<PAGE>
33-35749
811-4092
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 9 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 [X]
FIRST VARIABLE ANNUITY FUND E
-----------------------------
(Exact 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
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a) (1) of Rule
___ 485 on (date) pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following:
______ This Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed a Rule 24f-2 Notice for its most recent fiscal year on or
about February 27, 1997.
1
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FIRST VARIABLE ANNUITY FUND E
CROSS REFERENCE SHEET
(Pursuant to Rule 495(a))
Item No. in
Form N-4 Location
- -------- --------
PART A
- ------
Item 1. Cover Page.....................................Cover Page
Item 2. Definitions....................................Definitions
Item 3. Synopsis or Highlights.........................Highlights
Item 4. Condensed Financial Information................Condensed Finan-
cial Information
Item 5. General Description of Registrant,
Depositor and Portfolio Companies..............The Company; The
Separate Account;
Variable Investors
Series Trust; Federated
Insurance Series
Item 6. Deductions.....................................Charges and
Deductions
Item 7. General Description of Variable
Annuity Contracts..............................The Contracts
Item 8. Annuity Period.................................Annuity Provisions
Item 9. Death Benefit..................................The Contracts;
Annuity Provisions
Item 10. Purchases and Contract Value...................Purchase Payments
and Contract Value
Item 11. Redemptions....................................Withdrawals
Item 12. Taxes..........................................Tax Status
Item 13. Legal Proceedings..............................Legal Proceedings
Item 14. Table of Contents of Statement of
Additional Information.........................Table of Contents of
...............................................Statement of Additional
...............................................Information
2
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Item No. in
Form N-4 Location
- -------- --------
PART B
- ------
Item 15. Cover Page....................................Cover Page
Item 16. Table of Contents.............................Table of Contents
Item 17. General Information and History...............The Company
Item 18. Services......................................Not Applicable
Item 19. Purchase of Securities Being Offered..........Not Applicable
Item 20. Underwriters..................................Distributor
Item 21. Calculation of Performance Data...............Calculation of
Performance Data
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.
3
<PAGE>
PART A
4
<PAGE>
{LOGO] FIRST
VARIABLE
LIFE INSURANCE
COMPANY
Marketing and Executive Office: Variable Service Center:
10 Post Office Square, 12th Floor P.O. Box 1317
Boston, MA 02109 Des Moines, IA 50305-1317
Automated Information Line: (800) 59-FUNDS (800) 499-0713
CAPITAL FIVE VA
Individual Variable Annuity Contracts
Funded in
FIRST VARIABLE ANNUITY FUND E
Prospectus
Dated: May, 1, 1997
The Individual Flexible Purchase Payment Deferred Variable and Fixed Annuity
Contracts (the "Contracts") described in this Prospectus are issued by First
Variable Life Insurance Company (the "Company") and provide for accumulation of
Contract Values and payment of monthly annuity payments on a fixed and variable
basis. The Contracts are designed for use by individuals in retirement plans on
a Qualified or Non-Qualified basis. (See "Definitions.")
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 General 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 Growth, VIST Growth & Income, VIST High Income Bond,
VIST Matrix Equity, VIST Multiple Strategies, VIST Small Cap Growth, VIST U.S.
Government Bond, VIST World Equity 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.")
The Contracts are not deposits or obligations of, or guaranteed or endorsed by,
any financial institution, and the Contracts are not 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 Payments.
This Prospectus contains information that an investor should know before
investing. A Statement of Additional Information about the Contracts and the
Separate Accounts, 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.
5
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TABLE OF CONTENTS
DEFINITIONS...................................................................
HIGHLIGHTS ...................................................................
FEE TABLE ....................................................................
CONDENSED FINANCIAL INFORMATION...............................................
THE COMPANY...................................................................
THE SEPARATE ACCOUNT..........................................................
INVESTMENT OPTIONS ...........................................................
Variable Investors Series Trust....................................
Federated Insurance Series.........................................
General Account Options ...........................................
Voting Rights......................................................
Substitution of Other Securities..................................
CHARGES AND DEDUCTIONS........................................................
Deduction for Withdrawal Charge (Sales Load).......................
Deduction for Mortality and Expense Risk Charge....................
Deduction for Administrative Charge................................
Deduction for Annual Contract Maintenance Charge...................
Deduction for Premium Taxes........................................
Deduction for Income Taxes.........................................
Deduction for Expenses of the Funds................................
Deduction for Transfer Fee.........................................
Elimination or Reduction of Charges and Deductions.................
THE CONTRACTS.................................................................
Application and Issuance of a Contract.............................
Ownership
Annuitant
Assignment
Transfers by the Company...........................................
Beneficiary........................................................
Change of Beneficiary..............................................
Transfers of Contract Values During the Accumulation Period........
Telephone Transactions.............................................
Death of the Annuitant.............................................
Death of the Owner.................................................
6
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ANNUITY PROVISIONS............................................................
Annuity Date and Annuity Option....................................
Change in Annuity Date and Annuity Option..........................
Allocation of Annuity Payments.....................................
Transfers During the Annuity Period................................
Annuity Options....................................................
Frequency and Amount of Annuity Payments...........................
PURCHASE PAYMENTS AND CONTRACT VALUE..........................................
Purchase Payments..................................................
Allocation of Purchase Payments....................................
Dollar Cost Averaging..............................................
Distribution.......................................................
Contract Value.....................................................
Accumulation Unit..................................................
WITHDRAWALS...................................................................
Systematic Withdrawals.............................................
Texas Optional Retirement Program..................................
Suspension of Payments or Transfers................................
PERFORMANCE INFORMATION.......................................................
Prime Money Fund II................................................
Other Portfolios...................................................
TAX STATUS ...................................................................
General ...........................................................
Diversification....................................................
Contracts Owned by Other than Natural Persons......................
Multiple Contracts.................................................
Tax Treatment of Assignments.......................................
Income Tax Withholding.............................................
Tax Treatment of Withdrawals--Non-Qualified Contracts..............
Qualified Plans....................................................
Tax Treatment of Withdrawals--Qualified Contracts..................
Tax-Sheltered Annuities--Withdrawal Limitations....................
FINANCIAL STATEMENTS..........................................................
LEGAL PROCEEDINGS.............................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION..................
7
<PAGE>
DEFINITIONS
Account - General 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.
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 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.
Company - First Variable Life Insurance Company.
Contract Anniversary - An anniversary of the Issue Date.
Contract Value - The sum of the Owner's interest in the Sub-Accounts of the
Separate Account and in the General Account.
Contract Year - One year from the Issue Date and from each Contract Anniversary.
Distributor - First Variable Capital Services, Inc., 10 Post Office Square, 12th
Floor, Boston, MA 02109.
Fixed Annuity - 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.
General 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.
General Account Value - The Owner's interest in the General Account.
Investment Option - The General Account or any of the Sub-Accounts of the
Separate Account which can be selected by the Owner of a Contract.
8
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Issue Date - The date on which the first Contract Year begins.
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans 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
the Contracts and in whose name the Contracts have been issued.
Portfolio - A segment of a Fund which constitutes a separate and distinct class
of shares.
Purchase Payment - An amount paid to the Company to provide benefits under the
Contracts.
Qualified Contracts - Contracts issued under Qualified 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 Value
may be allocated.
Sub-Account - A segment of the Separate Account which invests in a Portfolio of
one of the Funds.
Valuation Date - The Separate Account will be valued each day that the New York
Stock Exchange is open for trading which is Monday through Friday, except for
normal business holidays.
Valuation Period - The period beginning at the close of business of the New York
Stock Exchange on each Valuation Date and ending at the close of business for
the next succeeding Valuation Date.
Variable Account Value - The Owner's interest in the Sub-Accounts of the
Separate Account.
Variable Annuity - 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 the
Contracts is located at 1206 Mulberry Street, Des Moines, IA 50309.
Withdrawal Value - The Withdrawal Value is:
1) the Contract Value for the Valuation Period next following the
Valuation Period during which a written request for withdrawal is
received at the Company; less
2) any applicable taxes not previously deducted; less
3) the Withdrawal Charge, if any; less
4) the Annual Contract Maintenance Charge, if any.
9
<PAGE>
HIGHLIGHTS
The Capital Five 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 General 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 Growth, VIST Growth & Income, VIST High
Income Bond, VIST Matrix Equity, VIST Multiple Strategies, VIST Small Cap
Growth, 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.
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.")
A Withdrawal Charge (sales load) may be deducted in the event of a withdrawal of
all or a portion of the Contract Value. No Withdrawal Charge will be assessed
upon any withdrawal unless the amount withdrawn exceeds the Free Withdrawal
Amount. The annual Free Withdrawal Amount is determined as the sum of (a) 10% of
Purchase Payments still subject to the Withdrawal Charge; plus (b) the excess of
the Contract Value over Purchase Payments not previously withdrawn; plus (c) any
Purchase Payments no longer subject to the Withdrawal Charge. 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 -
Deductions for Withdrawal Charge (Sales Load).")
There is a Mortality and Expense Risk Charge which is equal, on an annual basis,
to 1.25% of the average daily net asset value of the Separate Account. This
Charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality and
Expense Risk Charge.")
There is an Administrative Charge which is equal, on an annual basis, to .15% of
the average daily net asset value of the Separate Account. This Charge
compensates the Company for costs associated with the administration of the
Contracts and the Separate Account. (See "Charges and Deductions - Deduction for
Administrative Charge.")
There is an Annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Annual Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. (See "Charges and Deductions -
Deduction for Premium Taxes.")
Under certain circumstances, a Transfer Fee may be assessed when an Owner
transfers Contract Values from one Sub-Account to another Sub-Account or to or
from the General Account. (See "Charges and Deductions - Deduction for Transfer
Fee.")
10
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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. (See "Tax Status - Tax Treatment of
Withdrawals - Non-Qualified Contracts.") Separate tax withdrawal penalties and
restrictions apply to a Qualified Contract. (See "Tax Status - Tax Treatment of
Withdrawals - Qualified Contracts.") Special restrictions apply to distributions
from a 403(b) annuity. (See "Tax Status - Tax-Sheltered Annuities Withdrawal
Limitations".)
For a further discussion of the taxation of a Contract, see "Tax Status" and
"Tax Status - Diversification" for a discussion of owner control of the
underlying investments in a variable annuity contract.
FIRST VARIABLE ANNUITY FUND E
FEE TABLE
<TABLE>
<CAPTION>
Owner Transaction Expenses
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Withdrawal Charge (see Note 2 below) Contract
(as a percentage of Purchase Payment withdrawn) Anniversaries
Since Purchase
Payment Charge
------- ------
0 and 1 7%
2 6%
3 5%
4 4%
5 3%
6+ 0%
- -----------------------------------------------------------------------------------------------------------------
Transfer Fee (see Note 3 below)
No charge for first twelve (12) transfers in a
Contract Year prior to Annuity Date or for six (6)
transfers in a Contract Year during the Annuity
Period. Thereafter, the fee is the lesser of $25 or 2%
of the amount transferred.
- -----------------------------------------------------------------------------------------------------------------
Annual Contract Maintenance Charge..................... $30 per Contract per year
Separate Account Annual Expenses
- -----------------------------------------------------------------------------------------------------------------
(as a percentage of average account value)
Mortality and Expense Risk Charge........... 1.25%
Administrative Charge....................... .15%
-----
Total Separate Account Annual Expenses...... 1.40%
</TABLE>
11
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Funds' Annual Expenses
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
VIST VIST VIST Federated
Growth VIST VIST VIST Small US VIST Prime
VIST & Hi. Inc. Matrix Multiple Cap Gov. World Money
Growth Income Bond Equity Strat. Growth Bond Equity Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mgmt. Fees ....... .70% .75% .70% .65% .70% .85% .60% .70% .55%
Other Operating
Expenses -
After Expense
Reimbursement
(see Note 5) .47% .50% .50% .50% .50% .50% .25% .50% .25%
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Annual
Expenses 1.17% 1.25% 1.20% 1.15% 1.20% 1.35% .85% 1.20% .80%
</TABLE>
Examples
An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
a) upon surrender at the end of each time period;
b) if the Contract is not surrendered or is annuitized.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Portfolio........................ a) $ 91 $131 $172 $300
b) $ 27 $ 83 $141 $300
Growth & Income Portfolio............... a) $ 92 $133 $176 $308
b) $ 28 $ 85 $145 $308
High Income Bond Portfolio.............. a) $ 92 $132 $173 $303
b) $ 27 $ 84 $143 $303
Matrix Equity Portfolio................. a) $ 91 $131 $171 $298
b) $ 27 $ 82 $140 $298
Multiple Strategies Portfolio........... a) $ 92 $132 $173 $303
b) $ 27 $ 84 $143 $303
Small Cap Growth Portfolio.............. a) $ 93 $136 $181 $318
b) $ 29 $ 88 $150 $318
U.S. Government Bond Portfolio.......... a) $ 88 $122 $156 $267
b) $ 24 $ 73 $125 $267
World Equity Portfolio.................. a) $ 92 $132 $173 $303
b) $ 27 $ 84 $143 $303
Prime Money Fund II..................... a) $ 88 $120 $153 $262
b) $ 23 $ 71 $122 $262
</TABLE>
12
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Explanation of Fee Table and Examples
(1) The purpose of the Fee Table is to assist the Owner in understanding the
various costs and expenses that an Owner will incur, directly or
indirectly. The Table reflects expenses of the Separate Account and the
Investment Options. For additional information, see "Charges and
Deductions" in this Prospectus and the Prospectuses for Variable Investors
Series Trust and Federated Insurance Series.
(2) An Owner may make a withdrawal each Contract Year of the Free Withdrawal
Amount or some portion thereof provided that the amount withdrawn is at
least $1,000 or the Owner's entire interest in the Sub-Account, if less.
The minimum Contract Value which must remain in a Sub-Account after a
partial withdrawal is $1,000. Subject to any conditions and fees the
Company may impose, an Owner may elect to have this amount paid in equal
periodic installments. The Company reserves the right to charge a fee for
this service. Currently, however, there are no charges for this service.
(See "Charges and Deductions - Deduction for Withdrawal Charge (Sales
Load).)" The 10% free withdrawal has been factored into the Examples above.
(3) No Transfer Fee will be assessed for a transfer made in connection with the
Dollar Cost Averaging program providing for the automatic transfer of funds
from the Cash Management Sub-Account or the General Account to any other
Sub-Account(s). (See "Dollar Cost Averaging.")
(4) Prior to May 1, 1997, the Matrix Equity Portfolio was known as the "Tilt
Utility Portfolio" and had different investment policies. Prior to April 1,
1994, the Portfolio was known as the "Equity Income Portfolio" and had
different investment objectives and policies.
(5) First Variable Advisory Services Corp. ( "Investment Adviser" ) has agreed
through April 1, 1998 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, 1996, the VIST Annual Expenses
would have been 1.17% for the Growth Portfolio; 2.63% for the Growth &
Income Portfolio; 1.99% for the High Income Bond Portfolio; 1.48% for the
Matrix Equity Portfolio; 1.32% for the Multiple Strategies Portfolio; 2.38%
for the Small Cap Growth Portfolio; 1.66% for the U.S. Government Bond
Portfolio; and 1.50% for the World Equity Portfolio. Federated Advisors,
the investment adviser for Federated, has voluntarily agreed to waive any
portion of its fee and/or reimburse certain operating expenses of Federated
in excess of .80% of the Federated Prime Money Fund II Portfolio's average
net assets, but can modify or terminate this voluntary agreement at any
time at its sole discretion. Had this investment adviser not waived
expenses and/or reimbursed expenses of the Federated Prime Money Fund II
Portfolio for the year ended December 31, 1996, the annual expenses, as a
percentage of the Portfolio's average assets, would have been 1.37%.
(6) Premium taxes are not reflected. Premium taxes may apply.
(7) The assumed initial Purchase Payment is $1,000.
(8) THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
13
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FIRST VARIABLE ANNUITY FUND E
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
The following condensed financial information is derived from the financial
statements of the Separate Account (Policy Forms 7800 and 20224). The
information should be read in conjunction with the financial statements, related
notes and other financial information for the Separate Account included in the
Statement of Additional Information. The financial statements and report of
independent auditors of the Company are also contained in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (1)
Beginning of Period $ 17.05 $ 12.61 $ 12.89 $ 11.98 $ 13.16 $ 9.93 $ 10.00
End of Period $ 21.16 $ 17.05 $ 12.61 $ 12.89 $ 11.98 $ 13.16 $ 9.93
Number of Accum. Units Outstanding 834,675 518,976 242,120 187,792 213,353 157,474 6,736
Growth & Income Sub-Account
Beginning of Period (5/31/95) $ 11.22 $ 10.00
End of Period $ 12.41 $ 11.22
Number of Accum. Units Outstanding 755,887 289,200
High Income Bond Sub-Account (1)
Beginning of Period $ 16.26 $ 13.86 $ 15.12 $ 13.34 $ 11.70 $ 9.34 $ 10.00
End of Period $ 18.31 $ 16.26 $ 13.86 $ 15.12 $ 13.34 $ 11.70 $ 9.34
Number of Accum. Units Outstanding 520,055 309,472 190,699 437,508 337,571 195,048 536
Matrix Equity Sub-Account (2)
Beginning of Period $ 19.34 $ 14.70 $ 15.06 $ 12.95 $ 12.99 $ 10.15 $ 10.00
End of Period $ 19.95 $ 19.34 $ 14.70 $ 15.06 $ 12.95 $ 12.99 $ 10.15
Number of Accum. Units Outstanding 466,610 455,859 265,271 211,775 203,350 98,273 6,477
</TABLE>
(1) Prior to May 1, 1997, the Growth Sub-Account was known as the "Common Stock
Sub-Account." Prior to January 1, 1989, the High Income Bond Sub-Account
was known as the "High Yield Bond Sub-Account."
(2) Prior to May 1, 1997, the Matrix Equity Sub-Account was known as the "Tilt
Utility Sub-Account" and had different investment policies. Prior to April
1, 1994, the Sub-Account was known as the "Equity Income Division" and had
different investment objectives, policies and restrictions.
14
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Multiple Strategies Sub-Account
Beginning of Period $ 17.32 $ 13.28 $ 14.02 $ 12.86 $ 12.59 $ 10.34 $ 10.00
End of Period $ 20.21 $ 17.32 $ 13.28 $ 14.02 $ 12.86 $ 12.59 $10. 34
Number of Accum. Units Outstanding 960,499 795,702 529,845 167,168 169,897 128,348 11,761
Small Cap Growth Sub-Account (1)
Beginning of Period (5/4/95) $ 12.93 $ 10.00
End of Period $ 16.25 $ 12.93
Number of Accum. Units Outstanding 787,620 278,163
U.S. Government Bond Sub-Account
Beginning of Period $ 15.32 $ 12.93 $ 13.48 $ 12.49 $ 11.94 $ 10.56 $ 10.00
End of Period $ 15.46 $ 15.32 $ 12.93 $ 13.48 $ 12.49 $ 11.94 $ 10.56
Number of Accum. Units Outstanding 213,751 222,013 207,710 175,294 175,547 494,291 6,523
World Equity Sub-Account
Beginning of Period $ 14.67 $ 11.97 $ 11.03 $ 9.54 $ 9.85 $ 9.25 $ 10.00
End of Period $ 16.26 $ 14.67 $ 11.97 $ 11.03 $ 9.54 $ 9.54 $ 9.25
Number of Accum. Units Outstanding 1,054,077 719,094 349,771 151.437 92,431 72,323 5,125
Prime Money Fund II Sub-Account (2)
Beginning of Period $ 11.67 $ 11.22 $ 10.97 $ 10.86 $ 10.67 $ 10.24 $ 10.00
End of Period $ 12.06 $ 11.67 $ 11.22 $ 10.97 $ 10.86 $ 10.67 $ 10.24
Number of Accum. Units Outstanding 297,512 406,002 123,042 52,908 309,216 207,448 63,260
</TABLE>
(1) Prior to May 1, 1997, the Small Cap Growth Sub-Account was known as the
"Small Cap Sub-Account."
(2) On January 2, 1997, shares of Federated Prime Money Fund II were
substituted for shares of the VIST Cash Management Portfolio. Accumulation
Unit Values shown are based on the value of VIST Cash Management Portfolio
shares held for the periods shown.
15
<PAGE>
Six
Months Year Year
Ended Ended Ended
6/30/92 12/31/91 12/31/90
---------- ---------- ----------
Real Estate Investment Sub-Account*
Beginning of Period $ 11.74 $ 8.93 $ 10.00
End of Period $ 11.58 $ 11.74 $ 8.93
Number of Accum. Units Outstanding 0 6,903 904
Natural Resources Sub-Account*
Beginning of Period $ 9.19 $ 9.22 $ 10.0
End of Period $ 8.81 $ 9.19 $ 9.22
Number of Accum. Units Outstanding 0 9,794 1,237
World Bond Sub-Account*
Beginning of Period $ 12.27 $ 10.91 $ 10.00
End of Period $ 12.29 $ 12.27 $ 10.91
Number of Accum. Units Outstanding 0 47,602 4,343
Aggressive Growth Sub-Account*
Beginning of Period $ 11.81 $ 9.28 $ 10.00
End of Period $ 10.02 $ 11.81 $ 9.28
Number of Accum. Units Outstanding 0 41,617 3,269
* On June 29, 1992, the Real Estate Investment, Natural Resources, Aggressive
Growth and World Bond Sub-Accounts of Fund E, and the corresponding Portfolios
of VIST were terminated, based primarily on their small size and the limited
prospect for growth in the foreseeable future. Investments in these four
Sub-Accounts were transferred into the then remaining Sub-Accounts.
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 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
1996, the Irish Life consolidated group had in excess of $11billion in assets.
ILoNA is a Delaware corporation, incorporated as Carrig International, Inc. in
1986, which is the holding company of 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 (Double-A) rating from Duff & Phelps Credit
Rating Co. and an AA- (Double A minus) from Standard's and Poors on claims
paying ability. The
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financial strength of the Company may be relevant with respect of the Company's
ability to satisfy its General Account obligations under the Contracts.
The Company may publish in advertisements and reports to Owner, the ratings and
other information assigned it by one or more independent rating services Further
the Company may publish charts and other information concerning dollar cost
averaging, tax-deferral and other investment methods.
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 segregated asset account has been designated First Variable Annuity Fund E
(the "Separate Account"). The Company has caused the Separate Account to be
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940.
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 the Contracts 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. There is no assurance
that the investment objective of any of the Portfolios will be met. Owners bear
the complete investment risk for Purchase Payments and Contract Value allocated
to a Sub-Account. Contract Values will fluctuate in accordance with the
investment performance of the Sub-Account(s) to which Purchase Payments are
allocated, and in accordance with the imposition of the fees and charges
assessed under the Contracts.
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 General 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.
Variable Investors Series Trust
Variable Investors Series Trust ("VIST") has been established to act as one of
the funding vehicles for the Contracts offered. VIST is managed by First
Variable Advisory Services Corp. ("Investment Adviser"), a wholly-owned
subsidiary of the Company. The Investment Adviser retains the services of
sub-advisers pursuant to Sub-Advisory Agreements to manage the assets of the
Portfolios of VIST as follows: Federated
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Investment Counseling with respect to the High Income Bond Portfolio, Value
Line, Inc. with respect to the Multiple Strategies Portfolio and the Growth
Portfolio, Strong Capital Management, Inc. with respect to the U.S. Government
Bond Portfolio, State Street Bank and Trust Company with respect to the Matrix
Equity Portfolio, Keystone Investment Management Company with respect to the
World Equity Portfolio, Warburg Pincus Counsellors, Inc. with respect to the
Growth & Income Portfolio and Pilgrim, Baxter & Associates, Ltd. with respect to
the Small Cap Growth Portfolio. Prior to April 1, 1994, INVESCO Capital
Management, Inc. was the investment adviser of VIST. VIST is an open-end
management investment company. While a brief summary of the investment
objectives of the Portfolios is set forth below, more comprehensive information,
including a discussion of potential risks, is found in the current VIST
Prospectus which is included with this Prospectus. Purchasers should read this
Prospectus and the VIST Prospectus carefully before investing.
VIST is intended to meet differing investment objectives with its currently
available separate Portfolios: Growth Portfolio, Growth & Income Portfolio, High
Income Bond Portfolio, Matrix Equity Portfolio, Multiple Strategies Portfolio,
Small Cap Growth Portfolio, U.S. Government Bond Portfolio and World Equity
Portfolio. The investment objectives of the Portfolios are as follows:
Growth Portfolio. 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. Prior to May 1, 1997, this Portfolio was
known as the "Common Stock Portfolio."
Growth & Income Portfolio. 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.
High Income Bond Portfolio. 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.
Matrix Equity Portfolio. The investment objective of this Portfolio is capital
appreciation and current income. The Portfolio will seek to achieve its
investment objective by investing in a diversified portfolio that is selected by
the Sub-Adviser on the basis of its proprietary analytical model. Sector weights
are normally maintained at a similar level to that of the S&P 500 Index. The
Portfolio will invest at least 65% of its total assets in equity securities.
Prior to May 1, 1997, the Matrix Equity Portfolio was known as the "Tilt Utility
Portfolio" and had different policies, but maintained the same investment
objective.
Multiple Strategies Portfolio. 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.
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Small Cap Growth Portfolio. 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.
Prior to May 1, 1997, this Portfolio was known as the "Small Cap Portfolio."
U.S. Government Bond Portfolio. 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.
World Equity Portfolio. 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.
Prime Money Fund II. The investment objective of this series is to provide
current income consistent with the stability of principal and liquidity. The
Fund pursues its investment objective by investing exclusively in a portfolio of
money market instruments maturing in 397 days or less. An investment in the
Prime Money Fund II is neither insured nor guaranteed by the U.S. Government.
General Account Option
This Prospectus is generally intended to describe the Contract and Separate
Account. Because of certain exemptive and exclusionary provisions, interests in
the General Account are not registered under the Securities Act of 1933 and the
General Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the General 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
General Account.
The Company guarantees that it will credit interest to Contract Value in the
General Account at a 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
General Account may each receive different current interest rate(s) than the
current interest rate(s) credited to Contract Value existing in the General
Account. The Company determines current interest rates in advance and credits
interest daily to General Account Value.
Voting Rights
In accordance with its view of present applicable law, the Company will vote the
shares of VIST and Federated that are in the Separate Account at special
meetings of the shareholders in accordance with
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instructions received from persons having the voting interest in the Separate
Account. The Company will vote shares for which it has not received
instructions, as well as shares attributable to it, in the same proportion as it
votes shares for which it has received instructions. Neither VIST nor Federated
holds regular meetings of shareholders.
Shares of VIST and Federated are used as the investment vehicle for separate
accounts of insurance companies offering variable annuity contracts and variable
life insurance policies. The use of VIST's and Federated's shares as investments
for both variable annuity contracts and variable life insurance policies is
referred to as "mixed funding." The use of these shares as investments by
separate accounts of unaffiliated life insurance companies is referred to as
"shared funding."
VIST and Federated intend to engage in mixed funding and shared funding.
Although VIST and Federated do not currently foresee any disadvantage to
Contract owners due to differences in redemption rates, tax treatment, or other
considerations resulting from mixed funding or shared funding, the Trustees of
VIST and the Trustees of Federated will closely monitor the operation of mixed
funding and shared funding and will consider appropriate action to avoid
material conflict and take appropriate action in response to material conflicts
which occur.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to a
shareholder meeting. Each Owner having a voting interest will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.
Substitution of Other Securities
If other shares of VIST or Federated (or any Portfolio within the Funds), 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 substitute shares of
another mutual fund (or Portfolio) for shares already purchased or to be
purchased in the future by Purchase Payments under the Contracts. No
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under the requirements it may impose.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the Separate
Account. These charges and deductions are:
Deduction for Withdrawal Charge (Sales Load)
If all or a portion of the Contract Value is withdrawn, a Withdrawal Charge
(sales load) will be calculated at the time of each withdrawal and will be
deducted from the Contract Value. This Charge reimburses the Company for
expenses incurred in connection with the promotion, sale and distribution of the
Contracts. No Withdrawal Charge will be assessed upon any withdrawal unless the
amount withdrawn exceeds the Free Withdrawal Amount. The annual Free Withdrawal
Amount is determined as the sum of (a) 10% of Purchase Payments still subject to
the Withdrawal Charge; plus (b) the excess of the Contract Value over Purchase
Payments not previously withdrawn; plus (c) any Purchase Payments no longer
subject to the Withdrawal Charge. The Withdrawal Charge is determined by
multiplying the excess of the amount withdrawn over the Free Withdrawal Amount
by the applicable percentage(s) from the Table of Withdrawal Charges below. The
Withdrawal Charge percentages are based upon the number of Contract
Anniversaries,
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that Purchase Payments have remained in the Contract before being withdrawn.
Purchase Payments are deemed to be withdrawn in the order in which they are
made.
TABLE OF WITHDRAWAL CHARGES:
Contract Anniversaries
Since Purchase Payment Charge
---------------------- ------
0 and 1 7%
2 6%
3 5%
4 4%
5 3%
6+ 0%
An Owner may make a withdrawal each Contract Year of the Free Withdrawal Amount
provided that the amount withdrawn is at least $1,000 or the Owner's entire
interest in the Sub-Account, if less. The minimum Contract Value which must
remain in a Sub-Account after a partial withdrawal is $1,000.
In the event of the death of the Owner, the Company will waive the Withdrawal
Charge with respect to any death benefits paid.
For a partial withdrawal, the Withdrawal Charge will be deducted from the
remaining Withdrawal Value, if sufficient; otherwise it will be deducted from
the amount withdrawn. The amount deducted from the Contract Value will be
determined by subtracting values from the General Account and/or cancelling
Accumulation Units from each applicable Sub-Account in the ratio that the value
of each Account bears to the total Contract Value. The Owner must specify in
writing in advance which Units are to be cancelled from each Sub-Account and/or
whether values are to be deducted from the General Account if other than the
above method of cancellation is desired.
Waiver of Withdrawal Charge. Subject to state availability, the Company will
waive the Withdrawal Charge:
o If the Owner or Owner's spouse is first 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.
o After the first Contract Year, if the Owner or the Owner's spouse is
confined for 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 the application for
the Contract was signed.
Owners should review their Contracts carefully for a complete description of the
terminal illness and nursing home waiver of charges requirements.
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date, both prior to the Annuity Date and
during the Annuity Period, a Mortality and Expense Risk Charge which is equal,
on an annual basis, to 1.25% of the average daily net asset value of the
Separate Account. The mortality risks assumed by the Company arise 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
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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. 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 Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased.
Deduction for Administrative Charge
The Company deducts on each Valuation Date, both prior to the Annuity Date and
during the Annuity Period, an Administrative Charge which is equal, on an annual
basis, to .15% of the average daily net asset value of the Separate Account.
This charge, together with the Annual Contract Maintenance Charge (see below),
is to reimburse the Company for the expenses it incurs in the establishment and
maintenance of the Contracts and the Separate Account. These expenses include
but are not limited to: preparation of the Contracts, confirmations, annual
reports and statements, maintenance of Owner records, maintenance of Separate
Account records, administrative personnel costs, mailing costs, data processing
costs, legal fees, accounting fees, filing fees, the costs of other services
necessary for Owner servicing and all accounting, valuation, regulatory and
reporting requirements. Since this charge is an asset-based charge, the amount
of the charge attributable to a particular Contract may have no relationship to
the administrative costs actually incurred by that Contract. The Company does
not intend to profit from this charge. This charge will be reduced to the extent
that the amount of this charge is in excess of that necessary to reimburse the
Company for its administrative expenses. Should this charge prove to be
insufficient, the Company will not increase this charge and will incur the loss.
Deduction for Annual Contract Maintenance Charge
The Company deducts an Annual Contract Maintenance Charge of $30 from the
Contract Value on each Contract Anniversary. This charge is to reimburse the
Company for its administrative expenses (see above). This charge is deducted by
subtracting values from the General Account and/or cancelling Accumulation Units
from each applicable Sub-Account in the ratio that the value of each Account
bears to the total Contract Value. When the Contract is withdrawn for its full
Withdrawal Value, on other than the Contract Anniversary, the Annual Contract
Maintenance Charge will be deducted at the time of withdrawal. If the Annuity
Date is not a Contract Anniversary, a pro rata portion of the Annual Contract
Maintenance Charge will be deducted on the Annuity Date. After the Annuity Date,
the Annual Contract Maintenance Charge will be collected on a monthly basis and
will result in a reduction of each Annuity Payment. The Company has set this
charge at a level so that, when considered in conjunction with the
Administrative Charge (see above), it will not make a profit from the charges
assessed for administration.
Deduction for 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%.
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Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes with respect to the Separate Account, the Company has reserved the right
to establish a provision for income taxes if it determines, in its sole
discretion, that it will incur a 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
provision for taxes and whether or not it was sufficient. The Company will
deduct any withholding taxes required by applicable law.
Deduction for Expenses of the Funds
There are other deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying VISTand Federated prospectuses.
Deduction for Transfer Fee
Prior to the Annuity Date, an Owner may transfer all or part of an Account
without the imposition of any fee or charge if there have been no more than 12
transfers made in the Contract Year. During the Annuity Period, an Owner may
transfer all or part of an Account without the imposition of any fee or charge
if there have been no more than six (6) transfers made in a Contract Year. If
more than 12 transfers have been made in the Contract Year (or more than 6
transfers in the Contract Year during the Annuity Period), the Company will
deduct a transfer fee of $25 per transfer or, if less, 2% of the amount
transferred. If the Owner is participating in the Dollar Cost Averaging program
providing for the automatic transfer of funds from the Prime Money Fund II
Sub-Account or the General Account to any other Sub-Account(s), such transfers
are not taken into account in determining any transfer fee.
Elimination or Reduction of Charges and Deductions
The charges and deductions on a Contract may be reduced or eliminated, in whole
or in part, when sales of 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:
o the size and type of group to which sales are to be made because expenses
for a larger group are generally less than for a smaller group since large
numbers of Contracts may be implemented and administered with fewer
contacts;
o the total amount of Purchase Payments to be received because expenses are
likely to be less on larger Purchase Payments than on smaller ones;
o any prior or existing relationship with the Company because of the
likelihood of implementing the Contract with fewer contracts; and
o 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
employee or agent of the Company or any of its affiliates. In no event will
reductions or elimination will be unfairly discriminatory to any person.
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THE CONTRACTS
Application and Issuance of a Contract
An Application must be completed and submitted to the Company to purchase a
Contract, together with the minimum required initial Purchase Payment. A
Contract ordinarily will be issued with respect to 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 existing 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 Status - Tax Treatment of Withdrawals - Qualified Contracts.")
The Owner, Annuitant, and Beneficiary of a Contract are initially designated in
the application 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 General 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 at least 10 days, and may be greater
depending on state requirements.
Delayed Investment Start Date. Purchase Payments are generally allocated to the
Sub-Accounts or to the General Account as selected by the Owner. In certain
instances, however, the Company reserves the right to allocate Purchase Payments
to the Prime Money Fund II Sub-Account for a period of up to 5 days beyond a
"free look" inspection period before they will be invested (together with any
investment gain) in any other 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: (a) in a state which requires that
Purchase Payments less withdrawals be refunded upon the exercise of (i) a "free
look" right or (ii) an inspection right following a "replacement" of an existing
life insurance or annuity contract; or (b) as an Individual Retirement Annuity
(or as the initial investment of an Individual Retirement Account).
On the date of this Prospectus, the Company does not delay investment start
dates and, should it elect to do so, it will so advise prospective investors in
a Contract.
Ownership
The Owner has all rights and may receive all benefits under the Contract. Prior
to the Annuity Date, the Owner is the person designated in the Application,
unless changed. On and after the Annuity Date, the Annuitant is the Owner. Upon
the death of the Annuitant, the Beneficiary is the Owner.
The Owner may change the Owner at any time prior to the Annuity Date. A change
of Owner will automatically revoke any prior designation of Owner. A request for
change must be: (1) made in writing;
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and (2) 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
of Owner will not apply to any payment made or action taken by the Company prior
to the time it was received.
For Non-Qualified Contracts, in accordance with Internal Revenue Code Section
72(u), a deferred annuity contract held by a corporation or entity that is not a
natural person is not treated as an annuity contract for tax purposes. Income on
the contract is treated as ordinary income received by the Owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered held
by a natural person and treated as an annuity contract for tax purposes. Tax
advice should be sought prior to purchasing a Contract which is to be owed by a
trust or other non-natural person.
Annuitant
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated in the Application, unless changed prior to
the Annuity Date. The Annuitant may not be changed in a Contract which is owned
by a non-natural person.
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. The Company is not responsible for
the validity 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.
If the Contract is issued pursuant to a retirement plan which receives favorable
tax treatment under the provisions of Sections 401, 403(b), 408, or 457 of the
Internal Revenue Code, it may not be assigned, pledged or otherwise transferred
except as may be allowed under applicable law.
Transfers by the Company
The Company may, subject to applicable regulatory approvals, transfer its
obligations under the Contracts to another qualified life insurance company
under an assumption reinsurance arrangement without the prior consent of the
Owner.
Beneficiary
The Beneficiary is named in the Application and, unless changed, is entitled to
receive the benefits to be paid at the death of the Owner.
Unless the Owner provides otherwise, the Death Benefit will be paid in equal
shares or all to the survivor(s) as follows:
(1) to the primary Beneficiaries who survive the Owner's death; or if there are
none,
(2) to the contingent Beneficiaries who survive the Owner's death; or if there
are none,
(3) to the estate of the Owner.
Change of Beneficiary
Subject to the rights of any irrevocable Beneficiary(ies), the Owner may change
the primary Beneficiary(ies) or contingent Beneficiary(ies). A change may be
made by filing a written request with the
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Company at its Variable Service Center. The change will take effect as of the
date the notice is signed. The Company will not be liable for any payment made
or action taken before it records the change.
Transfers of Contract Values During the Accumulation Period
Prior to the Annuity Date, an Owner may transfer all or part of an Account by
either written or telephone request without the imposition of any fee or charge
if there have been no more than 12 transfers made in the Contract Year. If more
than 12 transfers have been made in the Contract Year, the Company will deduct a
transfer fee. If the Owner is participating in the Dollar Cost Averaging program
providing for the automatic transfer of funds from the Cash Management
Sub-Account or the General Account to any other Sub-Account(s), such transfers
are not taken into account in determining any transfer fee. All transfers are
subject to the following:
(1) the deduction of any transfer fee that may be imposed (no charge for first
12 transfers in a Contract Year thereafter, the fee is $25 per transfer or,
if less, 2% of the amount transferred). The transfer fee will be deducted
from the Account from which the transfer is made. However, if the entire
interest in the Account is being transferred, the transfer fee will be
deducted from the amount which is transferred.
(2) The minimum amount which may be transferred is the lesser of (i) $1,000; or
(ii) the Owner's entire interest in the Account, if less. A minimum
Contract Value of $1,000 must remain in the Account after a transfer.
(3) All Purchase Payments and transfers allocated to the General Account must
remain in the General Account for one year prior to any transfer from the
General Account.
(4) Any transfer direction must clearly specify the amount which is to be
transferred and the Accounts which are to be affected.
(5) The Company reserves the right at any time and without prior notice to any
party including, but not limited to, the circumstances described in the
"Suspension of Payments or Transfers" provision, below, to terminate,
suspend or modify the transfer privileges described above.
Programmed or other frequent requests to transfer all or part of an Account by,
or on behalf of, an Owner may have a detrimental effect on Investment Option
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 for an Owner or a group of Owners if it is informed that the
purchase or redemption of shares of one or more of the Investment Options 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 Accumulation Unit Value
or Investment Option 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 such 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 financial
affairs; or (b) the third party has been appointed by a court of competent
jurisdiction to act on the Owner's behalf.
Telephone Transactions
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An Owner may initiate various transactions by telephone. The Variable Service
Center (1-800-845-0689) is available for telephone transfers of Account Value,
notification of change of address, change of premium allocations among
Investment Options, partial withdrawal requests and systematic withdrawals.
The Company's automated information line (1-800-59-FUNDS) is available for
current information on Accumulation Unit Values, current Account Value, and may
be made available for telephone transfers of Account Value.
If there are joint owners of a Contract, unless the Company is informed to the
contrary, instructions will be accepted from either one of the joint owners.
Requests for transfers or reallocations by telephone will be automatically
permitted. The Company will use reasonable procedures such as requiring certain
identifying information from the caller, tape recording the telephone
instructions, and providing written confirmation of the transaction, in order to
confirm that instructions communicated by telephone are genuine. Any telephone
instructions reasonably believed by the Company to be genuine will be the
Owner's responsibility, including losses arising from any errors in the
communication of instructions. As a result of this, the Owner will bear the risk
of loss. If the Company does not employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, the Company may be liable
for any losses due to dishonored or fraudulent instructions.
Death of the Annuitant
Upon the death of the Annuitant prior to the Annuity Date, the Owner must
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," below.)
Upon the death of the Annuitant after the Annuity Date, the Death Benefit, if
any, will be as specified in the Annuity Option elected.
Death of the Owner
Upon the death of the Owner prior to the Annuity Date, the Death Benefit will be
paid to the Beneficiary designated by the Owner. In certain states, the Death
Benefit will be the greater of:
(1) the Purchase Payments, less any withdrawals including any applicable
Withdrawal Charges;
(2) the Contract Value; or
(3) the Contract Value as of the first day of the current five Contract Year
period plus any Purchase Payments made since that day and less any amounts
withdrawn since that day.
The first five Contract Year period begins on the Issue Date, the second five
Contract Year period begins on the fifth Contract Anniversary, and so forth. If
the Beneficiary is the spouse of the Owner and elects to continue the Contract,
the Contract Value remains unchanged and no determination of the Death Benefit
is made at that time.
In other states, the Death Benefit will be the greater of:
(1) the Purchase Payments, less any withdrawals including any applicable
Withdrawal Charges; or
(2) the Contract Value.
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Owners should refer to their Contract for the applicable Death Benefit
provision.
The Death Benefit will be determined and paid as of the Valuation Period next
following the date of receipt by the Company of both due proof of death and an
election for the payment method. The Beneficiary can elect to have a single lump
sum payment or choose one of the Annuity Options.
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 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 and the Contract will continue in effect.
If there are Joint Owners, any reference to the death of the Owner shall mean
the first death of an Owner.
The Contract can be held by Joint Owners. 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 in the Application 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 or a
change of the Annuitant shall be treated as the death of the Owner.
ANNUITY PROVISIONS
Annuity Date and Annuity Option
The Owner selects an Annuity Date and Annuity Option at the time of application.
The Annuity Date must always be the first day of a calendar month and must be at
least one month after the Issue Date. The Annuity Date may not be later than the
Annuitant's 85th birthday. If no Annuity Option is elected, Option B with a 120
month guarantee will automatically be applied.
Change in Annuity Date and Annuity Option
Prior to the Annuity Date, the Owner may change the Annuity Date. Any changes
must be in writing and must be requested at least seven (7) days prior to the
new Annuity Date. The Annuity Date must always be the first day of a calendar
month and must be at least one month after the Issue Date. The Annuity Date may
not be later than the Annuitant's 85th birthday.
The Owner may, upon written notice to the Company, at any time prior to the
Annuity Date, change the Annuity Option. Any change must be requested at least
seven (7) days prior to the Annuity Date.
Allocation of Annuity Payments
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If all of the Contract Value on the seventh calendar day before the Annuity Date
is allocated to the General Account, the Annuity will be paid as a Fixed
Annuity. If all of the Contract Value on that date is allocated to the Separate
Account, the Annuity will be paid as a Variable Annuity. If the Contract Value
on that date is allocated to both the General Account and the Separate Account,
the Annuity will be paid as a combination of a Fixed Annuity and a Variable
Annuity to reflect the allocation between the Accounts.
Transfers During the Annuity Period
During the Annuity Period, the Owner may transfer, by written request, Contract
Values among the Accounts subject to the following:
(1) the deduction of any transfer fee that may be imposed (no charge for first
six (6) transfers per Contract Year made among the Sub-Accounts;
thereafter, the fee is $25 per transfer or, if less, 2% of the amount
transferred).
(2) the Owner may, once each Contract Year, make a transfer from one or more
Sub-Accounts to the General Account. The Owner may not make a transfer from
the General Account to the Separate Account. Amounts transferred from a
Sub-Account to the General Account are subject to certain procedures set
out in the Contract.
Annuity Options
The actual dollar amount of Variable Annuity Payments is dependent upon (i) the
Contract Value on the Annuity Date, (ii) the annuity table specified in the
Contract, (iii) the Annuity Option selected, and (iv) the investment performance
of the Sub-Account selected.
The annuity tables contained in the Contract for Variable Annuity Payments are
based on a four percent (4%) assumed investment rate. If the actual net
investment rate exceeds four percent (4%), payments will increase. Conversely,
if the actual rate is less than four percent (4%), Variable Annuity Payments
will decrease. If a higher assumed investment rate was used, the initial payment
would be higher, but the actual net investment rate would have to be higher in
order for Variable Annuity Payments to increase.
Variable Annuity Payments will reflect the investment performance of the
Separate Account in accordance with the allocation of the Contract Value to the
Sub-Account on the Annuity Date. Thereafter, allocations may not be changed
except as provided in "Transfers During the Annuity Period", above. The total
dollar amount of each Annuity Payment is the sum of the Variable Annuity Payment
and the Fixed Annuity Payment reduced by the applicable portion of the Annual
Contract Maintenance Charge.
The amount 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. 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 sixty (60), one hundred twenty (120), one hundred eighty (180) or two
hundred forty (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
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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%, 66 2/3 % 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 five (5) years but not exceeding
thirty (30) years), as chosen.
Annuity Options A, B, C & D are available on a Fixed Annuity basis, a Variable
Annuity basis or a combination of both. Annuity Option E is available on a Fixed
Annuity basis only.
Frequency and Amount of Annuity Payments
Annuity Payments will be paid as monthly installments. However, if the net
amount available to apply under any Annuity Option is less than $5,000, the
Company has the right to pay the amount in one single lump sum in lieu of
Annuity Payments. If the Annuity Payment would be or become less than $200 where
only a Fixed Annuity Payment or a Variable Annuity is selected, or if the
Annuity Payment would be or become less than $100 on each basis when a
combination of Fixed and Variable Annuities is selected, the Company will reduce
the frequency of payments to an interval which will result in each payment being
at least $200, or $100 on each basis if a combination of Fixed and Variable
Annuities is selected.
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
The Contracts are purchased under a flexible Purchase Payment plan. The initial
Purchase Payment is due on the Issue Date. For Non-Qualified Contracts, the
minimum initial Purchase Payment is $5,000. The minimum initial Purchase Payment
for Qualified Contracts is $1,000. For all Contracts, the maximum subsequent
Purchase Payment is $1,000,000 and the minimum subsequent Purchase Payment is
$100. The Company reserves the right to decline any Application or Purchase
Payment.
Allocation of Purchase Payments
Purchase Payments are allocated to the General Account or appropriate
Sub-Account(s) within the Separate Account as selected by the Owner. Unless
elected otherwise by the Owner, subsequent Purchase Payments are allocated in
the same manner as the initial Purchase Payment. For each Sub-Account, Purchase
Payments are converted into Accumulation Units. The number of Accumulation Units
credited to the Contract is determined by dividing the Purchase Payment
allocated to the Sub-Account by the value of the Accumulation Unit for the
Sub-Account as of the Valuation Period during which the Purchase Payment is
allocated to the Sub-Account. Purchase Payments allocated to the General Account
are credited in dollars.
Under certain circumstances, the Company may delay the initial investment of
Purchase Payments to be allocated to Investment Options in the Separate Account,
but it does not currently do so. (See "The Contracts - Application and Issuance
of a Contract -- Delayed Investment Start Date.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, permits an Owner to
systematically transfer amounts for each month or quarter from the Prime Money
Fund II Sub-Account or the General Account to any
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Sub-Account(s). By allocating amounts on a regularly scheduled basis as opposed
to allocating the total amount at one particular time, an Owner may be less
susceptible to the impact of market fluctuations. The minimum amount which may
be transferred is $500. An Owner must have a minimum of $6,000 of Contract Value
in the Prime Money Fund II Sub-Account or the General Account, or the amount
required to complete the Owner's designated program, in order to participate in
the Dollar Cost Averaging program.
All Dollar Cost Averaging transfers will be made on the same day of each month
or quarter (or the next Valuation Date if the same day of the month or quarter
is not a Valuation Date). If the Owner is participating in the Dollar Cost
Averaging program, such transfers are not taken into account in determining any
transfer fee. Under certain circumstances, there may be restrictions with
respect to an Owner's ability to participate in the Dollar Cost Averaging
program and limitations on the amounts that can be transferred from the General
Account to any Sub-Accounts. An Owner participating in the Dollar Cost Averaging
program may not make systematic withdrawals of his or her Contract Value. (See
"Withdrawals--Systematic Withdrawals.")
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Distribution
First Variable Capital Services, Inc. ("FVCS"), 10 Post Office Square, 12th
Floor, 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 may vary with the sales agreement, but are not expected to exceed
7% of Purchase Payments. Broker-dealers may also receive expense allowances,
wholesaler fees, bonuses and training fees.
Contract Value
The Contract Value of the Contract on any Valuation Date is the sum of the
Owner's interest in the Sub-Accounts of the Separate Account and in the General
Account. The value of each Sub-Account is determined by multiplying the number
of Accumulation Units attributable to the Sub-Account by the value of an
Accumulation Unit for the Sub-Account.
Accumulation Unit
Purchase Payments allocated to the Separate Account and amounts transferred to
or within the Separate Account are converted into Accumulation Units. This is
done by dividing each Purchase Payment by the value of an Accumulation Unit as
of the Valuation Period during which the Purchase Payment is allocated to the
Separate Account or the transfer is made. The Accumulation Unit value for each
Sub-Account was arbitrarily set initially at $10. The Accumulation Unit value
for any later Valuation Period is determined by subtracting (2) from (1) and
dividing the result by (3) where:
(1) is the net result of:
(a) the assets of the Sub-Account attributable to Accumulation 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 (see "Charges and
Deductions"); and
(3) is the number of Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
WITHDRAWALS
While the Contract is in force and before the Annuity Date, the Owner may elect
in writing to withdraw all of a Contract's Withdrawal Value, or may elect in
either writing or by telephone to withdraw part of a Contract's Withdrawal
Value. (See "Telephone Transactions".) Withdrawals will result in the
cancellation of Accumulation Units from each applicable Sub-Account of the
Separate Account or a reduction in the General Account Value in the ratio that
the Sub-Account Value and/or the General Account Value bears to the total
Contract Value. The Owner must specify in writing in advance which units are to
be cancelled or values are to be reduced if other than the above-mentioned
method of cancellation is desired. The Company
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will pay the amount of any withdrawal within seven (7) days of receipt of a
request in good order, unless the "Suspension of Payments or Transfers"
provision is in effect. The Withdrawal Value is the Contract Value for the
Valuation Period next following the Valuation Period during which a written
request for withdrawal is received at the Company reduced by the sum of:
(a) any applicable taxes not previously deducted;
(b) any applicable Annual Contract Maintenance Charge; and
(c) any applicable Withdrawal Charge.
Each partial withdrawal must be for an amount which is not less than $1,000 or,
if smaller, the remaining value in the Sub-Account or General Account. The
remaining value in each Sub-Account or the General Account from which a partial
withdrawal is requested must be at least $1,000 after the partial withdrawal is
completed.
Certain tax withdrawal penalties and restrictions may apply to withdrawals from
Contracts. For Contracts purchased in connection with 403(b) plans, the Code
limits the withdrawal of amounts attributable to contributions made pursuant to
a salary reduction agreement (as defined in Section 403(b)(11) of the Code) to
circumstances only when the Owner: (1) attains age 59 1/2; (2) separates from
service; (3) dies; (4) becomes disabled (within the meaning of Section 72(m)(7)
of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the Owner's
Contract Value which represents contributions made by the Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. However, these limitations
will apply to all amounts (regardless of when or how the contributions were
originally made) which are transferred or rolled over from a custodial account
(as defined in Section 403(b)(7) of the Code) into the Owner's Account. The
limitations on withdrawals do not affect rollovers or transfers between certain
Qualified Plans. Owners should consult their own tax counsel or other tax
adviser regarding any distributions.
Systematic Withdrawals
As stated above, an Owner may request a withdrawal of the Contract's Withdrawal
Value. In addition, and subject to any conditions and fees the Company may
impose, an Owner may elect by either written or telephone request to make equal
periodic withdrawals ("systematic withdrawals") of his or her Contract Values.
(See "Telephone Transactions.") Currently, there are no charges for systematic
withdrawals.
Under the program, systematic withdrawals are made on the same day (or next
Valuation Date of each month or quarter. Systematic withdrawals 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). the right to a
10% free single sum withdrawal is forfeited. Systematic withdrawals are not
allowed simultaneously with the dollar cost averaging program. Owners less than
59 1/2 who participate in this program may be subject to a 10% penalty tax
surcharge. (See "Tax Status - Tax Treatment of Withdrawals -Non-Qualified
Contracts" and "Tax Treatment of Withdrawals - Qualified Contracts.")
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 as follows:
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 institution of higher education upon its request. b) No benefits
will be payable, through
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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 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 for any period when:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
(2) trading on the New York Stock Exchange is restricted;
(3) 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
(4) during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Owners; provided that
applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (2)
and (3) exist.
The Company reserves the right to defer payment for a withdrawal or transfer
from the General Account for the period permitted by law but not for more than
six months after written election is received by the Company.
PERFORMANCE INFORMATION
Prime Money Fund II Portfolio
From time to time, the Prime Money Fund II Sub-Account of the Separate Account
may advertise its "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Prime Money Fund II Sub-Account refers to the income generated by
Contract Values in the Prime Money Fund II Sub-Account over a seven-day period
(which period will be stated in the advertisement). This income is "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the Contract Values in the Prime Money Fund II Sub-Account. The
"effective yield" is calculated similarly. However, when annualized, the income
earned by Contract Values is assumed to be reinvested. This results in the
"effective yield" being slightly higher than the "yield" because of the
compounding effect of the assumed reinvestment. The yield figure will reflect
the deduction of any asset-based charges and any applicable Annual Contract
Maintenance Charge, but will not reflect the deduction of any Withdrawal Charge.
The deduction of any Withdrawal Charge would reduce any percentage increase or
make greater any percentage decrease.
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Other Portfolios
From time to time, the Company may advertise performance data for the various
other Portfolios under the Contract. Such data will show the percentage change
in the value of an Accumulation Unit based on the performance of an investment
medium over a period of time, usually a calendar year, determined by dividing
the increase (decrease) in value for that Unit by the Accumulation Unit value at
the beginning of the period. This percentage figure will reflect the deduction
of any asset-based charges and any applicable Annual Contract Maintenance
Charges under the Contracts, but will not reflect the deduction of any
Withdrawal Charge. The deduction of any Withdrawal Charge would reduce any
percentage increase or make greater any percentage decrease.
Any advertisement will also include total return figures calculated as described
in the Statement of Additional Information. The total return figures reflect the
deduction of any applicable Annual Contract Maintenance Charges and Withdrawal
Charges, as well as any asset-based charges.
The Company may make available yield information with respect to some of the
Portfolios. Such yield information will be calculated as described in the
Statement of Additional Information. The yield information will reflect the
deduction of any applicable Annual Contract Maintenance Charge and Withdrawal
Charge as well as any asset-based charges.
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the Portfolios 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 Composite 500 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.
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts 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
tracks the performance of 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 Miami 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 STATUS
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
the Contracts should seek competent financial advice about the tax consequences
of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in imposition of federal income tax
to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract.
The Company intends that all Portfolios of VIST underlying the Contracts will be
managed by the Investment Adviser for VIST, and that Prime Money Fund II will be
managed by its investment adviser, to comply with the diversification
requirements set forth in section 817(h) of the Code and Treas. Reg. 1-817-5
promulgated thereunder.
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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 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.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is 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
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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.
Tax Treatment of Withdrawals--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.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals- Qualified Contracts," below.)
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. 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.)
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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.
Tax-Sheltered Annuities. Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable, educational
and scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the benefit of
their employees. Such contributions are not includible in the gross income of
the employees until the employees receive distributions from the Contracts. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals--Qualified
Contracts" and "Tax Sheltered Annuities--Withdrawal Limitations" 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 the Contracts
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. (See "Tax Treatment of Withdrawals - Qualified
Contracts" below.) Purchasers of Contracts for use with Corporate Pension or
Profit-Sharing Plans should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
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<PAGE>
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.
Tax Treatment of Withdrawals--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) (Tax-Sheltered Annuities) 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 59 1/2; (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 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 or Annuitant (as applicable) and his or her spouse and dependents if the
Owner or Annuitant (as applicable)has received unemployment compensation for at
least 12 weeks. This exception will no longer apply after the Owner or Annuitant
(as applicable) 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
70 1/2 or retires, whichever is later. 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. In addition, distributions in excess of $150,000
per year may be subject to an additional 15% excise tax unless an exemption
applies.
Tax-Sheltered Annuities--Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on
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<PAGE>
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.
FINANCIAL STATEMENTS
Financial statements of the Company and the Separate Account have been included
in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate Account,
the Distributor or the Company is a party.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Item Page
- ---- ----
Company...................................................................
Independent Auditors......................................................
Legal Opinions............................................................
Distributor
Yield Calculation for Prime Money Fund II Sub-Account.....................
Performance Information...................................................
Annuity Provisions........................................................
Variable Annuity.......................................................
Fixed Annuity..........................................................
Annuity Unit...........................................................
Mortality and Expense Guarantee........................................
Financial Statements......................................................
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{LOGO] FIRST
VARIABLE
LIFE INSURANCE
COMPANY
Marketing and Executive Office: Variable Service Center:
10 Post Office Square P.O. Box 1317
Boston, MA 02109 Des Moines, IA 50305-1317
Automated Information Line: (800) 59-FUNDS (800) 499-0713
VISTA
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Funded in
FIRST VARIABLE ANNUITY FUND E
Prospectus
Dated: May, 1, 199
The Individual Flexible Purchase Payment Deferred Variable and Fixed Annuity
Contracts (the "Contracts") described in this Prospectus were issued by First
Variable Life Insurance Company (the "Company") prior to May 15, 1994 and on the
date of this Prospectus are available in a limited number of states ( FL, ID,
MT, NJ, OR, WA). The Contracts provide for accumulation of Contract Values and
payment of monthly annuity payments on a fixed and variable basis and are
designed for use by individuals in retirement plans on a Qualified or
Non-Qualified basis. (See "Definitions.")
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 General 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 Growth, VIST Growth & Income, VIST High Income Bond,
VIST Matrix Equity, VIST Multiple Strategies, VIST Small Cap Growth, VIST U.S.
Government Bond, VIST World Equity 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.")
The Contracts are not deposits or obligations of, or guaranteed or endorsed by,
any financial institution, and the Contracts are not 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 Payments.
This Prospectus contains information that an investor should know before
investing. A Statement of Additional Information about the Contracts and the
Separate Accounts, 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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<PAGE>
TABLE OF CONTENTS
DEFINITIONS...................................................................
HIGHLIGHTS....................................................................
FEE TABLE.....................................................................
CONDENSED FINANCIAL INFORMATION...............................................
THE COMPANY...................................................................
THE SEPARATE ACCOUNT..........................................................
INVESTMENT OPTIONS ...........................................................
Variable Investors Series Trust....................................
Federated Insurance Series.........................................
General Account Option ............................................
Voting Rights......................................................
Substitution of Other Securities..................................
CHARGES AND DEDUCTIONS........................................................
Deduction for Withdrawal Charge (Sales Load).......................
Deduction for Mortality and Expense Risk Charge....................
Deduction for Administrative Charge................................
Deduction for Annual Contract Maintenance Charge...................
Deduction for Premium Taxes........................................
Deduction for Income Taxes.........................................
Deduction for Expenses of the Funds................................
Transfer Charge....................................................
Elimination or Reduction of Charges and Deductions.................
THE CONTRACTS.................................................................
Application and Issuance of a Contract.............................
Ownership..........................................................
Annuitant..........................................................
Assignment.........................................................
Transfers by the Company...........................................
Beneficiary........................................................
Change of Beneficiary..............................................
Transfers of Contract Values During the Accumulation Period........
Telephone Transactions.............................................
Death Benefit Provided by the Contract.............................
Amount of Death Benefit Prior to Annuity Date......................
Amounts Payable on Death of Payee..................................
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ANNUITY PROVISIONS............................................................
Annuity Date and Annuity Option....................................
Change in Annuity Date and Annuity Option..........................
Allocation of Annuity Payments.....................................
Transfers During the Annuity Period................................
Annuity Options....................................................
Frequency and Amount of Annuity Payments...........................
PURCHASE PAYMENTS AND CONTRACT VALUE..........................................
Purchase Payments..................................................
Allocation of Purchase Payments....................................
Dollar Cost Averaging..............................................
Distribution.......................................................
Contract Value.....................................................
Accumulation Unit..................................................
WITHDRAWALS...................................................................
Systematic Withdrawals.............................................
Texas Optional Retirement Program..................................
Suspension of Payments or Transfers................................
PERFORMANCE INFORMATION.......................................................
Prime Money Fund II Portfolio......................................
Other Portfolios...................................................
TAX STATUS
General............................................................
Diversification....................................................
Contracts Owned by Other than Natural Persons......................
Multiple Contracts.................................................
Tax Treatment of Assignments.......................................
Income Tax Withholding.............................................
Tax Treatment of Withdrawals--Non-Qualified Contracts..............
Qualified Plans....................................................
Tax Treatment of Withdrawals--Qualified Contracts..................
Tax-Sheltered Annuities--Withdrawal Limitations....................
FINANCIAL STATEMENTS..........................................................
LEGAL PROCEEDINGS.............................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION..................
44
<PAGE>
DEFINITIONS
Account - General 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.
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 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.
Company - First Variable Life Insurance Company.
Contract Anniversary - An anniversary of the Issue Date.
Contract Value - The sum of the Owner's interest in the Sub-Accounts of the
Separate Account and in the General Account.
Contract Year - One year from the Issue Date and from each Contract Anniversary.
Distributor - First Variable Capital Services, Inc., 10 Post Office Square, 12th
Floor, Boston, MA 02109.
Fixed Annuity - 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.
General 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.
General Account Value - The Owner's interest in the General Account.
Investment Option - The General 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.
Non-Qualified Contracts - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) 408, or 457 of
the Internal Revenue Code.
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<PAGE>
Owner - The person, persons or entity entitled to all the ownership rights under
the Contracts and in whose name the Contracts have been issued.
Portfolio - A segment of a Fund which constitutes a separate and distinct class
of shares.
Purchase Payment - An amount paid to the Company to provide benefits under the
Contracts.
Qualified Contracts - Contracts issued under Qualified 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 Value
may be allocated.
Sub-Account - A segment of the Separate Account which invests in a Portfolio of
one of the Funds.
Valuation Date - The Separate Account will be valued each day that the New York
Stock Exchange is open for trading which is Monday through Friday, except for
normal business holidays.
Valuation Period - The period beginning at the close of business of the New York
Stock Exchange on each Valuation Date and ending at the close of business for
the next succeeding Valuation Date.
Variable Account Value - The Owner's interest in the Sub-Accounts of the
Separate Account.
Variable Annuity - 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 the
Contracts is located at 1206 Mulberry Street, Des Moines, IA 50309.
Withdrawal Value - The Withdrawal Value is:
1) the Contract Value for the Valuation Period next following the
Valuation Period during which a written request for withdrawal is
received at the Company; less
2) any applicable taxes not previously deducted; less
3) the Withdrawal Charge, if any; less
4) the Annual Contract Maintenance Charge, if any.
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<PAGE>
HIGHLIGHTS
VISTA 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 General 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 Growth, VIST Growth & Income, VIST High
Income Bond, VIST Matrix Equity, VIST Multiple Strategies, VIST Small Cap
Growth, 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.
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.")
A Withdrawal Charge (sales load) may be deducted in the event of a withdrawal of
all or a portion of the Contract Value. No Withdrawal Charge will be assessed
upon any withdrawal unless the amount withdrawn exceeds the Free Withdrawal
Amount. The annual Free Withdrawal Amount is determined as the sum of (a) 10% of
Purchase Payments still subject to the Withdrawal Charge; plus (b) the excess of
the Contract Value over Purchase Payments not previously withdrawn; plus (c) any
Purchase Payments no longer subject to the Withdrawal Charge. 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 -
Deductions for Withdrawal Charge (Sales Load).")
There is a Mortality and Expense Risk Charge which is equal, on an annual basis,
to 1.25% of the average daily net asset value of the Separate Account. This
Charge compensates the Company for assuming the mortality and expense risks
under the Contracts. (See "Charges and Deductions - Deduction for Mortality and
Expense Risk Charge.")
There is an Administrative Charge which is equal, on an annual basis, to .15% of
the average daily net asset value of the Separate Account. This Charge
compensates the Company for costs associated with the administration of the
Contracts and the Separate Account. (See "Charges and Deductions - Deduction for
Administrative Charge.")
There is an Annual Contract Maintenance Charge of $30 each Contract Year. (See
"Charges and Deductions - Deduction for Annual Contract Maintenance Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. (See "Charges and Deductions -
Deduction for Premium Taxes.")
Under certain circumstances, a transfer charge may be assessed when an Owner
transfers Contract Values from one Sub-Account to another Sub-Account or to or
from the General Account. (See "Charges and Deductions - Deduction for Transfer
Fee.")
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. (See "Tax Status - Tax Treatment of
Withdrawals - Non-Qualified Contracts.") Separate tax withdrawal penalties and
restrictions apply to a Qualified Contract. (See "Tax Status - Tax Treatment of
Withdrawals - Qualified Contracts.") Special restrictions apply to distributions
from a 403(b) annuity. (See "Tax Status - Tax-Sheltered Annuities Withdrawal
Limitations".)
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<PAGE>
For a further discussion of the taxation of a Contract, see "Tax Status" and
"Tax Status - Diversification" for a discussion of owner control of the
underlying investments in a variable annuity contract.
FIRST VARIABLE ANNUITY FUND E
FEE TABLE
Owner Transaction Expenses
Withdrawal Charge (see Note 2 below) Contract Charge
(as a percentage of Purchase Payment withdrawn).... Anniversary ------
Since Purchase
Payment
-------
0 and 1 5%
2 4%
3 3%
4 2%
5 1%
6+ 0%
Transfer Fee None Currently (See Note 3)
Annual Contract Maintenance Charge $30 per Contract year
Separate Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Charge......................... 1.25%
Administrative Charge..................................... .15%
-----
Total Separate Account Annual Expenses.................... 1.40%
Funds' Annual Expenses
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
VIST VIST VIST Federated
Growth VIST VIST VIST Small US VIST Prime
VIST & Hi. Inc. Matrix Multiple Cap Gov. World Money
Growth Income Bond Equity Strat. Growth Bond Equity Fund II
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mgmt. Fees ....... .70% .75% .70% .65% .70% .85% .60% .70% .55%
Other Operating
Expenses -
After Expense
Reimbursement
(see Note 5) .47% .50% .50% .50% .50% .50% .25% .50% .25%
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Annual
Expenses 1.17% 1.25% 1.20% 1.15% 1.20% 1.35% .85% 1.20% .80%
</TABLE>
48
<PAGE>
Examples
An Owner would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
a) upon surrender at the end of each time period;
b) if the Contract is not surrendered or is annuitized.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Portfolio a) $ 73 $112 $151 $300
b) $ 27 $ 83 $141 $300
Growth & Income Portfolio a) $ 74 $114 $155 $308
b) $ 28 $ 85 $145 $308
High Income Bond Portfolio a) $ 73 $113 $153 $303
b) $ 27 $ 84 $143 $303
Matrix Equity Portfolio a) $ 73 $111 $150 $298
b) $ 27 $ 82 $140 $298
Multiple Strategies Portfolio a) $ 73 $113 $153 $303
b) $ 27 $ 84 $143 $303
Small Cap Growth a) $ 75 $117 $161 $318
b) $ 29 $ 88 $150 $318
U.S. Government Bond Portfolio a) $ 70 $102 $135 $267
b) $ 24 $ 73 $125 $267
World Equity Portfolio a) $ 73 $113 $153 $303
b) $ 27 $ 84 $143 $303
Prime Money Fund II a) $ 69 $101 $133 $262
b) $ 23 $ 71 $122 $262
</TABLE>
Explanation of Fee Table and Examples
1. The purpose of the Fee Table is to assist the Owner in understanding the
various costs and expenses that an Owner will incur, directly or
indirectly. The Table reflects expenses of the Separate Account and the
Investment Options. For additional information, see "Charges and
Deductions" in this Prospectus and the Prospectuses for Variable Investors
Series Trust and Federated Insurance Series.
2. An Owner may make a withdrawal each Contract Year of the Free Withdrawal
Amount or some portion thereof provided that the amount withdrawn is at
least $1,000 or the Owner's entire interest in the Sub-Account, if less.
The minimum Contract Value which must remain in a Sub-Account after a
partial withdrawal is $1,000. Subject to any conditions and fees the
Company may impose, an Owner may elect to have this amount paid in equal
periodic installments. The Company reserves the right to charge a fee for
this service. Currently, however, there are no charges for this service.
(See "Charges and Deductions - Deduction for Withdrawal Charge (Sales
Load)" and "Withdrawals - Systematic Withdrawals.") The 10% free withdrawal
has been factored into the Examples above.
3. The Company reserves the right to charge up to $25.00 for exchanges and
transfers when the total of exchanges and transfers in any Contract year
exceeds 12.
4. Prior to May 1, 1997, the Matrix Equity Portfolio was known as the "Tilt
Utility Portfolio" and had different investment policies. Prior to April 1,
1994, the Portfolio was known as the "Equity Income Portfolio" and had
different investment objectives and policies.
5. First Variable Advisory Services Corp. ( "Investment Adviser" ) has agreed
through April 1, 1998 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, 1996, the
49
<PAGE>
VIST Annual Expenses would have been 1.17% for the Growth Portfolio; 2.63%
for the Growth & Income Portfolio; 1.99% for the High Income Bond
Portfolio; 1.48% for the Matrix Equity Portfolio; 1.32% for the Multiple
Strategies Portfolio; 2.38% for the Small Cap Growth Portfolio; 1.66% for
the U.S. Government Bond Portfolio; and 1.50% for the World Equity
Portfolio. Federated Advisors, the investment adviser for Federated, has
voluntarily agreed to waive any portion of its fee and/or reimburse certain
operating expenses of Federated in excess of .80% of the Federated Prime
Money Fund II Portfolio's average net assets, but can modify or terminate
this voluntary agreement at any time at its sole discretion. Had this
investment adviser not waived expenses and/or reimbursed expenses of the
Federated Prime Money Fund II Portfolio for the year ended December 31,
1996, the annual expenses, as a percentage of the Portfolio's average
assets, would have been 1.37%.
6. Premium taxes are not reflected. Premium taxes may apply. (See "Charges and
Deductions - Deduction for Premium Taxes.")
7. The assumed initial Purchase Payment is $1,000.
8. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
50
<PAGE>
FIRST VARIABLE ANNUITY FUND E
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
(for a unit outstanding throughout the period)
The following condensed financial information is derived from the financial
statements of the Separate Account (Policy Forms 7800 and 20224). The
information should be read in conjunction with the financial statements, related
notes and other financial information for the Separate Account included in the
Statement of Additional Information. The financial statements and report of
independent auditors of the Company are also contained in the Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account (1)
Beginning of Period $ 17.05 $ 12.61 $ 12.89 $ 11.98 $ 13.16 $ 9.93 $ 10.00
End of Period $ 21.16 $ 17.05 $ 12.61 $ 12.89 $ 11.98 $ 13.16 $ 9.93
Number of Accum. Units Outstanding 834,675 518,976 242,120 187,792 213,353 157,474 6,736
Growth & Income Sub-Account
Beginning of Period (5/31/95) $ 11.22 $ 10.00
End of Period $ 12.41 $ 11.22
Number of Accum. Units Outstanding 755,887 289,200
High Income Bond Sub-Account (1)
Beginning of Period $ 16.26 $ 13.86 $ 15.12 $ 13.34 $ 11.70 $ 9.34 $ 10.00
End of Period $ 18.31 $ 16.26 $ 13.86 $ 15.12 $ 13.34 $ 11.70 $ 9.34
Number of Accum. Units Outstanding 520,055 309,472 190,699 437,508 337,571 195,048 536
Matrix Equity Sub-Account (2)
Beginning of Period $ 19.34 $ 14.70 $ 15.06 $ 12.95 $ 12.99 $ 10.15 $ 10.00
End of Period $ 19.95 $ 19.34 $ 14.70 $ 15.06 $ 12.95 $ 12.99 $ 10.15
Number of Accum. Units Outstanding 466,610 455,859 265,271 211,775 203,350 98,273 6,477
</TABLE>
(1) Prior to May 1, 1997, the Growth Sub-Account was known as the "Common Stock
Sub-Account." Prior to January 1, 1989, the High Income Bond Sub-Account
was known as the "High Yield Bond Sub-Account."
(2) Prior to May 1, 1997, the Matrix Equity Sub-Account was known as the "Tilt
Utility Sub-Account" and had different investment policies. Prior to April
1, 1994, the Sub-Account was known as the "Equity Income Division" and had
different investment objectives, policies and restrictions.
51
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Multiple Strategies Sub-Account
Beginning of Period $ 17.32 $ 13.28 $ 14.02 $ 12.86 $ 12.59 $ 10.34 $ 10.00
End of Period $ 20.21 $ 17.32 $ 13.28 $ 14.02 $ 12.86 $ 12.59 $10. 34
Number of Accum. Units Outstanding 960,499 795,702 529,845 167,168 169,897 128,348 11,761
Small Cap Growth Sub-Account (1)
Beginning of Period (5/4/95) $ 12.93 $ 10.00
End of Period $ 16.25 $ 12.93
Number of Accum. Units Outstanding 787,620 278,163
U.S. Government Bond Sub-Account
Beginning of Period $ 15.32 $ 12.93 $ 13.48 $ 12.49 $ 11.94 $ 10.56 $ 10.00
End of Period $ 15.46 $ 15.32 $ 12.93 $ 13.48 $ 12.49 $ 11.94 $ 10.56
Number of Accum. Units Outstanding 213,751 222,013 207,710 175,294 175,547 494,291 6,523
World Equity Sub-Account
Beginning of Period $ 14.67 $ 11.97 $ 11.03 $ 9.54 $ 9.85 $ 9.25 $ 10.00
End of Period $ 16.26 $ 14.67 $ 11.97 $ 11.03 $ 9.54 $ 9.54 $ 9.25
Number of Accum. Units Outstanding 1,054,077 719,094 349,771 151.437 92,431 72,323 5,125
Prime Money Fund II Sub-Account (2)
Beginning of Period $ 11.67 $ 11.22 $ 10.97 $ 10.86 $ 10.67 $ 10.24 $ 10.00
End of Period $ 12.06 $ 11.67 $ 11.22 $ 10.97 $ 10.86 $ 10.67 $ 10.24
Number of Accum. Units Outstanding 297,512 406,002 123,042 52,908 309,216 207,448 63,260
</TABLE>
(1) Prior to May 1, 1997, the Small Cap Growth Sub-Account was known as the
"Small Cap Sub-Account."
(2) On January 2, 1997, shares of Federated Prime Money Fund II were
substituted for shares of the VIST Cash Management Portfolio. Accumulation
Unit Values shown are based on the value of VIST Cash Management Portfolio
shares held for the periods shown.
52
<PAGE>
Six
Months Year Year
Ended Ended Ended
6/30/92 12/31/91 12/31/90
---------- ---------- ----------
Real Estate Investment Sub-Account*
Beginning of Period $ 11.74 $ 8.93 $ 10.00
End of Period $ 11.58 $ 11.74 $ 8.93
Number of Accum. Units Outstanding 0 6,903 904
Natural Resources Sub-Account*
Beginning of Period $ 9.19 $ 9.22 $ 10.0
End of Period $ 8.81 $ 9.19 $ 9.22
Number of Accum. Units Outstanding 0 9,794 1,237
World Bond Sub-Account*
Beginning of Period $ 12.27 $ 10.91 $ 10.00
End of Period $ 12.29 $ 12.27 $ 10.91
Number of Accum. Units Outstanding 0 47,602 4,343
Aggressive Growth Sub-Account*
Beginning of Period $ 11.81 $ 9.28 $ 10.00
End of Period $ 10.02 $ 11.81 $ 9.28
Number of Accum. Units Outstanding 0 41,617 3,269
*On June 29, 1992, the Real Estate Investment, Natural Resources, Aggressive
Growth and World Bond Sub-Accounts of Fund E, and the corresponding Portfolios
of VIST were terminated, based primarily on their small size and the limited
prospect for growth in the foreseeable future. Investments in these four
Sub-Accounts were transferred into the then remaining Sub-Accounts.
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, Iowa. 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 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 the
end of 1996, 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 of Interstate and the Company.
The Company has an A- (Excellent) rating from A.M. Best, an independent firm
that analyzes insurance carriers. This rating is assigned to companies that have
a strong ability to meet their obligations to policyholders over a long period
of time. The Company also has an AA (Double A) rating from Duff & Phelps Credit
Rating Co. and an AA- (Double A minus) from Standard & Poor's on claims paying
ability. The financial strength of the Company may be relevant with respect to
the Company's ability to satisfy its General Account obligations under the
Policies.
The Company may publish in advertisements and reports to Owner, the ratings and
other information assigned it by one or more independent rating services Further
the Company may publish charts and other information concerning dollar cost
averaging, tax-deferral and other investment methods.
53
<PAGE>
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 segregated asset account has been designated First Variable Annuity Fund E
(the "Separate Account"). The Company has caused the Separate Account to be
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940.
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 the Contracts 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. There is no assurance
that the investment objective of any of the Portfolios will be met. Owners bear
the complete investment risk for Purchase Payments and Contract Value allocated
to a Sub-Account. Contract Values will fluctuate in accordance with the
investment performance of the Sub-Account(s) to which Purchase Payments are
allocated, and in accordance with the imposition of the fees and charges
assessed under the Contracts.
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 General 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.
Variable Investors Series Trust
Variable Investors Series Trust ("VIST") has been established to act as one of
the funding vehicles for the Contracts offered. VIST is managed by First
Variable Advisory Services Corp. ("Investment Adviser"), a wholly-owned
subsidiary of the Company. The Investment Adviser retains the services of
sub-advisers pursuant to Sub-Advisory Agreements to manage the assets of the
Portfolios of VIST as follows: Federated Investment Counseling with respect to
the High Income Bond Portfolio, Value Line, Inc. with respect to the Multiple
Strategies Portfolio and the Growth Portfolio, Strong Capital Management, Inc.
with respect to the U.S. Government Bond Portfolio, State Street Bank and Trust
Company with respect to the Matrix Equity Portfolio, Keystone Investment
Management Company with respect to the World Equity Portfolio, Warburg Pincus
Counsellors, Inc. with respect to the Growth & Income Portfolio and Pilgrim,
Baxter & Associates, Ltd. with respect to the Small Cap Growth Portfolio. Prior
to April 1, 1994, INVESCO Capital Management, Inc. was the investment adviser of
VIST. VIST is an open-end management investment company. While a brief summary
of the investment objectives of the Portfolios is set forth below, more
comprehensive information, including a discussion of potential risks, is found
in the current VIST Prospectus which is included with this Prospectus.
Purchasers should read this Prospectus and the VIST Prospectus carefully before
investing.
54
<PAGE>
VIST is intended to meet differing investment objectives with its currently
available separate Portfolios: Growth Portfolio, Growth & Income Portfolio, High
Income Bond Portfolio, Matrix Equity Portfolio, Multiple Strategies Portfolio,
Small Cap Growth Portfolio, U.S. Government Bond Portfolio and World Equity
Portfolio. The investment objectives of the Portfolios are as follows:
Growth Portfolio. 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. Prior to May 1, 1997, this Portfolio was
known as the "Common Stock Portfolio".
Growth & Income Portfolio. 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.
High Income Bond Portfolio. 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.
Matrix Equity Portfolio. The investment objective of this Portfolio is capital
appreciation and current income. The Portfolio will seek to achieve its
investment objective by investing in a diversified portfolio that is selected by
the Sub-Adviser on the basis of its proprietary analytical model. Sector weights
are normally maintained at a similar level to that of the S&P 500 Index. The
Portfolio will invest at least 65% of its total assets in equity securities.
Prior to May 1, 1997, the Matrix Equity Portfolio was known as the "Tilt Utility
Portfolio" and had different policies, but maintained the same investment
objective.
Multiple Strategies Portfolio. 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.
Small Cap Growth Portfolio. The investment objective of this Portfolio is to
seek capital appreciation. The Portfolio will invest, under normal conditions,
at least 65% of its total assets in securities of companies with small market
capitalization or annual revenues under $1 billion at the time of purchase.
Prior to May 1, 1997, this Portfolio was known as the "Small Cap Portfolio."
U.S. Government Bond Portfolio. 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.
World Equity Portfolio. 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
55
<PAGE>
investment advisory contract with Federated, investment decisions for Federated
are made by Federated Advisers, an affiliate of Federated Investment Counseling.
Prime Money Fund II. The investment objective of this series is to provide
current income consistent with the stability of principal and liquidity. The
Fund pursues its investment objective by investing exclusively in a portfolio of
money market instruments maturing in 397 days or less. An investment in the
Prime Money Fund II is neither insured nor guaranteed by the U.S. Government.
General Account Option
This Prospectus is generally intended to describe the Contract and Separate
Account. Because of certain exemptive and exclusionary provisions, interests in
the General Account are not registered under the Securities Act of 1933 and the
General Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the General 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
General Account.
The Company guarantees that it will credit interest to Contract Value in the
General Account at a minimum rate of 4% 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
General Account may each receive different current interest rate(s) than the
current interest rate(s) credited to Contract Value existing in the General
Account. The Company determines current interest rates in advance and credits
interest daily to General Account Value.
Voting Rights
In accordance with its view of present applicable law, the Company will vote the
shares of VIST and Federated that are in the Separate Account at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in the Separate Account. The Company will
vote shares for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. Neither VIST nor Federated holds regular meetings of
shareholders.
Shares of VIST and Federated are used as the investment vehicle for separate
accounts of insurance companies offering variable annuity contracts and variable
life insurance policies. The use of VIST's and Federated's shares as investments
for both variable annuity contracts and variable life insurance policies is
referred to as "mixed funding." The use of these shares as investments by
separate accounts of unaffiliated life insurance companies is referred to as
"shared funding."
VIST and Federated intend to engage in mixed funding and shared funding.
Although VIST and Federated do not currently foresee any disadvantage to
Contract owners due to differences in redemption rates, tax treatment, or other
considerations resulting from mixed funding or shared funding, the Trustees of
VIST and the Trustees of Federated will closely monitor the operation of mixed
funding and shared funding and will consider appropriate action to avoid
material conflict and take appropriate action in response to material conflicts
which occur.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to a
shareholder meeting. Each Owner having a voting interest will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.
Substitution of Other Securities
If other shares of VIST or Federated (or any Portfolio within the Funds), 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 substitute shares of
another mutual fund (or Portfolio) for shares already purchased or to be
purchased in the future by Purchase Payments under the Contracts. No
substitution of
56
<PAGE>
securities may take place without prior approval of the Securities and Exchange
Commission and under the requirements it may impose.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the Separate
Account. These charges and deductions are:
Deduction for Withdrawal Charge (Sales Load)
If all or a portion of the Contract Value (see "Withdrawals" on Page __) is
withdrawn, a Withdrawal Charge (sales load) will be calculated at the time of
each withdrawal and will be deducted from the Contract Value. This Charge
reimburses the Company for expenses incurred in connection with the promotion,
sale and distribution of the Contracts. No Withdrawal Charge will be assessed
upon any withdrawal unless the amount withdrawn exceeds the Free Withdrawal
Amount. The annual Free Withdrawal Amount is determined as the sum of (a) 10% of
Purchase Payments still subject to the Withdrawal Charge; plus (b) the excess of
the Contract Value over Purchase Payments not previously withdrawn; plus (c) any
Purchase Payments no longer subject to the Withdrawal Charge. The Withdrawal
Charge is determined by multiplying the excess of the amount withdrawn over the
Free Withdrawal Amount by the applicable percentage(s) from the Table of
Withdrawal Charges below. The Withdrawal Charge percentages are based upon the
number of Contract Anniversaries that Purchase Payments have remained in the
Contract before being withdrawn. Purchase Payments are deemed to be withdrawn in
the order in which they are made.
TABLE OF WITHDRAWAL CHARGES:
Contract Anniversaries
Since Purchase Payment Charge
---------------------- ------
0 and 1 5%
2 4%
3 3%
4 2%
5 1%
6+ 0%
Any partial withdrawal is subject to a $500 minimum. If a partial withdrawal is
requested that would leave an aggregate value of less than the sum of taxes
which have not yet been deducted, the Annual Contract Maintenance Charge, if
applicable, and any Withdrawal Charge, then such partial withdrawal will be
treated as a total withdrawal. If the aggregate value of a Contract after any
withdrawal falls below $300, a Contract may, at the Company's option, be
automatically surrendered and the aggregate value, less any applicable charges,
will be paid to the Owner.
In the event of the death of the Owner, the Company will waive the Withdrawal
Charge with respect to any death benefits paid.
For a partial withdrawal, the Withdrawal Charge will be deducted from the
remaining Withdrawal Value, if sufficient; otherwise it will be deducted from
the amount withdrawn. The amount deducted from the Contract Value will be
determined by subtracting values from the General 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. The Owner must specify in
writing in advance which Units are to be canceled from each Sub-Account and/or
whether values are to be deducted from the General Account if other than the
above method of cancellation is desired.
Deduction for Mortality and Expense Risk Charge
The Company deducts on each Valuation Date, both prior to the Annuity Date and
during the Annuity Period, a Mortality and Expense Risk Charge which is equal,
on an annual basis, to 1.25% of the average daily net asset value of
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the Separate Account. The mortality risks assumed by the Company arise 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.
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.
Deduction for Administrative Charge
The Company deducts on each Valuation Date, both prior to the Annuity Date and
during the Annuity Period, an Administrative Charge which is equal, on an annual
basis, to .15% of the average daily net asset value of the Separate Account.
This charge, together with the Annual Contract Maintenance Charge (see below),
is to reimburse the Company for the expenses it incurs in the establishment and
maintenance of the Contracts and the Separate Account. These expenses include
but are not limited to: preparation of the Contracts, confirmations, annual
reports and statements, maintenance of Owner records, maintenance of Separate
Account records, administrative personnel costs, mailing costs, data processing
costs, legal fees, accounting fees, filing fees, the costs of other services
necessary for Owner servicing and all accounting, valuation, regulatory and
reporting requirements. Since this charge is an asset-based charge, the amount
of the charge attributable to a particular Contract may have no relationship to
the administrative costs actually incurred by that Contract. The Company does
not intend to profit from this charge. This charge will be reduced to the extent
that the amount of this charge is in excess of that necessary to reimburse the
Company for its administrative expenses. Should this charge prove to be
insufficient, the Company will not increase this charge and will incur the loss.
Deduction for Annual Contract Maintenance Charge
An annual charge of $30 (the "Annual Contract Maintenance Charge") is assessed
against the Contract every Contract Year during the Accumulation Period. In the
case of a total withdrawal occurring 31 or more days after the beginning of a
Contract Year, the full Annual Contract Maintenance Charge for that year will be
deducted. The Annual Contract Maintenance Charge is not assessed if all Contract
Value is in the Fixed Account. This charge is deducted by subtracting values
from the General 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. The Company has set this charge at a level so that, when
considered in conjunction with the Administrative Charge (see above), it will
not make a profit from the charges assessed for administration.
Deduction for 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%.
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Deduction for Income Taxes
While the Company is not currently maintaining a provision for federal income
taxes with respect to the Separate Account, the Company has reserved the right
to establish a provision for income taxes if it determines, in its sole
discretion, that it will incur a 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
provision for taxes and whether or not it was sufficient. The Company will
deduct any withholding taxes required by applicable law. (See "Tax Status Income
Tax Withholding.")
Deduction for Expenses of the Funds
There are other deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying VIST and Federated prospectuses.
Transfer Charge
The Company reserves the right to charge up to $25.00 for exchanges and
transfers when the total of exchanges and transfers in any Contract Year exceeds
12.
Elimination or Reduction of Charges and Deductions.
The charges and deductions on a Contract may be reduced or eliminated, in whole
or in part, when sales of Contracts are made to individuals or to a group of
individuals in a manner that results in savings or administration expenses. Any
reductions will be determined by the Company after examination of relevant
factors such as:
o the size and type of group to which sales are to be made because expenses
for a larger group are generally less than for a smaller group since large
numbers of Contracts may be implemented and administered with fewer
contacts;
o the total amount of Purchase Payments to be received because expenses are
likely to be less on larger Purchase Payments than on smaller ones;
o any prior or existing relationship with the Company because of the
likelihood of implementing the Contract with fewer contracts; and
o 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, employee or agent 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.
THE CONTRACTS
Application and Issuance of a Contract
An application must be completed and submitted to the Company to purchase a
Contract, together with the minimum required initial Purchase Payment. (See
"Purchase Payments") A Contract ordinarily will be issued with respect to Owners
and Annuitants up to Age 80. 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 requirement under their existing 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.")
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The Owner, Annuitant, and beneficiary of a Contract are initially designated in
the application 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 Contracts 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 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 at least 10 days, and may be greater
depending on state requirements.
Delayed Investment Start Date. Purchase Payments are generally allocated to the
Sub-Accounts or to the General Account as selected by the Owner. In certain
instances, however, the Company reserves the right to allocate Purchase Payments
to the Prime Money Fund II Sub-Account for a period of up to 5 days beyond a
"free look" inspection period before they will be invested (together with any
investment gain) in any other 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: (a) in a state which requires that
Purchase Payments less withdrawals be refunded upon the exercise of (i) a "free
look" right or (ii) an inspection right following a "replacement" of an existing
life insurance or annuity contract; or (b) as an Individual Retirement Annuity
(or as the initial investment of an Individual Retirement Account).
On the date of this Prospectus, the Company does not delay investment start
dates and, should it elect to do so, it will so advise prospective investors in
a Contract.
Ownership
The Owner has all rights and may receive all benefits under the Contract. Prior
to the Annuity Date, the Owner is the person designated in the Application,
unless changed. On and after the Annuity Date, the Annuitant is the Owner. Upon
the death of the Annuitant, the Beneficiary is the Owner.
The Owner may change the Owner at any time prior to the Annuity Date. A change
of Owner will automatically revoke any prior designation of Owner. A request for
change must be: (1) made in writing; and (2) 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 of Owner will not apply to any
payment made or action taken by the Company prior to the time it was received.
For Non-Qualified Contracts, in accordance with Internal Revenue Code Section
72(u), a deferred annuity contract held by a corporation or entity that is not a
natural person is not treated as an annuity contract for tax purposes. Income on
the contract is treated as ordinary income received by the Owner during the
taxable year. However, for purposes of Code Section 72(u), an annuity contract
held by a trust or other entity as agent for a natural person is considered held
by a natural person and treated as an annuity contract for tax purposes. Tax
advice should be sought prior to purchasing a Contract which is to be owed by a
trust or other non-natural person.
Annuitant
The Annuitant is the person on whose life Annuity Payments are based. The
Annuitant is the person designated in the Application, unless changed prior to
the Annuity Date. The Annuitant may not be changed in a Contract which is owned
by a non-natural person.
Assignment
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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. The Company is not responsible for
the validity 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.
If the Contract is issued pursuant to a retirement plan which receives favorable
tax treatment under the provisions of Sections 401, 403(b), 408 or 457 of the
Internal Revenue Code, it may not be assigned, pledged or otherwise transferred
except as may be allowed under applicable law.
Transfers by the Company
The Company may, subject to applicable regulatory approvals, transfer its
obligations under the Contracts to another qualified life insurance company
under an assumption reinsurance arrangement without the prior consent of the
Owner.
Beneficiary
The Beneficiary is named in the Application and, unless changed, is entitled to
receive the benefits to be paid at the death of the Owner.
Unless the Owner provides otherwise, the Death Benefit will be paid in equal
shares or all to the survivor(s) as follows:
(1) to the primary Beneficiaries who survive the Owner's death; or if
there are none,
(2) to the contingent Beneficiaries who survive the Owner's death; or if
there are none,
(3) to the estate of the Owner.
Change of Beneficiary
Subject to the rights of any irrevocable Beneficiary(ies), the Owner may change
the primary Beneficiary(ies) or contingent Beneficiary(ies). A change may be
made by filing a written request with the Company at its Variable Service
Center. The change will take effect as of the date the notice is signed. The
Company will not be liable for any payment made or action taken before it
records the change.
Transfers of Contract Values During the Accumulation Period
Prior to the Annuity Date, an Owner may transfer all or part of an Account by
either written or telephone request without the imposition of any fee or charge
if there have been no more than 12 transfers made in the Contract Year. If more
than 12 transfers have been made in the Contract Year, the Company reserves the
right to deduct a transfer fee but does not do so currently. (See "Charges and
Deductions - Deduction for Transfer Fee" above and "Purchase Payments and
Contract Value - Dollar Cost Averaging.") All transfers are subject to the
following:
(1) Allocations, transfers and allocations to the fixed account must be at
least $100.00
(2) All Purchase Payments and transfers allocated to the General Account
must remain in the General Account for one year prior to any transfer
from the General Account.
(3) Any transfer direction must clearly specify the amount which is to be
transferred and the Accounts which are to be affected.
(4) The Company reserves the right at any time and without prior notice to
any party including, but not limited to, the circumstances described
in the "Suspension of Payments or Transfers" provision, below, to
terminate, suspend or modify the transfer privileges described above.
Programmed or other frequent requests to transfer all or part of an Account by,
or on behalf of, an Owner may have a detrimental effect on Investment Option
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 for an Owner or a group
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of Owners if it is informed that the purchase or redemption of shares of one or
more of the Investment Options 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 Accumulation Unit Value or Investment Option 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 such 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 financial
affairs; or (b) the third party has been appointed by a court of competent
jurisdiction to act on the Owner's behalf.
Telephone Transactions
An Owner may initiate various transactions by telephone. The Variable Service
Center (1-800-845-0689) is available for telephone transfers of Account Value,
notification of change of address, change of premium allocations among
Investment Options, partial withdrawal requests and systematic withdrawals.
The Company's automated information line (1-800-59-FUNDS) is available for
current information on Accumulation Unit Values, current Account Value, and may
be made available for telephone transfers of Account Value.
If there are joint owners of a Contract, unless the Company is informed to the
contrary, instructions will be accepted from either one of the joint owners.
Requests for transfers or reallocations by telephone will be automatically
permitted. The Company will use reasonable procedures such as requiring certain
identifying information from the caller, tape recording the telephone
instructions, and providing written confirmation of the transaction, in order to
confirm that instructions communicated by telephone are genuine. Any telephone
instructions reasonably believed by the Company to be genuine will be the
Owner's responsibility, including losses arising from any errors in the
communication of instructions. As a result of this, the Owner will bear the risk
of loss. If the Company does not employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, the Company may be liable
for any losses due to dishonored or fraudulent instructions.
Death Benefit Provided by the Contract
If the Annuitant is not the Owner and the Owner dies while the Contract is in
effect, while the Annuitant is living, and before the Annuity Date, the Company,
upon receipt of due proof of death of the Owner, will pay a death benefit to the
Owner's beneficiary. (For Contracts owned by non-natural persons, the Annuitant
will be deemed to be the Owner for this purpose and the death or a change of the
Annuitant shall be treated as the death of the Owner.) If there is no Owner's
beneficiary living on the date of death of the Owner, the Company will pay the
death benefit, upon receipt of due proof of the death of both the Owner and the
Owner's beneficiary, in one sum to the estate of the Owner. If the Owner's
beneficiary is not an individual or the death benefit is payable to the Owner's
estate, the death benefit must be distributed within five years of the Owner's
death. If the Owner's beneficiary is an individual, such individual may receive
payments in a lump sum or over a period of years not exceeding his or her life
expectancy beginning not later than one year after the Owner's death. If the
Owner's spouse is the Owner's beneficiary, the spouse may elect to keep the
Contract in effect and become the new Owner. If the Annuitant is not the Owner
and the Owner dies before the Annuity Date, except in the case of a spouse who
elects to become the new Owner, all rights of the Annuitant cease upon the
Owner's death.
If the Annuitant dies while the Contract is in effect and before the Annuity
Date, the Company, upon receipt of due proof of death, will pay a death benefit
to the Annuitant's beneficiary, either in a lump sum or under one of the annuity
options as provided under "Annuity Provisions - Annuity Options." If there is no
Annuitant's beneficiary living on the date of the death of the Annuitant, the
Company will pay the death benefit in a lump sum to the Owner upon receipt of
due proof of the death of both the Annuitant and the Annuitant's beneficiary. If
written election of a method of settlement of the Death Benefit is not received
within 60 days following the date due proof of death is received at the
Company's Variable Service Center, the Annuitant's Beneficiary or the Owner's
beneficiary, as the case may be, if an individual, will be deemed to have
elected Fixed Annuity Option B, a life annuity with 120 monthly payments certain
as of the last day of the 60 day period.
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In the event of the simultaneous death of the Owner and the Annuitant, the
Company will pay a death benefit to the Owner's beneficiary.
On or after the Annuity Date, no death benefit will be payable under the
Contract except as may be provided under the annuity option elected or
automatically placed in effect. In the event of the death of the Owner after the
Annuity Commencement Date, benefits must be distributed at least as rapidly as
the method of distribution in effect on the Owner's death.
The Contract provides that upon the death of the Annuitant prior to the Annuity
Commencement Date, the death benefit will be paid to the named beneficiary. Such
payments made upon the death of the Annuitant who is not the Owner of the
Contract do not qualify for the Death of Owner exception to the ten percent
(10%) federal income tax penalty applied to the income portion of any
distribution from Non-Qualified Contracts and will be subject to the ten percent
(10%) premature distribution penalty unless the beneficiary is 59 1/2 or one of
the other exceptions applies. (See "Tax Status - Tax Treatment of Withdrawals -
Non-Qualified Contracts.")
Amount of Death Benefit Prior to Annuity Date
Prior to the Annuity Date the death benefit is equal to the greater of (a) the
Contract Value, (b) the sum of all Purchase Payments made under the Contract,
less the sum of all amounts withdrawn or (c) the Contract Value as of the first
day of the current five Contract Year period plus any Purchase Payments made
since the date and less any withdrawals made since that date. The first five
Contract Year period begins on the Issue Date, the second five Contract Year
period begins on the fifth Contract Anniversary, and so forth. For Contracts
issued in Texas and North Carolina, the death benefit is equal to the greater of
(a) or (b).
In certain states the Company may issue a Contract to an Owner over age 85. In
such cases, the death benefit payable on the Owner's death is equal to the
Withdrawal Value (Contract Value less applicable charges).
The Accumulation Unit values used in determining the amount of the death benefit
will be those determined at the close of the Valuation Period in which due proof
of death is received by the Company at the Variable Service Center.
If written election of a method of settlement of the Death Benefit is not
received within 60 days following the date due proof of death is received at the
Company's Variable Service Center, the Annuitant's Beneficiary or the Owner's
beneficiary, as the case may be, if an individual, will be deemed to have
elected Fixed Annuity Option B, a life annuity with 120 monthly payments certain
as of the last day of the 60 day period.
Amounts Payable On Death of Payee
In the event of the death of a payee on or after the Annuity Date, and prior to
the expiration of a period certain, if any, the annuity payments for the
remainder of such period certain will be paid (a) to the Annuitant's beneficiary
as such payments come due; of (b) if there is no designated beneficiary then
living, to the estate of the deceased payee in a lump sum equal to the commuted
value of such payments. all payments made in one sum by the Company as provided
in this paragraph are made in lieu of paying any remaining annuity payments
under the Annuity Option then in effect.
ANNUITY PROVISIONS
Annuity Date and Annuity Option
The Owner selects an Annuity Date and Annuity Option at the time of application.
The Annuity Date must always be the first day of a calendar month and must be at
least one month after the Issue Date. The Annuity Date may not be later than the
Annuitant's 85th birthday. If no Annuity Option is elected, and in effect on the
30th day prior to the Annuity Date, Option B with a 120 month guarantee will
automatically be applied.
Change in Annuity Date and Annuity Option
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Prior to the Annuity Date, the Owner may change the Annuity Date. Any changes
must be in writing and must be requested prior to the new Annuity Date. The
Annuity Date must always be the first day of a calendar month and must be at
least one month after the Issue Date. The Annuity Date may not be later than the
Annuitant's 85th birthday.
The Owner may, upon written notice to the Company, at any time prior to the
Annuity Date, change the Annuity Option. Any change must be requested at least
seven (7) days prior to the Annuity Date.
Allocation of Annuity Payments
If all of the Contract Value on the seventh calendar day before the Annuity Date
is allocated to the General Account, the Annuity will be paid as a Fixed
Annuity. If all of the Contract Value on that date is allocated to the Separate
Account, the Annuity will be paid as a Variable Annuity. If the Contract Value
on that date is allocated to both the General Account and the Separate Account,
the Annuity will be paid as a combination of a Fixed Annuity and a Variable
Annuity to reflect the allocation between the Accounts.
Transfers During the Annuity Period
During the Annuity Period the Owner may:
1. transfer Contract Value among the Sub-Accounts of the Separate
Account.
2. once each Contract Year, make a transfer of Contract Value from one or
more Sub-Accounts to the General Account. The Owner may not make a
transfer from the General Account to the Separate Account. Amounts
transferred from a Sub-Account to the General Account are subject to
certain procedures set out in the Contract.
3. The Company reserves the right at any time and without prior notice to
any party including, but not limited to, the circumstances described
in the "Suspension of Payments or Transfers" provision, to terminate,
suspend or modify the transfer privileges described above.
Annuity Options
The actual dollar amount of Variable Annuity Payments is dependent upon (i) the
Contract Value on the Annuity Date, (ii) the annuity table specified in the
Contract, (iii) the Annuity Option selected, and (iv) the investment performance
of the Sub-Account selected.
The annuity tables contained in the Contract for Variable Annuity Payments are
based on a four percent (4%) assumed investment rate. If the actual net
investment rate exceeds four percent (4%) for Variable Annuity Payments,
payments will increase. Conversely, if the actual rate is less than four percent
(4%), Variable Annuity Payments will decrease. If a higher assumed investment
rate was used, the initial payment would be higher, but the actual net
investment rate would have to be higher in order for Variable Annuity Payments
to increase.
Variable Annuity Payments will reflect the investment performance of the
Separate Account in accordance with the allocation of the Contract Value to the
Sub-Account on the Annuity Date. Thereafter, allocations may not be changed
except as provided in "Transfers During the Annuity Period", above. The total
dollar amount of each Annuity Payment is the sum of the Variable Annuity Payment
and the Fixed Annuity Payment.
The amount 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. 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 sixty (60), one hundred twenty (120), one hundred eighty (180) or two
hundred forty (240) months certain as selected.
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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 five (5) years but not exceeding
thirty (30) years), as chosen.
Annuity Options A, B, C & D are available on a Fixed Annuity basis, a Variable
Annuity basis or a combination of both. Annuity Option E is available on a Fixed
Annuity basis only.
Frequency and Amount of Annuity Payments
Annuity Payments will be paid as monthly installments. However, if the net
amount available to apply under any Annuity Option is less than $5,000, the
Company has the right to pay the amount in one single lump sum in lieu of
Annuity Payments. If the Annuity Payment would be or become less than $200 where
only a Fixed Annuity Payment or a Variable Annuity is selected, or if the
Annuity Payment would be or become less than $100 on each basis when a
combination of Fixed and Variable Annuities is selected, the Company will reduce
the frequency of payments to an interval which will result in each payment being
at least $200, or $100 on each basis if a combination of Fixed and Variable
Annuities is selected.
PURCHASE PAYMENTS AND CONTRACT VALUE
Purchase Payments
The Contracts are purchased under a flexible Purchase Payment plan. The initial
Purchase Payment is due on the Issue Date. For Non-Qualified Contracts, the
minimum initial Purchase Payment is $5,000. The minimum initial Purchase Payment
for Qualified Contracts issued pursuant to Section 408 of the Internal Revenue
Code is $250. For all Contracts, the maximum subsequent Purchase Payment is
$1,000,000 and the minimum subsequent Purchase Payment is $100. The Company
reserves the right to decline any Application or Purchase Payment.
Allocation of Purchase Payments
Purchase Payments are allocated to the General Account or appropriate
Sub-Account(s) within the Separate Account as selected by the Owner. Unless
elected otherwise by the Owner, subsequent Purchase Payments are allocated in
the same manner as the initial Purchase Payment. Under certain circumstances,
Purchase Payments which have been designated by prospective purchasers to be
allocated to Sub-Accounts other than the Cash Management Sub-Account may
initially be allocated to the Cash Management Sub-Account. (See "Highlights.".)
For each Sub-Account, Purchase Payments are converted into Accumulation Units.
The number of Accumulation Units credited to the Contract is determined by
dividing the Purchase Payment allocated to the Sub-Account by the value of the
Accumulation Unit for the Sub-Account as of the Valuation Period during which
the Purchase Payment is allocated to the Sub-Account. Purchase Payments
allocated to the General Account are credited in dollars.
Under certain circumstances, the Company may delay the initial investment of
Purchase Payments to be allocated to Investment Options in the Separate Account,
but it does not currently do so. (See "The Contracts - Application and Issuance
of a Contract--Delayed Investment Start Date.")
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, permits an Owner to
systematically transfer amounts for each month or quarter from the Prime Money
Fund II Sub-Account or the General Account to any Sub-Account(s). By
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allocating amounts on a regularly scheduled basis as opposed to allocating the
total amount at one particular time, an Owner may be less susceptible to the
impact of market fluctuations. The minimum amount which may be transferred is
$500. An Owner must have a minimum of $6,000 of Contract Value in the Prime
Money Fund Sub-Account or the General Account, or the amount required to
complete the Owner's designated program, in order to participate in the Dollar
Cost Averaging program.
All Dollar Cost Averaging transfers will be made on the same day of each month
or quarter (or the next Valuation Date if the same day of the month or quarter
is not a Valuation Date). If the Owner is participating in the Dollar Cost
Averaging program, such transfers are not taken into account in determining any
transfer fee. Under certain circumstances, there may be restrictions with
respect to an Owner's ability to participate in the Dollar Cost Averaging
program and limitations on the amounts that can be transferred from the General
Account to any Sub-Accounts. An Owner participating in the Dollar Cost Averaging
program may not make systematic withdrawals of his or her Contract Value. (See
"Withdrawals--Systematic Withdrawals.")
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 Contract is 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 7% of Purchase Payments. Broker- dealers may also
receive expense allowances, wholesaler fees, bonuses and training fees.
Contract Value
The Contract Value of the Contract on any Valuation Date is the sum of the
Owner's interest in the Sub-Accounts of the Separate Account and in the General
Account. The value of each Sub-Account is determined by multiplying the number
of Accumulation Units attributable to the Sub-Account by the value of an
Accumulation Unit for the Sub-Account.
Accumulation Unit
Purchase Payments allocated to the Separate Account and amounts transferred to
or within the Separate Account are converted into Accumulation Units. This is
done by dividing each Purchase Payment by the value of an Accumulation Unit as
of the Valuation Period during which the Purchase Payment is allocated to the
Separate Account or the transfer is made. The Accumulation Unit value for each
Sub-Account was arbitrarily set initially at $10. The Accumulation Unit value
for any later Valuation Period is determined by subtracting (2) from (1) and
dividing the result by (3) where:
(1) is the net result of:
(a) the assets of the Sub-Account attributable to Accumulation 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 (see "Charges and
Deductions"); and
(3) is the number of Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period to
Valuation Period.
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WITHDRAWALS
While the Contract is in force and before the Annuity Date, the Owner may elect
in writing to withdraw all of a Contract's Withdrawal Value or may elect in
either writing or by telephone to withdraw part of a Contract's Withdrawal
Value. (See "Telephone Transactions.") Withdrawals will result in the
cancellation of Accumulation Units from each applicable Sub-Account of the
Separate Account or a reduction in the General Account Value in the ratio that
the Sub-Account Value and/or the General Account Value bears to the total
Contract Value. The Owner must specify in writing in advance which units are to
be canceled or values are to be reduced if other than the above-mentioned method
of cancellation is desired. The Company will pay the amount of any withdrawal
within seven (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.")
The Withdrawal Value is the Contract Value for the Valuation Period next
following the Valuation Period during which a written request for withdrawal is
received at the Company reduced by the sum of:
(a) any applicable taxes not previously deducted;
(b) any applicable Annual Contract Maintenance Charge; and
(c) any applicable Withdrawal Charge.
Each partial withdrawal must be for an amount which is not less than $1,000 or,
if smaller, the remaining value in the Sub-Account or General Account. The
remaining value in each Sub-Account or the General Account from which a partial
withdrawal is requested must be at least $1,000 after the partial withdrawal is
completed. Although the Contract provides that an Owner may not make more than
four partial withdrawals in any Contract Year, the Company does not and will not
enforce this limitation.
Certain tax withdrawal penalties and restrictions may apply to withdrawals from
Contracts. (See "Tax Status.") For Contracts purchased in connection with 403(b)
plans, the Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section 403(b)(11)
of the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the Owner's
Contract Value which represents contributions made by the Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. However, these limitations
will apply to all amounts (regardless of when or how the contributions were
originally made) which are transferred or rolled over from a custodial account
(as defined in Section 403(b)(7) of the Code) into the Owner's Account. The
limitations on withdrawals do not affect rollovers or transfers between certain
Qualified Plans. Owners should consult their own tax counsel or other tax
adviser regarding any distributions.
Systematic Withdrawals
As stated above, an Owner may request a withdrawal of the Contract's Withdrawal
Value. In addition, and subject to any conditions and fees the Company may
impose, an Owner may elect to make equal periodic withdrawals ("systematic
withdrawals") by either written or telephone request of his or her Contract
Values. (See "Telephone Transactions.") Currently, however, there are no charges
for systematic withdrawals.
Under the program, systematic withdrawals are made on the same day (or next
Valuation Date of each month or quarter. Systematic withdrawals 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). The right to a
10% free single sum
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withdrawal is forfeited. Systematic withdrawals are not allowed simultaneously
with the dollar cost averaging program. Owners less than 59 1/2 who participate
in this program may be subject to a 10% penalty tax surcharge. (See "Tax Status
- - Tax Treatment of Withdrawals--Non-Qualified Contracts" and Tax Treatment of
Withdrawals--Qualified Contracts.")
The Company reserves the right to modify, suspend or eliminate the program at
any time.
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 as follows:
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 institution of higher education upon its request. 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 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 for any period when:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
(2) trading on the New York Stock Exchange is restricted;
(3) 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
(4) during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Owners; provided that
applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (2)
and (3) exist.
The Company reserves the right to defer payment for a withdrawal or transfer
from the General Account for the period permitted by law but not for more than
six months after written election is received by the Company.
PERFORMANCE INFORMATION
Prime Money Fund II Portfolio
From time to time, the Prime Money Fund II Sub-Account of the Separate Account
may advertise its "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Prime Money Fund II Sub-Account refers to the income generated by
Contract Values in the Prime Money Fund II Sub-Account over a seven-day period
(which period will be stated in the advertisement). This income is "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the Contract Values in the Prime Money Fund II Sub-Account. The
"effective yield" is calculated similarly. However, when annualized, the income
earned by Contract Values is assumed to be reinvested. This results in the
"effective yield" being slightly higher than the "yield" because of the
compounding effect of the assumed reinvestment. The yield figure will reflect
the deduction of any asset-based charges and any applicable Annual Contract
Maintenance Charge, but will not reflect the deduction of any Withdrawal Charge.
The deduction of any Withdrawal Charge would reduce any percentage increase or
make greater any percentage decrease.
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Other Portfolios
From time to time, the Company may advertise performance data for the various
other Portfolios under the Contract. Such data will show the percentage change
in the value of an Accumulation Unit based on the performance of an investment
medium over a period of time, usually a calendar year, determined by dividing
the increase (decrease) in value for that Unit by the Accumulation Unit value at
the beginning of the period. This percentage figure will reflect the deduction
of any asset-based charges and any applicable Annual Contract Maintenance
Charges under the Contracts, but will not reflect the deduction of any
Withdrawal Charge. The deduction of any Withdrawal Charge would reduce any
percentage increase or make greater any percentage decrease.
Any advertisement will also include total return figures calculated as described
in the Statement of Additional Information. The total return figures reflect the
deduction of any applicable Annual Contract Maintenance Charges and Withdrawal
Charges, as well as any asset-based charges.
The Company may make available yield information with respect to some of the
Portfolios. Such yield information will be calculated as described in the
Statement of Additional Information. The yield information will reflect the
deduction of any applicable Annual Contract Maintenance Charge and Withdrawal
Charge as well as any asset-based charges.
The Company may also show historical Accumulation Unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual Accumulation Unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in Accumulation Unit values for any of the Portfolios 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 Composite 500 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.
The Company may also distribute sales literature which compares the performance
of the Accumulation Unit values of the Contracts 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
tracks the performance of 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 Miami 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 subaccount against its peers with similar
investment objectives. Morningstar does not rate any subaccount that has less
than three years of performance data.
TAX STATUS
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.
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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 incredible 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
the Contracts should seek competent financial advice about the tax consequences
of any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in imposition of federal income tax
to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract.
The Company intends that all Portfolios of the Trust underlying the Contracts
will be managed by the Investment Adviser for the Trust, and that Prime Money
Fund II will be managed by its investment adviser, to comply with the
diversification requirements set forth in section 817(h) of the Code and 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 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
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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
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, 457 of the Code. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
contract to be owned by a non-natural person.
Multiple Contracts
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is 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.
Tax Treatment of Withdrawals - 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 591*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.
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The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts.")
Qualified Plans
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Contract
Owners, participants and beneficiaries are responsible for determining
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.")
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.
Tax-Sheltered Annuities. Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable, educational
and scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the benefit of
their employees. Such contributions are not includible in the gross income of
the employees until the employees receive distributions from the Contracts. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals--Qualified
Contracts" and "Tax Sheltered Annuities--Withdrawal Limitations" 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
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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 the Contracts
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. (See "Tax Treatment of Withdrawals - Qualified
Contracts" below.) Purchasers of Contracts for use with Corporate Pension or
Profit-Sharing Plans should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
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.
Tax Treatment of Withdrawals - 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) (Tax-Sheltered Annuities) 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 59 1/2; (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 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 or Annuitant (as applicable) and his or her spouse and dependents if the
Owner or Annuitant (as applicable)has received unemployment compensation for at
least 12 weeks. This exception will no longer apply after the Owner or Annuitant
(as applicable) 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
70 1/2 or retires, whichever is later. 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. In addition, distributions in excess of $150,000
per year may be subject to an additional 15% excise tax unless an exemption
applies.
Tax-Sheltered Annuities - Withdrawal Limitations
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The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or transfer between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
FINANCIAL STATEMENTS
Financial statements of the Company and the Separate Account have been included
in the Statement of Additional Information.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate Account,
the Distributor or the Company is a party.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Item Page
- ---- ----
Company
Independent Auditors
Legal Opinions
Distributor
Yield Calculation for Prime Money Fund II Sub-Account
Performance Information
Annuity Provisions
Variable Annuity
Fixed Annuity
Annuity Unit
Mortality and Expense Guarantee
Financial Statements
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PART B
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STATEMENT OF ADDITIONAL INFORMATION
CAPITAL FIVE VA/VISTA
INDIVIDUAL FLEXIBLE PAYMENT DEFERRED
VARIABLE AND FIXED ANNUITY 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 MAY 1, 199_ FOR THE INDIVIDUAL
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED 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) 228-1035.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 199_
TABLE OF CONTENTS
Page
----
Company....................................................................
Independent Auditors.......................................................
Legal Opinions.............................................................
Distributor................................................................
Yield Calculation For Prime Money Fund II Sub-Account......................
Performance Information....................................................
Annuity Provisions......................................................
Variable Annuity........................................................
Fixed Annuity...........................................................
Annuity Unit............................................................
Mortality and Expense Guarantee............................................
Financial Statements.......................................................
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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 consolidated balance sheets for the Company as
of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in stockholder's equity and cash flows for the years then ended
and for the period September 22, 1994 through December 31, 1994, and the
financial statements for First Variable Annuity Fund E as of December 31, 1996
and for the periods indicated included in this Statement of Additional
Information, which is 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.
YIELD CALCULATION FOR PRIME MONEY FUND II SUB-ACCOUNT
The Prime Money Fund II Sub-Account of the Separate Account will calculate its
current yield based upon the seven days ended on the date calculation. For the
seven calendar days ended December 31, 1996, the annualized yield for the Prime
Money Fund II Sub-Account was 5.25%, and the effective yield was 5.34% based on
the performance of shares of the VIST Cash Management Portfolio then held in the
Separate Account.
The current yield of the Prime Money Fund II Sub-Account is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing Owner account having a balance of one Accumulation
Unit of the Sub-Account at the beginning of the period, subtracting the
Mortality and Expense Risk Charge, the Administrative Charge and the Annual
Contract Maintenance Charge, dividing the difference by the value of the account
at the beginning of the same period to obtain the base period return and
multiplying the result by (365/7).
The Prime Money Fund II Sub-Account computes its effective compound yield
according to the method prescribed by the Securities and Exchange Commission.
The effective yield reflects the reinvestment of net income earned daily on
Prime Money Fund II Sub-Account assets.
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of the
Prime Money Fund II Sub-Account in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Prime Money Fund II Sub-Account and changes in the
interest rates on such investments, but also on changes in the Prime Money Fund
II Sub-Account's expenses during the period.
Yield information may be useful in reviewing the performance of the Prime Money
Fund II Sub-Account and for providing a basis for comparison with other
investment alternatives. However, the Prime Money Fund II Sub-
77
<PAGE>
Account's yield fluctuates, unlike bank deposits or other investments which
typically pay a fixed yield for a stated period of time.
PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described in
the Prospectus. 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 .15%
Administrative Charge, the investment advisory fee for the underlying Portfolio
being advertised and any applicable 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 actual Accumulation Unit
values for an initial $1,000 purchase payment, and deducting any applicable
Annual Contract Maintenance Charges to arrive at the ending hypothetical value.
The average annual total return is then determined by computing the fixed
interest rate that a $1,000 purchase payment would have to earn annually,
compounded annually, to grow to the hypothetical value at the end of time
periods described. The formula used in these calculations is:
[P(1+T) to the power of n] = ERV
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
years periods (or fractional portion thereof).
The annualized total returns as of December 31, 1996 and for 5 years and for the
life of the Portfolio in each Sub-Account are listed below:
<TABLE>
<CAPTION>
1 YEAR (CAPITAL 1 YEAR LIFE OF
FIVE VA ONLY) (VISTA ONLY) 5 YEARS PORTFOLIO
------------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Growth (inception 6/16/88) 17.050% 20.385% 9.967% 12.737%
Growth & Income (inception 5/31/95) 4.317% 6.952% not available 14.549%
High Income (inception 6/1/87) 6.337% 8.971% 9.380% 10.153%
Matrix Equity (inception 6/16/88) (3.150%) (0.515%) 8.952% 11.672%
Multiple Strategies (inception 5/5/87) 10.389% 13.024% 8.936% 11.909%
Small Cap Growth (inception 5/4/95) 19.389% 22.024% not available 35.751%
US Govt (inception 5/27/87) (5.371%) (2.734%) 10.535% .217%
World Equity (inception 6/10/88) 4.489% 7.124% 10.535% 8.079%
</TABLE>
The Company may also advertise non-standardized performance information which
does not include all charges.
In addition to total return data, the Company may include yield information in
its advertisements. For each Sub-Account (other than the Prime Money Fund II
Sub-Account) for which the Company will advertise yield, it will show a yield
quotation based on a 30 day (or one month) period ended on the date of the most
recent balance sheet of the Separate Account included in the registration
statement, computed by dividing the net investment income per Accumulation Unit
earned during the period by the maximum offering price per Unit on the last day
of the period, according to the following formula:
78
<PAGE>
Where:
a = Net investment income earned during the period by VIST attributable to
shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding during the
period.
d = The maximum offering price per Accumulation Unit on the last day of
the period.
The US Government Bond Sub-Account of the Separate Account yield for the period
ended December 31, 1996 was 6.38%.
The High Income Bond Sub-Account of the Separate Account yield for the period
ended December 31, 1996 was 8.51%.
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 or
yield for any period should not be considered as a representation of what an
investment may earn or what an Owner's total return or yield may be in any
future period.
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 pr eceeding 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 reduced by the applicable portion of the
Annual Contract Maintenance Charge.
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 General 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.
79
<PAGE>
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 4% 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.
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.
80
<PAGE>
Financial Statements
First Variable Life Insurance Company--First Variable Annuity Fund E
Year ended December 31, 1996
81
<PAGE>
Report of Ernst & Young LLP, 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, 1996, and the related statement of operations for the
year then ended, and the statements of changes in net assets for each of the two
years in the period then ended. These financial statements are the
responsibility of First Variable Life Insurance Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
Our procedures included confirmation of the securities owned as of December 31,
1996 by correspondence with Variable Investors Series Trust. 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, 1996, the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
s/Ernst & Young LLP
-------------------
ERNST & YOUNG LLP
Boston, Massachusetts
January 31, 1997
82
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statement of Assets, Liabilities and
Contract Owners' Equity
December 31, 1996
<TABLE>
<CAPTION>
High
Cash Common Income Multiple
Management Stock Bond Strategies Tilt Utility
Total Division Division Division Division Division
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in Variable
Investors Series Trust, at value
(cost $133,237,828) $137,890,098 $ 6,973,163 $ 25,912,691 $ 11,899,073 $ 27,156,998 $ 12,629,143
Receivable from First Variable
Life Insurance Company 2,980
---------------------------------------------------------------------------------------------
Total $137,893,078 $ 6,973,163 $ 25,912,691 $ 11,899,073 $ 27,156,998 $ 12,629,143
=============================================================================================
Liabilities
Payable to First Variable
Life Insurance Company $ 16,981 $ 11,457 $ 116 $ 868 $ 1,536 $ 162
---------------------------------------------------------------------------------------------
Total liabilities 16,981 11,457 116 868 1,536 162
Contract owners' equity:
Annuity contracts in payment
period 253,187 235,371 17,816
Variable annuity contract owners'
equity 137,622,910 6,726,335 25,894,759 11,898,205 27,155,462 12,628,981
---------------------------------------------------------------------------------------------
Total contract owners' equity 137,876,097 6,961,706 25,912,575 11,898,205 27,155,462 12,628,981
---------------------------------------------------------------------------------------------
Total liabilities and contract
owners' equity $137,893,078 $ 6,973,163 $ 25,912,691 $ 11,899,073 $ 27,156,998 $ 12,629,143
=============================================================================================
U.S.
Government World Growth &
Bond Equity Income Small Cap
Division Division Division Division
---------------------------------------------------------
Assets
Investments in Variable
Investors Series Trust, at value
(cost $133,237,828) $ 7,610,921 $ 21,776,961 $ 10,275,650 $ 13,655,498
Receivable from First Variable
Life Insurance Company 2,980
---------------------------------------------------------
Total $ 7,610,921 $ 21,776,961 $ 10,275,650 $ 13,658,478
=========================================================
Liabilities
Payable to First Variable
Life Insurance Company $ 245 $ 1,746 $ 851
---------------------------------------------------------
Total liabilities 245 1,746 851
Contract owners' equity:
Annuity contracts in payment
period
Variable annuity contract owners'
equity 7,610,676 21,775,215 10,274,799 $ 13,658,478
---------------------------------------------------------
Total contract owners' equity 7,610,676 21,775,215 10,274,799 13,658,478
---------------------------------------------------------
Total liabilities and contract
owners' equity $ 7,610,921 $ 21,776,961 $ 10,275,650 $ 13,658,478
=========================================================
</TABLE>
See accompanying notes.
83
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
High
Cash Common Income Multiple
Management Stock Bond Strategies
Total Division Division Division Division
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 7,973,892 $ 492,996 $ 1,522,709 $ 755,468 $ 2,964,646
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 1,706,523 148,033 294,351 124,172 330,354
---------------------------------------------------------------------------
Total expenses 1,706,523 148,033 294,351 124,172 330,354
---------------------------------------------------------------------------
Net investment income (loss) 6,267,369 344,963 1,228,358 631,296 2,634,292
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) on Series Trust:
Variable Investors Series
Trust shares redeemed 8,170,635 2,738,627 390,298 2,254,416
Net unrealized appreciation
(depreciation) on investments
during the year (1,058,566) 335,516 42,516 (1,259,021)
---------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 7,112,069 3,074,143 432,814 995,395
---------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 13,379,438 $ 344,963 $ 4,302,501 $ 1,064,110 $ 3,629,687
===========================================================================
U.S.
Government World Growth &
Tilt Utility Bond Equity Income Small Cap
Division Division Division Division Division
---------------------------------------------------------------------------
Investment income:
Dividends $ 933,232 $ 586,190 $ 590,302 $ 88,369 $ 39,980
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative charges 198,150 107,867 276,417 102,635 124,544
---------------------------------------------------------------------------
Total expenses 198,150 107,867 276,417 102,635 124,544
---------------------------------------------------------------------------
Net investment income (loss) 735,082 478,323 313,885 (14,266) (84,564)
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) on Series Trust:
Variable Investors Series
Trust shares redeemed 227,868 (80,014) 1,545,356 208,000 886,084
Net unrealized appreciation
(depreciation) on investments
during the year (600,941) (320,136) 26,985 133,352 583,163
---------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (373,073) (400,150) 1,572,341 341,352 1,469,247
---------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 362,009 $ 78,173 $ 1,886,226 $ 327,086 $ 1,384,683
===========================================================================
</TABLE>
See accompanying notes.
84
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Cash Management Common Stock
Total Division Division
1996 1995 1996 1995 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 6,267,369 $ 5,352,071 $ 344,963 $ 321,757 $ 1,228,358 $ 764,949
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 8,170,635 47,339 2,738,627 892,623
Net unrealized appreciation
(depreciation)
on investments during the year (1,058,566) 11,878,900 335,516 2,078,887
---------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 13,379,438 17,278,310 344,963 321,757 4,302,501 3,736,459
From contract owner transactions
Net proceeds from sale of
accumulation units 34,399,440 31,781,440 10,564,557 11,592,315 3,593,917 2,892,495
Cost of accumulation units
terminated and exchanged (7,267,908) (16,119,230) (12,228,761) (10,154,829) 2,067,637 247
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from contract owner transactions 27,131,532 15,662,210 (1,664,204) 1,437,486 5,661,554 2,892,742
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets 40,510,970 32,940,520 (1,319,241) 1,759,243 9,964,055 6,629,201
Net assets at beginning of period 97,365,127 64,424,607 8,280,947 6,521,704 15,948,520 9,319,319
---------------------------------------------------------------------------------------------
Net assets at end of period $137,876,097 $ 97,365,127 $ 6,961,706 $ 8,280,947 $ 25,912,575 $ 15,948,520
=============================================================================================
High Income Multiple Strategies
Bond Division Division
1996 1995 1996 1995
-------------------------------------------------------------
Operations
Net investment income (loss) $ 631,296 $ 574,269 $ 2,634,292 $ 1,708,699
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 390,298 (325,633) 2,254,416 (363,483)
Net unrealized appreciation
(depreciation)
on investments during the year 42,516 763,785 (1,259,021) 3,447,663
-------------------------------------------------------------
Net increase in net assets resulting
from operations 1,064,110 1,012,421 3,629,687 4,792,879
From contract owner transactions
Net proceeds from sale of
accumulation units 2,454,662 1,825,744 3,358,539 3,644,779
Cost of accumulation units
terminated and exchanged 804,489 (767,511) (1,446,981) (2,723,046)
-------------------------------------------------------------
Increase (decrease) in net assets
from contract owner transactions 3,259,151 1,058,233 1,911,558 921,733
-------------------------------------------------------------
Increase (decrease) in net assets 4,323,261 2,070,654 5,541,245 5,714,612
Net assets at beginning of period 7,574,944 5,504,290 21,614,217 15,899,605
-------------------------------------------------------------
Net assets at end of period $ 11,898,205 $ 7,574,944 $ 27,155,462 $ 21,614,217
=============================================================
</TABLE>
85
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
Tilt Utility U.S. Government World Equity
Division Bond Division Division
Year ended December 31 Year ended December 31 Year ended December 31
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 735,082 $ 491,113 $ 478,323 $ 695,249 $ 313,885 $ 682,769
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 227,868 (510,575) (80,014) (433,224) 1,545,356 651,108
------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation)
on investments during
the period (600,941) 3,134,928 (320,136) 1,155,615 26,985 1,181,856
------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 362,009 3,115,466 78,173 1,417,640 1,886,226 2,515,733
From contract owner transactions
Net proceeds from sale of
accumulation units 1,335,852 2,850,015 816,878 833,394 3,279,713 4,087,219
Cost of accumulation units
terminated and exchanged (2,515,452) (1,749,546) (1,357,965) (3,642,421) 1,330,357 191,892
------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from contract owner
transactions (1,179,600) 1,100,469 (541,087) (2,809,027) 4,610,070 4,279,111
------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (817,591) 4,215,935 (462,914) (1,391,387) 6,496,296 6,794,844
Net assets at beginning of period 13,446,572 9,230,637 8,073,590 9,464,977 15,278,919 8,484,075
------------------------------------------------------------------------------------------------
Net assets at end of period $ 12,628,981 $ 13,446,572 $ 7,610,676 $ 8,073,590 $ 21,775,215 $ 15,278,919
================================================================================================
Growth &
Income Division(1) Small Cap Division(2)
Seven months Eight months
Year ended ended Year ended ended
December 31 December 31 December 31 December 31
1996 1995 1996 1995
---------------------------------------------------------------
Operations
Net investment income (loss) $ (14,266) $ 28,149 $ (84,564) $ 85,117
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 208,000 13,164 886,084 123,359
---------------------------------------------------------------
Net unrealized appreciation
(depreciation)
on investments during
the period 133,352 44,376 583,163 71,790
---------------------------------------------------------------
Net increase in net assets
resulting from operations 327,086 85,689 1,384,683 280,266
From contract owner transactions
Net proceeds from sale of
accumulation units 3,544,556 2,069,284 5,450,766 1,986,195
Cost of accumulation units
terminated and exchanged 3,068,222 1,179,962 3,010,546 1,546,022
---------------------------------------------------------------
Increase (decrease) in net
assets from contract owner
transactions 6,612,778 3,249,246 8,461,312 3,532,217
---------------------------------------------------------------
Increase (decrease) in net assets 6,939,864 3,334,935 9,845,995 3,812,483
Net assets at beginning of period 3,334,935 3,812,483
---------------------------------------------------------------
Net assets at end of period $ 10,274,799 $ 3,334,935 $ 13,658,478 $ 3,812,483
===============================================================
</TABLE>
See accompanying notes.
(1) From commencement of operations, May 31, 1995.
(2) From commencement of operations, May 4, 1995.
86
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements
December 31, 1996
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 (the
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. 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 &
Income Division commenced operations on May 31, 1995.
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.
87
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Federal Income Taxes
For federal income tax purposes, operations of the Fund are combined with those
of First Variable Life, which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Investments
The following table presents selected data for investments in each of the
Portfolios of the Trust at December 31, 1996.
Number of Net Asset
Shares Cost Value
-----------------------------------------
Cash Management Portfolio 6,973,163 $ 6,973,163 $ 6,973,163
Common Stock Portfolio 846,175 23,609,085 25,912,691
High Income Bond Portfolio 1,297,382 11,929,469 11,899,073
Multiple Strategies Portfolio 2,138,489 27,166,284 27,156,998
Tilt Utility Portfolio 828,088 11,901,529 12,629,143
U.S. Government Bond Portfolio 765,750 7,920,063 7,610,921
World Equity Portfolio 1,445,849 20,639,767 21,776,961
Growth & Income Portfolio 827,292 10,097,923 10,275,650
----------------------------
Small Cap Portfolio 850,860 13,000,545 13,655,498
----------------------------
Totals $133,237,828 $137,890,098
============================
88
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
4. Contract Owners' Equity
Variable annuity contract owners' equity at December 31, 1996 consists of the
following:
Accumulation Accumulation
Units Unit Value Equity
---------------------------------------------
Policy Forms 7500.1, 7600.1, 7700
and 7750
Cash Management Division 183,120.999 14.901 $ 2,728,686
Common Stock Division (7500.1) 27,945.432 30.549 853,705
Common Stock Division 257,476.378 27.178 6,997,693
High Income Bond Division 88,313.761 22.890 2,021,502
Multiple Strategies Division 304,389.714 24.228 7,374,754
Tilt Utility Division 122,183.190 26.115 3,190,814
U.S. Government Bond Division 203,127.886 18.970 3,853,336
World Equity Division 233,749.972 18.022 4,212,642
Growth & Income Division 23,331.323 12.438 290,195
Small Cap Division 32,278.480 16.292 525,881
------------
Subtotal 32,049,208
Policy Forms 7800 and 20224
Cash Management Division 297,512.319 12.055 3,586,511
Common Stock Division 834,688.962 21.155 17,657,840
High Income Bond Division 520,065.210 18.310 9,522,384
Multiple Strategies Division 960,499.975 20.213 19,414,603
Tilt Utility Division 466,606.257 19.947 9,307,396
U.S. Government Bond Division 213,747.332 15.463 3,305,174
World Equity Division 1,054,102.540 16.257 17,136,546
Growth & Income Division 755,872.512 12.409 9,379,621
Small Cap Division 787,628.499 16.253 12,801,324
------------
Subtotal 102,111,399
89
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
4. Contract Owners' Equity (continued)
Accumulation Accumulation
Units Unit Value Equity
---------------------------------------------
Policy Form 20230
Cash Management Division 39,581.977 10.387 $ 411,138
Common Stock Division 30,672.369 12.569 385,521
High Income Bond Division 30,955.705 11.446 354,319
Multiple Strategies Division 30,934.094 11.835 366,105
Tilt Utility Division 11,951.289 10.942 130,771
U.S. Government Bond Division 43,540.299 10.385 452,166
World Equity Division 37,591.723 11.333 426,027
Growth & Income Division 51,501.064 11.747 604,983
Small Cap Division 25,464.909 13.009 331,273
------------
Subtotal 3,462,303
------------
Total $137,622,910
============
5. Purchases and Sales of Securities
Cost of purchases and proceeds from sales of Trust shares by the Fund during the
year ended December 31, 1996 are shown below.
Purchases Sales
------------------------------
Cash Management Portfolio $ 39,337,280 $ 40,645,084
Common Stock Portfolio 16,044,781 9,153,125
High Income Bond Portfolio 10,416,762 6,523,648
Multiple Strategies Portfolio 20,164,829 15,614,538
Tilt Utility Portfolio 4,769,770 5,213,454
U.S. Government Bond Portfolio 3,248,756 3,303,334
World Equity Portfolio 14,331,796 9,404,565
Growth & Income Portfolio 8,654,920 2,055,379
Small Cap Portfolio 13,779,515 5,404,782
------------------------------
Totals $130,748,409 $ 97,317,909
==============================
90
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
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 year ended December
31, 1996 was $1,706,523.
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.
91
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder
First Variable Life Insurance Company
We have audited the accompanying consolidated balance sheets of First Variable
Life Insurance Company (the Company) as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholder's equity, and
cash flows for the years then ended and for the period September 22, 1994 (date
operations acquired) through December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Variable Life Insurance Company at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended and for the period September 22, 1994 (date operations acquired) through
December 31, 1994, in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
-------------------
ERNST& YOUNG LLP
Boston, Massachusetts
February 7, 1997
92
<PAGE>
First Variable Life Insurance Company
Consolidated Balance Sheets
December 31
1996 1995
------------------------------
Assets
Investments:
Fixed maturities--available-for-sale,
at market (amortized cost: 1996--
$278,305,000; 1995--$290,943,000)
$ 294,195,000 $ 319,589,000
Equity securities, at market value
(cost: $684,000 in 1996 and 1995)
691,000 322,000
Other invested assets 94,000 --
------------------------------
Total investments 294,980,000 319,911,000
Cash and cash equivalents 2,433,000 5,585,000
Accrued investment income 5,636,000 5,943,000
Deferred policy acquisition costs 5,486,000 3,046,000
Value of insurance in force acquired 19,494,000 16,733,000
Property and equipment, less allowances
for depreciation of $508,000 in 1996
and $228,000 in 1995
649,000 739,000
Goodwill, less accumulated amortization
of $329,000 in 1996 and $183,000 in
1995 2,594,000 2,740,000
Other assets 2,273,000 151,000
Assets held in separate accounts 176,306,000 132,176,000
------------------------------
Total assets $ 509,851,000 $ 487,024,000
==============================
Liabilities and stockholder's equity
Liabilities:
Future policy benefits for annuity products $ 239,509,000 $ 255,694,000
Unearned revenue reserve 52,000 --
Supplementary contracts without life
contingencies 21,008,000 19,543,000
Deferred income tax liability 5,642,000 7,826,000
Other liabilities 938,000 1,128,000
Liabilities related to separate accounts 176,306,000 132,176,000
------------------------------
Total liabilities 443,455,000 416,367,000
Commitments and contingencies
Stockholder's equity:
Capital stock, par value $1.00 per share--
authorized 3,500,000 shares, issued
and outstanding 2,500,000 shares
2,500,000 2,500,000
Additional paid-in capital 53,104,000 53,104,000
Net unrealized investment gains 7,324,000 13,189,000
Retained earnings 3,468,000 1,864,000
Total stockholder's equity 66,396,000 70,657,000
------------------------------
Total liabilities and stockholder's equity $ 509,851,000 $ 487,024,000
==============================
See accompanying notes.
93
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Income
Period from
September 22,
1994 (date
operations
acquired)
through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------
Revenues:
Annuity product charges $ 2,408,000 $ 1,786,000 $ 344,000
Net investment income 23,458,000 23,465,000 5,318,000
Realized gains on investments 972,000 900,000 541,000
Other income 1,114,000 829,000 178,000
---------------------------------------------
Total revenues 27,952,000 26,980,000 6,381,000
Benefits and expenses:
Annuity benefits 16,336,000 16,694,000 4,038,000
Underwriting, acquisition and
insurance expenses
7,275,000 6,600,000 1,281,000
Management fee paid to parent 480,000 480,000 120,000
Other expenses 1,421,000 1,269,000 214,000
---------------------------------------------
Total benefits and expenses 25,512,000 25,043,000 5,653,000
---------------------------------------------
Income before income taxes 2,440,000 1,937,000 728,000
Income taxes 836,000 666,000 135,000
---------------------------------------------
Net income $ 1,604,000 $ 1,271,000 $ 593,000
=============================================
See accompanying notes.
94
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Net
Unrealized
Additional Investment Total
Capital Paid-in Gains Retained Stockholder's
Stock Capital (Losses) Earnings Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial capitalization on
September 22, 1994 $ 1,500,000 $ 49,104,000 $ 50,604,000
0
Issuance of 1,000,000 shares
of capital stock pursuant
to stock dividend
1,000,000 (1,000,000) --
Net income for 1994 -- -- $ 593,000 593,000
Change in net unrealized
investment gains/losses -- -- $ (3,308,000) -- (3,308,000)
Balance at December 31, 1994 2,500,000 48,104,000 (3,308,000) 593,000 47,889,000
Contribution from parent -- 5,000,000 -- -- 5,000,000
Net income for 1995 -- -- -- 1,271,000 1,271,000
Change in net unrealized
investment gains/losses -- -- 16,497,000 -- 16,497,000
----------------------------------------------------------------------------------------
Balance at December 31, 1995 2,500,000 53,104,000 13,189,000 1,864,000 70,657,000
Net income for 1996 -- -- -- 1,604,000 1,604,000
Change in net unrealized
investment gains/losses -- -- (5,865,000) -- (5,865,000)
----------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 2,500,000 $ 53,104,000 $ 7,324,000 $ 3,468,000 $ 66,396,000
0
========================================================================================
</TABLE>
See accompanying notes.
95
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
September 22, 1994
(date operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,604,000 $ 1,271,000 $ 593,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Adjustments related to
interest-sensitive
products:
Annuity benefits 16,336,000 16,694,000 4,038,000
Annuity product charges (2,408,000) (1,786,000) (344,000)
Realized gains on investments (972,000) (900,000) (541,000)
Policy acquisition costs deferred (2,800,000) (3,693,000) (693,000)
Amortization of deferred
policy acquisition costs
360,000 132,000 8,000
Provision for depreciation
and other amortization
524,000 481,000 243,000
Provision for deferred
income taxes 836,000 666,000 135,000
Other (1,949,000) (6,765,000) 1,724,000
---------------------------------------------------
Net cash provided by
operating activities 11,531,000 6,100,000 5,163,000
Investing activities
Sale, maturity or repayment
of investments:
Fixed maturities--
available-for-sale 21,770,000 19,378,000 5,554,000
Equity securities -- 1,807,000 --
---------------------------------------------------
21,770,000 21,185,000 5,554,000
Acquisition of investments:
Fixed maturities--
available-for-sale (7,517,000) (74,567,000) (29,543,000)
Equity securities -- (1,500,000) --
Other (94,000) -- --
---------------------------------------------------
(7,611,000) (76,067,000) (29,543,000)
Other (193,000) (252,000) (81,000)
---------------------------------------------------
Net cash provided (used)
by investing activities 13,966,000 (55,134,000) (24,070,000)
</TABLE>
96
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Period from
September 22, 1994
(date operations
acquired) through
Year ended December 31 December 31,
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Financing activities
Receipts from interest-sensitive
products credited to
policyholder account balances $ 58,175,000 $ 67,063,000 $ 14,153,000
Return of policyholder account
balances on interest-sensitive
products (86,824,000) (72,196,000) (16,285,000)
Contribution from parent -- 5,000,000 75,791,000
---------------------------------------------------
Net cash provided (used) by
financing activities (28,649,000) (133,000) 73,659,000
---------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (3,152,000) (49,167,000) 54,752,000
Cash and cash equivalents at
beginning of period 5,585,000 54,752,000 --
---------------------------------------------------
Cash and cash equivalents at
end of period $ 2,433,000 $ 5,585,000 $ 54,752,000
===================================================
</TABLE>
See accompanying notes.
97
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1996
1. Significant Accounting Policies
Organization and Nature of Business
First Variable Life Insurance Company (the Company), a life insurance company
domiciled in the State of Arkansas, is a wholly-owned subsidiary of Irish Life
of North America, Inc. (ILoNA), which is owned by Irish Life, plc (Irish Life)
of Dublin, Ireland. The Company is licensed in 49 states and sells variable and
fixed annuity products through regional wholesalers and insurance brokers.
On September 22, 1994, ILoNA purchased the Company for $49,514,000 plus expenses
of $1,090,000. The financial statements presented herein represent operations
since the date of purchase.
Consolidation
The consolidated financial statements include the Company and its wholly-owned
subsidiaries, First Variable Advisory Services Corp. and First Variable Capital
Services, Inc. All significant intercompany transactions have been eliminated.
Investments
Fixed Maturities and Equity Securities
Fixed-maturity securities (bonds) may be categorized as "available-for-sale,"
"held for investment" or "trading." Fixed-maturity securities which may be sold
are designated as "available-for-sale." Available-for-sale securities are
reported at market value, and unrealized gains and losses on these securities
are included directly in stockholder's equity, net of certain adjustments (see
Note 3). Fixed-maturity securities that the Company has the positive intent and
ability to hold to maturity are designated as "held-for-investment."
Held-for-investment securities are reported at cost adjusted for amortization of
premiums and discounts. Changes in the market value of these securities, except
for declines that are other than temporary, are not reflected in the Company's
financial statements. Securities that are bought and held principally for the
purpose of selling them in the near term are designated as "trading securities."
Unrealized gains and losses on trading securities are included in current
earnings. At December 31, 1996 and 1995, all of the Company's fixed-maturity
securities are designated as available-for-sale, although the Company is not
precluded from designating fixed-maturity securities as held-for-investment or
trading at some future date.
98
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Premiums and discounts on investments are amortized/accrued using methods which
result in a constant yield over the securities' expected lives.
Amortization/accrual of premiums and discounts on mortgage and asset-backed
securities incorporates a prepayment assumption to estimate the securities'
expected lives.
Equity securities (common stocks) are reported at market. The change in
unrealized appreciation and depreciation of marketable equity securities (net of
related deferred income taxes, if any) is included directly in stockholder's
equity.
Realized Gains and Losses on Investments
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows) and a specific writedown is taken. Such
reductions in carrying value are recognized as realized losses and charged to
income. Realized gains and losses on sales are determined on the basis of
specific identification of investments. If the Company expects that an issuer of
a security will modify its payment pattern from contractual terms but no
writedown is required, future investment income is recognized at the rate
implicit in the calculation of net realizable value under the expected payment
pattern.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Deferred Policy Acquisition Costs and Value of Insurance in Force Acquired
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired is an asset that arose at the date the
Company was acquired by ILoNA. The initial value was determined by an actuarial
study using expected future gross profits as a measurement of the net present
value of the insurance acquired. Interest accrues on the current unamortized
balance at 7%.
99
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
These costs are being amortized generally in proportion to expected gross
profits from surrender charges and investment, mortality and expense margins.
That amortization is adjusted retrospectively when estimates of current or
future gross profits (including the impact of investment gains and losses) to be
realized from a group of products are revised.
Property and Equipment
Property and equipment are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily using the straight-line method over
the estimated useful lives of the assets.
Goodwill
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is being amortized on a straight-line basis over a
period of twenty years.
The carrying value of goodwill is regularly reviewed for indicators of
impairment in value which, in the view of management, are other than temporary.
If facts and circumstances suggest that goodwill is impaired, the Company
assesses the fair value of the underlying business and reduces goodwill to an
amount that results in the book value of the underlying business approximating
fair value. The Company has not recorded any such writedowns during the periods
ended December 31, 1996, 1995 or 1994.
Future Policy Benefits
Future policy benefit reserves for annuity products are computed under a
retrospective deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims that are charged to
expense include benefit claims incurred in the period in excess of related
policy account balances. Interest crediting rates for annuity products ranged
from 4.5% to 6.5% in 1996, 4.5% to 6.8% in 1995 and 5.0% to 7.0% in 1994.
Deferred Income Taxes
Deferred income tax assets or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or credits are
based on the changes in the asset or liability from period to period.
100
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Separate Accounts
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the investment
risk. The separate account assets and liabilities are carried at fair value.
Revenues and expenses related to the separate account assets and liabilities, to
the extent of benefits paid or provided to the separate account policyholders,
are excluded from the amounts reported in the accompanying consolidated
statements of income.
Recognition of Premium Revenues and Costs
Revenues for annuity products consist of policy charges for the cost of
insurance, administration charges and surrender charges assessed against
policyholder account balances during the period. Expenses related to these
products include interest credited to policyholder account balances and benefit
claims incurred in excess of policyholder account balances.
Approximately 22%, 49% and 0% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1996, 1995 and 1994,
respectively, were 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 in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Significant estimates and assumptions are utilized in the calculation of
deferred policy acquisition costs, policyholder liabilities and accruals,
postretirement benefits, guaranty fund assessment accruals and valuation
allowances on investments. It is reasonably possible that actual experience
could differ from the estimates and assumptions utilized which could have a
material impact on the consolidated financial statements.
101
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
consolidated balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
SFAS No. 107 also excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements and allows companies to forego the
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented herein are limited by
each of these factors and do not purport to represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Fixed-Maturity Securities: Fair values for fixed-maturity securities have
been determined by the Company's outside investment manager and are based
on quoted market prices, when available, or price matrices for securities
which are not actively traded, developed using yield data and other factors
relating to instruments or securities with similar characteristics.
Equity Securities: The fair values for equity securities are based on
quoted market prices.
Other Invested Assets and Cash and Cash Equivalents: The carrying amounts
reported in the consolidated balance sheets for these instruments
approximate their fair values.
Assets and Liabilities of Separate Accounts: Separate account assets and
liabilities are reported at estimated fair value in the Company's
consolidated balance sheets.
102
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
Future Policy Benefits and Supplementary Contracts Without Life
Contingencies: Fair values of the Company's liabilities under contracts not
involving significant mortality or morbidity risks (principally deferred
annuities) are stated at the cost the Company would incur to extinguish the
liability; i.e., the cash surrender value.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of SFAS No. 107 at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Assets
Fixed maturities--
available-for-sale $294,195,000 $294,195,000 $319,589,000 $319,589,000
Equity securities 691,000 691,000 322,000 322,000
Other invested assets 94,000 94,000 -- --
Cash and cash equivalents 2,433,000 2,433,000 5,585,000 5,585,000
Assets held in separate
accounts
176,306,000 176,306,000 132,176,000 132,176,000
Liabilities
Future policy benefits for
annuity products 239,509,000 239,562,000 255,694,000 251,669,000
Supplementary contracts
without life
contingencies
21,008,000 21,008,000 19,543,000 19,543,000
Liabilities related to
separate accounts 176,306,000 176,306,000 132,176,000 132,176,000
</TABLE>
103
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations
Fixed Maturities and Equity Securities
The following tables contain amortized cost and market value information on
fixed maturities (bonds) and equity securities (common stocks) at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
Fixed maturities--available-
for-sale:
United States
Government and
agencies:
Mortgage and asset-
backed securities $ 25,641,000 $ 1,315,000 $ (105,000) $ 26,851,000
Other 22,483,000 1,109,000 (20,000) 23,572,000
State, municipal and
other governments 3,994,000 270,000 -- 4,264,000
Public utilities 81,053,000 6,224,000 (44,000) 87,233,000
Industrial and
miscellaneous
145,134,000 7,406,000 (265,000) 152,275,000
------------------------------------------------------------------------
Total fixed maturities--
available-for-sale $ 278,305,000 $ 16,324,000 $ (434,000) $ 294,195,000
========================================================================
Equity securities $ 684,000 $ 7,000 $ -- $ 691,000
========================================================================
December 31, 1995
Fixed maturities--available-
for-sale:
United States Government
and agencies:
Mortgage and asset-
backed securities $ 27,766,000 $ 2,465,000 $ (333,000) $ 29,898,000
Other 33,823,000 2,937,000 (63,000) 36,697,000
State, municipal and
other governments -- -- -- --
Public utilities 89,454,000 11,691,000 (698,000) 100,447,000
Industrial and
miscellaneous
139,900,000 12,700,000 (53,000) 152,547,000
------------------------------------------------------------------------
Total fixed maturities--
available-for-sale $ 290,943,000 $ 29,793,000 $ (1,147,000) $ 319,589,000
========================================================================
Equity securities $ 684,000 $ -- $ (362,000) $ 322,000
========================================================================
</TABLE>
104
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
The amortized cost and estimated market value of the Company's portfolio of
fixed-maturity securities at December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Estimated
Amortized Market
Cost Value
-------------------------------
Due in one year or less $ 1,011,000 $ 1,019,000
Due after one year through five years 65,683,000 67,758,000
Due after five years through ten years 102,261,000 107,206,000
Due after ten years 83,709,000 91,361,000
Mortgage and asset-backed securities 25,641,000 26,851,000
-------------------------------
$278,305,000 $294,195,000
===============================
The unrealized appreciation or depreciation on fixed-maturity and equity
securities available-for-sale is reported as a separate component of
stockholder's equity, reduced by adjustments to deferred policy acquisition
costs and value of insurance in force acquired that would have been required as
a charge or credit to income had such amounts been realized and a provision for
deferred income taxes. Net unrealized investment gains (losses) as reported were
comprised of the following:
December 31
1996 1995
--------------------------------
Unrealized appreciation on fixed-
maturity and equity securities
available-for-sale $ 15,897,000 $ 28,284,000
Adjustments for assumed changes
in amortization pattern of:
Deferred policy acquisition costs (1,200,000) (1,200,000)
Value of insurance in force acquired (3,600,000) (7,100,000)
Provision for deferred income taxes (benefit) (3,773,000) (6,795,000)
--------------------------------
Net unrealized investment gains $ 7,324,000 $ 13,189,000
================================
105
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
Net Investment Income
Components of net investment income are as follows:
<TABLE>
<CAPTION>
Period from
September 22, 1994
(date operations
Year ended December 31 acquired) through
1996 1995 December 31, 1994
------------------------------------------------------
<S> <C> <C> <C>
Income from:
Fixed maturities--available-
for-sale $ 23,364,000 $ 22,635,000 $ 4,713,000
Cash and cash equivalents 288,000 1,051,000 667,000
-----------------------------------------------------
23,652,000 23,686,000 5,380,000
Less investment expenses (194,000) (221,000) (62,000)
-----------------------------------------------------
Net investment income $ 23,458,000 $ 23,465,000 $ 5,318,000
=====================================================
</TABLE>
Realized and Unrealized Gains and Losses
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments are summarized below:
<TABLE>
<CAPTION>
Period from
September 22, 1994
(date operations
Year ended December 31 acquired) through
1996 1995 December 31, 1994
------------------------------------------------------
<S> <C> <C> <C>
Realized
Fixed maturities--available-
for-sale
$ 972,000 $ 593,000 $ 541,000
Equity securities -- 307,000 --
----------------------------------------------------
Realized gains on investments $ 972,000 $ 900,000 $ 541,000
====================================================
Unrealized
Fixed maturities--
available-for-sale
$(12,756,000) $ 33,437,000 $ (4,791,000)
Equity securities 369,000 (133,000) (229,000)
----------------------------------------------------
Change in unrealized
appreciation/depreciation
of investments
$(12,387,000) $ 33,304,000 $ (5,020,000)
====================================================
</TABLE>
106
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio (all classified as available-for-sale) for the periods
ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Proceeds
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Scheduled principal repayments
and calls $ 13,416,000 $ 329,000 $ (8,000) $ 13,737,000
Sales 7,382,000 715,000 (64,000) 8,033,000
--------------------------------------------------------------------
Total $ 20,798,000 $ 1,044,000 $ (72,000) $ 21,770,000
====================================================================
Year ended December 31, 1995
Scheduled principal repayments
and calls $ 6,448,000 $ 117,000 $ (38,000) $ 6,527,000
Sales 12,337,000 635,000 (121,000) 12,851,000
--------------------------------------------------------------------
Total $ 18,785,000 $ 752,000 $ (159,000) $ 19,378,000
====================================================================
Period from September 22,
1994 (date operations
acquired) through
December 31, 1994
Scheduled principal
repayments and calls $ 5,013,000 $ 541,000 -- $ 5,554,000
Sales -- -- -- --
--------------------------------------------------------------------
Total $ 5,013,000 $ 541,000 -- $ 5,554,000
====================================================================
</TABLE>
Income taxes during the periods ended December 31, 1996, 1995 and 1994 include a
provision of $331,000, $306,000 and $184,000, respectively, for the tax effect
of realized gains.
107
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. Investment Operations (continued)
Other
At December 31, 1996, fixed maturities with a carrying value of $8,500,000 were
held on deposit with state agencies to meet regulatory requirements.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded 10% of stockholder's equity
at December 31, 1996.
Concentrations of Credit Risk
The Company's investment in public utility bonds at December 31, 1996 represents
30% of total investments and 17% of total assets. The holdings of public utility
bonds are widely diversified and all issues met the Company's investment
policies and credit standards when purchased.
4. Value of Insurance in Force Acquired
The value of insurance in force acquired is an asset that represents the present
value of future profits on business acquired. An analysis of the value of
insurance in force acquired for the periods ended December 31, 1996 and 1995 is
as follows:
Year ended December 31
1996 1995
---------------------------------
Excluding impact on net unrealized
investment gains and losses:
Balance at beginning of period $ 23,833,000 $ 24,476,000
Accretion of interest during
the period 1,642,000 1,691,000
Amortization of asset (2,381,000) (2,334,000)
---------------------------------
Balance prior to impact of net
unrealized investment gains
and losses 23,094,000 23,833,000
Offset against net unrealized
investment gains and losses (3,600,000) (7,100,000)
---------------------------------
Balance at end of period $ 19,494,000 $ 16,733,000
=================================
108
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. Value of Insurance in Force Acquired (continued)
Amortization of the value of insurance in force acquired for the next five years
ending December 31 is expected to be as follows: 1997--$1,008,000;
1998--$1,113,000; 1999--$1,280,000; 2000--$1,430,000 and 2001--$1,384,000.
5. Federal Income Taxes
The Company and its subsidiaries each file separate federal income tax returns.
Deferred income taxes have been established by the Company and its subsidiaries
based upon the temporary differences, the reversal of which will result in
taxable or deductible amounts in future years when the related asset or
liability is recovered or settled, within each entity.
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
Period from
September 22, 1994
(date operations
Year ended December 31 acquired) through
1996 1995 December 31, 1994
------------------------------------------------------
<S> <C> <C> <C>
Taxes provided in consolidated
statements of income on
income before income
taxes-deferred $ 836,000 $ 666,000 $ 135,000
----------- ----------- -----------
836,000 666,000 135,000
Taxes provided in consolidated
statements of changes in
stockholder's equity:
Amounts attributable to
change in net unrealized
investment gains/losses
during year--deferred (3,022,000) 8,499,000 (1,704,000)
----------- ----------- -----------
$(2,186,000) $ 9,165,000 $(1,569,000)
=========== =========== ===========
</TABLE>
109
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Federal Income Taxes (continued)
The effective tax rate on income before income taxes is different from the
prevailing federal income tax rate as follows:
Period from
September 22,
1994 (date
operations
acquired)
through
Year ended December 31 December
1996 1995 31, 1994
-------------------------------------------
Income before income taxes $2,440,000 $1,937,000 $ 728,000
===========================================
Income tax at federal
statutory rate (34%)
$ 830,000 $ 659,000 $ 248,000
Tax effect (decrease) of:
Business meals and
entertainment
6,000 5,000 1,000
Other -- 2,000 (114,000)
-------------------------------------------
Income tax expense $ 836,000 $ 666,000 $ 135,000
===========================================
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1996 and 1995 is as follows:
December 31
1996 1995
--------------------------------
Deferred tax assets:
Future policy benefits $ 1,524,000 $ 1,859,000
Operating loss carryforwards 2,245,000 1,540,000
Other 20,000 --
--------------------------------
3,789,000 3,399,000
Deferred tax liabilities:
Fixed-maturity and equity securities
(4,702,000) (7,355,000)
Deferred policy acquisition costs
(1,908,000) (1,248,000)
Value of insurance in force acquired
(2,453,000) (2,280,000)
Other (368,000) (342,000)
--------------------------------
(9,431,000) (11,225,000)
--------------------------------
Deferred income tax liability $ (5,642,000) $ (7,826,000)
================================
110
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. Federal Income Taxes (continued)
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $6,603,000 at December 31, 1996 which expire from
2009 to 2011.
6. Retirement and Compensation Plans
Substantially all full-time employees of the Company are covered by a
noncontributory defined benefit pension plan sponsored by ILoNA. The benefits
are based on years of service and the employee's compensation. In addition,
effective January 1, 1996, ILoNA adopted a nonqualified supplemental plan to
provide benefits in excess of limitations established by the Internal Revenue
Code. The Company records its required contributions as pension expense related
to these plans. There were no material contributions to the plan during the
periods ended December 31, 1996, 1995 or 1994.
Employees of the Company also are eligible to participate in a contributory
defined contribution plan sponsored by ILoNA which is qualified under section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
employees of the Company. Employees can contribute up to 15% of their annual
salary (with a maximum contribution of $9,500 in 1996) to the plan. The Company
contributes an additional amount, subject to limitations, based on the voluntary
contribution of the employee. Further, the plan provides for additional employer
contributions based on the discretion of the Board of Directors of ILoNA.
Pension expense related to this plan was $27,000, $24,000 and $2,000 for the
periods ended December 31, 1996, 1995 and 1994, respectively.
The Company also has certain other benefit and incentive plans. These plans are
considered immaterial to the consolidated financial statements.
7. Stockholder's Equity
Common Stock Dividend
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 meet the
minimum statutory capital requirement as mandated by certain states in which the
Company does business. The additional $1,000,000 was transferred to capital
stock from additional paid-in capital.
111
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Stockholder's Equity (continued)
Statutory Limitations on Dividends
The ability of the Company to pay dividends to ILoNA is restricted because prior
approval of insurance regulatory authorities is normally required for payment of
dividends to the stockholder which exceed an annual limitation. During 1997,
this annual limitation aggregates $3,300,000; however, pursuant to a directive
received from the Arkansas Insurance Department in 1991, any proposed payment of
a dividend currently requires its approval. Also, the amount ($33,300,000 at
December 31, 1996) by which stockholder's equity stated in conformity with
generally accepted accounting principles exceeds statutory capital and surplus
as reported is restricted and cannot be distributed.
Statutory Accounting Policies
The financial statements of the Company included herein differ from related
statutory-basis financial statements principally as follows: (a) the bond
portfolio is designated as available-for-sale and carried at fair value rather
than generally being carried at amortized cost; (b) acquisition costs of
acquiring new business are deferred and amortized over the life of the policies
rather than charged to operations as incurred; (c) future policy benefit
reserves on certain annuity products are based on full account values, rather
than discounting methodologies utilizing statutory interest rates; (d) deferred
income taxes are provided for the differences between the financial statement
and income tax bases of assets and liabilities; (e) net realized gains or losses
attributed to changes in the level of interest rates in the market are
recognized as gains or losses in the consolidated statements of income when the
sale is completed rather than deferred and amortized over the remaining life of
the fixed maturity security; (f) declines in the estimated realizable value of
investments are charged to the consolidated statements of income for declines in
value, when such declines in value are judged to be other than temporary rather
than through the establishment of a formula-determined statutory investment
reserve (carried as a liability), changes in which are charged directly to
surplus; (g) agents' balances and certain other assets designated as
"nonadmitted assets" for statutory purposes are reported as assets rather than
being charged to surplus; (h) revenues for annuity products consist of policy
charges for the cost of insurance, policy administration charges and surrender
charges
112
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. Stockholder's Equity (continued)
assessed rather than premiums received;(i) pension expense is recognized in
accordance with SFAS No. 87, Employers' Accounting for Pensions, rather than in
accordance with rules and regulations permitted by the Employee Retirement
Income Security Act of 1974; (j) the financial statements of subsidiaries are
consolidated with those of the Company and (k) assets and liabilities are
restated to fair values when a change in ownership occurs that is accounted for
as a purchase, with provisions for goodwill and other intangible assets, rather
than continuing to be presented at historical cost.
Net loss for the Company, as determined in accordance with statutory accounting
practices, was $1,507,000, $1,460,000 and $574,000 for the years ended December
31, 1996, 1995 and 1994, respectively. Total statutory capital and surplus was
$33,096,000 at December 31, 1996 and $34,637,000 at December 31, 1995.
The National Association of Insurance Commissioners currently is in the process
of codifying statutory accounting practices, the result of which is expected to
constitute the only source of "prescribed" statutory accounting practices. That
project, which is expected to be completed in 1997, will likely change, to some
extent, statutory accounting practices. The codification may result in changes
to the permitted or prescribed accounting practices that the Company uses to
prepare its statutory-basis financial statements.
8. Commitments and Contingencies
The Company leases its home office space and certain other equipment under
operating leases which expire through 2001. During the periods ended December
31, 1996, 1995 and 1994, rent expense totaled $206,000, $419,000 and $81,000,
respectively. At December 31, 1996, minimum rental payments due under all
noncancelable operating leases with initial terms of one year or more are:
Year ending December 31:
1997 $ 230,000
1998 230,000
1999 238,000
2000 241,000
2001 61,000
-----------
$1,000,000
===========
113
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. Commitments and Contingencies (continued)
The Company is involved in litigation where amounts are alleged that are
substantially in excess of contractual policy benefits or certain other
agreements. Management and its legal counsel do not believe any of these claims
will result in a material loss to the Company.
Assessments are, from time to time, levied on the Company by life and health
guaranty associations in most states in which the Company is licensed to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. Assessments have not been material to the Company's financial
statements in the past. However, the economy and other factors have caused a
number of failures of substantially larger companies since that time. At
December 31, 1996 and 1995, the Company has accrued $180,000 and $140,000,
respectively, for guaranty fund assessments based on its historical experience
and information available from those making guaranty fund assessments.
114
<PAGE>
PART C
<PAGE>
FIRST VARIABLE ANNUITY FUND E
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements
The following financial statements of Fund E are contained in Part B
hereof:
1. Report of Independent Auditors.
2. Statement of Assets, Liabilities and Contract Owners' Equity.
3. Statement of Operations.
4. Statements of Changes in Net Assets.
5. Notes to Financial Statements.
The following financial statements of the Company are included in Part B
hereof:
1. Report of Independent Auditors.
2. Consolidated Balance Sheets.
3. Consolidated Statements of Income.
4. Consolidated Statement of Changes in Stockholder's Equity
5. Consolidated Statements of Cash Flows.
6. Notes to Financial Statements.
(b) Exhibits
1. Resolution of Board of Directors for the Company authorizing the
establishment of the Separate Account*
2. Not Applicable
3(a). Underwriting Agreement**
(b). Broker-Dealer Agreement**
(c). Form of Sales Agreement***
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract #
5. Application for Variable Annuity #
116
<PAGE>
PART C
ITEM 24 (b) (continued)
6(a). Articles of Incorporation of First Variable Life Insurance Company #
#
(b). By-laws of First Variable Life Insurance Company **
7. Not Applicable
8. Form of Fund Participation Agreement ***
9(a). Opinion and Consent of Arnold R. Bergman, Vice President - Legal,
First Variable Life Insurance Company
(b). Consent of Blazzard, Grodd & Hasenauer
10. Consent of Ernst & Young LLP
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Not Applicable
- ----------
* Incorporated by reference to the Registrant's original Registration
Statement (File Nos. 2-92856, 811-4092).
** Incorporated 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, as filed electronically with the Securities and Exchange Commission
on November 15, 1996 (File No. 333-05053).
*** Incorporated by reference to the Registrant's Registration Statement on
Form N-4, as filed electronically with the Securities and Exchange Commission on
September 14, 1996 (File Nos. 333-12197, 811-4092).
# Incorporated by reference to the Registrant's Post-Effective Amendment No.
5 to Form N-4 (File Nos. 33-35749, 811-4092), as filed on or about December 30,
1993.
# # Incorporated by reference to the Registrant's Post-Effective Amendment No.
2 to Form N-4, as filed electronically with the Securities and Exchange
Commission on April 29, 1996 (File Nos. 33-86738, 811-4092).
ITEM 25. OFFICERS AND DIRECTORS OF DEPOSITOR
The following are the Officers and Directors of the Company.
Name and Principal Positions and Offices with the Depositor
Business Address
Ronald M. Butkiewicz Chairman and Director
2211 York Road, Suite 202
Oakbrook, IL 60521
117
<PAGE>
ITEM 25. OFFICERS AND DIRECTORS OF DEPOSITOR (continued)
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
Stephen Shone Director
Lower Abbey Street
Dublin 1, Ireland
T. David Kingston Director
Lower Abbey Street
Dublin 1, Ireland
Jeff S. Liebmann Director
1301 Avenue of the Americas
New York, NY 10019
Kenneth R. Meyer Director
200 South Wacker Drive, Suite 2100
Chicago, IL 60606
Philip R. O'Connor Director
111 West Washington, Suite 1247
Chicago, IL 60602
Norman A. Fair Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Thomas K. Neavins Director
2211 York Road, Suite 202
Oakbrook, IL 60521
Arnold R. Bergman Vice President - Legal & Administration
10 Post Office Square and Secretary
Boston, MA 02109
Martin Sheerin Vice President and Chief Actuary
10 Post Office Square
Boston, MA 02109
Thomas Simpson Vice President and Chief Marketing Officer
10 Post Office Square
Boston, MA 02109
118
<PAGE>
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. 8 filed
electronically on April 29, 1996. (File Nos. 33-35749 and 811-4092).
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1997, there were 730 Owners of Qualified Contracts and 830
Owners of Non-Qualified Contracts.
ITEM 28. INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities Act of
1933 ("Act") may be permitted to directors and officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 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
Separate Account VL of First Variable Life Insurance Company
119
<PAGE>
(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
Thomas Simpson Vice President and Director
10 Post Office Square
Boston, MA 02109
Arnold R. Bergman Secretary and Director
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 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
Anthony J. Koenig, Jr., and Arnold R. Bergman, 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.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written oral request.
120
<PAGE>
(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 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.
121
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement and
has caused this Registration Statement to be signed on its behalf, in the City
of Boston, and the Commonwealth of Massachusetts, on this 25th day of April,
1997.
FIRST VARIABLE ANNUITY FUND E
(Registrant)
By: FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: s/Stephan M. Largent
-------------------------------------
Stephan M. Largent, President
FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: s/Stephan M. Largent
-------------------------------------
Stephan M. Largent, President
122
<PAGE>
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 April 25, 1997
- --------------------------
Ronald M. Butkiewicz
Michael J. Corey* Director April 25, 1997
- --------------------------
Michael J. Corey
Michael R. Ferrari* Director April 25, 1997
- --------------------------
Michael R. Ferrari
s/Stephan M. Largent President and Director April 25, 1997
- --------------------------
Stephan M. Largent
T. David Kingston* Director April 25, 1997
- --------------------------
T. David Kingston
Jeff S. Liebmann* Director April 25, 1997
- --------------------------
Jeff S. Liebmann
Director April 25, 1997
- --------------------------
Kenneth R. Meyer
Philip R. O'Connor* Director April 25, 1997
- --------------------------
Philip R. O'Connor
Norman A. Fair* Director April 25, 1997
- --------------------------
Norman A. Fair
Thomas K. Neavins* Director April 25, 1997
- --------------------------
Thomas K. Neavins
s/Anthony J. Koenig, Jr. Vice President and April 25, 1997
- -------------------------- Treasurer
Anthony J. Koenig, Jr.
*By Power of Attorney
s/Arnold R. Bergman
-------------------
Arnold R. Bergman
123
<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
124
<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
125
<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
126
<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
127
<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
128
<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
129
<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
130
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Philip 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
- ------------------------ ----------------------
Philip R. O'Connor
131
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
EX-99.B9(a) Opinion and Consent of Arnold R. Bergman, Vice President-Legal,
First Variable Life Insurance Company
EX-99.B9(b) Consent of Blazzard, Grodd & Hasenauer, P.C.
EX-99.B10. Consent of Ernst & Young LLP, Independent Auditors
EX-99.B13. Calculation of Performance Information
132
<PAGE>
EX-99.B9(a)
Opinion and Consent of Arnold R. Bergman, Vice President-Legal,
First Variable Life Insurance Company
133
<PAGE>
[LETTERHEAD OF FIRST VARIABLE LIFE INSURANCE COMPANY]
April 25, 1997
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. 33-35749 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. 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.
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. 33-35749 of this opinion letter.
Very truly yours,
s/Arnold R. Bergman
- -------------------------
Arnold R. Bergman
Vice President - Legal*
*Admitted in NY
134
<PAGE>
EX-99.B9(b) Consent of
Blazzard, Grodd & Hasenauer, P.C.
135
<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
WILLIAM E. HASENAUER*
RAYMOND A. O'HARA III* FLORIDA OFFICE:
LYNN KORMAN STONE* SUITE 213, OCEANWALK MALL
MAUREEN M. MURPHY* 101 NORTH OCEAN DRIVE
HOLLYWOOD, FLORIDA 33019
* Admitted in Connecticut TELEPHONE (305) 920-6590
** Admitted in Connecticut & Florida FACSIMILE (305) 920-6902
April 25, 1997
Board of Directors
First Variable Life Insurance Company
10 Post Office Square, 12th Floor
Boston, MA 02109
Re: Consent of Counsel
First Variable Annuity Fund E
Dear Sir or Madam:
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 on Form N-4 (File No. 33-35749) 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.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: s/Raymond A. O'Hara III
------------------------------
Raymond A. O'Hara III
136
<PAGE>
EX-99.B10.
Consent of Ernst & Young LLP, Independent Auditors
137
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our reports dated
February 7, 1997, with respect to the consolidated financial statements of First
Variable Life Insurance Company, and January 31, 1997, with respect to the
financial statements of First Variable Life Insurance Company-First Variable
Annuity Fund E, included in this Post-Effective Amendment No. 9 to the
Registration Statement (Form N-4, No. 33-35749.)
s/Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 25, 1997
138
<PAGE>
EX-99.B13.
Calculation of Performance Information
139
<PAGE>
Prime Money Fund II Sub-Account/ Capital 5 VA Fund E Yield Calculations as of
12/31/96
Seven Day Yield
12/31/96 Unit Price 12.055 (A)
12/24/96 Unit Price 12.046 (B)
Difference 0.009 (C)
Base Return (C) / (B) 0.000747136
Annualized Base Return = (C) / (B) * 365/7 = 3.90%
Total Return = (1+Base Return) ^ (365/7) -1 = 3.97%
Total Return on Capital Five VA Portfolios over respective periods
Formula P*(1+T) ^ N = ERV T = ((ERV/P) ^ 1/N) -1
Policy Issue Fee 0
Ann Contract Mnt Chg 30.00
Time Since Start
6.40
Time Since Start SC & GI
1.58
Surrendar Charge 1 7
Surrender Charge 2 6
Surrender Charge 3 5
Surrender Charge 4 4
Surrender Charge 5 3
Surrender Charge 6 0
PRIME MONEY FUND II Capital Five VA
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 12.055 Unit Price EOP 12.055 Unit Price EOP 12.055
Unit Price BOP 11.666 Unit Price BOP 10.669 Unit Price BOP 10
Accum Value EOP 1,033.33 Accum Value EOP 1,129.95 Accum Value EOP 1,205.50
Surrender Charge 54.00 Surrender Charge Surrender Charge -
-
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 978.67 Surrender Value Surrender Value 1,202.24
1,126.69
Total Return -2.133% Total Return 2.414% Total Return 2.920%
<CAPTION>
GROWTH Capital Five VA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 21.155 Unit Price EOP 21.155 Unit Price EOP 21.155
Unit Price BOP 17.054 Unit Price BOP 13.156 Unit Price BOP 10
</TABLE>
140
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Accum Value EOP 1,240.50 Accum Value EOP 1,608.07 Accum Value EOP 2,115.50
Surrender Charge 54.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,185.85 Surrender Value 1,604.80 Surrender Value 2,112.24
Total Return 18.585% Total Return 9.922% Total Return 12.393%
<CAPTION>
MULTIPLE STRATEGIES Capital Five VA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 20.213 Unit Price EOP 20.213 Unit Price EOP 20.213
Unit Price BOP 17.322 Unit Price BOP 12.587 Unit Price BOP 10
Accum Value EOP 1,166.89 Accum Value EOP 1,605.81 Accum Value EOP 2,021.30
Surrender Charge 54.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,112.24 Surrender Value 1,602.55 Surrender Value 2,018.04
Total Return 11.224% Total Return 9.891% Total Return 11.595%
<CAPTION>
U.S. GOVERNMENT BOND Capital Five VA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 15.463 Unit Price EOP 15.463 Unit Price EOP 15.463
Unit Price BOP 15.320 Unit Price BOP 11.937 Unit Price BOP 10
Accum Value EOP 1,009.31 Accum Value EOP 1,295.34 Accum Value EOP 1,546.30
Surrender Charge 54.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 954.66 Surrender Value 1,292.07 Surrender Value 1,543.04
Total Return -4.534% Total Return 5.259% Total Return 7.012%
<CAPTION>
HIGH INCOME BOND Capital Five VA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 18.310 Unit Price EOP 18.310 Unit Price EOP 18.310
Unit Price BOP 16.256 Unit Price BOP 11.695 Unit Price BOP 10
Accum Value EOP 1,126.37 Accum Value EOP 1,565.61 Accum Value EOP 1,831.00
Surrender Charge 54.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,071.71 Surrender Value 1,562.35 Surrender Value 1,827.74
Total Return 7.171% Total Return 9.334% Total Return 9.881%
</TABLE>
MATRIX EQUITY Capital Five VA
141
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 19.947 Unit Price EOP 19.947 Unit Price EOP 19.947
Unit Price BOP 19.338 Unit Price BOP 12.993 Unit Price BOP 10
Accum Value EOP 1,031.50 Accum Value EOP 1,535.21 Accum Value EOP 1,994.70
Surrender Charge 54.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 976.85 Surrender Value 1,531.95 Surrender Value 1,991.44
Total Return -2.315% Total Return 8.905% Total Return 11.364%
<CAPTION>
WORLD EQUITY Capital Five VA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 16.257 Unit Price EOP 16.257 Unit Price EOP 16.257
Unit Price BOP 14.674 Unit Price BOP 9.852 Unit Price BOP 10
Accum Value EOP 1,107.89 Accum Value EOP 1,650.08 Accum Value EOP 1,625.70
Surrender Charge 54.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,053.24 Surrender Value 1,646.82 Surrender Value 1,622.44
Total Return 5.324% Total Return 10.492% Total Return 7.855%
<CAPTION>
SMALL CAP GROWTH Capital Five VA
ONE YEAR START OF PORTFOLIO
<S> <C> <C> <C>
Unit Price EOP 16.253 Unit Price EOP 16.253
Unit Price BOP 12.931 Unit Price BOP 10
Accum Value EOP 1,256.89 Accum Value EOP 1,625.30
Surrender Charge 54.00 Surrender Charge 45.00
Ann Contract Charge 0.65 Ann Contract Charge 0.65
Surrender Value 1,202.24 Surrender Value 1,579.65
Total Return 20.224% Total Return 33.558%
<CAPTION>
GROWTH & INCOME Capital Five VA
ONE YEAR START OF PORTFOLIO
<S> <C> <C> <C>
Unit Price EOP 12.409 Unit Price EOP 12.409
Unit Price BOP 11.218 Unit Price BOP 10
Accum Value EOP 1,106.17 Accum Value EOP 1,240.90
Surrender Charge 54.00 Surrender Charge 45.00
Ann Contract Charge 0.65 Ann Contract Charge 0.65
Surrender Value 1,051.52 Surrender Value 1,195.25
Total Return 5.152% Total Return 11.950%
</TABLE>
VISTA
142
<PAGE>
PRIME MONEY FUND II Sub-Account/VISTA Fund E Yield Calculations as of 12/31/96
Seven Day Yield
12/31/96 Unit Price 12.055 (A)
12/24/96 Unit Price 12.046 (B)
Difference 0.009 (C)
Base Return (C) / (B) 0.000747136
Annualized Base Return = (C) / (B) * 365/7 = 3.90%
Total Return = (1+Base Return) ^ (365/7) -1 = 3.97%
Total Return on VISTA Portfolios over respective periods
Formula P*(1+T) ^ N = ERV T = ((ERV/P) ^ 1/N) -1
Policy Issue Fee 0
Ann Contract Mnt Chg
30.00
Time Since Start
6.40
Time Since Start SC & GI
1.58
Surrendar Charge 1 5
Surrender Charge 2 4
Surrender Charge 3 3
Surrender Charge 4 2
Surrender Charge 5 1
Surrender Charge 6 0
<TABLE>
<CAPTION>
PRIME MONEY FUND II VISTA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 12.055 Unit Price EOP 12.055 Unit Price EOP 12.055
Unit Price BOP 11.666 Unit Price BOP 10.669 Unit Price BOP 10
Accum Value EOP 1,033.33 Accum Value EOP 1,129.95 Accum Value EOP 1,205.50
Surrender Charge 36.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 996.67 Surrender Value 1,126.69 Surrender Value 1,202.24
Total Return -0.333% Total Return 2.414% Total Return 2.920%
<CAPTION>
GROWTH VISTA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 21.155 Unit Price EOP 21.155 Unit Price EOP 21.155
</TABLE>
143
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Unit Price BOP 17.054 Unit Price BOP 13.156 Unit Price BOP 10
Accum Value EOP 1,240.50 Accum Value EOP 1,608.07 Accum Value EOP 2,115.50
Surrender Charge 36.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,203.85 Surrender Value 1,604.80 Surrender Value 2,112.24
Total Return 20.385% Total Return 9.922% Total Return 12.393%
<CAPTION>
MULTIPLE STRATEGIES VISTA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 20.213 Unit Price EOP 20.213 Unit Price EOP 20.213
Unit Price BOP 17.322 Unit Price BOP 12.587 Unit Price BOP 10
Accum Value EOP 1,166.89 Accum Value EOP 1,605.81 Accum Value EOP 2,021.30
Surrender Charge 36.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,130.24 Surrender Value 1,602.55 Surrender Value 2,018.04
Total Return 13.024% Total Return 9.891% Total Return 11.595%
<CAPTION>
U.S. GOVERNMENT BOND VISTA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 15.463 Unit Price EOP 15.463 Unit Price EOP 15.463
Unit Price BOP 15.320 Unit Price BOP 11.937 Unit Price BOP 10
Accum Value EOP 1,009.31 Accum Value EOP Accum Value EOP 1,546.30
Surrender Charge 36.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 972.66 Surrender Value 1,292.07 Surrender Value 1,543.04
Total Return -2.734% Total Return 5.259% Total Return 7.012%
<CAPTION>
HIGH INCOME BOND VISTA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 18.310 Unit Price EOP 18.310 Unit Price EOP 18.310
Unit Price BOP 16.256 Unit Price BOP 11.695 Unit Price BOP 10
Accum Value EOP 1,126.37 Accum Value EOP 1,565.61 Accum Value EOP 1,831.00
Surrender Charge 36.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,089.71 Surrender Value 1,562.35 Surrender Value 1,827.74
Total Return 8.971% Total Return 9.334% Total Return 9.881%
</TABLE>
MATRIX EQUITY VISTA
144
<PAGE>
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 19.947 Unit Price EOP 19.947 Unit Price EOP 19.947
Unit Price BOP 19.338 Unit Price BOP 12.993 Unit Price BOP 10
Accum Value EOP 1,031.50 Accum Value EOP 1,535.21 Accum Value EOP 1,994.70
Surrender Charge 36.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 994.85 Surrender Value 1,531.95 Surrender Value 1,991.44
Total Return -0.515% Total Return 8.905% Total Return 11.364%
<CAPTION>
WORLD EQUITY VISTA
ONE YEAR FIVE YEARS START OF PORTFOLIO
<S> <C> <C> <C> <C> <C>
Unit Price EOP 16.257 Unit Price EOP 16.257 Unit Price EOP 16.257
Unit Price BOP 14.674 Unit Price BOP 9.852 Unit Price BOP 10
Accum Value EOP 1,107.89 Accum Value EOP 1,650.08 Accum Value EOP 1,625.70
Surrender Charge 36.00 Surrender Charge - Surrender Charge -
Ann Contract Charge 0.65 Ann Contract Charge 3.26 Ann Contract Charge 3.26
Surrender Value 1,071.24 Surrender Value 1,646.82 Surrender Value 1,622.44
Total Return 7.124% Total Return 10.492% Total Return 7.855%
<CAPTION>
SMALL CAP GROWTH VISTA
ONE YEAR START OF PORTFOLIO
<S> <C> <C> <C>
Unit Price EOP 16.253 Unit Price EOP 16.253
Unit Price BOP 12.931 Unit Price BOP 10
Accum Value EOP 1,256.89 Accum Value EOP 1,625.30
Surrender Charge 36.00 Surrender Charge 27.00
Ann Contract Charge 0.65 Ann Contract Charge 0.65
Surrender Value 1,220.24 Surrender Value 1,597.65
Total Return 22.024% Total Return 34.520%
<CAPTION>
GROWTH & INCOME VISTA
ONE YEAR START OF PORTFOLIO
<S> <C> <C> <C>
Unit Price EOP 12.409 Unit Price EOP 12.409
Unit Price BOP 11.218 Unit Price BOP 10
Accum Value EOP 1,106.17 Accum Value EOP 1,240.90
Surrender Charge 36.00 Surrender Charge 27.00
Ann Contract Charge 0.65 Ann Contract Charge 0.65
Surrender Value 1,069.52 Surrender Value 1,213.25
Total Return 6.952% Total Return 13.014%
</TABLE>
145
