,087,619 8,019,883 15,932,076 $7,574,944 $21,614,217 $13,446,572 $ 8,073,590
---------- ------------ ---------- ---------- ---------- ---------- -------------
Total contract owners' equity............ 97,365,127 8,280,947 15,948,520 7,574,944 21,614,217 13,446,572 8,073,590
---------- ------------ ---------- ---------- ---------- ---------- -------------
Total liabilities and contract owners'
equity.................................. $97,365,147 $8,280,967 $15,948,520 $7,574,944 $21,614,217 $13,446,572 $ 8,073,590
---------- ------------ ---------- ---------- ---------- ---------- -------------
---------- ------------ ---------- ---------- ---------- ---------- -------------
<CAPTION>
WORLD GROWTH AND SMALL
EQUITY INCOME CAP
DIVISION DIVISION DIVISION
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments in Variable Investors Series
Trust at value (cost $91,636,693)....... $15,277,389 $3,334,758 $3,811,518
Receivable from First Variable Life
Insurance Company....................... 1,530 177 965
---------- ---------- ----------
Total.................................... $15,278,919 $3,334,935 $3,812,483
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES
Payable to First Variable Life Insurance
Company.................................
Total liabilities........................
Contract owners' equity:
Annuity contracts in payment period....
Variable annuity contract owners'
equity............................... $15,278,919 $3,334,935 $3,812,483
---------- ---------- ----------
Total contract owners' equity............ 15,278,919 3,334,935 3,812,483
---------- ---------- ----------
Total liabilities and contract owners'
equity.................................. $15,278,919 $3,334,935 $3,812,483
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statement of Operations
December 31, 1995
<TABLE>
<CAPTION>
HIGH
CASH COMMON INCOME MULTIPLE TILT U.S.
MANAGEMENT STOCK BOND STRATEGIES UTILITY GOVERNMENT
TOTAL DIVISION DIVISION DIVISION DIVISION DIVISION BOND DIVISION
---------- ------------ ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends.............................. $6,398,608 $ 423,306 $ 931,729 $ 663,543 $1,954,586 $ 640,595 $ 801,191
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges...... 1,046,537 101,549 166,780 89,274 245,887 149,482 105,942
---------- ------------ ---------- ---------- ---------- ---------- -------------
Total expenses........................... 1,046,537 101,549 166,780 89,274 245,887 149,482 105,942
---------- ------------ ---------- ---------- ---------- ---------- -------------
Net investment income.................... 5,352,071 321,757 764,949 574,269 1,708,699 491,113 695,249
Realized and unrealized gain (loss)
investments on investments:
Realized gain (loss) on Series Trust:
Variable Investors Series Trust
shares redeemed.................... 47,339 892,623 (325,633) (363,483) (510,575) (433,224)
Net unrealized appreciation on
investments during the year........ 11,878,900 2,078,887 763,785 3,447,663 3,134,928 1,155,615
---------- ------------ ---------- ---------- ---------- ---------- -------------
Net realized and unrealized gain on
investments............................. 11,926,239 2,971,510 438,152 3,084,180 2,624,353 722,391
---------- ------------ ---------- ---------- ---------- ---------- -------------
Net increase in net assets resulting from
operations $17,278,310 $ 321,757 $3,736,459 $1,012,421 $4,792,879 $3,115,466 $ 1,417,640
---------- ------------ ---------- ---------- ---------- ---------- -------------
---------- ------------ ---------- ---------- ---------- ---------- -------------
<CAPTION>
WORLD GROWTH AND SMALL
EQUITY INCOME CAP
DIVISION DIVISION(1) DIVISION(2)
---------- ---------- ----------
<S> <C> <C> <C>
Investment income:
Dividends.............................. $ 844,123 $ 40,732 $ 98,803
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges...... 161,354 12,583 13,686
---------- ---------- ----------
Total expenses........................... 161,354 12,583 13,686
---------- ---------- ----------
Net investment income.................... 682,769 28,149 85,117
Realized and unrealized gain (loss)
investments on investments:
Realized gain (loss) on Series Trust:
Variable Investors Series Trust
shares redeemed.................... 651,108 13,164 123,359
Net unrealized appreciation on
investments during the year........ 1,181,856 44,376 71,790
---------- ---------- ----------
Net realized and unrealized gain on
investments............................. 1,832,964 57,540 195,149
---------- ---------- ----------
Net increase in net assets resulting from
operations $2,515,733 $ 85,689 $ 280,266
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
(1) From commencement of operations May 31, 1995.
(2) From commencement of operations May 4, 1995.
3
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statements of Changes in Net Assets
Periods ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
HIGH
INCOME
CASH MANAGEMENT COMMON STOCK BOND
TOTAL DIVISION DIVISION DIVISION
1995 1994 1995 1994 1995 1994 1995
----------- ----------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)............... $ 5,352,071 $ 4,627,279 $ 321,757 $ 225,155 $ 764,929 $ (62,753) $ 574,269
Realized gain (loss) on Variable Investors
Series Trust shares redeemed.............. 47,339 (1,058,319) 892,623 (624,847) (325,633)
Net unrealized appreciation (depreciation)
on investment during the year............. 11,878,900 (5,037,723) 2,078,887 422,814 763,785
----------- ----------- ----------- ---------- ---------- ---------- ---------
Net increase (decrease) in net assets
resulting from operations................. 17,278,310 (1,468,763) 321,757 225,155 3,736,459 (264,786) 1,012,421
From contract owner transactions
Net proceeds from sale of accumulation
units..................................... 31,781,440 11,452,610 11,592,315 1,173,464 2,892,495 1,755,267 1,825,744
Cost of accumulation units terminated and
exchanged................................. (16,119,230) (21,683,494) (10,154,829) (1,700,393) 247 (4,252,079) (767,511)
----------- ----------- ----------- ---------- ---------- ---------- ---------
Increase (decrease) in net assets from
contract owner transactions............... 15,662,210 (10,230,884) 1,437,486 (526,929) 2,892,742 (2,496,812) 1,058,233
----------- ----------- ----------- ---------- ---------- ---------- ---------
Increase (decrease) in net assets.......... 32,940,520 (11,699,647) 1,759,243 (301,744) 6,629,201 (2,761,598) 2,070,654
Net assets at beginning of period.......... 64,424,607 76,124,254 6,521,704 6,823,478 9,319,319 12,080,917 5,504,290
----------- ----------- ----------- ---------- ---------- ---------- ---------
Net assets at end of period................ $97,365,127 $64,424,607 $ 8,280,947 $6,521,704 $15,948,520 $9,319,319 $7,574,944
----------- ----------- ----------- ---------- ---------- ---------- ---------
----------- ----------- ----------- ---------- ---------- ---------- ---------
<CAPTION>
MULTIPLE STRATEGIES
DIVISION
1994 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss)............... $ 569,669 $1,708,699 $1,604,049
Realized gain (loss) on Variable Investors
Series Trust shares redeemed.............. (907,055) (363,483) 134,159
Net unrealized appreciation (depreciation)
on investment during the year............. (278,307) 3,447,663 (2,582,130)
---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations................. (615,693) 4,792,879 (843,922)
From contract owner transactions
Net proceeds from sale of accumulation
units..................................... 1,335,168 3,644,779 1,964,200
Cost of accumulation units terminated and
exchanged................................. (6,256,547) (2,723,046) (1,092,025)
---------- ---------- ----------
Increase (decrease) in net assets from
contract owner transactions............... (4,921,379) 921,733 872,175
---------- ---------- ----------
Increase (decrease) in net assets.......... (5,537,072) 5,714,612 28,253
Net assets at beginning of period.......... 11,041,362 15,899,605 15,871,352
---------- ---------- ----------
Net assets at end of period................ $5,504,290 $21,614,217 $15,899,605
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
4
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
WORLD
EQUITY
DIVISION
TILT UTILITY U.S. GOVERNMENT YEAR ENDED
DIVISION BOND DIVISION DECEMBER
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 31
1995 1994 1995 1994 1995
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)................................. $ 491,113 $ 1,236,179 $ 695,249 $ 681,931 $ 682,769
Realized gain (loss) on Variable Investors Series Trust
shares redeemed............................................. (510,575) 316,582 (433,224) (463,812) 651,108
Net unrealized appreciation (depreciation) on investment
during
the year.................................................... 3,134,928 (1,796,822) 1,155,615 (613,499) 1,181,856
----------- ----------- ----------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations.................................................. 3,115,466 (244,061) 1,417,640 (395,380) 2,515,733
From contract owner transactions
Net proceeds from sale of accumulation units................. 2,850,015 1,321,190 833,394 1,399,563 4,087,219
Cost of accumulation units terminated and exchanged.......... (1,749,546) (1,904,157) (3,642,421) (2,862,433) 191,892
----------- ----------- ----------- ---------- ----------
Increase (decrease) in net assets from contract owner
transactions................................................ 1,100,469 (582,967) (2,809,027) (1,462,870) 4,279,111
----------- ----------- ----------- ---------- ----------
Increase (decrease) in net assets............................ 4,215,935 (827,028) (1,391,387) (1,858,250) 6,794,844
Net assets at beginning of period............................ 9,230,637 10,057,665 9,464,977 11,323,227 8,484,075
----------- ----------- ----------- ---------- ----------
Net assets at end of period.................................. $13,446,572 $ 9,230,637 $ 8,073,590 $9,464,977 $15,278,919
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
<CAPTION>
GROWTH AND
INCOME SMALL CAP
DIVISION(1) DIVISION(2)
SEVEN MONTHS EIGHT MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
1994 1995 1995
---------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income (loss)................................. $ 373,049 $ 28,149 $ 85,117
Realized gain (loss) on Variable Investors Series Trust
shares redeemed............................................. 486,654 13,164 123,359
Net unrealized appreciation (depreciation) on investment
during
the year.................................................... (189,779) 44,376 71,790
---------- ------------- ------------
Net increase (decrease) in net assets resulting from
operations.................................................. 669,924 85,689 280,266
From contract owner transactions
Net proceeds from sale of accumulation units................. 2,503,758 2,069,284 1,986,195
Cost of accumulation units terminated and exchanged.......... (3,615,860) 1,179,962 1,546,022
---------- ------------- ------------
Increase (decrease) in net assets from contract owner
transactions................................................ (1,112,102) 3,249,246 3,532,217
---------- ------------- ------------
Increase (decrease) in net assets............................ (442,178) 3,334,935 3,812,483
Net assets at beginning of period............................ 8,926,253
---------- ------------- ------------
Net assets at end of period.................................. $8,484,075 $ 3,334,935 $3,812,483
---------- ------------- ------------
---------- ------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
(1) From commencement of operations May 31, 1995.
(2) From commencement of operations May 4, 1995.
5
<PAGE>
First Variable Life Inurance Company
First Variable Annuity Fund E
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION
First Variable Annuity Fund E (the Fund) is a segregated account of First
Variable Life Insurance Company (First Variable Life) and is registered as a
unit investment trust under the Investment Company Act of 1940, as amended,
(1940 Act). Each of the nine investment divisions of the Fund are invested
solely in the shares of the nine corresponding portfolios of the Variable
Investors Series Trust (the Trust), a no-load, diversified, open-end, series
management investment company registered under the 1940 Act. Under applicable
insurance law, the assets and liabilities of the Fund are clearly identified and
distinguished from the other assets and liabilities of First Variable Life. The
Fund cannot be charged with liabilities arising out of any other business of
First Variable Life.
First Variable Life is a wholly-owned subsidiary of Irish Life of North
America, Inc. (ILoNA), which is a wholly-owned subsidiary of Irish Life, plc.
(Irish Life) of Dublin, Ireland. All outstanding shares of the Company were
purchased by ILoNA from Monarch Life Insurance Company (Monarch Life), a
Massachusetts life insurance company, on September 22, 1994. First Variable Life
is domiciled in the State of Arkansas.
The assets of the Fund are not available to meet the general obligations of
First Variable Life or ILoNA and are held for the exclusive benefit of the
contract owners participating in the Fund.
The Small Cap Division commenced operations on May 4, 1995 and the Growth
and Income Division commenced operations on May 31, 1995. Effective April 1,
1994, the name of the Equity Income Division was changed to the Tilt Utility
Division.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
INVESTMENTS
The investments in shares of the Trust are stated at the net asset value per
share of the respective portfolios of the Trust. Investment transactions are
accounted for on the date the shares are purchased or sold. The cost of shares
sold and redeemed is determined on the first-in, first-out method. Dividends and
capital gain distributions received from the Trust are reinvested in additional
shares of the Trust and are recorded as income by the Fund on the ex-dividend
date.
FEDERAL INCOME TAXES
For federal income tax purposes, operations of the Fund are combined with
those of First Variable Life which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimated and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
6
<PAGE>
First Variable Life Inurance Company
First Variable Annuity Fund E
Notes to Financial Statements (continued)
3. INVESTMENTS
The following table presents selected data for investments in each of the
Portfolios of the Trust at December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF NET ASSET
SHARES COST VALUE
---------- ------------- --------------
<S> <C> <C> <C>
Cash Management Portfolio........................................ 8,280,967 $ 8,280,967 $ 8,280,967
Common Stock Portfolio........................................... 616,518 13,978,802 15,946,892
High Income Bond Portfolio....................................... 881,679 7,646,057 7,573,144
Multiple Strategies Portfolio.................................... 1,794,562 20,361,577 21,611,312
Tilt Utility Portfolio........................................... 856,190 12,117,345 13,445,900
U.S. Government Bond Portfolio................................... 767,443 8,054,655 8,065,649
World Equity Portfolio........................................... 1,107,497 14,167,180 15,277,389
Growth & Income Portfolio........................................ 298,528 3,290,382 3,334,758
Small Cap Portfolio.............................................. 301,624 3,739,728 3,811,518
------------- --------------
Totals........................................................... $ 91,636,693 $ 97,347,529
------------- --------------
------------- --------------
</TABLE>
4. CONTRACT OWNERS' EQUITY
Variable contract owners' equity at December 31, 1995 consists of the
following:
<TABLE>
<CAPTION>
ACCUMULATION UNIT
ACCUMULATION UNITS VALUE EQUITY
------------------ ----------------- -------------
<S> <C> <C> <C>
POLICY FORMS 7500.1, 7600.1, 7700 AND 7750
Cash Management Division............................... 228,050.120 $ 14.398 $ 3,283,466
Common Stock Division (7500.1)......................... 29,883.296 24.564 734,053
Common Stock Division.................................. 287,373.021 21.875 6,286,285
High Income Bond Division.............................. 124,434.825 20.290 2,524,783
Multiple Strategies Division........................... 374,792.788 20.732 7,770,204
Tilt Utility Division.................................. 182,817.016 25.279 4,621,431
U.S. Government Bond Division.......................... 244,832.655 18.767 4,594,774
World Equity Division.................................. 288,517.252 16.242 4,686,097
Growth & Income Division............................... 5,469.387 11.228 61,410
Small Cap Division..................................... 14,884.171 12.942 192,631
-------------
Subtotal............................................... 34,755,134
POLICY FORMS 7800 AND 20224
Cash Management Division............................... 406,001.876 $ 11.666 $ 4,736,417
Common Stock Division.................................. 518,976.413 17.054 8,850,625
High Income Bond Division.............................. 309,472.310 16.256 5,030,780
Multiple Strategies Division........................... 795,701.787 17.322 13,783,146
Tilt Utility Division.................................. 455,858.521 19.338 8,815,392
U.S. Government Bond Division.......................... 222,013.135 15.320 3,401,241
World Equity Division.................................. 719,093.581 14.674 10,551,979
Growth & Income Division............................... 289,199.736 11.218 3,244,244
Small Cap Division..................................... 278,163.224 12.931 3,596,929
-------------
Subtotal............................................... 62,010,753
</TABLE>
7
<PAGE>
First Variable Life Inurance Company
First Variable Annuity Fund E
Notes to Financial Statements (continued)
4. CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION UNIT
ACCUMULATION UNITS VALUE EQUITY
------------------ ----------------- -------------
<S> <C> <C> <C>
POLICY FORM 20230
Cash Management Division............................... 0 10.062 $ 0
Common Stock Division.................................. 6,025.716 10.142 61,113
High Income Bond Division.............................. 1,905.344 10.172 19,381
Multiple Strategies Division........................... 5,994.964 10.153 60,867
Tilt Utility Division.................................. 918.035 10.619 9,749
U.S. Government Bond Division.......................... 7,531.518 10.300 77,575
World Equity Division.................................. 3,988.553 10.240 40,843
Growth & Income Division............................... 2,754.282 10.631 29,281
Small Cap Division..................................... 2,212.444 10.361 22,923
-------------
Subtotal $ 321,732
-------------
Total $ 97,087,619
-------------
-------------
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of Trust shares by the Fund during
the period ended December 31, 1995 are shown below.
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Cash Management Portfolio................................................ $ 23,294,272 $ 21,253,764
Common Stock Portfolio................................................... 10,900,222 7,259,116
High Income Bond Portfolio............................................... 7,272,026 5,641,323
Multiple Strategies Portfolio............................................ 7,737,227 5,109,698
Tilt Utility Portfolio................................................... 6,357,887 4,766,977
U.S. Government Bond Portfolio........................................... 3,760,450 5,882,170
World Equity Portfolio................................................... 10,391,152 5,430,801
Growth & Income Portfolio................................................ 3,449,539 172,321
Small Cap Portfolio...................................................... 5,209,053 1,592,684
------------- -------------
Totals................................................................... $ 78,371,828 $ 57,108,854
------------- -------------
------------- -------------
</TABLE>
6. EXPENSES
First Variable Life charges the Fund, based on the value of the Fund, at an
annual rate of 0.6% for mortality risks, 0.15% for distribution expense risks
and .40% for administrative expense risks, on policies issued prior to May 1,
1987 which were not exchanged from policy form 7500.1 to policy form 7600.1.
First Variable Life charges the Fund, based on the value of the Fund, at an
annual rate of 0.75% for mortality expense risks and 0.50% for administrative
expense risks on policies issued after April 30, 1987 and on policies exchanged
for policy form 7600.1. First Variable Life charges the Fund, based on the value
of the Fund, at an annual rate of 0.85% for mortality risks, 0.40% for expense
risks and 0.15% for administrative charges on policies issued under policy forms
7800 and 20224. First Variable Life charges the Fund, based on the value of the
Fund, at an annual value of 0.85% for mortality risks, 0.40% for expense risks
and 0.25% for administrative charges on policies issued under policy form 20230.
Total charges to the Fund for all the policy forms for the period ended December
31, 1995 were $1,046,537.
8
<PAGE>
First Variable Life Inurance Company
First Variable Annuity Fund E
Notes to Financial Statements (continued)
7. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefits plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments of
the segregated asset account on which the contract is based are not adequately
diversified. The Code provides that the "adequately diversified" requirement may
be met if the underlying investments satisfy either a statutory safe harbor test
or diversification requirements set forth in regulations issued by the Secretary
of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. First Variable Life believes that the Fund satisfies the current
requirements of the regulations, and it intends that the Fund will continue to
meet such requirements.
8. PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR
First Variable Capital Services, Inc., a wholly-owned subsidiary of First
Variable Life, is principal underwriter and general distributor of the contracts
issued through the Fund.
9. INVESTMENT ADVISORY AND BUSINESS MANAGEMENT AGREEMENTS
On December 17, 1993, the Trustees of the Trust voted to terminate the
existing Investment Advisory and Business Management Agreements between the
Trust and INVESCO Capital Management, Inc., and to approve a new Investment
Advisory Agreement between the Trust and First Variable Advisory Services Corp.,
a wholly-owned subsidiary of First Variable Life. These changes became effective
on April 1, 1994.
9
<PAGE>
Financial Statements
First Variable Life Insurance Company--First Variable Annuity Fund E
Period ended September 30, 1996 (unaudited)
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statement of Assets, Liabilities and
Contract Owners' Equity
September 30, 1996--(Unaudited)
<TABLE>
<CAPTION>
HIGH
CASH COMMON INCOME MULTIPLE TILT U.S.
MANAGEMENT STOCK BOND STRATEGIES UTILITY GOVERNMENT
TOTAL DIVISION DIVISION DIVISION DIVISION DIVISION BOND DIVISION
----------- ------------ ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in Variable Investors Series
Trust at value (cost $117,766,413)..... $28,739,427 $6,528,022 $23,781,817 $9,586,616 $25,881,272 $13,322,323 $ 7,510,101
Receivable from First Variable Life
Insurance Company...................... 133 133
----------- ------------ ---------- ---------- ---------- ---------- -------------
Total................................... $128,739,560 $6,528,022 $23,781,817 $9,586,616 $25,881,272 $13,322,456 $ 7,510,101
----------- ------------ ---------- ---------- ---------- ---------- -------------
----------- ------------ ---------- ---------- ---------- ---------- -------------
LIABILITIES
Payable to First Variable Life Insurance
Company................................ 14,773 6,450 3,735 399 899 133
----------- ------------ ---------- ---------- ---------- ---------- -------------
Total liabilities....................... 14,773 6,450 3,735 399 899 133
Contract owners' equity:
Annuity contracts in payment period... 242,112 242,112
Variable annuity contractowners'
equity.............................. 128,482,675 6,279,460 23,778,082 9,586,217 25,880,373 13,322,456 7,509,968
----------- ------------ ---------- ---------- ---------- ---------- -------------
Total contract owners' equity........... 128,724,787 6,521,572 23,778,082 9,586,217 25,880,373 13,322,456 7,509,968
----------- ------------ ---------- ---------- ---------- ---------- -------------
Total liabilities and contractowners'
equity................................. $128,739,560 $6,528,022 $23,781,817 $9,586,616 $25,881,272 $13,322,456 $ 7,510,101
----------- ------------ ---------- ---------- ---------- ---------- -------------
----------- ------------ ---------- ---------- ---------- ---------- -------------
<CAPTION>
WORLD GROWTH AND SMALL
EQUITY INCOME CAP
DIVISION DIVISION DIVISION
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments in Variable Investors Series
Trust at value (cost $117,766,413)..... $20,889,123 $8,680,045 $12,560,108
Receivable from First Variable Life
Insurance Company......................
---------- ---------- ----------
Total................................... $20,889,123 $8,680,045 $12,560,108
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES
Payable to First Variable Life Insurance
Company................................ 968 459 1,730
---------- ---------- ----------
Total liabilities....................... 968 459 1,730
Contract owners' equity:
Annuity contracts in payment period...
Variable annuity contractowners'
equity.............................. 20,888,155 8,679,586 12,558,378
---------- ---------- ----------
Total contract owners' equity........... 20,888,155 8,679,586 12,558,378
---------- ---------- ----------
Total liabilities and contractowners'
equity................................. $20,889,123 $8,680,045 $12,560,108
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
1
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statement of Operations
Period ended September 30, 1996--(Unaudited)
<TABLE>
<CAPTION>
HIGH
CASH COMMON INCOME MULTIPLE TILT U.S.
MANAGEMENT STOCK BOND STRATEGIES UTILITY GOVERNMENT
TOTAL DIVISION DIVISION DIVISION DIVISION DIVISION BOND DIVISION
---------- ------------ ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends.............................. $1,153,013 $ 358,972 $ 103,838 $ 65,865 $ 94,243 $ 169,879 $ 90,831
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges...... 1,161,169 102,425 192,170 83,066 231,018 141,496 76,220
---------- ------------ ---------- ---------- ---------- ---------- -------------
Total expenses........................... 1,161,169 102,425 192,170 83,066 231,018 141,496 76,220
---------- ------------ ---------- ---------- ---------- ---------- -------------
Net investment income (expense).......... (8,156) 256,547 (88,332) (17,201) (136,775) 28,383 14,611
Realized and unrealized gain (loss)
investments on investments:
Realized gain (loss) on Series Trust:
Variable Investors Series Trust
shares redeemed.................... 4,164,093 1,886,983 246,920 499,694 95,696 (74,134)
Net unrealized appreciation
(depreciation) on investments
during the period.................. 5,262,176 1,543,583 495,159 2,505,060 (829,010) (70,057)
---------- ------------ ---------- ---------- ---------- ---------- -------------
Net realized and unrealized gain on
investments............................. 9,426,269 3,430,566 742,079 3,004,754 (733,314) (144,191)
---------- ------------ ---------- ---------- ---------- ---------- -------------
Net increase (decrease) in net assets
resulting from operations............... $9,418,113 $ 256,547 $3,342,234 $ 724,878 $2,867,979 $ (704,931) $ (129,580)
---------- ------------ ---------- ---------- ---------- ---------- -------------
---------- ------------ ---------- ---------- ---------- ---------- -------------
<CAPTION>
WORLD GROWTH AND SMALL
EQUITY INCOME CAP
DIVISION DIVISION DIVISION
---------- ---------- ----------
<S> <C> <C> <C>
Investment income:
Dividends.............................. $ 213,784 $ 15,621 $ 39,980
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges...... 192,013 65,864 76,897
---------- ---------- ----------
Total expenses........................... 192,013 65,864 76,897
---------- ---------- ----------
Net investment income (expense).......... 21,771 (50,243) (36,917)
Realized and unrealized gain (loss)
investments on investments:
Realized gain (loss) on Series Trust:
Variable Investors Series Trust
shares redeemed.................... 1,051,067 115,043 342,824
Net unrealized appreciation
(depreciation) on investments
during the year.................... (100,579) (84,029) 1,802,049
---------- ---------- ----------
Net realized and unrealized gain on
investments............................. 950,488 31,014 2,144,873
---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations............... $ 972,259 $ (19,229) $2,107,956
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statements of Changes in Net Assets
Periods ended September 30, 1996 - (Unaudited) and December 31, 1995 - (Audited)
<TABLE>
<CAPTION>
CASH MANAGEMENT COMMON STOCK HIGH INCOME
TOTAL DIVISION DIVISION BOND DIVISION
----------------------- ---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995 1996 1995
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)..................... $ (8,156) $5,352,071 $ 256,547 $ 321,757 $ (88,332) $ 764,949 $ (17,201) $ 574,269
Realized gain (loss) on
Variable Investors Series
Trust shares redeemed...... 4,164,093 47,339 1,886,983 892,623 246,920 (325,633)
Net unrealized appreciation
(depreciation) on
investment during the
period..................... 5,262,176 11,878,900 1,543,583 2,078,887 495,159 763,785
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations................. 9,418,113 17,278,310 256,547 321,757 3,342,234 3,736,459 724,878 1,012,421
FROM CONTRACTOWNER
TRANSACTIONS
Net proceeds from sale of
accumulation units......... 26,760,675 31,781,440 8,884,936 11,592,315 2,740,284 2,892,495 1,321,330 1,825,744
Cost of accumulation units
terminated and exchanged... (4,819,128) (16,119,230)(10,900,858)(10,154,829) 1,747,044 247 (34,935) (767,511)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets from contractowner
transactions............... 21,941,547 15,662,210 (2,015,922) 1,437,486 4,487,328 2,892,742 1,286,395 1,058,233
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets..................... 31,359,660 32,940,520 (1,759,375) 1,759,243 7,829,562 6,629,201 2,011,273 2,070,654
Net assets at beginning of
period..................... 97,365,127 64,424,607 8,280,947 6,521,704 15,948,520 9,319,319 7,574,944 5,504,290
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of
period..................... $128,724,787 $97,365,127 $6,521,572 $8,280,947 $23,778,082 $15,948,520 $9,586,217 $7,574,944
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
MULTIPLE STRATEGIES
DIVISION
----------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATIONS
Net investment income
(loss)..................... $ (136,775) $1,708,699
Realized gain (loss) on
Variable Investors Series
Trust shares redeemed...... 499,694 (363,483)
Net unrealized appreciation
(depreciation) on
investment during the
period..................... 2,505,060 3,447,663
---------- ----------
Net increase (decrease) in
net assets resulting from
operations................. 2,867,979 4,792,879
FROM CONTRACTOWNER
TRANSACTIONS
Net proceeds from sale of
accumulation units......... 2,665,268 3,644,779
Cost of accumulation units
terminated and exchanged... (1,267,091) (2,723,046)
---------- ----------
Increase (decrease) in net
assets from contractowner
transactions............... 1,398,177 921,733
---------- ----------
Increase (decrease) in net
assets..................... 4,266,156 5,714,612
Net assets at beginning of
period..................... 21,614,217 15,899,605
---------- ----------
Net assets at end of
period..................... $25,880,373 $21,614,217
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
First Variable Life Insurance Company
First Variable Annuity Fund E
Statements of Changes in Net Assets (continued)
Periods ended September 30, 1996 - (Unaudited) and December 31, 1995 - (Audited)
<TABLE>
<CAPTION>
TILT UTILITY U.S. GOVERNMENT WORLD EQUITY GROWTH AND
DIVISION BOND DIVISION DIVISION INCOME DIVISION
----------------------- ---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995 1996 1995(1)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)..................... $ 28,383 $ 491,113 $ 14,611 $ 695,249 $ 21,771 $ 682,769 $ (50,243) $ 28,149
Realized gain (loss) on
Variable Investors Series
Trust shares redeemed...... 95,696 (510,575) (74,134) (433,224) 1,051,067 651,108 115,043 13,164
Net unrealized appreciation
(depreciation) on
investment during the
Period..................... (829,010) 3,134,928 (70,057) 1,155,615 (100,579) 1,181,856 (84,029) 44,376
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations................. (704,931) 3,115,466 (129,580) 1,417,640 972,259 2,515,733 (19,229) 85,689
FROM CONTRACTOWNER
TRANSACTIONS
Net proceeds from sale of
accumulation units......... 1,108,348 2,850,015 671,335 833,394 2,546,710 4,087,219 2,791,782 2,069,284
Cost of accumulation units
terminated and exchanged... (527,533) (1,749,546) (1,105,377) (3,642,421) 2,090,267 191,892 2,572,098 1,179,962
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets from contractowner
transactions............... 580,815 1,100,469 (434,042) (2,809,027) 4,636,977 4,279,111 5,363,880 3,249,246
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net
assets..................... (124,116) 4,215,935 (563,622) (1,391,387) 5,609,236 6,794,844 5,344,651 3,334,935
Net assets at beginning of
period..................... 13,446,572 9,230,637 8,073,590 9,464,977 15,278,919 8,484,075 3,334,935
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of
period..................... $13,322,456 $13,446,572 $7,509,968 $8,073,590 $20,888,155 $15,278,919 $8,679,586 $3,334,935
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
SMALL CAP DIVISION
----------------------
1996 1995(2)
---------- ----------
<S> <C> <C>
OPERATIONS
Net investment income
(loss)..................... $ (36,917) $ 85,117
Realized gain (loss) on
Variable Investors Series
Trust shares redeemed...... 342,824 123,359
Net unrealized appreciation
(depreciation) on
investment during the
Period..................... 1,802,049 71,790
---------- ----------
Net increase (decrease) in
net assets resulting from
operations................. 2,107,956 280,266
FROM CONTRACTOWNER
TRANSACTIONS
Net proceeds from sale of
accumulation units......... 4,030,682 1,986,195
Cost of accumulation units
terminated and exchanged... 2,607,257 1,546,022
---------- ----------
Increase (decrease) in net
assets from contractowner
transactions............... 6,637,939 3,532,217
---------- ----------
Increase (decrease) in net
assets..................... 8,745,895 3,812,483
Net assets at beginning of
period..................... 3,812,483
---------- ----------
Net assets at end of
period..................... $12,558,378 $3,812,483
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
(1) FROM COMMENCEMENT OF OPERATIONS MAY 31, 1995.
(2) FROM COMMENCEMENT OF OPERATIONS MAY 4, 1995.
4
<PAGE>
First Variable Life Inurance Company
First Variable Annuity Fund E
Notes to Financial Statements
September 30, 1996 (unaudited)
1. ORGANIZATION
First Variable Annuity Fund E (the Fund) is a segregated account of First
Variable Life Insurance Company (First Variable Life) and is registered as a
unit investment trust under the Investment Company Act of 1940, as amended,
(1940 Act). Each of the nine investment divisions of the Fund are invested
solely in the shares of the nine corresponding portfolios of the Variable
Investors Series Trust (the Trust), a no-load, diversified, open-end, series
management investment company registered under the 1940 Act. Under applicable
insurance law, the assets and liabilities of the Fund are clearly identified and
distinguished from the other assets and liabilities of First Variable Life. The
Fund cannot be charged with liabilities arising out of any other business of
First Variable Life.
First Variable Life is a wholly-owned subsidiary of Irish Life of North
America, Inc. (ILoNA), which is a wholly-owned subsidiary of Irish Life, plc.
(Irish Life) of Dublin, Ireland. All outstanding shares of the Company were
purchased by ILoNA from Monarch Life Insurance Company (Monarch Life), a
Massachusetts life insurance company, on September 22, 1994. First Variable Life
is domiciled in the State of Arkansas.
The assets of the Fund are not available to meet the general obligations of
First Variable Life or ILoNA and are held for the exclusive benefit of the
contractowners participating in the Fund.
The Small Cap Division commenced operations on May 4, 1995 and the Growth
and Income Division commenced operations on May 31, 1995. Effective April 1,
1994, the name of the Equity Income Division was changed to the Tilt Utility
Division.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
INVESTMENTS
The investments in shares of the Trust are stated at the net asset value per
share of the respective portfolios of the Trust. Investment transactions are
accounted for on the date the shares are purchased or sold. The cost of shares
sold and redeemed is determined on the first-in, first-out method. Dividends and
capital gain distributions received from the Trust are reinvested in additional
shares of the Trust and are recorded as income by the Fund on the ex-dividend
date.
FEDERAL INCOME TAXES
For federal income tax purposes, operations of the Fund are combined with
those of First Variable Life which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimated and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
5
<PAGE>
First Variable Life Inurance Company
First Variable Annuity Fund E
Notes to Financial Statements (continued)
September 30, 1996 (unaudited)
GENERAL
The accompanying unaudited financial statements include all adjustments,
consisting of normal recurring accruals, that management considers necessary for
fair presentation of the Fund's financial position and results of operations as
of and for the interim periods presented. Certain footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, although the
Fund believes the disclosures in these financial statements are adequate to
present fairly the information contained herein. The results of operations for
the nine months ended September 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
6
<PAGE>
Financial Statements
First Variable Life Insurance Company
Year ended December 31, 1995 and December 31, 1994
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholder
First Variable Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of First
Variable Life Insurance Company (the Company) as of December 31, 1995 and 1994,
and the related statutory-basis statements of operations, capital and surplus,
and cash flow for the years then ended. 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 of the accompanying statutory-basis financial
statements in accordance with generally accepted auditing standards; however, as
discussed in the following paragraph, we were not engaged to determine or audit
the effects of the variances between statutory accounting practices and
generally accepted accounting principles. Generally accepted auditing 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 on the accompanying statutory-
basis financial statements.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Arkansas Insurance Department. When
statutory-basis financial statements are presented for purposes other than for
filing with a regulatory agency, generally accepted auditing standards require
that the auditors' report on such statements indicate whether they are presented
in conformity with generally accepted accounting principles. The accounting
practices used by the Company vary from generally accepted accounting principles
as explained in Note 1, and the Company has not determined the effects of those
variances. Accordingly, we were not engaged to audit, and we did not audit, the
effects of those variances. Since the accompanying financial statements do not
purport to be a presentation in conformity with generally accepted accounting
principles, we are not in a position to express, and we do not express, an
opinion on the financial statements referred to above as to fair presentation of
financial position, results of operations or cash flows in conformity with
generally accepted accounting principles.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of First
Variable Life Insurance Company at December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting practices prescribed or permitted by the Arkansas Insurance
Department.
/s/Ernst & Young LLP
---------------------------------------------------------------
Ernst & Young LLP
Boston, Massachusetts
January 25, 1996
1
<PAGE>
First Variable Life Insurance Company
Balance Sheets--Statutory Basis
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds............................................................ $ 302,616 $ 247,511
Common stocks.................................................... 343 476
Cash and short-term investments.................................. 5,564 54,731
--------- ---------
Total cash and invested assets..................................... 308,523 302,718
Investment income due and accrued.................................. 5,943 5,199
Other admitted assets.............................................. 404 171
Separate account assets............................................ 132,176 94,282
--------- ---------
Total admitted assets.............................................. $ 447,046 $ 402,370
--------- ---------
--------- ---------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Annuity contract reserve......................................... $ 272,804 $ 261,934
Interest maintenance reserve..................................... 4,833 4,945
Federal income taxes............................................. 0 17
Remittances not allocated........................................ (365) 1,935
Asset valuation reserve.......................................... 2,954 2,783
Transfers from separate accounts................................. (1,369) (1)
Payable to affiliates............................................ 1 58
Other liabilities................................................ 1,375 4,743
Separate account liabilities..................................... 132,176 94,282
--------- ---------
Total liabilities.................................................. 412,409 370,696
Capital and surplus:
Capital stock, par value $1.00 per share:
Authorized 3,500,000 shares Issued and outstanding 2,500,000
shares....................................................... 2,500 2,500
Additional paid-in capital....................................... 22,555 17,555
Unassigned surplus............................................... 9,582 11,619
--------- ---------
Total capital and surplus.......................................... 34,637 31,674
--------- ---------
Total liabilities and capital and surplus.......................... $ 447,046 $ 402,370
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
First Variable Life Insurance Company
Balance Sheets--Statutory Basis
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Premiums and other revenues:
Premiums and other considerations................................. $ 67,063 $ 109,941
Investment income, less investment expenses....................... 22,939 17,425
Other income...................................................... 598 811
--------- ---------
Total premiums and other revenues................................... 90,600 128,177
Benefits and expenses
Benefit payments to policyholders and beneficiaries............... 62,339 71,385
Increase in annuity contract reserve.............................. 10,870 69,954
--------- ---------
Total benefits paid or provided..................................... 73,209 141,339
Insurance expenses:
Commissions....................................................... 3,738 1,560
General insurance expenses........................................ 5,693 4,979
Insurance taxes, licenses and fees................................ 309 932
Other............................................................. 302 115
--------- ---------
Total insurance expenses............................................ 10,042 7,586
--------- ---------
83,251 148,925
Net transfers to (from) separate accounts........................... 9,133 (20,359)
--------- ---------
Loss from operations before federal income tax benefit and net
realized capital losses............................................ (1,784) (389)
Federal income tax benefit.......................................... (17) (43)
--------- ---------
Loss from operations before net realized capital gains (losses)..... (1,767) (346)
Net realized capital gains (losses), less related federal income tax
expense (1995 $0; 1994 $60) and amounts transferred to the interest
maintenance reserve (1995 ($20); 1994 $470)........................ 307 (228)
--------- ---------
Net loss............................................................ (1,460) (574)
Changes in net unrealized capital gains (losses).................... (133) 7,624
Net (increase) decrease in non-admitted assets...................... (273) 198
(Increase) decrease in asset valuation reserve...................... (171) 1,342
Loss on sale of limited partnerships................................ (8,606)
Contributed capital from parent company............................. 5,000
Net increase (decrease) in capital and surplus...................... 2,963 (16)
--------- ---------
Capital and surplus, beginning of year.............................. 31,674 31,690
--------- ---------
Capital and surplus, end of year.................................... $ 34,637 $ 31,674
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
First Variable Life Insurance Company
Statements of Cash Flow--Statutory Basis
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATIONS
Premiums and other considerations.................................... $ 67,063 $ 110,428
Investment income, less investment expenses.......................... 22,189 16,802
Other income......................................................... 34 762
Benefits............................................................. (62,339) (71,163)
Insurance expenses................................................... (10,056) (6,993)
Federal income taxes paid (recovered)................................ 60 (380)
Transfers to (from) separate accounts................................ (10,207) 20,698
Other expenses....................................................... (303) (439)
--------- ---------
Net cash provided by operations...................................... 6,441 69,715
PROCEEDS FROM INVESTMENTS SOLD, MATURED OR REPAID:
Bonds.............................................................. 19,378 15,450
Common stocks...................................................... 1,807 14
Other invested assets.............................................. 9,685
--------- ---------
21,185 25,149
Tax on capital gains................................................. (60) (590)
OTHER CASH PROVIDED:
Capital and surplus paid in........................................ 5,000
Other sources...................................................... 403 6,213
--------- ---------
Total other cash provided............................................ 5,403 6,213
--------- ---------
Total cash provided.................................................. 32,969 100,487
COST OF INVESTMENTS ACQUIRED:
Bonds.............................................................. (74,567) (49,883)
Common stocks...................................................... (1,500) (14)
Other invested assets.............................................. (258)
--------- ---------
Total cost of investments acquired................................... (76,067) (50,155)
OTHER CASH APPLIED:
Other................................................................ (6,069) (2,618)
--------- ---------
Total cash used...................................................... (82,136) (52,773)
--------- ---------
Increase (decrease) in cash and short-term investments............... (49,167) 47,714
Cash and short-term investments at beginning of year................. 54,731 7,017
--------- ---------
Cash and short-term investments at end of year....................... $ 5,564 $ 54,731
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
FIRST VARIABLE LIFE INURANCE COMPANY
Notes to Financial Statements--Statutory Basis
December 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
First Variable Life Insurance Company (the Company), a life insurance
company domiciled in the State of Arkansas, is a wholly-owned subsidiary of
Irish Life of North America, Inc. (ILoNA), which is owned by Irish Life, plc
(Irish Life) of Dublin, Ireland. All outstanding shares of the Company were
purchased by ILoNA from Monarch Life Insurance Company (Monarch Life), a
Massachusetts life insurance company, on September 22, 1994.
The Company is licensed in 49 states and sells variable and fixed annuity
products through regional wholesalers and insurance brokers.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Arkansas Insurance
Department, which practices differ in some respects from generally accepted
accounting principles (GAAP). The more significant of these differences are as
follows: (a) bonds are generally carried at amortized cost rather than
segregating the portfolio into held-to-maturity (carried at amortized cost),
held-for-sale (carried at fair value), and trading (carried at fair value)
classifications; (b) policy reserves are based on statutory mortality tables
rather than on the basis of the mortality, interest and withdrawal assumptions
anticipated by the Company when the policies were issued, as would be used for
GAAP. Statutory annuity reserves are stated at values which, in the aggregate,
are not less than those prescribed by the Commissioner's Annuity Reserve
Valuation Method (CARVM); for GAAP, annuity reserves would be stated at account
value; (c) expenses relating to the acquisition of new business are charged to
operations as incurred rather than being deferred and amortized over the period
that the related income is earned. Commissions and expense allowances on
reinsurance ceded are recognized as income when due rather than deferred and
amortized over the terms of the respective reinsurance agreements; (d) certain
assets, principally amounts due from other companies and furniture and
equipment, designated as 'nonadmitted assets,' are excluded from the balance
sheet and are charged to unassigned surplus; (e) net realized gains or losses
attributed to changes in the level ofinterest rates in the market are deferred
and amortized over the remaining life of the bond rather than recognized as
gains or losses in the statement of operations when the sale is completed; (f)
declines in the estimated realizable value of investments are recognized through
the establishment of a formula-determined statutory investment reserve (carried
as a liability) whose changes are reflected directly in surplus, rather than
through reductions in the statement of operations, when such declines are judged
to be other than temporary; (g) deferred
5
<PAGE>
First Variable Life Inurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
federal income taxes are not provided for the effects of differences in the
bases of assets and liabilities reported for financial statement and income tax
purposes, as would be the treatment under GAAP; (h) investments in subsidiaries
are carried on the basis of their equity in net assets and changes in the
carrying amounts of subsidiaries are credited or charged directly to unassigned
surplus rather than included in the determination of net income (under GAAP,
wholly-owned subsidiaries are presented on a consolidated basis); (i) net
unrealized investment gains and losses are not segregated as a separate
component of capital and surplus, as is required by GAAP; and (j) pension
expense is recognized in accordance with rules and regulations permitted by the
Employee Retirement Income Security Act of 1974 rather than on an accrual basis.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined.
INVESTMENTS
Investments are valued in accordance with methods prescribed by the
Securities Valuation Office of the National Association of Insurance
Commissioners (NAIC). Investments in bonds not backed by other loans are
generally carried at amortized cost using the interest method. Loan-backed bonds
are valued at amortized cost using the interest method including anticipated
prepayments. Prepayment assumptions are obtained from dealer survey values or
internal estimates and are consistent with the current interest rate and
economic environment. The retrospective adjustment method is used to value all
securities.
Common stocks are generally carried at market value.
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of twelve months or
less to be cash equivalents.
Investments in separate accounts are carried at market value. Cash and
short-term investments are stated at cost which approximates market value.
Realized gains and losses on investments are determined using the first-in,
first-out basis and are recognized in net income, net of related federal income
taxes and amounts transferred to the Interest Maintenance Reserve. Unrealized
capital gains and losses, resulting from changes in the difference between cost
and the carrying value of investments, are reflected in surplus.
Interest income is recognized on an accrual basis. The Company does not
accrue interest on bonds in default or where management determines collection is
uncertain.
ANNUITY CONTRACT RESERVE
The reserves for annuity contracts, all developed by actuarial methods, are
established and maintained on the basis of published mortality tables using
assumed interest rates and valuation methods that will provide, in the
aggregate, reserves that are greater than the minimum valuation required by law
or guaranteed policy cash values.
6
<PAGE>
First Variable Life Inurance Company
Notes to Financial Statements--Statutory Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND COSTS
Premiums are recognized as revenues over the premium-paying period, whereas
commissions and other costs applicable to the acquisition of new business are
charged to operations as incurred.
FEDERAL INCOME TAXES
Generally, the Company records income tax expense based on estimates of
amounts that will be due and payable based on current year's taxable income,
without regard to deferred income taxes.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
balance sheets represent funds that are separately administered for variable
annuity contracts, and for which the contract owner, rather than the Company,
bears the investment risk.
Separate account assets, comprised principally of shares of Variable
Investors Series Trust, primarily represent funds deposited by separate account
contract owners segregated into accounts with specific investment objectives.
The assets are carried at market value. An offsetting liability is maintained to
the extent of contract owners' interests in the assets.
Transfers from separate accounts represent the net premium and benefit
withdrawals between the separate accounts and the Company's general account, as
well as charges assessed the separate accounts for the assumption of mortality,
distribution, administrative and other expense risks, and for administrative
charges by the Company.
PREMIUMS
Approximately 49% of the direct business written in 1995 was written through
one wholesaler. The Company's management believes that other broker/dealers
could generate the same level of sales on comparable terms. Direct premiums are
not concentrated in any geographical area.
USE OF ESTIMATES
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect the amounts reported in
the 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.
7
<PAGE>
First Variable Life Inurance Company
Notes to Financial Statements--Statutory Basis (continued)
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by the Arkansas
Insurance 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. The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of 'prescribed' statutory accounting practices. Accordingly,
that project, which is expected to be completed in 1997, will likely change, to
some extent, prescribed statutory accounting practices, and may result in
changes to the accounting practices that the Company uses to prepare its
statutory financial statements. In 1994, the Company received written approval
from the Arkansas Insurance Department to report a portion of realized losses on
the sale of limited partnerships which related to prior years as a direct charge
to surplus offset by the resultant change in unrealized losses. This transaction
had no net effect on surplus.
8
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
3. INVESTMENT OPERATIONS
Components of net investment income are as follows:
YEAR ENDED DECEMBER 31
1995 1994
----------------------
(IN THOUSANDS)
Bonds $22,016 $16,349
Short-term investments 1,042 1,066
Limited partnership interests 0 31
Amortization of IMR 92 79
Other 10 187
------- -------
23,160 17,712
Less investment expenses (221) (287)
------- -------
Net investment income $22,939 $17,425
------- -------
------- -------
At December 31, 1995 and 1994, the carrying value and estimated fair value of
the Company's portfolio of bonds are as follows:
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR VALUE
VALUE GAINS LOSSES
------------------------------------------------
(IN THOUSANDS)
DECEMBER 31, 1995
Bonds:
U.S. Treasury and other
U.S. Government obligations $35,548 $ 1,212 $ (63) $ 36,697
Public utilities 95,820 5,325 (698) 100,447
Corporate 141,313 11,287 (53) 152,547
Mortgage-backed 29,935 296 (333) 29,898
-------- ------- ------- --------
$302,616 $18,120 $(1,147) $319,589
-------- ------- ------- --------
-------- ------- ------- --------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
------------------------------------------------
(IN THOUSANDS)
DECEMBER 31, 1994
Bonds:
U.S. Treasury and other
U.S. Government obligations $ 31,113 $ 67 $ (2,705) $ 28,475
Public utilities 69,273 162 (7,489) 61,946
Corporate 124,025 1,093 (6,196) 118,922
Mortgage-backed 23,100 16 (2,642) 20,474
-------- ------- ------- --------
$247,511 $ 1,338 $(19,032) $229,817
-------- ------- ------- --------
-------- ------- ------- --------
9
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
The carrying value and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay certain obligations with or without call or prepayment
penalties.
CARRYING VALUE ESTIMATED FAIR
VALUE
-------------- ----------------
(IN THOUSANDS)
Bonds:
Due in one year or less $ 5,735 $ 5,707
Due after one year
through five years 46,118 48,889
Due after five years
through ten years 123,424 129,144
Due after ten years 97,404 105,951
Mortgage-backed securities 29,935 29,898
------- --------
$302,616 $319,589
-------- --------
-------- --------
Proceeds from the sales of investments in bonds during 1995 and 1994 were
$19.4 million and $0; gross gains of $0.4 million and $0 and gross losses of
$0.4 million and $0 were realized on those sales, respectively.
At December 3l, 1995, First Variable's investments with a carrying value of
$57.1 million, were held on deposit with various state insurance departments.
The Company's affiliated common stock investments represent its wholly-owned
subsidiaries, First Variable Capital Services, Inc. (FVCS), a registered
broker-dealer which commenced operations on December 1, 1992, and First
Variable Advisory Services Corp. (FVAS), an investment advisor which
commenced operations on April 1, 1994. The cost and carrying value of the
Company's affiliated common stock investments was $18,000 and $21,000,
respectively at both December 31, 1995 and 1994.
The Company's unaffiliated common stock had a cost of $16,000 at both
December 31, 1995 and 1994, and carrying value of $322,000 and $455,000 at
December 31, 1995 and 1994, respectively.
Effective August 31, 1994, the Company transferred all limited partnership
assets to its former parent for the then current statement value. As stated
in Note 2, the Company classified losses incurred in prior years as a direct
charge to surplus offset by the resultant change in unrealized losses.
10
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
The Company's investment in public utility bonds at December 31, 1995
represents 32% of total investments and 21% of admitted assets. The holdings
of public utility bonds are widely diversified and all issues met the
Company's investment policies and credit standards when purchased.
4. POLICY AND CONTRACT ATTRIBUTES
ANNUITY CONTRACT RESERVES
The Company's major categories of reserves for annuity contracts and
supplementary contracts at December 31, 1995 and 1994 are summarized below:
1995 1994
--------------------
(IN THOUSANDS)
Annuities $242,147 $233,229
Supplementary contracts with
life contingencies 11,114 11,483
Supplementary contracts without
life contingencies 19,543 17,222
-------- --------
Life and annuity reserves $272,804 $261,934
-------- --------
-------- --------
At December 31, 1995, the Company's annuity contract reserves 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:
AMOUNT PERCENT
------------------
(IN THOUSANDS)
Subject to discretionary withdrawal
(with adjustment):
With market value adjustment $ 32,443 8%
Subject to discretionary withdrawal
(without adjustment) at book value with
minimal or no charge or adjustment 339,232 84
Not subject to discretionary withdrawal 31,724 8
--------- ----
Total annuity reserves and deposit
fund liabilities $403,399 100%
--------- ----
--------- ----
11
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
5. FEDERAL INCOME TAXES
Differences between financial statement operating income before federal
income taxes and taxable income are primarily attributed to differences
between book and tax bases for investments, annuity contract reserves and tax
basis deferred acquisition costs.
The Company filed an election under Internal Revenue Code Section 338(h)(10)
which allowed the Company to record its tax-basis assets at market value at
the date the Company was acquired by ILoNA. The resulting tax-basis goodwill
will be amortized over a 10-15 year period.
In 1994, the Company filed its own separate federal income tax return
covering the period September 22, 1994 to December 31, 1994. From 1991 until
September 21, 1994, the Company was included in the consolidated
life/non-life federal income tax returns of Regal Re, the Company's former
ultimate parent, for which taxes were provided under a written tax allocation
agreement entered into on September 23, 1992. This agreement terminated
effective September 21, 1994. There was a consolidated loss for 1994. Under
the tax allocation agreement, there was no provision for tax in 1994.
6. BENEFIT PLANS
Effective with the Company's purchase by ILoNA, substantially all of the
Company's employees became participants in a defined benefit pension plan
which ILoNA sponsors for its affiliated companies. Benefits are based on
years of service and the highest consecutive five years of compensation out
of an employee's final ten years of employment. The Company makes annual
contributions to the plan in amounts necessary to provide for normal costs
and appropriate prior service costs. No pension expense was recognized in
the current year because the plan was subject to the full funding limitation
under the Internal Revenue Code. As of the most recent actuarial valuation
date, the total accumulated benefit obligation determined in accordance with
the Employee Retirement Income Security Act of 1974 (ERISA) and valued as of
January 1, 1995 was $2.9 million including vested benefits of $2.8 million.
The fair value of plan assets was $3.6 million.
Substantially all of the Company's employees are eligible for a 401(k)
Employee Saving Plan sponsored by ILoNA. Employees can contribute up to 15%
of their annual salary (with a maximum contribution of $9,240 in 1995) to the
plan. The Company contributes an additional amount, subject to limitations,
based on the voluntary contribution of the employee. Further, the plan
provides for additional employer contributions based on the discretion of the
Board of Directors. There is an incentive compensation plan for certain
officers of the Company.
12
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
7. REINSURANCE
During 1994, the Company maintained a reinsurance agreement with Monarch
Life, on a coinsurance basis, whereby the Company ceded to Monarch Life
certain single-premium deferred annuity policies. This reinsured business
was recaptured effective August 30, 1994 at the time of the Company's
acquisition by ILoNA. The effect of the recapture was an increase in
premiums of $74 million and an increase in reserves of $72 million, resulting
in a gain from the transaction, reflected in operations, of $2 million. In
1994, the Company received $.4 million from Monarch Life for expense
allowances for administration of the policies reinsured. At December 31,
1995 and 1994, there is no reinsurance in effect.
Additional information on direct business written and reinsurance ceded for
the year 1994 is set forth below:
1994
-------------
(IN THOUSANDS)
Direct premiums $ 30,534
Reinsurance recaptured from Monarch Life 74,755
---------
Net premiums $ 105,289
---------
---------
Direct annuity benefits and payments
on supplementary contracts incurred $ 14,181
Reinsurance ceded to Monarch Life (715)
---------
Net annuity benefits and payments on
supplementary contracts incurred $ 13,466
---------
---------
8. DIVIDEND RESTRICTIONS AND COMMON STOCK DIVIDEND
The maximum amount of dividends which could be paid to the Company's
stockholder would normally be restricted to the greater of 10% of the surplus
at the preceding December 31 or the net income from operations for the
previous year. This amount is $3.5 million at December 31, 1995; however,
pursuant to a directive received from the Arkansas Insurance Department in
1991, any proposed payment of a dividend currently requires its approval.
On December 14, 1994, the Company's board of directors authorized a 2/3 for 1
common stock dividend to increase the Company's capital stock to $2.5 million
to meet the minimum statutory capital requirement as mandated by certain
states in which the Company does business. The additional $1.0 million was
transferred to capital stock from additional paid in capital.
13
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
9. SEPARATE ACCOUNTS RECONCILIATION
The separate accounts of the Company represent funds related to variable
annuity products. There are no guarantees associated with the separate
account portion of these products. The assets for these accounts are carried
at market value. Information regarding the separate accounts of the Company
as of and for the year ended December 31, 1995 is as follows:
Premiums, deposits and other considerations $ 30,534
---------
---------
Reserves for separate accounts with assets at:
Fair value $ 130,807
Amortized cost 0
---------
Total $ 130,807
---------
---------
Reserves for separate accounts by withdrawal
characteristics:
At book value less current surrender charge of
5% or more $ 15,674
At book value less current surrender charge of
5% or less 114,822
---------
130,496
---------
Not subject to discretionary withdrawal 311
---------
Total separate account liabilities $ 130,807
---------
---------
Following is a reconciliation of transfers as reported in the separate
account annual statement summary of operations and the Company's statement of
operations for the year ended December 31, 1995 (in thousands):
Transfers to separate accounts $ 33,541
Transfers from separate accounts (24,408)
---------
Net transfers to (from) separate
accounts as reported in the separate
account summary of operations $ 9,133
---------
---------
Transfers as reported in the Company's
statement of operations $ 9,133
---------
---------
Contract owners' interest in net investment income and realized and
unrealized capital gains and losses on separate account assets are not
reflected in operations. Fees charged on separate account contract owner
deposits are included in operations in the transfers from separate accounts
line. These fees during 1995 and 1994 amounted to $1.5 million and $1.3
million, respectively.
14
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
10. CONTINGENCIES
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments may
be partially recovered through a reduction in future premium taxes in certain
states. At December 31, 1995 and 1994, the Company has accrued $.1 million and
$.2 million, respectively, for guaranty fund assessments based on its historical
experience and information available from those making guaranty fund
assessments.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair value disclosures for financial instruments in the accompanying financial
statements and notes thereto:
INVESTMENTS: Fair values for bonds are based on quoted market prices, where
available. For securities not actively traded, fair values are estimated using
values obtained from independent pricing services. The fair values for common
stocks are based on quoted market prices.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
accompanying statutory-basis balance sheets for these financial instruments
approximate their fair values.
ANNUITY CONTRACT RESERVES: Fair values of the Company's liabilities under
contracts not involving significant mortality or morbidity risks (principally
deferred annuities), are stated at the cost the Company would incur to
extinguish the liability, i.e., the cash surrender value. The Company is not
required to estimate the fair value of its liabilities under other contracts.
15
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
11. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments for which it is practicable to calculate a fair value are as
follows:
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
--------------------------------------------------
(IN THOUSANDS)
Assets:
Bonds $302,616 $319,589 $247,511 $229,817
Common stocks 343 343 476 476
Liabilities:
Annuities and supplementary
contracts with and without
life contingencies 272,804 271,212 261,934 260,318
12. RELATED-PARTY TRANSACTIONS
In addition to the related-party transactions reported in Notes 3, 5 and 6,
the Company has participated in the following related-party transactions:
The Company has agreements with its wholly-owned subsidiaries, FVCS and FVAS,
under which the Company performs various services (including accounting and
data processing) without charge to the subsidiaries. In addition, the
Company reimburses FVCS and FVAS for all direct costs incurred by FVCS and
FVAS in their operations. During 1995 and 1994, the Company reimbursed FVCS
and FVAS $282,000 and $325,000, respectively, for these costs.
In accordance with the Company's investment advisory services agreement with
FVAS, the Company will reimburse FVAS if FVAS's revenues are inadequate to
meet its obligations. Included in the 1995 and 1994 reimbursement of
$282,000 and $325,000, respectively, noted above was $274,000 and $233,000,
respectively, related to this agreement.
The Company entered into an Expense Allocation Agreement with Monarch Life
and other affiliates on October 1, 1993. The agreement provided a
methodology for allocating and reimbursing both direct and overhead expenses.
Amounts allocated to the Company pursuant to this agreement were $1.6
million for 1994. The agreement was terminated on September 21, 1994.
16
<PAGE>
First Variable Life Insurance Company
Notes to Financial Statements -- Statutory Basis (continued)
12. RELATED-PARTY TRANSACTIONS (CONTINUED)
A management agreement was entered into with ILoNA in January 1995 to provide
for certain management services. In addition, an expense allocation agreement
was entered into with Interstate Assurance Company, a subsidiary of ILoNA, to
provide for certain administrative functions. Amounts paid during 1995 by the
Company pursuant to these agreements were $480,000 and $190,000, respectively.
17
<PAGE>
PART C
<PAGE>
FIRST VARIABLE ANNUITY FUND E
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements
The financial statements of the Separate Account as of December 31, 1995
and September 30, 1994 (Unaudited)
The financial statements of the Company as of December 31, 1995 and
December 31, 1994
(b) EXHIBITS
--------
1. Resolution of Board of Directors for the Company authorizing the
establishment of the Separate Account*
2. Not Applicable
3(a). Form of Principal Underwriter's Agreement**
(b). Form of Broker-Dealer Agreement**
(c). Specimen Broker-Dealer Supervisory and Selling Agreement#
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract#
5. Application for Variable Annuity#
6(a). Articles of Incorporation##
(b) By-laws of First Variable Life Insurance Company**
7. Not Applicable
8. Form of Fund Participation Agreements#
9. Opinion and Consent of Counsel
10. Consent of Independent Auditors
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Date
14. Not Applicable
27. Financial Data Schedule
<PAGE>
* Incorporated herein by reference to the Form S-6 Registration Statement
of First Variable Life Insurance Company and Separate Account VL, filed
electronically with the Securities and Exchange Commission on June 3, 1996
(File No. 333-05053).
** Incorporated herein by reference to the Pre-Effective Amendment No. 1
to the Form S-6 Registration Statement of First Variable Life Insurance
Company and Separate Account VL, filed electronically with the Securities and
Exchange Commission on November 15, 1966 (File No. 333-05053).
# Incorporated by reference to the Registrant's Post-Effective Amendment
No. 22 to Form N-4 (File Nos. 333-12197 and 811-4092) as filed via Edgar on
September 14, 1996.
# # Incorporated by reference to the Registrant's Post-Effective Amendment
No. 5 to Form N-4 (File Nos. 33-35749 and 811-4092) as filed on or about
December 30, 1993.
ITEM 25. OFFICERS AND DIRECTORS OF DEPOSITOR
The following are the Officers and Directors of the Company.
NAME AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES WITH THE DEPOSITOR
- ------------------- ----------------------------------------
Ronald M. Butkiewicz Chairman and Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Stephan M. Largent President and Director
10 Post Office Square
Boston, MA 02109
Michael J. Corey Director
401 East Host Drive
Lake Geneva, WI 53147
Michael R. Ferrari Director
25th & University Avenue
Des Moines, IA 50311
Stephan Shone Director
Lower Abbey Street
Dublin 1, Ireland
T. David Kingston Director
Lower Abbey Street
Dublin 1, Ireland
Jeff S. Liebmann Director
1301 Avenue of the Americas
New York, NY 10019
Kenneth R. Meyer Director
200 South Wacker Drive, Suite 2100
Chicago, IL 60606
<PAGE>
ITEM 25 (CONTINUED)
- -------------------
Phillip R. O'Connor Director
111 West Washington, Suite 1247
Chicago, IL 60602
Norman A. Fair Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Thomas K. Neavins Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Arnold R. Bergman Vice President - Legal &
10 Post Office Square Administration and Secretary
Boston, MA 02109
Martin Sheerin Vice President and Chief Actuary
10 Post Office Square
Boston, MA 02109
Anthony J. Koenig, Jr. Vice President and Treasurer
10 Post Office Square
Boston, MA 02109
Constance Graves Assistant Vice President and Assistant
10 Post Office Square Controller
Boston, MA 02109
Mark Kelly Assistant Vice President and Assistant
10 Post Office Square Treasurer
Boston, MA 02109
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT.
Incorporated by reference to Registrant's Post Effective Amendment No. 20
filed electronically on April 29, 1996. (File Nos. 33-35749 and 811-4092).
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable.
ITEM 28. INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act
of 1933 ("Act") may be permitted to directors and officers and controlling
persons of the Registrant, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been
<PAGE>
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 Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) First Variable Capital Services, Inc. ("FVCS") is the principal
underwriter for the Contracts and for the following investment companies:
First Variable Annuity Fund A
(b) The following persons are directors and officers of FVCS:
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH UNDERWRITER
- ----------------------------------- --------------------------------------
Norman A. Fair Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Stephan M. Largent President and Director
10 Post Office Square
Boston, MA 02109
Arnold R. Bergman Secretary and Director
10 Post Office Square
Boston, MA 02109
Tom Simpson Vice President and Director
10 Post Office Square
Boston, MA 02109
Anthony J. Koenig, Jr. Assistant Treasurer
10 Post Office Square
Boston, MA 02109
Constance Graves Assistant Treasurer
10 Post Office Square
Boston, MA 02109
Mark Kelly Assistant Treasurer
10 Post Office Square
Boston, MA 02109
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Arnold R. Bergman, Secretary of the Company and Anthony J. Koenig, Jr.,
Treasurer of the Company, who are located at 10 Post Office Square, 12th
Floor, Boston, MA 02109, maintain physical possession of the accounts, books
or documents of the Separate Account required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
<PAGE>
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more
than sixteen (16) months old for so long as payment under the variable
annuity contracts may be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2)
a postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under
this Form promptly upon written or oral request.
(d) In accordance with section 26(e) of the Investment Company Act of
1940, First Variable Life Insurance Company hereby represents that the fees
and charges deducted under the Contract described in this Registration
Statement on Form N-4, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by First Variable Life Insurance Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b) (11) in any sales literature used in connection
with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase
the contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restriction on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives available under the employer's Section 403(b)
arrangement to which the participant may elect to transfer his contract value.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, as amended, the Registrant has caused this Registration Statement to
be signed on its behalf, in the City of Boston, and the Commonwealth of
Massachusetts, on this 20th day of December, 1996.
FIRST VARIABLE ANNUITY FUND E
(Registrant)
By: FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: /s/Stephan Largent
-------------------------------
Stephan M. Largent, President
FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: /s/Stephan Largent
----------------------------------
Stephan M. Largent, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- -----
Ronald M. Butkiewicz* Chairman & Director 12/20/96
- ------------------------
Ronald M. Butkiewicz
Michael J. Corey* Director 12/20/96
- ------------------------
Michael J. Corey
Michael R. Ferrari* Director 12/20/96
- ------------------------
Michael R. Ferrari
s/ Stephan M. Largent President and Director 12/20/96
- ------------------------
Stephan M. Largent
T. David Kingston* Director 12/20/96
- ------------------------
T. David Kingston
Jeff S. Liebmann* Director 12/20/96
- ------------------------
Jeff S. Liebmann
- ------------------------ Director
Kenneth R. Meyer
<PAGE>
Philip R. O'Connor* Director 12/20/96
- ------------------------
Phillip R. O'Connor
Norman A. Fair* Director 12/20/96
- ------------------------
Norman A. Fair
Thomas K. Neavins* Director 12/20/96
- ------------------------
Thomas K. Neavins
/s/Anthony J. Koenig, Jr. Vice President and Treasurer 12/20/96
- ------------------------
Anthony J. Koenig, Jr.
*By Power of Attorney
/s/Arnold R. Bergman
------------------------
Arnold R. Bergman
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, RONALD M. BUTKIEWICZ, a Director of
First Variable Life Insurance Company, a corporation duly organized under the
laws of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD
R. BERGMAN, or any one of the foregoing individually, as my attorney and
agent, for me, and in my name as a Director of this company on behalf of the
Company or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/ RONALD M. BUTKIEWICZ
- ---------------------- -------------------------
Ronald M. Butkiewicz
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, MICHAEL J. COREY, a Director of First
Variable Life Insurance Company, a corporation duly organized under the laws
of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD R.
BERGMAN, or any one of the foregoing individually, as my attorney and agent,
for me, and in my name as a Director of this company on behalf of the Company
or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/MICHAEL J. COREY
- -------------------- ---------------------
Michael J. Corey
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, NORMAN A. FAIR, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws
of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD R.
BERGMAN, or any one of the foregoing individually, as my attorney and agent,
for me, and in my name as a Director of this company on behalf of the Company
or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 24th day of April, 1996
WITNESS:
/S/ THOMAS K. NEAVINS /S/ NORMAN A. FAIR
- -------------------- ---------------------
Norman A. Fair
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, MICHAEL R. FERRARI, a Director of
First Variable Life Insurance Company, a corporation duly organized under the
laws of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD
R. BERGMAN, or any one of the foregoing individually, as my attorney and
agent, for me, and in my name as a Director of this company on behalf of the
Company or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 18th day of November, 1996
WITNESS:
/S/ MICHAEL R. FRIEDBERG /S/ MICHAEL R. FERRARI
- ------------------------- ------------------------
Michael R. Ferrari
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, T. DAVID KINGSTON, a Director of
First Variable Life Insurance Company, a corporation duly organized under the
laws of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD
R. BERGMAN, or any one of the foregoing individually, as my attorney and
agent, for me, and in my name as a Director of this company on behalf of the
Company or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/ T. DAVID KINGSTON
- --------------------- ---------------------
T. David Kingston
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JEFF S. LIEBMANN, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws
of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD R.
BERGMAN, or any one of the foregoing individually, as my attorney and agent,
for me, and in my name as a Director of this company on behalf of the Company
or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MICHAEL R. FRIEDBERG /S/ JEFF S. LIEBMANN
- ------------------------- --------------------------
Jeff S. Liebmann
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, THOMAS K. NEAVINS, Director of First
Variable Life Insurance Company, a corporation duly organized under the laws
of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD R.
BERGMAN, or any one of the foregoing individually, as my attorney and agent,
for me, and in my name as a Director of this company on behalf of the Company
or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MARTIN SHEERIN /S/ THOMAS K. NEAVINS
- ---------------------- ------------------------
Thomas K. Neavins
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, PHILLIP R. O' CONNOR, Director of
First Variable Life Insurance Company, a corporation duly organized under the
laws of the State of Arkansas, do hereby appoint, STEPHAN LARGENT and ARNOLD
R. BERGMAN, or any one of the foregoing individually, as my attorney and
agent, for me, and in my name as a Director of this company on behalf of the
Company or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of
variable annuity and variable life insurance contracts under the Securities
Act of 1933, as amended, and the registration of unit investment trusts under
the Investment Company Act of 1940, as amended, and to do and perform each
and every act that said attorney may deem necessary or advisable to comply
with the intent of the aforesaid Acts.
WITNESS my hand this 15th day of May, 1996
WITNESS:
/S/ MICHAEL R. FRIEDBERG /S/ PHILIP R. O'CONNOR
- ------------------------- ------------------------
Phillip R. O'Connor
<PAGE>
FIRST VARIABLE ANNUITY FUND E
INDEX TO EXHIBITS
NO. TITLE OF EXHIBIT PAGE
- ---- ---------------- -----
9. Opinion and Consent of Counsel
10. Consent of Independent Auditors
13. Calculation of Performance Information
27. Financial Data Schedule
<PAGE>
Exhibit 9.
Opinion and Consent of Counsel
<PAGE>
[FIRST VARIABLE LETTERHEAD]
December 20, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration of Contract Interests
First Variable Annuity Fund E of First Variable Life Insurance Company
(File Nos. 333-12197 and 811-4092)
Dear Sir/Madam:
In my capacity as Vice President - Legal of First Variable Life Insurance
Company ("First Variable"), I have acted as chief legal officer with regard
to variable annuity contracts ("Contracts") described in the captioned
Registration and funded in First Variable Annuity Fund E ("Separate Account")
of First Variable. I have examined the Articles of Incorporation and Bylaws
of First Variable, the Contracts and such other records as I have deemed
necessary in connection with the rendering of this opinion.
Based upon the foregoing and having regard for such legal consideration as I
have deemed relevant, I am of the opinion that:
1. First Variable is a duly organized and existing stock life insurance
company under the laws of the state of Arkansas authorized to issue life
insurance and annuity contracts.
2. The establishment of the Separate Account has been duly authorized by
the Board of Directors of First Variable.
3. The Contracts, when duly issued and delivered by First Variable for
value, are valid and enforceable obligations of the Company under Arkansas
law, except as limited by bankruptcy and other laws generally affecting the
rights of creditors.
This opinion speaks only as of the date hereof and I expressly disclaim any
obligation to update it for any change in the law or facts occurring
subsequent to the date hereof.
I consent to the use in Registration No. 333-12197 of this opinion letter.
Very truly yours,
/s/Arnold R. Bergman
- --------------------
Arnold R. Bergman
Vice President - Legal*
*Admitted in NY
<PAGE>
Exhibit 9. (b)
Opinion and Consent of Blazzard, Grodd & Hasenauer LLP
<PAGE>
BLAZZARD, GRODD & HASENAUER, P.C.
ATTORNEYS AT LAW CONNECTICUT OFFICE:
943 POST ROAD EAST - P.O. BOX 5108
NORSE N. BLAZZARD** WESTPORT, CONNECTICUT 06881-5108
LESLIE E. GRODD* TELEPHONE (203) 226-7866
JUDITH A. HASENAUER** FACSIMILE (203) 454-4028
RAYMOND A. O'HARA III*
LYNN KORMAN STONE* FLORIDA OFFICE:
MAUREEN M. MURPHY* SUITE 213, OCEANWALK MALL
101 NORTH OCEAN DRIVE
* Admitted in Connecticut HOLLYWOOD, FLORIDA 33019
** Admitted in Connecticut & Florida TELEPHONE (305) 920-6590
FACSIMILE (305) 920-6902
December 19, 1996
Board of Directors
First Variable Life Insurance Company
10 Post Office Square, 12th Floor
Boston, MA 02109
Re: Option and Consent of Counsel
First Variable Annuity Fund E
Dear Sir or Madam:
You have requested our Opinion of Counsel in connection with the filing
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, of a Registration Statement on Form N-4 (File No.
333-12197) for the individual flexible payment deferred variable annuity
contracts ("Contracts") to be issued by First Variable Life Insurance Company
and its separate account, First Variable Annuity Fund E.
We are of the opinion that upon the acceptance of purchase payments made
by an Owner pursuant to a Contract issued in accordance with the Prospectus
contained in the Registration Statement and upon compliance with applicable
law, such an Owner will have a legally-issued, fully-paid, non-assessable
contractual interest under such Contract.
You may use this opinion letter, or copy hereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the caption "Legal
Opinions" contained in the Statement of Additional Information which forms a
part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ Lynn K. Stone
-----------------
Lynn Korman Stone
<PAGE>
Exhibit 10
Consent of Ernst & Young LLP, Independent Auditors
<PAGE>
Exhibit 10
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our reports dated January 25, 1996, in Amendment
No. 23 to the Registration Statement (Form N-4, No. 333-12197 and 811-4092)
and related prospectus of First Variable Life Insurance Company.
/s/ Ernst & Young LLP
--------------------------
ERNST & YOUNG LLP
Boston, Massachusetts
December 20 , 1996
<PAGE>
Total Return on Direct Portfolios over respective periods
Formula P*(1+T) ^ N = ERV T = ((ERV/P) ^ 1/N) -1
COMMON STOCK
Start of Fund E(8) Portfolio -
20000/10.0000*12.058= 24,116.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 22,896.00
(22,896/20,000) ^ (1/1) -1 = 14.480%
MULTIPLE STRATEGIES
Start of Fund E(8) Portfolio -
20000/10.0000*11.456= 22,912.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 21,692.00
(21,692/20,000) ^ (1/4.4) -1 = 8.460%
U.S. GOVERNMENT BOND
Start of Fund E(8) Portfolio -
20000/10.0000*10.102= 20,204.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 18,984.00
(18,984/20,000) ^ (1) -1 = (5.080%)
HIGH INCOME BOND
Start of Fund E(8) Portfolio -
20000/10.0000*11.062= 22,124.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 20,904.00
(20,904/20,000) ^ (1) -1 = 4.520%
Page 1
<PAGE>
TILT UTILITY
Start of Fund E(8) Portfolio -
20000/10.0000*10.089= 20,178.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 18,958.00
(18,958/20,000) ^ (1) -1 = (5.210%)
WORLD EQUITY
Start of Fund E(8) Portfolio -
20000/10.0000*10.849= 21,698.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 20,478.00
(20,478/20,000) ^ (1) -1 = 2.390%
SMALL CAP
Start of Fund E(8) Portfolio -
20000/10.0000*13.850= 27,700.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 26,480.00
(26,480/20,000) ^ (1) -1 = 32.400%
GROWTH & INCOME
Start of Fund E(8) Portfolio -
20000/10.0000*11.309= 22,618.00
Less .07*.85*20,000 1,190.00
Less annual policy charge 30.00
Surrender Value 21,398.00
(21,398/20,000) ^ (1) -1 = 6.990%
Fund began operations on 11/01/95 - Returns as of 09/30/96
Page 2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> CASH MANAGEMENT DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 6,528,022
<INVESTMENTS-AT-VALUE> 6,528,022
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,528,022
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,450
<TOTAL-LIABILITIES> 6,450
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 6,528,073
<SHARES-COMMON-PRIOR> 8,280,967
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,521,572
<DIVIDEND-INCOME> 358,972
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 102,425
<NET-INVESTMENT-INCOME> 256,547
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 256,547
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,759,375)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> U.S. GOVERNMENT BOND DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 7,569,164
<INVESTMENTS-AT-VALUE> 7,510,101
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,510,101
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133
<TOTAL-LIABILITIES> 133
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 729,386
<SHARES-COMMON-PRIOR> 767,443
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,509,968
<DIVIDEND-INCOME> 90,831
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 76,220
<NET-INVESTMENT-INCOME> 14,611
<REALIZED-GAINS-CURRENT> (74,134)
<APPREC-INCREASE-CURRENT> (70,057)
<NET-CHANGE-FROM-OPS> (129,580)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (563,622)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> HIGH INCOME BOND DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 9,164,370
<INVESTMENTS-AT-VALUE> 9,586,616
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,586,616
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 399
<TOTAL-LIABILITIES> 399
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,022,755
<SHARES-COMMON-PRIOR> 881,679
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 9,586,217
<DIVIDEND-INCOME> 65,865
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 83,066
<NET-INVESTMENT-INCOME> (17,201)
<REALIZED-GAINS-CURRENT> 246,920
<APPREC-INCREASE-CURRENT> 495,159
<NET-CHANGE-FROM-OPS> 724,878
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,011,273
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> COMMON STOCK DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 20,270,143
<INVESTMENTS-AT-VALUE> 23,781,817
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,781,817
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,735
<TOTAL-LIABILITIES> 3,735
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 768,341
<SHARES-COMMON-PRIOR> 616,518
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 23,778,082
<DIVIDEND-INCOME> 103,838
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 192,170
<NET-INVESTMENT-INCOME> (88,332)
<REALIZED-GAINS-CURRENT> 1,886,983
<APPREC-INCREASE-CURRENT> 1,543,583
<NET-CHANGE-FROM-OPS> 3,342,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> MULTIPLE STRATEGIES DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 22,126,476
<INVESTMENTS-AT-VALUE> 25,881,272
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<TOTAL-ASSETS> 25,881,272
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<NET-ASSETS> 25,880,373
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<NET-INVESTMENT-INCOME> (136,775)
<REALIZED-GAINS-CURRENT> 499,694
<APPREC-INCREASE-CURRENT> 2,505,060
<NET-CHANGE-FROM-OPS> 2,867,979
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<NET-CHANGE-IN-ASSETS> 4,266,156
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> TILT UTILITY DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 12,822,778
<INVESTMENTS-AT-VALUE> 13,322,323
<RECEIVABLES> 133
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,322,456
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<NET-INVESTMENT-INCOME> 28,383
<REALIZED-GAINS-CURRENT> 95,696
<APPREC-INCREASE-CURRENT> (829,010)
<NET-CHANGE-FROM-OPS> (704,931)
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (124,116)
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> WORLD EQUITY DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 19,879,493
<INVESTMENTS-AT-VALUE> 20,889,123
<RECEIVABLES> 0
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<TOTAL-ASSETS> 20,889,123
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 968
<TOTAL-LIABILITIES> 968
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 1,428,860
<SHARES-COMMON-PRIOR> 1,107,497
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 20,888,155
<DIVIDEND-INCOME> 213,784
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 192,013
<NET-INVESTMENT-INCOME> 21,771
<REALIZED-GAINS-CURRENT> 1,051,067
<APPREC-INCREASE-CURRENT> (100,579)
<NET-CHANGE-FROM-OPS> 972,259
<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<NET-CHANGE-IN-ASSETS> 5,609,236
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> GROWTH AND INCOME DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 8,719,698
<INVESTMENTS-AT-VALUE> 8,680,045
<RECEIVABLES> 0
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,680,045
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 459
<TOTAL-LIABILITIES> 459
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 723,567
<SHARES-COMMON-PRIOR> 298,528
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,679,586
<DIVIDEND-INCOME> 15,621
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 65,864
<NET-INVESTMENT-INCOME> (50,243)
<REALIZED-GAINS-CURRENT> 115,043
<APPREC-INCREASE-CURRENT> (84,029)
<NET-CHANGE-FROM-OPS> (19,229)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,344,651
<ACCUMULATED-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> SMALL CAP DIVISION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 10,686,269
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<NET-ASSETS> 12,558,378
<DIVIDEND-INCOME> 39,980
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 76,897
<NET-INVESTMENT-INCOME> (36,917)
<REALIZED-GAINS-CURRENT> 342,824
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<NET-CHANGE-IN-ASSETS> 8,745,895
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</TABLE>
