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File Nos. 33-86738
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. 4 [ 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)
2122 York Road
Oak Brook, IL 60523
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's telephone number including area code: (630)586-5000
Name and Address of Agent for Service
<TABLE>
<S> <C>
Arnold R. Bergman Copies to: Raymond A. O'Hara III, Esq.
Vice President, General Counsel and Secretary Blazzard, Grodd & Hasenauer, P.C.
First Variable Life Insurance Company P.O. Box 5108
2122 York Road Westport, CT 06881
Oak Brook, IL 60523 (203) 226-7866
</TABLE>
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1998 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.
Title of Securities Being Registered: Interests Under Variable Annuity Contracts
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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...........Accumulation Unit Data;
Financial Statements
Item 5. General Description of Registrant,
Depositors 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 Considerations
Item 13. Legal Proceedings.........................Legal Proceedings
Item 14. Table of Contents of Statement of
Additional Information.................Table of Contents of
Statement of Additional
Information
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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.
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PART A
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Prospectus Dated: May 1, 1998
CAPITAL NO LOAD
A VARIABLE ANNUITY CONTRACT
FUNDED IN
FIRST VARIABLE ANNUITY FUND E
BY
FIRST VARIABLE LIFE INSURANCE COMPANY
MARKETING AND EXECUTIVE OFFICE: VARIABLE SERVICE CENTER:
2122 York Road P.O. Box 1317
Oak Brook, IL 60523 Des Moines, IA 50305-1317
Automated Information Line: (800) 59-FUNDS (800)228-1035
This prospectus describes the Capital No Load contract (the "Contract"), an
individual flexible payment deferred variable annuity contract issued by First
Variable Life Insurance Company (the "Company"). The Contract provides for
accumulation of Contract Values and payment of monthly annuity payments on a
fixed and variable basis. The Contract is designed for use by individuals in
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 Fixed Account. The Separate Account invests in selected
Portfolios of two mutual funds: Variable Investors Series Trust ("VIST") and
Federated Insurance Series ("Federated"). The Portfolios currently available
under a Contract are: VIST Small Cap Growth, VIST World Equity, VIST Growth,
VIST Matrix Equity, VIST Growth & Income, VIST Multiple Strategies, VIST High
Income Bond, VIST U.S. Government Bond, and Federated Prime Money Fund II (the
"Portfolios"). (See "Investment Options.") The Company reserves the right, under
certain circumstances, to delay the investment of initial Purchase Payments in
VIST Portfolios, but does not currently do so. (See "Application and Issuance of
a Contract.")
An investment in the Contract is not a deposit or obligation of, or guaranteed
or endorsed by, any financial institution, and the Contract is 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 Account, which has the same date as this Prospectus, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The Table of Contents of the Statement of Additional Information can
be found on page __ of this Prospectus. For a copy of the Statement of
Additional Information, which is available at no cost, write the Company at its
Variable Service Center or call the number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE VARIABLE
INVESTORS SERIES TRUST AND FEDERATED INSURANCE SERIES. ALL PROSPECTUSES SHOULD
BE READ AND RETAINED FOR FUTURE REFERENCE.
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TABLE OF CONTENTS
DEFINITIONS...................................................................
HIGHLIGHTS....................................................................
FEE TABLE AND EXAMPLES........................................................
ACCUMULATION UNIT DATA........................................................
THE COMPANY...................................................................
THE SEPARATE ACCOUNT..........................................................
INVESTMENT OPTIONS............................................................
Variable Investors Series Trust.............................................
Federated Insurance Series..................................................
Fixed Account Option........................................................
Transfers Among Investment Options..........................................
Prior to the annuity Date..................................................
During the Annuity Period..................................................
General Requirements.......................................................
Systematic Transfers - Dollar Cost Averaging...............................
Asset Rebalancing Program..................................................
Restrictions on Transfers..................................................
Telephone Transactions......................................................
Changes to Investment Options...............................................
CHARGES AND DEDUCTIONS........................................................
Administrative Charge.......................................................
Annual Contract Maintenance Charge
Mortality and Expense Risk Charge..........................................
Premium Taxes...............................................................
Purpose of Contract Charges.................................................
Other Charges and Expenses..................................................
Fund Expenses..............................................................
Income Taxes...............................................................
Special Service Fees.......................................................
Elimination or Reduction of Charges and Expenses...........................
THE CONTRACT..................................................................
Application and Issuance of a Contract......................................
Free Look Right............................................................
Delayed Investment Allocation Date.........................................
Purchase Payments...........................................................
General Requirements.......................................................
Conversion to Accumulation Units...........................................
Contract Value.............................................................
Accumulation Unit Value....................................................
Reports....................................................................
Ownership...................................................................
Annuitant...................................................................
Assignment..................................................................
Beneficiary.................................................................
Change of Beneficiary.......................................................
DEATH BENEFIT PROVISIONS......................................................
Death of the Annuitant......................................................
Death of the Owner..........................................................
Owners Other Than a Single Person...........................................
ANNUITY PROVISIONS............................................................
Annuity Date and Annuity Option.............................................
Change in Annuity Date and Annuity Option...................................
Allocation of Annuity Payments..............................................
Annuity Options.............................................................
Frequency and Amount of Annuity Payments....................................
WITHDRAWALS...................................................................
Partial Withdrawals.........................................................
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Systematic Withdrawals......................................................
Tax Penalties and Restrictions..............................................
Texas Optional Retirement Program...........................................
Suspension of Payments or Transfers.........................................
PERFORMANCE INFORMATION.......................................................
Federated Prime Money Fund II Portfolio.......................................
Other Portfolios..............................................................
TAX CONSIDERATIONS............................................................
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...........................
OTHER MATTERS.................................................................
Financial Statements........................................................
Distribution................................................................
Legal Proceedings...........................................................
Transfers by the Company....................................................
Voting Rights...............................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION..................
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DEFINITIONS
ACCOUNT - Fixed Account and/or one or more of the Sub-Accounts of the Separate
Account.
ACCUMULATION PERIOD - The period during which Purchase Payments may be made
prior to the Annuity Date.
ACCUMULATION UNIT - A unit of measure used to calculate the Contract Value of a
Sub-Account of the Separate Account prior to the Annuity Date.
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.
BUSINESS DAY - Each day that the New York Stock Exchange is open for trading,
which is Monday through Friday, except for the following holidays: New Year's
Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day.
COMPANY - First Variable Life Insurance Company.
CONTRACT ANNIVERSARY - An anniversary of the Issue Date.
CONTRACT VALUE - The sum of the amounts attributable to a Contract that are:
(a) in the Separate Account; and (b) in the Fixed Account.
CONTRACT YEAR - One year from the Issue Date and from each Contract Anniversary.
DISTRIBUTOR - First Variable Capital Services, Inc., 2122 York Road, Oak Brook,
IL 60523.
FIXED ACCOUNT - The Fixed Account is the portion of the Contract Value that is
part of the Company's general account. The Fixed Account provides guarantees of
principal and interest and is not part of the Separate Account.
FIXED ACCOUNT VALUE - The Owner's interest in the Fixed Account during the
Accumulation Period.
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.
INVESTMENT OPTION - The Fixed Account or any of the Sub-Accounts of the Separate
Account which can be selected by the Owner of a Contract.
ISSUE DATE - The date on which the first Contract Year begins.
NON-QUALIFIED CONTRACTS - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 401, 403(b) , 408, 408A or
457 of the Internal Revenue Code.
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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, 408A 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 a
Contract is located at 1206 Mulberry Street, Des Moines, IA 50309. The mailing
address is P.O. Box 1317, Des Moines, IA 50305-1317.
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 Annual Contract Maintenance Charge, if any.
HIGHLIGHTS
Capital No Load is an individual flexible payment variable annuity contract (the
"Contract"). The Owner may allocate Purchase Payments among ten Investment
Options under a Contract issued by First Variable Life Insurance Company (the
"Company"). Nine of these options are Sub-Accounts of First Variable Annuity
Fund E (the "Separate Account"), a segregated investment account of the Company.
Purchase Payments may also be allocated to the Fixed Account.
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 Small Cap Growth, VIST World Equity,
VIST Growth, VIST Matrix Equity, VIST Growth & Income, VIST Multiple Strategies,
VIST High Income Bond, VIST U.S. Government Bond, and Federated Prime Money Fund
II (the "Portfolios"). (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 Separate Account in certain instances, but it does
not currently do so. (See "Application and Issuance of a Contract.")
The Contract is subject to the following charges and deductions:
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Daily Deductions - composed of:
- - an administrative charge at an annualized rate of .25% of the average
daily net assets in each Sub-Account.
- - a mortality and expense risk charge at an annualized rate of 1.25% of the
average daily net assets in each Sub-Account.
Annual Deductions - composed of the following:
- - a contract maintenance charge of $30 if Contract Value is less than
$100,000.
- - an enhanced death benefit charge - if an Optional Enhanced Death Benefit
is elected, a charge is made each year until the earlier of the Annuity
Date or the Owner's 80th birthday of an annualized rate of 0.35% of
Contract Value.
Premium Taxes - premium taxes or other taxes payable to a state or other
governmental entity will be charged against the Purchase Payments or Contract
Values.
For more information about each of these charges and deductions, see the
"Charges and Deductions" section of this prospectus.
Fund Expenses - other deductions and expenses are paid out of the assets of the
Portfolios of a Fund, which are described in the accompanying prospectuses for
the Funds.
A ten percent (10%) federal income tax penalty may be applied to the income
portion of any distributions from a Non-Qualified Contract before the Owner
reaches age 59 1/2, with certain exceptions. Separate tax withdrawal penalties
and restrictions apply to a Qualified Contract. Special restrictions apply to
distributions from a 403(b) annuity. (See "Tax Considerations -- Tax Treatment
of Withdrawals -- Non Qualified Contracts," "Tax Treatment of Withdrawals --
Qualified Contracts," and "Tax Sheltered Annuities -- Withdrawal Limitations".)
For a further discussion on the taxation of a Contract, See "Tax Considerations"
and "Tax Considerations --Diversification" for a discussion of owner control of
the underlying investments in a variable annuity contract.
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FEE TABLE AND EXAMPLES
The charges and deductions under a Contract are summarized in the following
table. This table is designed to help an Owner understand direct and indirect
costs for a Contract, but should be read only in conjunction with the detailed
descriptions in the "Charges and Deductions" section of this prospectus. The
table assumes that the entire Contract Value is invested in the Separate
Account, and reflects expenses of the Separate Account as well as the
Portfolios. Owners should read the accompanying prospectuses of the Funds
carefully for further information concerning the expenses shown for each
Portfolio. In addition to the expenses listed below, a charge for premium taxes
may be applicable.
<TABLE>
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OWNER TRANSACTION EXPENSES
Withdrawal Charge.......................................... None
Transfer Fee............................................... None
Annual Contract Maintenance Charge (see Note 1 below)...... $30 per Contract
per year
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average Variable Account Value)
Mortality and Expense Risk Charge.......................... 1.25%
Administrative Charge...................................... .25%
Total Separate Account Annual
Expenses..................................................1.50%
</TABLE>
FUNDS' ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
Other Operating
Management Expenses (After Total Annual
Portfolio Fees Reimbursement) Expenses
--------- ---- -------------- --------
<S> <C> <C> <C>
VIST Small Cap Growth .85% .50% 1.35%
VIST World Equity .70% .50% 1.20%
VIST Growth .70% .40% 1.10%
VIST Matrix Equity .65% .50% 1.15%
VIST Growth & Income .75% .50% 1.25%
VIST Multiple Strategies .70% .49% 1.19%
VIST High Income Bond .70% .50% 1.20%
VIST U.S. Government Bond .60% .25% .85%
Federated Prime Money Fund II .55% .25% .80%
</TABLE>
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment in a Contract,
assuming a 5% annual return on assets and allocation of 100% of Contract Value
to the Portfolio shown. The expenses shown do not vary if the Contract remains
in force at the end of each time period, or is surrendered, or is annuitized.
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<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
VIST Small Cap Growth $ 30 $ 91 $154 $325
VIST World Equity $ 28 $ 86 $147 $311
VIST Growth $ 27 $ 82 $140 $298
VIST Matrix Equity $ 28 $ 85 $144 $306
VIST Growth & Income $ 29 $ 88 $149 $315
VIST Multiple Strategies $ 28 $ 86 $147 $311
VIST High Income Bond $ 28 $ 86 $147 $311
VIST U.S. Government Bond $ 25 $ 75 $129 $275
Prime Money Fund II $ 24 $ 74 $126 $270
</TABLE>
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NOTES ON FEE TABLE AND EXAMPLES
1. No annual contract maintenance charge will be deducted if the Contract Value
on a Contract Anniversary is at least $50,000. If a total withdrawal is made
on other than a Contract Anniversary and the Contract Value on the Business
Day for which the total withdrawal is made is less than $50,000, the full
annual contract maintenance charge will be deducted.
2. 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.
3. First Variable Advisory Services Corp., the investment adviser to VIST, has
agreed through April 1, 1999 to reimburse VIST for operating expenses
(exclusive of management fees) in excess of .50% of a VIST Portfolio's
average net assets (.25% in the case of the VIST U.S. Government Bond
Portfolio). Had this investment adviser not reimbursed expenses of the VIST
Portfolios, for the year ended December 31, 1997, the VIST annual expenses,
as a percentage of the Portfolio's average daily net assets, would have been
1.79% for the VIST Small Cap Growth Portfolio; 1.47% for the VIST World
Equity Portfolio; 1.54% for the VIST Matrix Equity Portfolio; 1.60% for the
VIST Growth & Income Portfolio; 1.21% for the VIST Multiple Strategies
Portfolio; 1.64% for the VIST High Income Bond Portfolio; and 1.73% for the
VIST U.S. Government Bond 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, 1997, the annual expenses, as a percentage of the Portfolio's
average assets, would have been 1.00%.
4. Premium taxes are not reflected. Premium taxes may apply. See "Charges
and Deductions -- Deduction for Premium Taxes".
5. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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ACCUMULATION UNIT DATA
(for a unit outstanding throughout the period)
The following condensed financial information is derived from the financial
statements of the Separate Account (Policy Form 20230). 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>
PERIOD ENDED PERIOD ENDED PERIOD ENDED
12/31/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
GROWTH SUB-ACCOUNT (1)
Beginning of Period $ 12.57 $ 10.14 $ 10.00
End of Period $ 15.31 $ 12.57 $ 10.14
Number of Accum. Units Outstanding 106,746 30,672 6,026
GROWTH & INCOME
SUB-ACCOUNT
Beginning of Period (5/31/95) $ 11.75 $ 10.63 $ 10.00
End of Period $ 14.84 $ 11.75 $ 10.63
Number of Accum. Units Outstanding 152,210 51,500 2,754
HIGH INCOME BOND SUB-ACCOUNT
Beginning of Period $ 11.45 $ 10.17 $ 10.00
End of Period $ 12.80 $ 11.45 $ 10.17
Number of Accum. Units Outstanding 114,612 30,956 1,905
MATRIX EQUITY SUB-ACCOUNT (2)
Beginning of Period $ 10.94 $ 10.62 $ 10.00
End of Period $ 13.16 $ 10.94 $ 10.62
Number of Accum. Units Outstanding 43,263 11,951 918
MULTIPLE STRATEGIES SUB-ACCOUNT
Beginning of Period $ 11.84 $ 10.15 $ 10.00
End of Period $ 14.10 $ 11.84 $ 10.15
Number of Accum. Units Outstanding 77,185 30,934 5,995
PRIME MONEY FUND II SUB-ACCOUNT (3)
Beginning of Period $ 10.39 $ 10.06 $ 10.00
End of Period $ 10.74 $ 10.39 $ 10.06
Number of Accum. Units Outstanding 89,012 39,582 0
SMALL CAP GROWTH SUB-ACCOUNT (4)
Beginning of Period (5/4/95) $ 13.01 $ 10.36 $ 10.00
End of Period $ 12.91 $ 13.01 $ 10.36
Number of Accum. Units Outstanding 112,393 25,465 2,212
U.S. GOVERNMENT BOND SUB-ACCOUNT
Beginning of Period $ 10.39 $ 10.30 $ 10.00
End of Period $ 11.19 $ 10.39 $ 10.30
Number of Accum. Units Outstanding 63,534 43,540 7,532
WORLD EQUITY SUB-ACCOUNT
Beginning of Period $ 11.33 $ 10.24 $ 10.00
End of Period $ 12.28 $ 11.33 $ 10.24
Number of Accum. Units Outstanding 75,105 37,590 3,989
</TABLE>
(1) Prior to May 1, 1997, the Growth Sub-Account was known as the "Common
Stock 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.
(3) On January 2, 1997, shares of Federated Prime Money Fund II were
substituted for shares of the VIST Cash Management Portfolio. Accumulation
Unit Values prior to that date are based on the value of VIST Cash
Management Portfolio shares held for the periods shown.
(4) Prior to May 1, 1997, the Small Cap Growth Sub-Account was known as the
"Small Cap Sub-Account."
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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 business of variable life insurance,
variable annuities and fixed annuities. 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 of Des Moines, Iowa and Guarantee Reserve Life
Insurance Company of Calumet City, Illinois. Irish Life was formed in 1939
through a consolidation of a number of Irish and British Life offices
transacting business in Ireland. In terms of assets, Irish Life controls over
50% of the Irish domestic life insurance market. As Ireland's leading
institutional investor, it owns in excess of 10% of the leading Irish publicly
traded stocks. Irish Life, through its international subsidiaries, conducts
business in Ireland, the United Kingdom, the United States, and France. As of
the end of 1997, the Irish Life consolidated group had in excess of $14 billion
in assets. ILoNA is a Delaware corporation, incorporated as Carrig
International, Inc. in 1986.
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 obligations to policy holders over a long period of
time. The Company also has an AA- rating from Standard and Poor's and an AA
rating from Duff & Phelps Credit Rating Co. on claims paying ability. The
financial strength of the Company may be relevant with respect to the Company's
ability to satisfy its obligations under the Contracts.
The Company may publish in advertisements and reports to Owners, 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 Company authorized the establishment of First Variable Annuity fund E (the
"Separate Account"), a segregated asset account, pursuant to Arkansas insurance
law on December 4, 1979. 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 general account also
supports all of the Company's obligations, including those arising under the
Contracts. The Separate Account meets the definition of a "separate account"
under the federal securities laws.
The Separate Account is divided into Sub-Accounts, with 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 Fixed Account. Each
Sub-Account invests exclusively in a Portfolio of a selected Fund. A brief
summary of the Funds and the investment objectives of the currently available
Portfolios is set forth below. More comprehensive information, including a
discussion of potential risks, is found in the current prospectuses for the
Portfolios which are included with this prospectus. The prospectuses for the
Funds may describe other portfolios that are not available under a Contract.
THERE IS NO ASSURANCE THAT THE AVAILABLE PORTFOLIOS WILL ACHIEVE THEIR STATED
OBJECTIVES. Investors should read this prospectus and the prospectuses for the
Funds carefully before investing. To obtain prospectuses for the Funds, write
the Company at its Variable Service Center or call the number shown on the cover
page.
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VARIABLE INVESTORS SERIES TRUST
Variable Investors Series Trust ("VIST") is an open-end management investment
company that was formed as a series trust to provide funding options for
variable life insurance and variable annuity contracts. Effective April 1, 1994,
VIST retained First Variable Advisory Services Corp. ("FVAS") to manage its
assets. FVAS is a wholly-owned subsidiary of the Company and retains the
services of sub-advisers under agreements to manage the assets of the VIST
Portfolios. The sub-advisers for the VIST Portfolios currently available under a
Contract are: Value Line, Inc. with respect to VIST Growth and Multiple
Strategies; Warburg Pincus Asset Management, Inc. with respect to VIST Growth &
Income; Federated Investment Counseling with respect to VIST High Income Bond;
Pilgrim Baxter & Associates, Ltd. with respect to VIST Small Cap Growth; State
Street Bank and Trust Company with respect to VIST Matrix Equity; Strong Capital
Management, Inc. with respect to VIST U.S. Government Bond; and Keystone
Investment Management Co. with respect to VIST World Equity.
Each Portfolio has a distinct investment objective and policy. The investment
objectives of the Portfolios available under a Contract are:
VIST Small Cap Growth. 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
capitalization (market capitalization or annual revenues under $1 billion at the
time of purchase).
VIST World Equity. The investment objective of this Portfolio is to maximize
long-term total return by investing primarily in common stocks, and securities
convertible into common stocks, traded in securities markets located in
countries around the world, including the United States. See "Foreign
Investments" under "Policies and Techniques Applicable to all Portfolios" in the
VIST prospectus for a discussion of the risks involved in investing in foreign
securities.
VIST Growth. The investment objective of this Portfolio is capital growth, which
it seeks to achieve through a policy of investing primarily in a diversified
portfolio of common stocks and securities convertible into or exchangeable for
common stock. The secondary objective is current income, when consistent with
its primary objective.
VIST Matrix Equity. 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.
VIST Growth & Income. The investment objectives of this Portfolio are to provide
current income and growth of capital. The Portfolio seeks to achieve its
objectives by investing in equity securities, fixed income securities and money
market instruments. The portion of the Portfolio invested at any given time in
each of these asset classes will vary depending on market conditions, and there
may be extended periods when the Portfolio is primarily invested in one of them.
In addition, the amount of income derived from the Portfolio will fluctuate
depending on the composition of the Portfolio's holdings and will tend to be
lower when a higher portion of the Portfolio is invested in equity securities.
The Portfolio may also purchase without limitation dollar-denominated American
Depository Receipts ("ADRs"). ADRs are issued by domestic banks and evidence
ownership of underlying foreign securities.
VIST Multiple Strategies. The investment objective of this Portfolio is to seek
as high a level of total return over an extended period of time as is considered
consistent with prudent investment risk by investing in equity securities,
bonds, and money market instruments in varying proportions.
VIST High Income Bond. The investment objective of this Portfolio is to obtain
as high a level of current income as is believed to be consistent with prudent
investment management. As a secondary objective, the Portfolio seeks capital
appreciation when consistent with its primary objective. The Portfolio seeks to
achieve its investment objectives by investing primarily in fixed income
securities rated lower than A. Many of the high yield securities in which the
Portfolio may invest are commonly referred to as "junk bonds." For special risks
involved with investing in such securities (including among others, risk of
default and illiquidity) see "Investment Objectives and Policies of the
Portfolios -- High Income Bond Portfolio" in the VIST prospectus.
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VIST U.S. Government Bond. The investment objective of this Portfolio is to
seek current income and preservation of capital through investment primarily
in securities issued or guaranteed as to principal and interest by the U.S.
Government or by its agencies, authorities, or instrumentalities.
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.
FIXED ACCOUNT OPTION
This Prospectus is generally intended to describe the Contract and Separate
Account. Because of certain exemptive and exclusionary provisions, interest in
the Fixed Account are not registered under the Securities Act of 1933 and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940, as amended. Accordingly, neither the Fixed Account nor any
interests therein are subject to the provisions of these Acts, and the Company
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in the Prospectus relating to the Fixed Account.
The Company guarantees that it will credit interest to Contract Value in the
Fixed Account at 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 Fixed Account
may each receive different current interest rate(s) than the current interest
rate(s) credited to Contract Value existing in the Fixed Account. The Company
determines current interest rates in advance and credits interest daily to Fixed
Account Value.
TRANSFERS AMONG INVESTMENT OPTIONS
An Owner may transfer Contract Value among Investment Options each Contract
year without a transfer fee. Transfers may be initiated by either written or
telephone request. (See "Telephone Transactions.")
Prior to the Annuity Date. Contract Value to be transferred is subject to the
following:
(1) The minimum amount which may be transferred is the lesser of (a)
$1,000; or (b) the Owner's entire interest in the applicable
Sub-Account or Fixed Account, if less. A minimum Contract Value of
$1,000 must remain in an Investment Option after a transfer.
(2) All Purchase Payments and transfers allocated to the Fixed Account
must remain in the Fixed Account for one year prior to any transfer
from the Fixed Account.
(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,
below, to terminate, suspend or modify the transfer privileges
described above.
During the Annuity Period. The Owner may make a transfer of Contract Values
among the Investment Options without the imposition of any fee or charge. Once
each Contract Year, an Owner may transfer Contract Values from one or more
Sub-Accounts to the Fixed Account. The Owner may not make a transfer from the
Fixed Account to the Separate Account. Amounts transferred from a Sub-Account to
the Fixed Account are subject to certain procedures set out in the Contract.
General Requirements. Any transfer direction must clearly specify the amount
which is to be transferred and the Investment Options which are to be
affected.
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Systematic Transfers - Dollar Cost Averaging. The Company permits systematic
transfers, such as a dollar cost averaging program, that an Owner may initiate
by telephone or by written request to the Company at its Variable Service
Center. Through systematic transfers, designated amounts are systematically
transferred on the last Business Day of each pre-selected period from a selected
Investment Option to other pre-selected Investment Options. The Owner may select
from among the following periods, or any other period acceptable to the Company:
monthly, quarterly, semi-annually or annually. The dollar cost averaging program
permits transfers from the Federated Prime Money Fund II Sub-Account or the
Fixed Account to other Sub-Account(s) on a regularly scheduled basis. Through
use of systematic transfers, instead of transfers of the total Contract Value at
one particular time, an Owner may be less susceptible to the impact of market
fluctuations. Systematic transfers may prevent investing too much when the price
of shares is high and too little when the price of shares is low. However, since
systematic transfers, such as dollar cost averaging, involve continuous
investment regardless of fluctuating price levels, the purchaser should consider
his ability to continue purchases through periods of low price levels. The
minimum amount which may be transferred is $100. The Company requires $1,200 of
Account Value to be in the Prime Money Fund II Sub-Account or the Fixed Account,
as applicable, before a "dollar cost averaging" program may begin. Transfers
from the Fixed Account are also subject to the restrictions described above,
except that 100% of amounts in the Fixed Account may be systematically
transferred prior to the Annuity Date if transfers are made monthly for a one
year period. The Company does not currently charge for enrolling in the dollar
cost averaging program, but reserves the right to do so. (See "Special Service
Fees.")
Asset Rebalancing Program. The Company administers an asset rebalancing program
that an Owner may initiate by telephone or by written request to the Company at
its Variable Service Center. The asset rebalancing program enables the Owner to
indicate to the Company the percentage levels of Contract Value he or she would
like to maintain in particular Sub-Accounts. On the last Business Day of each
pre-selected period, the Contract Value will be automatically rebalanced to
maintain the indicated percentages by transfers among the Investment Options.
The Owner may select from among the following periods, or any other period
acceptable to the Company: quarterly, semi-annually or annually. All Contract
Value allocated to the Separate Account Investment Options must be included in
the asset rebalancing program. Asset rebalancing involving transfers from the
Fixed Account are subject to the restrictions described above. Other investment
programs, such as systematic transfers and systematic withdrawals, or other
transfers or withdrawals, may not work in concert with the asset rebalancing
program. Therefore, Owners should monitor their use of these programs and other
transfers or withdrawals while the asset rebalancing program is being used.
The Company does not currently charge for enrolling in the asset rebalancing
program, but reserves the right to do so. (See "Special Service Fees.")
Restrictions on Transfers. Programmed or other frequent requests to transfer
Investment Options by, or on behalf of, an Owner may have a detrimental effect
on the Fund share values held in the Separate Account. The Company may therefore
limit the number of permitted transfers in any Contract Year, or refuse to honor
any transfer request 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 Portfolios is to be
restricted because of excessive trading, or if a specific transfer or group of
transfers is deemed to have a detrimental effect on AUV or Portfolio share
prices.
The Company may also at any time suspend or cancel its acceptance of third party
authorizations on behalf of an Owner, or restrict the Investment Options that
will be available for 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 (1-800-228-1035) is available for telephone transfers of Contract 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 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.
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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.
CHANGES TO INVESTMENT OPTIONS
New Sub-Accounts may be established and additional Portfolios or mutual funds
may be made available by the Company when, in its sole discretion, it determines
that conditions so warrant. Any new Sub-Accounts may be made available to
existing Owners on a basis to be determined by the Company. Each additional
Sub-Account will purchase shares in a Portfolio of a Fund, or in another mutual
fund or investment vehicle.
The Company does not guarantee that continued purchase of Portfolio shares will
remain appropriate in view of the purposes of the Separate Account. If shares of
a Portfolio are no longer available for investment by the Separate Account, or,
if in the judgment of the Company, further investment in the shares should
become inappropriate in view of the purpose of the Contracts, the Company may
limit further purchase of these shares or may substitute shares of another
Portfolio, or mutual fund or other investment option for shares already
purchased or to be purchased in the future. No substitution of securities may
take place without prior approval of the Securities and Exchange Commission and
under the requirements it may impose. The Company will send prior notice of any
substitution to Contract Owners.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the Separate
Account. These are:
ADMINISTRATIVE CHARGE
The Company deducts on each Business Day, both prior to and during the
Annuity Period, an administrative charge which is equal to a percentage of
the daily net assets in each Sub-Account for this class of Contract. The
annual rate for this charge is .25%.
ANNUAL CONTRACT MAINTENANCE CHARGE
The Company deducts an annual contract maintenance charge of $30 from the
Contract Value on each Contract Anniversary before the Annuity Date, if the
Contract Value on a Contract Anniversary is less than $50,000. If a total
withdrawal is made on other than a Contract Anniversary and the Contract Value
at the time is less than $50,000, then the annual contract maintenance charge
will be deducted. 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 charge will be collected on a monthly
basis and will result in a reduction of each Annuity Payment.
This charge is deducted by subtracting values from the Fixed Account and/or
canceling Accumulation Units from each applicable Sub-Account in the ratio that
the value of each Account bears to the total Contract Value.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts on each Business Day, both prior to and during the Annuity
Period, a mortality and expense risk charge which is equal to a percentage of
the daily net assets in each Sub-Account for this class of Contract. The annual
rate for this charge is 1.25%. The mortality and expense risk charge is
guaranteed by the Company and cannot be increased.
PREMIUM TAXES
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values. Some states assess premium taxes at
the time Purchase Payments are made; others assess premium taxes at the
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time Annuity Payments begin. The Company currently intends to deduct premium
taxes when incurred. Premium taxes generally range from 0% to 4%.
PURPOSE OF CONTRACT CHARGES
The charges under the Contracts are designed to cover, in the aggregate, the
Company's direct and indirect costs of selling, administering and providing
benefits under the Contracts. They are also designed, in the aggregate, to
compensate the Company for the risks it assumes pursuant to the Contracts. These
include mortality risks (such as the risk that annuitants or owners may, on
average, cause the guaranteed death benefits to be greater than the Company
expects, thereby increasing the amount of claims the Company must pay);
investment risks (such as the risk that adverse investment performance will make
it more costly to provide the guaranteed death benefits under the Contracts or
reduce the amount of the Company's asset-based fee revenues below what the
Company anticipates); sales risks (such as the risk that the number of Contracts
sold and the premiums received (net of withdrawals) are less than the Company
expects thereby depriving the Company of expected economies of scale);
regulatory risks (such as the risk that tax or other regulations may be changed
in ways adverse to issuers of variable annuity contracts); and expense risks
(such as the risk that the costs of administrative services that the Company
must provide will exceed what the Company currently projects).
If, as expected, the charges that the Company collects from the Contracts exceed
its total costs in connection with the Contracts, the Company will earn a
profit. Otherwise it will incur a loss. The rates of certain of the Company's
charges have been set with reference to estimates of the amount of specific
types of expenses or risks that the Company will incur. In some cases, this
prospectus identifies such expenses or risks in the name of the charge: e.g.,
the administrative charge, the annual contract maintenance charge, and the
mortality and expense risk charge. However, the fact that any charge bears the
name of a particular expense or risk does not mean that the amount the Company
collects from that charge will never be more than the amount of such expense or
risk, or that the Company may not also be compensated for such expense or risk
out of any other charges the Company is permitted to deduct by the terms of the
Contracts.
OTHER CHARGES AND EXPENSES
Fund Expenses. There are other deductions from, and expenses paid out of,
the assets of the Portfolios of a Fund which are described in the
accompanying prospectuses for the Funds.
Income Taxes. While the Company is not currently reducing Contract Value for
federal income taxes of the Separate Account, the Company reserves the right to
do so if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Separate Account. The Company will deduct for any
income taxes incurred by it as a result of the operation of the Separate Account
whether or not there was a Company reserve for taxes and whether or not it was
sufficient.
The Company will deduct any withholding taxes required by applicable law when
amounts are distributed from a Contract. (See "Tax Considerations--Income
Tax Withholding.")
Special Service Fees. The Company may charge Owners for special services, such
as additional reports, systematic withdrawals, dollar cost averaging, the asset
rebalancing program and minimum distributions. As of the date of this
prospectus, it does not charge for these special services.
Elimination or Reduction of Charges and Expenses. The charges and expenses on a
Contract may be reduced or eliminated, in whole or in part, when sales of a
Contract are made to individuals or to a group of individuals in a manner that
results in savings of sales or administration expenses. Any reduction will be
determined by the Company after examination of relevant factors such as:
- - the size and type of group to which sales are to be made because the
expenses for a larger group are generally less than for a smaller group
since large numbers of Contracts may be implemented with fewer contacts;
- - the total amount of Purchase Payments to be received because expenses are
likely to be less on larger Purchase Payments than on smaller ones;
- - any prior or existing relationship with the Company because of the
likelihood of implementing the Contract with fewer contacts; and
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- - other circumstances, of which the Company is not presently aware, which
could result in reduced expenses.
Charges may also be eliminated when a Contract is issued to an officer, director
or employee of the Company or any of its affiliates. In no event will reductions
or elimination of the charges be permitted where reductions or elimination will
be unfairly discriminatory to any person.
THE CONTRACT
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 Annuitant 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 Considerations 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 Fixed Account and
credit the Contract with dollars. If the application for a Contract is not in
good order, the Company will attempt to get it in good order or the Company will
return the application and the Purchase Payment within 5 business days. The
Company will not retain a Purchase Payment for more than 5 business days while
processing an incomplete application unless it has been authorized by the
purchaser. The Company may decline any application.
Free Look Right. An Owner has the right to review a Contract during an initial
inspection period specified in the Contract and , if dissatisfied, to return it
to the Company or to the agent through whom it was purchased. When the Contract
is returned to the Company during the permitted period, it will be voided as if
it had never been in force. The Company will ordinarily refund the Contract
Value (which may be greater or less than the Purchase Payments received) on a
Contract returned during the permitted period, unless a different amount is
required. The "free look" period is at least 10 days, and may be greater
depending on state requirements.
Delayed Investment Allocation Date. Initial Purchase Payments are allocated to
the Sub-Accounts or to the Fixed Account as selected by the Owner. As of the
date of this Prospectus, the Company does not delay investment start dates and
will allocate Purchase Payments to the selected Investment Options upon issuance
of a Contract. The Company reserves the right, however, to allocate initial
Purchase Payments to the Prime Money Fund II Sub-Account for an investment delay
period before they will be invested (together with any investment gain) in any
other Sub-Account(s) designated by the Owner. If the Company elects to delay
such initial investments in Sub-Accounts, the delay would apply where a Contract
is issued subject to a requirement that Purchase Payments be refunded upon the
exercise of the Free Look Right. Allocation to the Sub-Account(s) designated by
the Owner would be made at the end of the "free look" inspection period. The
investment delay period would be measured from the date a Contract is issued
from the Variable Service Center. It would include up to 5 days to provide time
for mail or other delivery of the Contract to the Owner in addition to the
applicable "free look" inspection period. Should the Company elect to delay
investment start dates, it will so advise prospective investors in a Contract.
PURCHASE PAYMENTS
General Requirements. The Contracts are purchased under a flexible Purchase
Payment plan. The initial Purchase Payment is due on the Issue Date. The minimum
initial Purchase Payment is $20,000 for Non-Qualified Contracts. The minimum
initial Purchase Payment for Qualified Contracts is $2,000. The maximum
subsequent Purchase Payment is $1,000,000 and the minimum subsequent Purchase
Payment is $500 for Non-Qualified Contracts and $100 for Qualified Contracts.
The Company reserves the right to decline any Application or Purchase Payment.
Conversion to Accumulation Units. Purchase Payments allocated to the
Sub-Account(s) of the Separate Account are converted into Accumulation Units and
credited to a Contract on the basis of Accumulation Unit Value next determined
after receipt of a Purchase Payment. Calculations of Accumulation Unit Value for
each Sub-Account are made as of
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the end of each Business Day. This is done by dividing each Purchase Payment
allocated to a Sub-Account by the dollar value of an Accumulation Unit of that
Sub-Account as of the end of the Business Day. Initial Purchase Payments are
converted into Accumulation Units when a Contract is issued.
CONTRACT VALUE
The Contract Value of the Contract on any Business Day is the sum of the Owner's
interest in the Sub-Accounts of the Separate Account and in the Fixed Account.
The Owner's interest in a Sub-Account is determined by multiplying the number of
that Sub-Account's Accumulation Units by the value of an Accumulation Unit for
the Sub-Account.
Accumulation Unit Value. AUVs for each Valuation Period fluctuate to reflect
the performance of the Sub-Accounts. The AUV for a Sub-Account on any
Business Day is priced by the Company as follows:
- - The Accumulation Unit Value of the Sub-Account is based on the net asset
value per share of the underlying Portfolio.
- - Any applicable charge (or credit) for federal and state taxes attributable
to the Sub-Account is subtracted (or added).
- - The cumulative unpaid Mortality and Expense Risk Charge, and the
cumulative unpaid Administrative Charge is subtracted.
- - The result is divided by the total number of Accumulation Units held in
the Sub-Account, before the purchase or redemption of any Accumulation
Units at the end of the current Business Day.
The AUV for one Sub-Account may differ from the AUV of a different Sub-Account
and may increase or decrease from Business Day to Business Day.
Reports. The Company will provide the Owner with reports on Contract Value at
least annually. Additional reports may be requested by the Owner. The Company
reserves the right to impose a charge for the cost of providing any additional
reports, but does not currently do so.
OWNERSHIP
The Owner has all rights and may receive all benefits under the Contract. 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 owned 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
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favorable tax treatment under the provisions of Sections 401, 403(b), 408, 408A
or 457 of the Internal Revenue Code, it may not be assigned, pledged or
otherwise transferred except as may be allowed under applicable law.
BENEFICIARY
The Beneficiary is named in the forms provided by the Company, unless changed,
and 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.
DEATH BENEFIT PROVISIONS
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. The Death Benefit will be the
greater of:
(1) the Purchase Payments, less any withdrawals; or
(2) the Contract Value.
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.
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OWNERS OTHER THAN A SINGLE PERSON
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.
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
If all of the Contract Value on the seventh calendar day before the Annuity Date
is allocated to the Fixed 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 Fixed 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.
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 4% assumed investment rate. If the actual net investment rate exceeds
4% , Variable Annuity payments will increase. Conversely, if the actual rate is
less than 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 "Investment Options -- Transfers Among Investment Options
- - - During the Annuity Period." 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:
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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 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.
WITHDRAWALS
Before the Annuity Date, the Owner may make a written request to the Company at
its Variable Service Center to surrender the Contract or may request a partial
withdrawal of Withdrawal Value by written or telephone request. (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 Fixed Account Value in the ratio that the Sub-Account Value and/or the Fixed
Account Value bears to the total Contract Value. The Owner 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 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:
- - any applicable Annual Contract Maintenance Charge; and
- - any applicable taxes not previously deducted.
PARTIAL WITHDRAWALS
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 Fixed Account. The
remaining value in each Sub-Account or the Fixed Account from which a partial
withdrawal is requested must be at least $1,000 after the partial withdrawal is
completed.
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SYSTEMATIC WITHDRAWALS
Subject to any conditions and fees the Company may impose, an Owner may elect to
take partial withdrawals under a systematic withdrawal program by either written
or telephone request. (See "Telephone Transactions.") The Company does not
currently impose a fee for systematic withdrawals. Amounts withdrawn under the
program will be subject to a Withdrawal Charge to the extent that total amounts
withdrawn during a Contract Year exceed the Free Withdrawal Amount. (See
"Withdrawal Charge--Free Withdrawal Amount.")
Under the program, systematic withdrawals are made on the same day (or next
Business Day) of each month or quarter. 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). Systematic
withdrawals are not allowed simultaneously with the dollar cost averaging
program. (See "Systematic Transfers--Dollar Cost Averaging.") Owners less than
59-1/2 who participate in this program may be subject to a 10% penalty tax
surcharge. (See "Tax Considerations -- Withdrawals from Non-Qualified Contracts"
and "Tax Considerations -- Withdrawals from Qualified Contracts.")
The Company reserves the right to modify, suspend or eliminate the program at
any time.
TAX PENALTIES AND RESTRICTIONS
Certain tax withdrawal penalties and restrictions may apply to withdrawals
from a Contract. The withdrawal penalties and restrictions differ between a
Non-Qualified Contract and a Qualified Contract. (See "Tax Considerations.")
Special restrictions apply to a Qualified Contract issued as a 403(b)
annuity. (See "Tax Considerations--Withdrawal Limitations on 403(b)
Annuities.")
Owners should consult their own tax counsel or other tax adviser before
requesting any withdrawals.
TEXAS OPTIONAL RETIREMENT PROGRAM.
A Contract issued to a participant in the Texas Optional Retirement Program
("ORP") will contain an ORP endorsement that will amend the Contract 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.
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The Company reserves the right to defer payment for a withdrawal or transfer
from the Fixed Account for the period permitted by law but not for more than six
months after written election is received by the Company.
PERFORMANCE INFORMATION
FEDERATED PRIME MONEY FUND II PORTFOLIO
From time to time, the Federated 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 Federated Prime Money Fund II Sub-Account refers
to the income generated by Contract Values in the Federated 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 Federated 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.
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
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, 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 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 500 Stock 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 Stock 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.
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The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Atlanta and published by Financial
Planning Resources, Inc. The VARDS rankings may or may not reflect the deduction
of asset-based insurance charges.
TAX CONSIDERATIONS
GENERAL
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN CERTAIN SITUATIONS.
MOREOVER, NO ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX
LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment or as annuity payments under the Annuity
Option selected. For a lump sum payment received as a total withdrawal (total
surrender), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable 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 equal 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 Advisor 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.
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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 as 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, 408A 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 includable 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 includable in gross
income (i.e. return of after-tax contributions). Participants should consult
their own tax counsel or other tax adviser regarding withholding requirements.
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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 includable 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.")
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. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts 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.") 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 includable 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,
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nondiscrimination and withdrawals. (See "Tax Treatment of Withdrawals --
Qualified Contracts" and "Tax Sheltered Annuities.") Any employee should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
Traditional IRAs and Roth IRAs. Eligible individuals may maintain: (a) an
individual retirement account or individual retirement annuity under section 408
of the Code ("Traditional IRA"); and (b) for tax years starting after 1997, a
non-tax deductible individual retirement account or individual retirement
annuity under section 408A of the Code ("Roth IRA"). Under applicable
limitations, amounts may be contributed to a Traditional IRA which will be
deductible from the individual's gross income. The amounts permitted to be
contributed to a Traditional IRA may be reduced if an individual also
contributes to a Roth IRA.
Traditional IRAs and Roth IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. Under certain conditions,
distributions from other IRAs and other Qualified Plans may be rolled over or
transferred on a tax-deferred basis into a Traditional IRA. Rollovers may also
be made to a Roth IRA, but only from a Traditional IRA or from another Roth IRA.
Rollovers from a Traditional IRA to a Roth IRA are subject to immediate federal
income taxation, but may qualify for special four year income recognition rules
if the transaction occurs in 1998.
Additional informational disclosure will be given by the Company for sales of
Contracts intended to be used with either a Traditional IRA or a Roth IRA, as
required by the Code. Purchasers of a Contracts intended to be qualified as
either a Traditional IRA or a Roth IRA 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 includable 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 includable 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 (other than a "qualified
distribution" from a Roth IRA), 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. A "qualified
distribution" from a Roth IRA is generally not subject to federal income
taxation, but can only be made after the assets have been in the Roth IRA for 5
years and the Owner: (a) reaches age 591/2; (b) dies or is disabled (as defined
in section 72(m)(7) of the Code); or (c) takes a qualified first-time homebuyer
distribution (as defined in section 72(t)(8) of the Code). Special tax rules may
be available for certain other distributions from a Qualified Contract.
The taxable portion of any distribution from a qualified retirement plan may be
subject to a 10% penalty tax under section 72(t) of the Code. This penalty tax
could apply to withdrawals from a Contract issued and qualified under Code
sections 401 (H.R. 10 and Corporate Pension and Profit-Sharing Plans), 403(b)
(Tax-Sheltered Annuities), 408 (Traditional IRAs) or 408A (Roth IRAs -
"nonqualified distributions" only). It is not imposed on: (a) qualified
rollovers or permitted direct transfers to a Traditional IRA, a Roth IRA, or to
another eligible qualified plan; (b) distributions made on or after the date on
which the Owner or Annuitant (as applicable) reaches age 591/2; (c)
distributions following the death or disability (as defined in section 72(m)(7)
of the Code) of the Owner or Annuitant (as applicable); (d) 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
30
<PAGE> 31
joint life expectancies) of such Owner or Annuitant (as applicable) and his or
her designated Beneficiary (Qualified Plans other than Traditional IRAs and Roth
IRAs require the employee to be separated from service for this exception to
apply); (e) distributions to an Owner or Annuitant (as applicable) who has
separated from service after he has attained age 55; (f) distributions made to
the Owner or Annuitant (as applicable) for payment of medical expenses which
exceed 7.5% of adjusted gross income; (g) distributions made to an alternate
payee pursuant to a qualified domestic relations order; (h) distributions from a
Traditional IRA or from a Roth IRA for payment of health insurance premiums
while unemployed if certain conditions are met; (i) amounts paid from a
Traditional IRA and Roth IRA for qualified higher education expenses (as defined
in section 72(t)(7) of the Code); and (j) amounts paid from a Traditional IRA or
Roth IRA as a qualified first-time homebuyer distribution (as defined in section
72(t)(8) of the Code). The exceptions stated in (e) and (g) above do not apply
to a Traditional IRA or to a Roth IRA.
Generally, distributions from a qualified plan (other than a Roth IRA) are
required to start no later than April 1 of the calendar year, following the year
in which the employee attains age 701/2 or retires, whichever is later. These
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 any required minimum distributions are not
made, a 50% penalty tax is imposed on the amount not distributed.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (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.
OTHER MATTERS
FINANCIAL STATEMENTS
Financial statements of the Company and the Separate Account have been included
in the Statement of Additional Information.
DISTRIBUTION
First Variable Capital Services, Inc. ("FVCS"), 2122 York Road, Oak Brook, IL
60523, 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
1.2% of Purchase Payments and a trail commission each year in the amount of 1%
of Contract Value beginning in the 13th month after the Issue Date.
Broker-dealers may also receive expense allowances, wholesaler fees, bonuses and
training fees.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Separate Account,
the Distributor or the Company is a party.
31
<PAGE> 32
TRANSFERS BY THE COMPANY
The Company may, subject to applicable regulatory approvals and various state
statutes, transfer its obligations under the Contracts to another qualified life
insurance company under an assumption reinsurance arrangement without the prior
consent of the Owner.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will vote the
shares of 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.
The Funds' shares are used as the investment vehicle for separate accounts of
insurance companies offering variable annuity contracts and variable life
insurance policies. The use of Funds' shares as investments for both variable
annuity contracts and variable life insurance policies is referred to as "mixed
funding." The use of Funds' shares as investments by separate accounts of
unaffiliated life insurance companies is referred to as "shared funding."
The Funds intend to engage in mixed funding and/or shared funding. Although the
Funds do not currently foresee any disadvantage to Contract owners due to
differences in redemption rates, tax treatment, or other considerations
resulting from mixed funding or shared funding, the Trustees of the Funds will
closely monitor the operation of mixed funding and shared funding and will
consider appropriate action to avoid material conflict and take appropriate
action in response to any material conflicts which occur.
The number of shares which an Owner has a right to vote will be determined as of
a date to be chosen by the Company not more than sixty (60) days prior to a
shareholder meeting of a Fund. Each Owner having a voting interest will receive
proxy material, reports, and other materials relating to the appropriate
Portfolio.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
ITEM PAGE
- ---- ----
Company.............................................................
Independent Auditors................................................
Legal Counsel.......................................................
Distributor.........................................................
Yield Calculation for Federated Prime Money Fund II Sub-Account.....
Performance Information.............................................
Annuity Provisions..................................................
Variable Annuity..................................................
Fixed Annuity.....................................................
Annuity Unit......................................................
Mortality and Expense Guarantee...................................
Financial Statements................................................
32
<PAGE> 33
PART B
33
<PAGE> 34
STATEMENT OF ADDITIONAL INFORMATION
CAPITAL NO LOAD
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, 1998 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 2122 YORK ROAD, OAK BROOK, IL 60523, (800) 228-1035.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1998.
TABLE OF CONTENTS
Page
Company.................................................................
Independent Auditors....................................................
Legal Counsel...........................................................
Distributor.............................................................
Yield Calculation For Federated Prime Money Fund II Sub-Account.........
Performance Information.................................................
Annuity Provisions......................................................
Variable Annuity......................................................
Fixed Annuity.........................................................
Annuity Unit..........................................................
Mortality and Expense Guarantee.......................................
Financial Statements....................................................
34
<PAGE> 35
COMPANY
Information regarding the Company and its ownership is contained in the
Prospectus.
INDEPENDENT AUDITORS
The consolidated financial statements of First Variable Life Insurance Company
at December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997 and the financial statements of First Variable Life
Insurance Company -- First Variable Annuity Fund E at December 31, 1997 and 1996
and for each of the years then ended appearing in this Statement of Additional
Information have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
LEGAL COUNSEL
Legal matters in connection with the Contracts have been reviewed by the
Company's Legal Department. Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut, has advised the Company 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 FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
The Federated 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, 1997, the annualized
yield for the Federated Prime Money Fund II Sub-Account was 3.89% and the
effective yield was 3.96%.
The current yield of the Federated 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 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 Federated 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 Federated 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
Federated 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 Federated Prime Money Fund II Sub-Account and
changes in the interest rates on such investments, but also on changes in the
Federated Prime Money Fund II Sub-Account's expenses during the period.
Yield information may be useful in reviewing the performance of the Federated
Prime Money Fund II Sub-Account and for providing a basis for comparison with
other investment alternatives. However, the Federated Prime Money Fund II
Sub-Account's yield fluctuates, unlike bank deposits or other investments which
typically pay a fixed yield for a stated period of time.
35
<PAGE> 36
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 .25%
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) n] = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of n years (or fractional
portion thereof) of the hypothetical initial $1,000 payment.
The annualized total returns as of December 31, 1997 and for one year and the
life of the Portfolio in each Sub-Account are listed below:
<TABLE>
<CAPTION>
One Life of
Year Portfolio
---- ---------
<S> <C> <C>
VIST Small Cap Growth (inception 11/1/95) (0.82)% 12.45%
VIST World Equity (inception 11/1/95) 8.31% 9.89%
VIST Growth (inception 11/1/95) 21.74% 21.64%
VIST Matrix Equity (inception 11/1/95) 20.20% 13.44%
VIST Growth & Income (inception 11/1/95) 26.25% 19.90%
VIST Multiple Strategies (inception 11/1/95) 19.11% 17.13%
VIST High Income Bond (inception 11/1/95) 11.81% 12.02%
VIST U.S. Government Bond (inception 11/1/95) 7.70% 3.29%
Federated Prime Money Fund II 3.33% 3.29%
</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 Federated 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:
( 6 )
((a-b ) )
YIELD = 2 ((---+1)-1)
((cd ) )
Where:
a = Net investment income earned during the period by the
Portfolio attributable to shares owned by the Sub-Account.
b = Expenses accrued for the period (net of reimbursements).
36
<PAGE> 37
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, 1997 was 6.45%.
The High Income Bond Sub-Account of the Separate Account yield for the period
ended December 31, 1997 was 7.42%.
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 preceding 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 Fixed Account Value on the
day immediately preceding the Annuity Date will be used to determine the Fixed
Annuity monthly payment. The first monthly Annuity Payment will be based upon
the Annuity Option elected and the appropriate Annuity Option Table.
ANNUITY UNIT
The value of an Annuity Unit for each Sub-Account was arbitrarily set initially
at $10.
The Sub-Account Annuity Unit Value at the end of any subsequent Valuation Period
is determined by subtracting (2) from (1) and dividing the result by (3) and
multiplying the result by a factor which neutralizes the assumed investment rate
of 4% contained in the Annuity Tables where:
1. is the net result of:
37
<PAGE> 38
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 consolidated 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.
38
<PAGE> 39
FINANCIAL STATEMENTS
FIRST VARIABLE LIFE INSURANCE COMPANY--FIRST VARIABLE ANNUITY FUND E
Year ended December 31, 1997
39
<PAGE> 40
Report of Independent Auditors
To the Board of Directors of First Variable Life Insurance Company and Contract
Owners of First Variable Annuity Fund E
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of First Variable Life Insurance Company--First Variable Annuity
Fund E as of December 31, 1997, and the related statement of operations for the
year then ended, and the statements of changes in contract owners' equity 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,
1997 by correspondence with Variable Investors Series Trust and Federated
Investors. 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, 1997, the results of its
operations for the year then ended, and the changes in its contract owners'
equity for each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
January 30, 1998
40
<PAGE> 41
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statement of Assets, Liabilities and Contract Owners' Equity
December 31, 1997
<TABLE>
<CAPTION>
HIGH
FEDERATED INCOME MULTIPLE MATRIX
PRIME MONEY GROWTH BOND STRATEGIES EQUITY
TOTAL FUND II DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in Variable
Investors Series Trust, at value
(cost $157,495,300) $160,779,198 $32,327,329 $16,447,907 $31,246,423 $13,234,079
Investments in Federated Prime
Money Fund II, at value (cost
$9,770,610) 9,770,610 $9,770,610
Receivable from First Variable
Life Insurance Company 249,590 7,993 9,466 2,665
-----------------------------------------------------------------------------
Total $170,799,398 $9,770,610 $32,335,322 $16,457,373 $31,246,423 $13,236,744
=============================================================================
LIABILITIES
Payable to First Variable Life
Insurance Company $ 478,193 $ 433,783 $ 5,947
CONTRACT OWNERS' EQUITY
Annuity contracts in payment
period 225,801 208,420 $ 17,381
Variable annuity contract
owners' equity 170,095,404 9,128,407 32,317,941 $16,457,373 31,240,476 $13,236,744
-----------------------------------------------------------------------------
Total contract owners' equity 170,321,205 9,336,827 32,335,322 16,457,373 31,240,476 13,236,744
-----------------------------------------------------------------------------
Total liabilities and contract
owners' equity $170,799,398 $9,770,610 $32,335,322 $16,457,373 $31,246,423 $13,236,744
=============================================================================
<CAPTION>
U.S.
GOVERNMENT WORLD GROWTH & SMALL CAP
BOND EQUITY INCOME GROWTH
DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in Variable
Investors Series Trust, at value
(cost $157,495,300) $7,664,271 $22,731,833 $19,997,892 $17,129,464
Investments in Federated Prime
Money Fund II, at value (cost
$9,770,610)
Receivable from First Variable
Life Insurance Company 104,296 33,359 91,811
-------------------------------------------------
Total $7,768,567 $22,765,192 $19,997,892 $17,221,275
=================================================
LIABILITIES
Payable to First Variable Life
Insurance Company $ 38,463
CONTRACT OWNERS' EQUITY
Annuity contracts in payment
period
Variable annuity contract
owners' equity $7,768,567 $22,765,192 19,959,429 $17,221,275
-------------------------------------------------
Total contract owners' equity 7,768,567 22,765,192 19,959,429 17,221,275
-------------------------------------------------
Total liabilities and contract
owners' equity $7,768,567 $22,765,192 $19,997,892 $17,221,275
=================================================
See accompanying notes.
</TABLE>
41
<PAGE> 42
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
HIGH
FEDERATED INCOME MULTIPLE MATRIX
PRIME MONEY GROWTH BOND STRATEGIES EQUITY
TOTAL FUND II DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 16,128,261 $ 549,817 $ 2,681,583 $ 1,089,150 $ 2,555,548 $ 3,066,563
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative
charges 2,281,170 135,461 432,735 209,175 422,962 181,787
-----------------------------------------------------------------------------
Net investment income 13,847,091 414,356 2,248,848 879,975 2,132,586 2,884,776
Realized and unrealized gain (loss)
on investments:
Realized gain on Variable
Investors Series Trust
shares redeemed 8,899,088 3,302,662 472,791 2,381,747 686,314
Net unrealized appreciation
(depreciation) on
investments during the year (1,368,372) 219,193 222,004 635,135 (1,296,817)
-----------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 7,530,716 3,521,855 694,795 3,016,882 (610,503)
-----------------------------------------------------------------------------
Net increase in contract owners'
equity resulting from operations $ 21,377,807 $ 414,356 $ 5,770,703 $ 1,574,770 $ 5,149,468 $ 2,274,273
=============================================================================
<CAPTION>
U.S.
GOVERNMENT WORLD GROWTH & SMALL CAP
BOND EQUITY INCOME GROWTH
DIVISION DIVISION DIVISION DIVISION
----------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $ 498,552 $ 3,418,816 $ 1,670,966 $ 597,266
Expenses:
Fees paid to First Variable Life
Insurance Company:
Risk and administrative
charges 101,837 329,434 227,411 240,368
-------------------------------------------------
Net investment income 396,715 3,089,382 1,443,555 356,898
Realized and unrealized gain (loss)
on investments:
Realized gain on Variable
Investors Series Trust
shares redeemed 15,441 978,969 585,338 475,826
Net unrealized appreciation
(depreciation) on
investments during the year 115,355 (2,246,616) 1,514,112 (530,738)
-------------------------------------------------
Net realized and unrealized gain
(loss) on investments 130,796 (1,267,647) 2,099,450 (54,912)
-------------------------------------------------
Net increase in contract owners'
equity resulting from operations $ 527,511 $ 1,821,735 $ 3,543,005 $ 301,986
=================================================
</TABLE>
See accompanying notes.
42
<PAGE> 43
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statements of Changes in Contract Owners' Equity
Periods ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
FEDERATED
PRIME MONEY CASH MANAGEMENT
TOTAL FUND II DIVISION
1997 1996 1997(1) 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 13,847,091 $ 6,267,369 $ 414,356 $ $ 344,963
---------------------------------------------------------------------
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 8,899,088 8,170,635
Net unrealized depreciation
(appreciation) on investments
during the period (1,368,372) (1,058,566)
---------------------------------------------------------------------
Net increase in contract owners'
equity resulting from operations 21,377,807 13,379,438 414,356 0 344,963
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale and transfer
of accumulation units 29,757,747 34,399,440 12,489,583 (6,961,706) 10,564,557
Cost of accumulation units
terminated and exchanged (18,690,446) (7,267,908) (3,567,112) 0 (12,228,761)
---------------------------------------------------------------------
Increase (decrease) in contract
owners' equity from contract
owner transactions 11,067,301 27,131,532 8,922,471 (6,961,706) (1,664,204)
---------------------------------------------------------------------
Increase (decrease) in contract
owners' equity 32,445,108 40,510,970 9,336,827 (6,961,706) (1,319,241)
Contract owners' equity at
beginning of period 137,876,097 97,365,127 0 6,961,706 8,280,947
---------------------------------------------------------------------
Contract owners' equity at end of
period $170,321,205 $137,876,097 $9,336,827 $ 0 $ 6,961,706
=====================================================================
<CAPTION>
GROWTH HIGH INCOME MULTIPLE STRATEGIES
DIVISION BOND DIVISION DIVISION
1997 1996 1997 1996 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 2,248,848 $ 1,228,358 $ 879,975 $ 631,296 $ 2,132,586 $ 2,634,292
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 3,302,662 2,738,627 472,791 390,298 2,381,747 2,254,416
Net unrealized depreciation
(appreciation) on investments
during the period 219,193 335,516 222,004 42,516 635,135 (1,259,021)
------------------------------------------------------------------------------------
Net increase in contract owners'
equity resulting from operations 5,770,703 4,302,501 1,574,770 1,064,110 5,149,468 3,629,687
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale and transfer
of accumulation units 4,963,450 3,593,917 2,901,716 2,454,662 3,127,507 3,358,539
Cost of accumulation units
terminated and exchanged (4,311,406) 2,067,637 82,682 804,489 (4,191,961) (1,446,981)
------------------------------------------------------------------------------------
Increase (decrease) in contract
owners' equity from contract
owner transactions 652,044 5,661,554 2,984,398 3,259,151 (1,064,454) 1,911,558
------------------------------------------------------------------------------------
Increase (decrease) in contract
owners' equity 6,422,747 9,964,055 4,559,168 4,323,261 4,085,014 5,541,245
Contract owners' equity at
beginning of period 25,912,575 15,948,520 11,898,205 7,574,944 27,155,462 21,614,217
------------------------------------------------------------------------------------
Contract owners' equity at end of
period $32,335,322 $25,912,575 $16,457,373 $11,898,205 $31,240,476 $27,155,462
====================================================================================
</TABLE>
(1) From commencement of operations, January 2, 1997
43
<PAGE> 44
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statements of Changes in Contract Owners' Equity (continued)
Periods ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
MATRIX EQUITY U.S. GOVERNMENT WORLD EQUITY
DIVISION BOND DIVISION DIVISION
1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 2,884,776 $ 735,082 $ 396,715 $ 478,323 $ 3,089,382 $ 313,885
Realized gain (loss) on Variable
Investors Series Trust shares
redeemed 686,314 227,868 15,441 (80,014) 978,969 1,545,356
Net unrealized appreciation
(depreciation) on investments
during the period (1,296,817) (600,941) 115,355 (320,136) (2,246,616) 26,985
-----------------------------------------------------------------------------
Net increase in contract owners'
equity resulting from operations 2,274,273 362,009 527,511 78,173 1,821,735 1,886,226
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale and transfer
of accumulation units 1,033,568 1,335,852 664,812 816,878 2,087,308 3,279,713
Cost of accumulation units
terminated and exchanged (2,700,078) (2,515,452) (1,034,432) (1,357,965) (2,919,066) 1,330,357
-----------------------------------------------------------------------------
(Decrease) increase in contract
owners' equity from contract
owner transactions (1,666,510) (1,179,600) (369,620) (541,087) (831,758) 4,610,070
-----------------------------------------------------------------------------
Increase (decrease) in contract
owners' equity 607,763 (817,591) 157,891 (462,914) 989,977 6,496,296
Contract owners' equity at
beginning of period 12,628,981 13,446,572 7,610,676 8,073,590 21,775,215 15,278,919
-----------------------------------------------------------------------------
Contract owners' equity at end of
period $13,236,744 $12,628,981 $ 7,768,567 $ 7,610,676 $22,765,192 $21,775,215
=============================================================================
</TABLE>
44
<PAGE> 45
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statements of Changes in Contract Owners' Equity (continued)
Periods ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
GROWTH & SMALL CAP GROWTH
INCOME DIVISION DIVISION
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 1,443,555 $ (14,266) $ 356,898 $ (84,564)
Realized gain (loss) on Variable Investors Series
Trust shares redeemed 585,338 208,000 475,826 886,084
Net unrealized appreciation (depreciation) on
investments during the period 1,514,112 133,352 (530,738) 583,163
----------------------------------------------------------------
Net increase in contract owners' equity resulting
from operations 3,543,005 327,086 301,986 1,384,683
FROM CONTRACT OWNER TRANSACTIONS
Net proceeds from sale and transfer of accumulation
units 4,199,159 3,544,556 5,252,350 5,450,766
Cost of accumulation units terminated and exchanged 1,942,466 3,068,222 (1,991,539) 3,010,546
----------------------------------------------------------------
Increase (decrease) in contract owners' equity from
contract owner transactions 6,141,625 6,612,778 3,260,811 8,461,312
----------------------------------------------------------------
Increase (decrease) in contract owners' equity 9,684,630 6,939,864 3,562,797 9,845,995
Contract owners' equity at beginning of period 10,274,799 3,334,935 13,658,478 3,812,483
----------------------------------------------------------------
Contract owners' equity at end of period $19,959,429 $10,274,799 $17,221,275 $13,658,478
================================================================
</TABLE>
See accompanying notes.
45
<PAGE> 46
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements
December 31, 1997
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). Eight of the nine investment divisions of the Fund are invested
solely in the shares of the eight 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. The remaining
investment division, formerly the Cash Management Division of the Trust, is
invested in the Federated Prime Money Fund II (Federated), a portfolio of
Federated Insurance Series Trust, an open end management investment company.
First Variable Life liquidated its investment in the Cash Management Division on
January 2, 1997. 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.
During 1997, the Tilt Utility Division, the Common Stock Division and the Small
Cap Division were renamed the Matrix Equity Division, the Growth Division and
the Small Cap Growth Division, respectively.
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 and Federated are stated at the net asset
value per share of the respective portfolios of the Trust and Federated.
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 and Federated are reinvested in additional shares of the Trust and
Federated and are recorded as income by the Fund on the ex-dividend date.
FEDERAL INCOME TAXES
For federal income tax purposes, operations of the Fund are combined with those
of First Variable Life, which is taxed as a life insurance company. First
Variable Life anticipates no tax liability resulting from the operations of the
Fund. Therefore, no provision for income taxes has been charged against the
Fund.
46
<PAGE> 47
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
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 and Federated at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF NET ASSET
SHARES COST VALUE
-------------------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II 9,770,610 $ 9,770,610 $ 9,770,610
Growth Portfolio 931,561 29,804,530 32,327,329
High Income Bond Portfolio 1,692,156 16,256,299 16,447,907
Multiple Strategies Portfolio 2,207,044 30,620,573 31,246,423
Matrix Equity Portfolio 927,053 13,803,283 13,234,079
U.S. Government Bond Portfolio 754,283 7,858,059 7,664,271
World Equity Portfolio 1,613,971 23,841,255 22,731,833
Growth & Income Portfolio 1,372,792 18,306,052 19,997,892
Small Cap Growth Portfolio 1,099,591 17,005,249 17,129,464
--------------------------------
Totals $167,265,910 $170,549,808
================================
</TABLE>
47
<PAGE> 48
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
4. VARIABLE ANNUITY CONTRACT OWNERS' EQUITY
Variable annuity contract owners' equity at December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
ACCUMULATION UNIT
ACCUMULATION UNITS VALUE EQUITY
---------------------------------------------------
<S> <C> <C> <C>
POLICY FORMS 7500.1, 7600.1, 7700 AND 7750
Federated Prime Money Fund II Division 147,093 15.411 $ 2,271,265
Growth Division 215,323 33.180 7,144,422
High Income Bond Division 74,227 25.666 1,905,106
Multiple Strategies Division 247,419 29.142 7,210,174
Matrix Equity Division 82,498 31.478 2,596,877
U.S. Government Bond Division 165,909 20.490 3,399,484
World Equity Division 147,145 19.575 2,880,366
Growth & Income Division 37,311 15.748 587,580
Small Cap Growth Division 26,117 16.207 423,282
------------
Subtotal 28,418,556
POLICY FORMS 7800 AND 20224
Federated Prime Money Fund II Division 473,138 12.473 5,901,446
Growth Division 912,776 25.789 23,539,580
High Income Bond Division 638,293 20.500 13,085,001
Multiple Strategies Division 945,042 24.276 22,941,833
Matrix Equity Division 419,489 24.007 10,070,670
U.S. Government Bond Division 21,356 16.677 3,658,196
World Equity Division 1,075,464 17.632 18,962,586
Growth & Income Division 1,090,951 15.687 17,113,746
Small Cap Growth Division 950,578 16.145 15,347,075
------------
Subtotal 130,620,133
</TABLE>
48
<PAGE> 49
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
4. VARIABLE ANNUITY CONTRACT OWNERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
ACCUMULATION UNIT
ACCUMULATION UNITS VALUE EQUITY
-----------------------------------------------------
<S> <C> <C> <C>
POLICY FORM 20230
Federated Prime Money Fund II Division 89,012 10.737 $ 955,696
Growth Division 106,747 15.307 1,633,939
High Income Bond Division 114,612 12.802 1,467,266
Multiple Strategies Division 77,185 14.102 1,088,469
Matrix Equity Division 43,262 13.157 569,197
U.S. Government Bond Division 63,534 11.189 710,887
World Equity Division 75,107 12.279 922,240
Growth & Income Division 152,215 14.835 2,258,103
Small Cap Growth Division 112,396 12.909 1,450,918
------------
Subtotal 11,056,715
------------
Total $170,095,404
============
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of Trust and Federated shares by the
Fund during the year ended December 31, 1997 are shown below:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------
<S> <C> <C>
Federated Prime Money Fund II Portfolio $ 43,340,570 $ 40,543,123
Growth Portfolio 16,166,022 13,273,239
High Income Bond Portfolio 12,889,027 9,034,988
Multiple Strategies Portfolio 12,747,892 11,675,350
Matrix Equity Portfolio 5,001,635 3,786,195
U.S. Government Bond Portfolio 2,224,927 2,302,372
World Equity Portfolio 9,908,153 7,685,634
Growth & Income Portfolio 10,933,908 3,311,117
Small Cap Growth Portfolio 12,808,151 9,279,273
------------------------------
Totals $126,020,285 $100,891,291
============ ============
</TABLE>
49
<PAGE> 50
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, 1997 was $2,281,170.
7. DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
annuity contract, other than a contract issued in connection with certain types
of employee benefits plans, will not be treated as an annuity contract for
federal tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
Treasury.
The Internal Revenue Service has issued regulations under section 817(h) of the
Code. First Variable Life believes that the Fund satisfies the current
requirements of the regulations, and it intends that the Fund will continue to
meet such requirements.
8. PRINCIPAL UNDERWRITER AND GENERAL DISTRIBUTOR
First Variable Capital Services, Inc., a wholly-owned subsidiary of First
Variable Life, is principal underwriter and general distributor of the contracts
issued through the Fund.
9. YEAR 2000 ISSUES (UNAUDITED)
Like other investment funds and financial and business organizations around the
world, the Fund could be adversely affected if the computer systems of First
Variable Life and those of its service providers do not properly process and
calculate date-related information and data from and after January 1, 2000.
First Variable Life has completed an assessment of the Year 2000 impact on its
systems, procedures, customers and business processes. At December 31, 1997,
management of First Variable Life is satisfied that their main operating systems
are Year 2000 compliant. First Variable Life is reviewing its general office
systems and will be contacting its service providers during 1998. First Variable
Life believes it will complete the Year 2000 project not later than December 31,
1998, which is prior to any anticipated impact on its operating systems.
The date on which First Variable Life believes it will complete the Year 2000
project is based on its management's best estimates. Although there can be no
guarantee that these estimates will be achieved, its management does not at this
time believe that actual results will differ materially from those anticipated.
Specific factors that might cause such material differences would most likely
result from First Variable Life's service providers.
50
<PAGE> 51
REPORT OF 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, 1997 and 1996, and the
related consolidated statements of income, changes in stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
51
<PAGE> 52
First Variable Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities-available-for-sale, at
fair value (amortized cost:
1997-$274,439,000; 1996-$278,305,000) $294,961,000 $294,195,000
Option contracts 1,057,000 94,000
Equity securities-available-for-sale, at
fair value (cost: $684,000 in 1997 and 1996) 825,000 691,000
Policy loans 267,000 --
------------------------------
Total investments 297,110,000 294,980,000
Cash and cash equivalents 3,029,000 2,433,000
Accrued investment income 5,744,000 5,636,000
Deferred policy acquisition costs 7,520,000 5,486,000
Value of insurance in force acquired (Note 4) 16,939,000 19,494,000
Property and equipment, less allowances for depreciation
of $773,000 in 1997 and $508,000 in 1996 445,000 649,000
Goodwill, less accumulated amortization of $475,000
in 1997 and $329,000 in 1996 2,448,000 2,594,000
Other assets 732,000 2,273,000
Assets held in separate accounts 219,807,000 176,306,000
------------------------------
Total assets $553,774,000 $509,851,000
==============================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for annuity and life products $233,988,000 $239,509,000
Unearned revenue reserve 282,000 52,000
Supplementary contracts without life contingencies 21,711,000 21,008,000
Deferred income tax liability (Note 5) 6,692,000 5,642,000
Other liabilities 2,837,000 938,000
Liabilities related to separate accounts 219,807,000 176,306,000
------------------------------
Total liabilities 485,317,000 443,455,000
Commitments and contingencies (Note 8)
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 (Note 3) 9,066,000 7,324,000
Retained earnings 3,787,000 3,468,000
------------------------------
Total stockholder's equity 68,457,000 66,396,000
------------------------------
Total liabilities and stockholder's equity $553,774,000 $509,851,000
==============================
</TABLE>
See accompanying notes.
52
<PAGE> 53
First Variable Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Revenues:
Annuity and life product charges $ 3,141,000 $ 2,408,000 $ 1,786,000
Net investment income 22,597,000 23,458,000 23,465,000
Realized gains on investments 1,227,000 972,000 900,000
Other income 1,368,000 1,114,000 829,000
---------------------------------------------
Total revenues 28,333,000 27,952,000 26,980,000
Benefits and expenses:
Annuity and life benefits 14,856,000 16,336,000 16,694,000
Underwriting, acquisition and insurance
expenses 9,915,000 7,275,000 6,600,000
Management fee paid to parent 480,000 480,000 480,000
Other expenses 2,610,000 1,421,000 1,269,000
---------------------------------------------
Total benefits and expenses 27,861,000 25,512,000 25,043,000
---------------------------------------------
Income before income taxes 472,000 2,440,000 1,937,000
Income taxes 153,000 836,000 666,000
---------------------------------------------
Net income $ 319,000 $ 1,604,000 $ 1,271,000
=============================================
</TABLE>
See accompanying notes.
53
<PAGE> 54
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>
Balance at January 1, 1995 $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
Net income for 1997 -- -- -- 319,000 319,000
Change in net unrealized
investment gains/losses -- -- 1,742,000 -- 1,742,000
---------------------------------------------------------------------------------
Balance at December 31, 1997 $2,500,000 $53,104,000 $ 9,066,000 $ 3,787,000 $68,457,000
=================================================================================
</TABLE>
See accompanying notes.
54
<PAGE> 55
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 319,000 $ 1,604,000 $ 1,271,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Adjustments related to interest-sensitive
products:
Annuity benefits 14,856,000 16,336,000 16,694,000
Annuity product charges (3,141,000) (2,408,000) (1,786,000)
Realized gains on investments (1,227,000) (972,000) (900,000)
Policy acquisition costs deferred (3,208,000) (2,800,000) (3,693,000)
Amortization of deferred policy acquisition costs 594,000 360,000 132,000
Provision for depreciation and other amortization 937,000 524,000 481,000
Provision for deferred income taxes 153,000 836,000 666,000
Other 3,560,000 (1,949,000) (6,765,000)
-----------------------------------------------
Net cash provided by operating activities 12,843,000 11,531,000 6,100,000
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities-available-for-sale 24,657,000 21,770,000 19,378,000
Equity securities -- -- 1,807,000
-----------------------------------------------
24,657,000 21,770,000 21,185,000
Acquisition of investments:
Fixed maturities-available-for-sale (19,142,000) (7,517,000) (74,567,000)
Equity securities -- -- (1,500,000)
Option contracts (963,000) (94,000) --
-----------------------------------------------
(20,105,000) (7,611,000) (76,067,000)
Policy loans and other (267,000) (193,000) (252,000)
-----------------------------------------------
Net cash provided (used) by investing activities 4,285,000 13,966,000 (55,134,000)
</TABLE>
55
<PAGE> 56
First Variable Life Insurance Company
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Receipts from interest-sensitive products credited
to policyholder account balances $ 64,181,000 $ 58,175,000 $ 67,063,000
Return of policyholder account balances on
interest-sensitive products (80,713,000) (86,824,000) (72,196,000)
Contribution from parent -- -- 5,000,000
--------------------------------------------------
Net cash used in financing activities (16,532,000) (28,649,000) (133,000)
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents 596,000 (3,152,000) (49,167,000)
Cash and cash equivalents at beginning of year 2,433,000 5,585,000 54,752,000
--------------------------------------------------
Cash and cash equivalents at end of year $ 3,029,000 $ 2,433,000 $ 5,585,000
==================================================
</TABLE>
See accompanying notes.
56
<PAGE> 57
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1997
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 and variable universal life products through regional
wholesalers and insurance brokers.
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, 1997 and 1996, 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.
57
<PAGE> 58
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Option contracts are carried at unamortized premium paid for the contract
adjusted for increases in their intrinsic value from increases in the S&P 500
index.
Policy loans are carried at unpaid principal balances.
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 designated as available for sale and are
reported at fair value. The change in unrealized gain and loss of 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 write-down 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
write-down 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.
58
<PAGE> 59
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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%.
For variable universal life insurance and investment products, 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 indications 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 write-downs during the periods
ended December 31, 1997, 1996 or 1995.
59
<PAGE> 60
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE POLICY BENEFITS
Future policy benefit reserves for annuity and variable universal life 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 1997 and 1996, and 4.5% to 6.8% in 1995.
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 related asset or liability from period to period.
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 and variable universal life 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.
60
<PAGE> 61
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Approximately 42%, 68% and 49% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1997, 1996 and 1995,
respectively, were written through three wholesalers. 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.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (SFAS 130), which is effective for years beginning after December 15,
1997. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 will require that enterprises (a) classify items
of other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS 130 will not have any impact on the Company's consolidated
results of operations, financial position or cash flows.
61
<PAGE> 62
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.
Option Contracts: The fair values for option contracts are based on
settlement values, quoted market prices of comparable instruments and
fees currently charged to enter into similar loans offered to borrowers
with similar credit ratings. Similar characteristics are aggregated for
the purposes of the calculations.
Equity Securities: The fair values for equity securities are based on
quoted market prices.
Policy Loans and Other Loans Receivable: The Company has not determined
the fair values associated with its policy loans and other loans
receivable as management believes any differences between the Company's
carrying value and the fair values afforded these instruments are
immaterial to the Company's financial position and, accordingly, the cost
to provide such disclosure would exceed the benefit derived. At December
31, 1997, the interest rate related to the outstanding policy loans is
5%.
62
<PAGE> 63
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
Future Policy Benefits for Annuity and Life Products 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 Company is not required to and has not estimated
fair value of its liabilities under other contracts.
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities-
available-for-sale $294,961,000 $294,961,000 $294,195,000 $294,195,000
Option contracts 1,057,000 1,057,000 94,000 94,000
Equity securities 825,000 825,000 691,000 691,000
Policy loans 267,000 267,000 -- --
Cash and cash equivalents 3,029,000 3,029,000 2,433,000 2,433,000
Assets held in separate
accounts 219,807,000 219,807,000 176,306,000 176,306,000
LIABILITIES
Future policy benefits for
annuity and life products 233,988,000 233,988,000 239,509,000 239,562,000
Supplementary contracts
without life
contingencies 21,711,000 21,711,000 21,008,000 21,008,000
Liabilities related to
separate accounts 219,807,000 219,807,000 176,306,000 176,306,000
</TABLE>
63
<PAGE> 64
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,
1997 and 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturities-available-for-sale:
United States Government and agencies:
Mortgage and asset-backed securities $ 24,133,000 $ 730,000 $(283,000) $ 24,580,000
Other 23,546,000 1,391,000 (138,000) 24,799,000
State, municipal and other governments 3,991,000 250,000 -- 4,241,000
Public utilities 69,972,000 8,299,000 (303,000) 77,968,000
Industrial and miscellaneous 152,797,000 10,758,000 (182,000) 163,373,000
---------------------------------------------------------------
Total fixed maturities-available-for-sale $274,439,000 $21,428,000 $(906,000) $294,961,000
===============================================================
Equity securities $ 684,000 $ 141,000 $ -- $ 825,000
===============================================================
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
===============================================================
</TABLE>
64
<PAGE> 65
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 December31, 1997, 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.
<TABLE>
<CAPTION>
ESTIMATED
MARKET
AMORTIZED COST VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $ 4,969,000 $ 4,999,000
Due after one year through five years 71,798,000 74,535,000
Due after five years through ten years 97,448,000 104,134,000
Due after ten years 76,091,000 86,713,000
Mortgage and asset-backed securities 24,133,000 24,580,000
-------------------------------
$274,439,000 $294,961,000
===============================
</TABLE>
The unrealized gain or loss 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:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------
<S> <C> <C>
Unrealized appreciation on fixed-maturity and equity
securities available-for-sale $20,663,000 $15,897,000
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs (1,780,000) (1,200,000)
Value of insurance in force acquired (5,157,000) (3,600,000)
Provision for deferred income tax benefit (4,660,000) (3,773,000)
--------------------------
Net unrealized investment gains $ 9,066,000 $ 7,324,000
==========================
</TABLE>
65
<PAGE> 66
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>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Income from:
Fixed maturities-available-for-sale $22,183,000 $23,364,000 $22,635,000
Cash and cash equivalents 225,000 288,000 1,051,000
Option contracts 474,000 -- --
---------------------------------------------
22,882,000 23,652,000 23,686,000
Less investment expenses (285,000) (194,000) (221,000)
-----------------------------------------------
Net investment income $22,597,000 $23,458,000 $23,465,000
===============================================
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized gain (loss) on investments
are summarized below:
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
REALIZED
Fixed maturities-available-for-sale $1,227,000 $ 972,000 $ 593,000
Equity securities -- -- 307,000
----------------------------------------------
Realized gains on investments $1,227,000 $ 972,000 $ 900,000
UNREALIZED
Fixed maturities-available-for-sale $4,632,000 $(12,756,000) $33,437,000
Equity securities 134,000 369,000 (133,000)
----------------------------------------------
Change in unrealized
appreciation/depreciation of investments $4,766,000 $(12,387,000) $33,304,000
==============================================
</TABLE>
66
<PAGE> 67
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 3l, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
----------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1997
Scheduled principal repayments
and calls $11,636,000 $ 447,000 -- $12,083,000
Sales 11,795,000 851,000 $ (72,000) 12,574,000
----------------------------------------------------------------
Total $23,431,000 $1,298,000 $ (72,000) $24,657,000
================================================================
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
================================================================
December 31, 1995
Scheduled principal repayments
and ca!Is $ 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
================================================================
</TABLE>
Income taxes during the periods ended December 31, 1997, 1996 and 1995 include a
provision of $416,000, $331,000 and $306,000, respectively, for the tax effect
of realized gains.
67
<PAGE> 68
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
OTHER
At December 31, 1997, fixed maturities with a carrying value of $8,281,000 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 3l, 1997.
The Company has acquired call option contracts relating to its equity-indexed
annuity product to hedge increases in the S&P 500 index. The options are
purchased concurrently with the issuance of these annuity contracts and expire,
if not utilized, at the end of the annuities' term. The Company pays, at the
beginning of the option contract, a premium for transferring the risk of
unfavorable changes in the S&P 500 index. The carrying value of the option
contracts is based upon the unamortized premium paid for the contract adjusted
for increases in its intrinsic value from increases in the S&P 500 index. The
carrying value of these contracts was $1,057,000 and $94,000 at December 31,
1997 and 1996, respectively.
CONCENTRATIONS OF CREDIT RISK
The Company's investment in public utility bonds at December 31, 1997 represents
26% of total investments and 14% 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.
68
<PAGE> 69
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996
-----------------------------
<S> <C> <C>
Excluding impact on net unrealized investment gains
and losses:
Balance at beginning of period $23,094,000 $23,833,000
Accretion of interest during the period 1,582,000 1,642,000
Amortization of asset (2,580,000) (2,381,000)
-----------------------------
Balance prior to impact of net unrealized investment
gains and losses 22,096,000 23,094,000
Offset against net unrealized investment gains and
losses (5,157,000) (3,600,000)
-----------------------------
Balance at end of period $16,939,000 $19,494,000
=============================
</TABLE>
Amortization of the value of insurance in force acquired for the next five years
ending December 31 is expected to be as follows: 1998-$1,113,000;
1999-$1,280,000; 2000-$1,430,000; 2001-$1,384,000 and 2002-$1,340,000.
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.
69
<PAGE> 70
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Taxes provided in consolidated
statements of income on income
before income taxes-deferred $ 153,000 $ 836,000 $ 666,000
---------------------------------------------
153,000 836,000 666,000
Taxes provided in consolidated
statements of changes in
stockholder's equity:
Amounts attributable to change in
net unrealized investment
gains/losses during year-deferred 897,000 (3,022,000) 8,499,000
---------------------------------------------
$1,050,000 $(2,186,000) $9,165,000
=============================================
</TABLE>
The effective tax rate on income before income taxes is different from the
prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 472,000 $2,440,000 $1,937,000
==========================================
Income tax at federal statutory rate (34%) $ 160,000 $ 830,000 $ 659,000
Tax effect (decrease) off:
Other (7,000) 6,000 7,000
------------------------------------------
Income tax expense $ 153,000 $ 836,000 $ 666,000
==========================================
</TABLE>
70
<PAGE> 71
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 3l, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 1,969,000 $ 1,524,000
Operating loss carryforwards 2,590,000 2,245,000
Other 124,000 20,000
------------------------------
4,683,000 3,789,000
Deferred tax liabilities:
Fixed-maturity and equity securities (5,946,000) (4,702,000)
Deferred policy acquisition costs (2,523,000) (1,908,000)
Value of insurance in force acquired (2,533,000) (2,453,000)
Other (373,000) (368,000)
------------------------------
(11,375,000) (9,431,000)
------------------------------
Deferred income tax liability $ (6,692,000) $(5,642,000)
==============================
</TABLE>
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $7,619,000 at December 31, 1997 which expire from
2009 to 2012.
6. RETIREMENT AND COMPENSATION PLANS
Substantially all full-time employees of the Company are covered by a
non-contributory 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, 1997, 1996 or 1995.
71
<PAGE> 72
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
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 1997) 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 $37,000, $27,000 and $24,000 for the
periods ended December 31, 1997, 1996 and 1995, 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
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 1998,
this annual limitation aggregates $3,360,000; 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 ($34,900,000 at
December 31, 1997) 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
72
<PAGE> 73
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCKHOLDER'S EQUITY (CONTINUED)
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 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 $1,240,000, $1,507,000 and $1,460,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Total statutory capital and
surplus was $33,556,000 at December 31, 1997 and $33,096,000 at December 31,
1996.
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 1998, 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.
73
<PAGE> 74
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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, 1997, 1996 and 1995, rent expense totaled $228,000, $206,000 and
$419,000, respectively. At December 31, 1997, minimum rental payments due under
all noncancelable operating leases with initial terms of one year or more are:
<TABLE>
<S> <C>
Year ending December 31:
1998 $230,000
1999 238,000
2000 241,000
2001 61,000
--------
$770,000
========
</TABLE>
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, 1997 and 1996, the Company has accrued $0 and $180,000,
respectively, for guaranty fund assessments based on its historical experience
and information available from those making guaranty fund assessments.
9. RELOCATION OF COMPANY
In December 1997, management decided to relocate the operations of the Company
from Boston to Illinois. As a result, at December 31, 1997, the Company accrued
a liability of $1,200,000, which relates to benefits for involuntarily
terminated employees, and certain other costs, including office and other lease
cancellations and write-down of furniture and equipment. The relocation is
expected to be completed by June 1998.
74
<PAGE> 75
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. YEAR 2000 ISSUES (UNAUDITED)
Like other financial and business organizations around the world, the Company
could be adversely affected if its computer systems and those of its service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The Company has completed an assessment of
the Year 2000 impact on its systems, procedures, customers and business
processes. At December 31, 1997, management is satisfied that their main
operating systems are Year 2000 compliant. The Company is reviewing its general
office systems and will be contacting its service providers during 1998. The
Company believes it will complete the Year 2000 project not later than
December 31, 1998, which is prior to any anticipated impact on its operating
systems.
The date on which the Company believes it will complete the Year 2000 project is
based on management's best estimates. Although there can be no guarantee that
these estimates will be achieved, management does not at this time believe that
actual results will differ materially from those anticipated. Specific factors
that might cause such material differences would most likely result from the
Company's service providers.
75
<PAGE> 76
PART C
76
<PAGE> 77
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 Contract Owners' Equity.
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 Statements of Changes in Stockholder's Equity
5. Consolidated Statements of Cash Flows.
6. Notes to Consolidated 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). Form of Broker-Dealer Agreement **
(c). Form of Sales Agreement #
77
<PAGE> 78
PART C
ITEM 24 (continued)
4. Individual Flexible Purchase Payment Deferred Variable Annuity
Contract*
5. Application for Variable Annuity*
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 Agreements#
9(a). Consent of Arnold R. Bergman, Vice President, General Counsel
and Secretary, First Variable Life Insurance Company*
(b). Consent of Blazzard, Grodd & Hasenauer*
10. Consent of Ernst & Young LLP, Independent Auditors*
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information*
14. Not Applicable
15. Powers of Attorney ## - of the following individuals
appointing John M. Soukup or Arnold R. Bergman their
attorney-in-fact to act for them in their capacities as
Directors of the Company or otherwise, to do all things
necessary to comply with the provisions and intent of the
Securities Act of 1933 and the Investment Company Act of 1940
with respect to variable life insurance policies and variable
annuity contracts:
Ronald M. Butkiewicz Shane W. Gleeson Kenneth R. Meyer
Michael J. Corey.. T. David Kingston Philip R. O'Connor
Michael R. Ferrari Jeff S. Liebmann Stephen Shone
---------------------
* Filed herewith.
** 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 Registrant's Registration Statement on
Form N-4 as filed electronically with the Securities and Exchange
Commission on September 14, 1996 (Registration No. 333-12197).
## Incorporated by reference to the Registrant's Post-Effective Amendment
No. 2 to Form N-4, filed electronically with the Securities and
Exchange Commission on April 29, 1996 (File No. 33-86738).
### Incorporated by reference to the Post-Effective Amendment No. 1 to the
Form S-6 Registration Statement of First Variable Life Insurance
Company Separate Account VL, filed electronically with the Securities
and Exchange Commission on or about April 27, 1998 (Registration No.
333-19193).
78
<PAGE> 79
PART C
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
Business Address Depositor
- ---------------- ---------
Ronald M. Butkiewicz Chairman and Director
2211 York Road, Suite 202
Oak Brook, IL 60523
John M. Soukup President and Director
2122 York Road
Oak Brook, IL 60523
Michael J. Corey Director
401 East Host Drive
Lake Geneva, WI 53147
Michael R. Ferrari Director
25th & University Avenue
Des Moines, IA 50311
Shane W. Gleeson Director
2211 York Road
Oak Brook, IL 60523
Stephan Shone Director
Lower Abbey Street
Dublin 1, Ireland
T. David Kingston Director
Lower Abbey Street
Dublin 1, Ireland
Jeff S. Liebmann Director
1301 Avenue of the Americas
New York, NY 10019
Kenneth R. Meyer Director
200 South Wacker Drive, Suite 2100
Chicago, IL 60606
Philip R. O'Connor Director
111 West Washington, Suite 1247
Chicago, IL 60602
Norman A. Fair Director
2211 York Road, Suite 202
Oak Brook, IL 60523
Arnold R. Bergman Vice President, General Counsel and
2122 York Road Secretary
Oak Brook, IL 60523
79
<PAGE> 80
Christopher Harden Vice President and Treasurer
2122 York Road
Oak Brook, IL 60523
Martin Sheerin Vice President and Chief Actuary
2122 York Road
Oak Brook, IL 60523
Thomas Gualdoni Vice President - Sales
2122 York Road
Oak Brook, IL 60523
Constance Graves Assistant Vice President and Assistant
10 Post Office Square Controller
Boston, MA 02109
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
Corporate Organizational Chart
<TABLE>
<S> <C>
---------------------------------
Irish Life of North America, Inc.
Voting Trust*
---------------------------------
---------------------------------
Irish Life of North America, Inc.
---------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------ --------------------- ---------------- ----------------- ------------------- -------------------
IAC Advisors, Inc. Tri-Merica Securities Inter-State Guarantee Reserve Financial Registray First Variable Life
Corporation Assurance Co. Life Insurance of America, Inc. Insurance Company
Company
- ------------------ --------------------- ---------------- ----------------- ------------------- -------------------
------------------
---------------- ----------------- -------------- --------------
Interre-Direct, Best Direct Inc. First Variable First Variable
Inc. Capital Advisory
(50% Ownership) Services Inc. Services Corp.
--------------- ----------------- -------------- --------------
</TABLE>
* The beneficiaries of the Voting Trust are as follows:
1. Irish Life International, B.V. a wholly owned subsidiary of Irish Life
Overseas, Limited
2. Irish Life Overseas, Limited a wholly owned subsidiary of Irish Life
Assurance plc
3. Irish Life Assurance plc, a wholly owned subsidiary of Irish Life plc,
headquartered in Dublin, Ireland
Note: An upstream company's ownership of a downstream company is 100% unless
otherwise noted. Guarantee Reserve Life Insurance Company is owned by
Irish Life of North America, Inc. (owns 16.11%) and GR Holding Co.,a
wholly owned subsidiary of Irish Life of North America, Inc. (owns
83.89%).
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1998, there were 53 Qualified Contract Owners and 107
Non-Qualified Contract Owners.
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
80
<PAGE> 81
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 Art 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
(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
Oak Brook, IL 60523
John M. Soukup President and Director
2122 York Road
Oak Brook, IL 60523
Arnold R. Bergman Secretary and Director
2122 York Road
Oak Brook, IL 60523
Thomas Gualdoni Vice President - Sales
2122 York Road
Oak Brook, IL 60523
Constance Graves Assistant Treasurer
10 Post Office Square
Boston, MA 02109
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Arnold R. Bergman, Secretary of the Company and Christopher Harden, Treasurer of
the Company, who are located at 2122 York Road, Oak Brook, IL 60523, 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.
81
<PAGE> 82
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.
(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.
82
<PAGE> 83
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.
83
<PAGE> 84
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 27th day of
April, 1998.
FIRST VARIABLE ANNUITY FUND E
(Registrant)
By: FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: s/John M. Soukup
----------------
John M. Soukup, President
FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: s/John M. Soukup
----------------
John M. Soukup, President
84
<PAGE> 85
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 indicated on this 27th day of April, 1998.
SIGNATURE TITLE
/s/Ronald M. Butkiewicz* Chairman & Director
- -----------------------
Ronald M. Butkiewicz
/s/Michael J. Corey* Director
- -----------------------
Michael J. Corey
/s/Michael R. Ferrari* Director
- -----------------------
Michael R. Ferrari
/s/Shane W. Gleeson* Director
- -----------------------
Shane W. Gleeson
/s/John M. Soukup President and Director
- -----------------------
John M. Soukup
/s/T. David Kingston* Director
- -----------------------
T. David Kingston
/s/Jeff S. Liebmann* Director
- -----------------------
Jeff S. Liebmann
/s/Kenneth R. Meyer* Director
- -----------------------
Kenneth R. Meyer
/s/Philip R. O'Connor* Director
- -----------------------
Philip R. O'Connor
/s/Stephen Shone* Director
- -----------------------
Stephen Shone
/s/Norman A. Fair Director and Principal Accounting Officer
- -----------------------
Norman A. Fair
*By Power of Attorney
/s/Arnold R. Bergman
--------------------
Arnold R. Bergman
85
<PAGE> 86
INDEX TO EXHIBITS
EXHIBIT NO.
EX-99.B1 Resolution of Board of Directors for the Company authorizing
the establishment of the Separate Account
EX-99.B4 Individual Flexible Purchase Payment Deferred Variable Annuity
EX-99.B5 Application for Variable Annuity
EX-99.B9(a) Consent of Arnold R. Bergman, Vice President, General Counsel
and Secretary, 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
86
<PAGE> 1
EX-99.B1
Resolution of Board of Directors for the Company
authorizing the establishment of the Separate Account
87
<PAGE> 2
FIRST VARIABLE LIFE INSURANCE COMPANY
Certificate of Secretary
I, Arnold R. Bergman, hereby depose and certify as follows:
1. That I am the duly elected Secretary of First Variable Life Insurance
Company;
2. That the following is a true and correct excerpt of a resolution duly
adopted by the Board of Directors of First Variable Life Insurance
Company on December 4, 1979:
RESOLVED, that separate accounts of First Variable Life Insurance
Company, to be known as designated by the President of the Corporation,
be and the same are hereby established as of January 1, 1980, or as of
such date thereafter as may be determined appropriate by the President,
for the purpose of; holding separate from other funds and assets of the
corporation premiums or other funds received from the sale of variable
annuity contracts issued in connection with qualified pension and
profit sharing plans or other clients acceptable to the President by
First Variable Life Insurance Company and to hold the proceeds from
investment of such funds; and all of such funds in the separate
accounts shall be held and applied exclusively for the benefit of the
holders or beneficiaries of those variable annuity contracts and shall
not be chargeable with liabilities arising out of any other business of
First Variable Life Insurance Company; and the President of the
corporation be and the same is hereby authorized to take such action as
he deems necessary to establish accounts and deposits for such separate
accounts separate and apart from other assets of the Company; and such
separate accounts shall be administered in accordance with the terms of
variable annuity contracts issued in connection therewith and in
accordance with rules and regulations established by the Company's
Board of Directors to govern the operation of the separate accounts.
* * * *
In Witness Whereof, I, the Secretary of said First Variable Life Insurance
Company, has hereunto set my hand and affixed the seal of said insurer on this
the 10th day of April, 1998.
S E A L
/s/Arnold R. Bergman
--------------------
Arnold R. Bergman, Secretary
88
<PAGE> 1
EX-99.B4
Individual Flexible Purchase Payment Deferred Variable Annuity Contract
89
<PAGE> 2
FIRST VARIABLE LIFE INSURANCE COMPANY
LITTLE ROCK, ARKANSAS
FIRST VARIABLE LIFE INSURANCE COMPANY (the "Company") will make Annuity Payments
to the Annuitant starting on the Annuity Date subject to the terms of this
Contract.
This Contract is issued in return for the Application and payment of the initial
Purchase Payment. A copy of the Application is attached to and made a part of
the Contract.
TEN DAY FREE LOOK--Within 10 days of the date of receipt of this Contract by the
Owner, it may be returned by delivering or mailing it to the Company at its
Annuity Service Center or to the agent through whom it was purchased. When this
Contract is received by the Company, it will be voided as if it had never been
in force. The Company will refund the Contract Value computed at the end of the
Valuation Period during which this Contract is received by the Company at its
Annuity Service Center.
Signed for the Company.
/s/Arnold R. Bergman /s/John M. Soukup
Secretary President
ANNUITY PAYMENTS, WITHDRAWAL VALUES AND THE DEATH BENEFITS PROVIDED BY THIS
CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
THE VARIABLE PROVISIONS OF THIS CONTRACT CAN BE FOUND ON PAGES 12 AND 13.
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACT WITH
FLEXIBLE PURCHASE PAYMENTS - NON-PARTICIPATING
90
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Contract Data Page................................................................................................. 4
Definitions........................................................................................................ 6
Purchase Payment Provisions........................................................................................ 7
Purchase Payments.............................................................................................. 7
Subsequent Purchase Payments................................................................................... 7
Allocation of Purchase Payments................................................................................ 7
No Default..................................................................................................... 7
Separate Account Provisions........................................................................................ 7
The Separate Account........................................................................................... 7
Investments of the Separate Account............................................................................ 7
Valuation of Assets............................................................................................ 8
Separate Account Management Fee................................................................................ 8
Accumulation Unit.............................................................................................. 8
Mortality and Expense Risk Charge.............................................................................. 8
Administrative Charge.......................................................................................... 8
Mortality and Expense Guarantee................................................................................ 8
Contract Value Provision........................................................................................... 8
Contract Value................................................................................................. 8
Annual Contract Maintenance Charge................................................................................. 9
Deduction for Annual Contract Maintenance Charge............................................................... 9
Transfer Provisions................................................................................................ 9
Transfers Prior to the Annuity Date............................................................................ 9
Transfers During the Annuity Period............................................................................ 9
Withdrawal Provisions............................................................................................. 10
Withdrawal 10
Withdrawal Charge............................................................................................. 10
Death Benefits.................................................................................................... 10
Death of Annuitant............................................................................................ 10
Death of Owner................................................................................................ 10
Payment of Death Benefit...................................................................................... 11
Annuity Provisions................................................................................................ 11
General....................................................................................................... 11
Annuity Date.................................................................................................. 11
Selection of an Annuity Option................................................................................ 11
Frequency and Amount of Annuity Payments...................................................................... 12
Annuity Options............................................................................................... 12
Option A. Life Annuity........................................................................................ 12
Option B. Life Annuity With Periods Certain of 60, 120, 180 or 240 Months................................ 12
Option C. Joint and Survivor Annuity..................................................................... 12
Option D. Joint and Contingent Annuity................................................................... 12
Option E. Fixed Payments for a Period Certain............................................................ 12
Annuity....................................................................................................... 12
Fixed Annuity................................................................................................. 12
Variable Annuity.............................................................................................. 13
Annuity Unit.................................................................................................. 13
Mortality Tables.............................................................................................. 13
Supplementary Agreement....................................................................................... 14
Suspension or Deferral of Payments................................................................................ 14
Annuitant, Ownership, Assignment Provisions....................................................................... 14
Annuitant.................................................................................................... 14
Owner........................................................................................................ 14
Joint Owner.................................................................................................. 14
Assignment................................................................................................... 15
Beneficiary Provisions............................................................................................ 15
</TABLE>
91
<PAGE> 4
<TABLE>
<S> <C>
Beneficiary.................................................................................................. 15
Change of Beneficiary........................................................................................ 15
General Provisions................................................................................................ 15
The Contract................................................................................................. 15
Misstatement of Age.......................................................................................... 15
Incontestability............................................................................................. 15
Modification................................................................................................. 15
Non-Participating............................................................................................ 15
Evidence of Survival......................................................................................... 15
Proof of Age................................................................................................. 15
Protection of Proceeds....................................................................................... 16
Reports...................................................................................................... 16
Taxes........................................................................................................ 16
Transfer by the Company...................................................................................... 16
Annuity Option Tables............................................................................................. 17
</TABLE>
92
<PAGE> 5
CAPITAL NO LOAD
CONTRACT DATA PAGE
ANNUITANT: ZADM0006 AGE AT ISSUE: ZADM0010
OWNER: ZADM0007 AGE AT ISSUE: ZADMF005
CONTRACT NUMBER: ZADM0002 ISSUE DATE: ZADM0004
ANNUITY DATE: ZADM0768
<TABLE>
<CAPTION>
PURCHASE PAYMENTS:
<S> <C>
INITIAL PURCHASE PAYMENT: $ZADMF004
MINIMUM SUBSEQUENT PURCHASE PAYMENT: $500 Non qualified, $100 Qualified
MAXIMUM SUBSEQUENT PURCHASE PAYMENT: $1 Million
</TABLE>
BENEFICIARY:
As stated in the Application for this Contract unless changed in accordance
with the Contract provisions.
ANNUAL CONTRACT MAINTENANCE CHARGE:
$30.00 each Contract Year before the Annuity Date, if the Contract Value is
less than $50,000.00. After the Annuity Date, the Annual Contract Maintenance
Charge will be collected on a monthly basis.
MORTALITY AND EXPENSE RISK CHARGE:
Equal on an annual basis to 1.25% of the average daily net asset value of
the Separate Account.
ADMINISTRATIVE CHARGE:
Equal on an annual basis to .25% of the average daily net asset value of the
Separate Account.
TRANSFERS:
FREE TRANSFERS: Unlimited
TRANSFER FEE: None
MINIMUM CONTRACT VALUE TO BE TRANSFERRED: $1,000 or the Owner's entire
interest in the Subaccount if less.
MINIMUM CONTRACT VALUE WHICH MUST REMAIN IN A SUBACCOUNT AFTER A
TRANSFER: $1,000
SEPARATE ACCOUNT MANAGEMENT FEE: None
WITHDRAWALS:
WITHDRAWAL CHARGE: None.
MINIMUM PARTIAL WITHDRAWAL: $1,000 or the Owner's entire interest in the
Subaccount, if less.
MINIMUM CONTRACT VALUE WHICH MUST REMAIN IN A SUBACCOUNT AFTER A PARTIAL
WITHDRAWAL: $1,000
93
<PAGE> 6
INVESTMENT OPTIONS:
VIST Federated Prime Money Fund II Portfolio
VIST U.S. Government Bond Portfolio
VIST High Income Bond Portfolio
VIST Growth Fund Portfolio
VIST Multiple Strategies Portfolio
VIST Matrix Equity Portfolio
VIST World Equity Portfolio
VIST Growth and Income Portfolio
VIST Small Cap Growth Portfolio
General Account
SEPARATE ACCOUNT: Separate Account E
VARIABLE SERVICE CENTER
First Variable Life Insurance Company
Variable Service Center
PO Box 1317
Des Moines, IA 50305-1317
94
<PAGE> 7
DEFINITIONS
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 in a
Subaccount of the Separate Account prior to the Annuity Date.
AGE: The Annuitant's age on his/her birthday nearest the date for which age is
being determined.
ANNUITANT: The natural person on whose life Annuity Payments are based.
ANNUITY DATE: The date on which Annuity Payments begin. The Annuity Date is
shown on the Contract Data Page.
ANNUITY PAYMENTS: The series of payments made to the Annuitant after the Annuity
Date under the Option selected.
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, persons 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 Subaccounts of the
Separate Account.
CONTRACT YEAR: One year from the Issue Date and from each Contract Anniversary.
FIXED ANNUITY: A series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company.
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.
INVESTMENT OPTION: An investment entity shown on the Contract Data Page.
ISSUE DATE: The date on which the Contract became effective. The Issue Date is
shown on the Contract Data Page.
OWNER: The person, persons or entity entitled to all the ownership rights under
this Contract and in whose name this Contract has been issued.
PORTFOLIO: A segment of an Investment Option which constitutes a separate and
distinct class of shares.
PURCHASE PAYMENT: An amount paid to the Company to provide benefits under this
Contract.
SEPARATE ACCOUNT: A separate investment account of the Company designated on the
Contract Data Page.
SUBACCOUNT: A segment of the Separate Account representing an investment in an
Investment Option or a Portfolio of an Investment Option.
VALUATION DATE: The Separate Account will be valued each day that the New York
Stock Exchange is open for trading.
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 ANNUITY: A series of payments made during the Annuity Period which vary
in amount with the investment experience of each applicable Subaccount.
95
<PAGE> 8
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS: The initial Purchase Payment is due on the Issue Date. The
minimum and maximum subsequent Purchase Payments are shown on the Contract Data
Page. The Company reserves the right to reject any Application or Purchase
Payment.
SUBSEQUENT PURCHASE PAYMENTS: Subject to the maximum and minimum shown on the
Contract Data Page, the Owner may make subsequent Purchase Payments and may
increase or decrease or change the frequency of such payments.
ALLOCATION OF PURCHASE PAYMENTS: Purchase Payments are allocated to the Separate
Account in accordance with the selections made by the Owner. The allocation of
the initial Purchase Payment is made in accordance with the selection made by
the Owner in the Application. Unless otherwise changed by the Owner, subsequent
Purchase Payments are allocated in the same manner as the initial Purchase
Payment. Allocation of the Purchase Payments is subject to the terms and
conditions imposed by the Company.
NO DEFAULT: Unless the Owner makes a total withdrawal, this Contract will remain
in force until the death of the Owner. This Contract will not be in default if
subsequent Purchase Payments are not made.
SEPARATE ACCOUNT PROVISIONS
THE SEPARATE ACCOUNT: The Separate Account is a separate investment account of
the Company. It is shown on the Contract Data Page. The Company has allocated a
part of its assets for this and certain other contracts to the Separate Account.
The assets of the Separate Account are the property of the Company. However,
they are not chargeable with the liabilities arising out of any other business
the Company may conduct.
INVESTMENTS OF THE SEPARATE ACCOUNT: The Separate Account is segmented into
Subaccounts. Purchase Payments applied to the Separate Account are allocated to
a Subaccount of the Separate Account. The assets of the Subaccount are allocated
to the Investment Option(s) and the Portfolio(s), if any, within an Investment
Option shown on the Contract Data Page. The Company may, from time to time, add
additional Investment Options or Portfolios to those shown on the Contract Data
Page. The Owner may be permitted to transfer Contract Values to the additional
Investment Options or Portfolios. However, the right to make any transfer will
be limited by the terms and conditions imposed by the Company.
If any Investment Option is a separate legal entity issuing shares or other
evidence of ownership and should the shares of any such Investment Option(s) or
any Portfolio(s) within the Investment Option became unavailable for investment
by the Separate Account, or the Company's Board of Directors deems further
investment in these shares inappropriate, the Company may substitute shares of
another Investment Option or Portfolio for shares already purchased under this
Contract.
VALUATION OF ASSETS: Assets of the Separate Account are valued at their fair
market value in accordance with procedures of the Company.
SEPARATE ACCOUNT MANAGEMENT FEE: Any fee deducted by the Company from the
Separate Account for investment management is shown on the Contract Data Page.
ACCUMULATION UNIT: A Purchase Payment when allocated to the Separate Account is
converted into Accumulation Units for the selected Subaccounts. The number of
Accumulation Units in a Subaccount credited to this Contract is determined by
dividing the Purchase Payment allocated to that Subaccount by the Accumulation
Unit Value for that Subaccount as of the Valuation Period during which the
Purchase Payment is allocated to the Subaccount. The Accumulation Unit Value for
each Subaccount was arbitrarily set initially at $10. Subsequent Accumulation
Unit Values are determined by subtracting (2) from (1) and dividing the result
by (3) where:
1. is the net result of:
a. the assets of the Subaccount 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
that Subaccount.
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Charge, which are shown on the Contract Data
Page; and
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<PAGE> 9
3. is the number of Accumulation Units outstanding at the end of the
Valuation Period.
The Accumulation Unit Value may increase or decrease from Valuation Period to
Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts a Mortality and Expense
Risk Charge from the Separate Account which is equal, on an annual basis, to the
amount shown on the Contract Data Page. The Mortality and Expense Risk Charge
compensates the Company for assuming the mortality and expense risks under this
Contract.
ADMINISTRATIVE CHARGE: The Company deducts an Administrative Charge from the
Separate Account which is equal, on an annual basis, to the amount shown on the
Contract Data Page. The Administrative Charge compensates the Company for the
costs associated with the administration of this Contract and the Separate
Account.
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.
CONTRACT VALUE PROVISION
CONTRACT VALUE: Each Purchase Payment is allocated to one or more Subaccounts of
the Separate Account. A Purchase Payment allocated to a Subaccount of the
Separate Account is converted into Accumulation Units. The number of
Accumulation Units in a Subaccount credited to this Contract is determined by
dividing the Purchase Payment allocated to that Subaccount by the Accumulation
Unit Value for that Subaccount.
The Contract Value on any Valuation Date is the sum of the Owner's interest in
the Subaccounts of the Separate Account. The value of the Owner's interest in a
Subaccount is determined by multiplying the number of Accumulation Units
attributable to that Subaccount by the Accumulation Unit Value for that
Subaccount.
Withdrawals will result in the cancellation of Accumulation Units in a
Subaccount.
ANNUAL CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR ANNUAL CONTRACT MAINTENANCE CHARGE: The Company deducts an Annual
Contract Maintenance Charge from the Contract Value by canceling Accumulation
Units from each applicable Subaccount to reimburse it for expenses relating to
maintenance of this Contract. The Annual Contract Maintenance Charge is shown on
the Contract Data Page. The Annual Contract Maintenance Charge will be deducted
from the Contract Value on each Contract Anniversary while this Contract is in
force.
If a total withdrawal is made on other than a 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.
TRANSFER PROVISIONS
TRANSFERS PRIOR TO THE ANNUITY DATE: Prior to the Annuity Date, the Owner may
transfer all or part of the Owner's interest in a Subaccount without the
imposition of any fee or charge if there have been no more than the number of
free transfers shown on the Contract Data Page for the Contract Year. All
transfers are subject to the following:
1. if more than the number of free transfers have been made in the Contract
Year, the Company will deduct a Transfer Fee for each subsequent
transfer. The Transfer Fee will be deducted from the Owner's interest in
the Subaccount from which the transfer is made. However, if the Owner's
entire interest in a Subaccount is being transferred, the Transfer Fee
will be deducted from the amount which is transferred.
2. the minimum which can be transferred is shown on the Contract Data Page.
The minimum which must remain is shown on the Contract Data Page.
3. the Company reserves the right, at any time and without prior notice to
any party, to terminate, suspend or modify the transfer privilege
described above.
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<PAGE> 10
If the Owner elects to use the transfer privilege, the Company will not be
liable for transfers made in accordance with the Owner's instructions.
TRANSFERS DURING THE ANNUITY PERIOD: During the Annuity Period, the Owner may
make transfers, by written request, as follows:
1. the Owner may make a transfer of Contract Values between Subaccounts as
indicated on the Contract Data Page.
2. the Owner may, once each Contract Year, make a transfer from one or more
Subaccounts to the General Account. The Owner may not make a transfer
from the General Account to the Separate Account.
The amount transferred to the General Account from a Subaccount of the Separate
Account will be equal to the annuity reserves for the Owner's interest in that
Subaccount. The annuity reserve is the product of (a) multiplied by (b)
multiplied by (c), where (a) is the number of Annuity Units representing the
Owner's interest in the Subaccount per Annuity Payment; and (b) is the Annuity
Unit Value for the Subaccount; and (C) is the present value of $1.00 per payment
period as of the Age of the
Annuitant at time of transfer for the Annuity Option, determined using the
Mortality Tables used to construct the Annuity Tables contained in this
Contract. Amounts transferred to the General Account will be applied under the
Annuity Option elected at the Age of the Annuitant at the time of the transfer.
All amounts and Annuity Unit Values will be determined as of the end of the
Valuation Period preceding the effective date of this transfer.
WITHDRAWAL PROVISIONS
WITHDRAWAL: Prior to the Annuity Date, the Owner may, upon written request
received by the Company, make a total or partial withdrawal of the Contract
Withdrawal Value. The Contract Withdrawal Value is:
1. the Contract Value for the Valuation Period next following the Valuation
Period during which a written request for a 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.
A withdrawal will result in the cancellation of Accumulation Units from each
applicable Subaccount in the ratio that the Owner's interest in the Subaccount
bears to the total Contract Value. The Owner must specify in writing in advance
which Subaccount Units are to be canceled if other than the above method is
described.
The Company will pay the amount of any withdrawal within seven (7) days of
receipt of a request in good order unless the Suspension or Deferral of Payments
provision is in effect.
Each partial withdrawal must be for an amount which is not less than the amount
shown on the Contract Data Page. The remaining Contract Value which must remain
in a Subaccount after a partial withdrawal is shown on the Contract Data Page.
WITHDRAWAL CHARGE: A withdrawal charge may be deducted in the event of a
withdrawal of all or a portion of the Contract Value. The Withdrawal Charge and
Free Withdrawal Amounts are set out on the Contract Data Page.
DEATH BENEFITS
DEATH OF 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. If the
Owner is a non-natural person, the death of the Annuitant will be treated as the
death of the Owner and a new Annuitant may not be designated.
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 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. The Death
Benefit will be the greater of:
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<PAGE> 11
1. the Purchase Payments, less any withdrawals including any applicable
Withdrawal Charges; or
2. the Contract Value.
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 amount will be paid within seven (7)
days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments provision is in effect.
Payment to the Beneficiary, other than in a single sum, may only be elected
during the sixty-day period beginning with the date of receipt of proof of
death.
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; or
2. If the Beneficiary is the spouse of the Owner, the Beneficiary may elect
to become the Owner of the Contract and this Contract will continue in
effect.
If there are Joint Owners, any references to the death of the Owner shall mean
the first death of an Owner.
PAYMENT OF DEATH BENEFIT: The Company will require due proof of death before any
Death Benefit is paid. Due proof of death will be:
1. a certified death certificate;
2. a certified decree of a court of competent jurisdiction as to the finding
of death; or
3. any other proof satisfactory to the Company.
All Death Benefits will be paid in accordance with applicable law or regulations
governing death benefit payments.
ANNUITY PROVISIONS
GENERAL: On the Annuity Date, the Contract Value, less any applicable premium
taxes and Annual Contract Maintenance Charge ("Adjusted Contract Values"), will
be applied under the Annuity Option selected by the Owner.
Annuity Payments may be made on a fixed or variable basis or both.
ANNUITY DATE: The Annuity Date is selected by the Owner at the time of the
Application. The Annuity Date is shown on the Contract Data Page. The Annuity
Date must be the first day of a calendar month and must be at least one month
after the Issue Date. The Annuity Date must not be later than the Annuitant's
85th birthday.
Prior to the Annuity Date, the Owner, subject to the above, may change the
Annuity Date. Any changes shall be in writing in such form as the Company may
require. Any change must be requested at least seven (7) days prior to the new
Annuity Date.
SELECTION OF AN ANNUITY OPTION: An Annuity Option is selected by the Owner at
the time of the Application. If no Annuity Option is selected, Option B with a
120 month guarantee will automatically be applied. Prior to the Annuity Date,
the Owner can change the Annuity Option selected. Any change shall be in writing
in such form as the Company may require. Any change must be requested at least
seven (7) days prior to the Annuity Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS: Annuity Payments are paid in monthly
installments. The Adjusted Contract Value is applied to the Annuity Table for
the Annuity Options selected. If the Adjusted Contract Value to be applied under
an Annuity Option is less than $5,000, the Company reserves the right to make a
lump sum payment 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.
ANNUITY OPTIONS: The following Annuity Options or any other Annuity Option
acceptable to the Company may be selected:
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OPTION A. LIFE ANNUITY: Monthly Annuity Payments during the life of the
Annuitant.
OPTION B. LIFE ANNUITY WITH PERIODS CERTAIN OF 60,120, 180 OR 240 MONTHS:
Monthly Annuity Payments 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: Monthly Annuity Payments payable
during the joint lifetime of the Annuitant and a designated second person
and then during the lifetime of the survivor at the percentage (100%, 75%,
66 2/3% or 50%) selected.
OPTION D. JOINT AND CONTINGENT ANNUITY: Monthly Annuity Payments during the
Annuitant's lifetime and continuing during the lifetime of a designated
second person after the Annuitant's death at the percentage (either 100%,
75%, 66 2/3% or 50%) selected.
OPTION E. FIXED PAYMENTS FOR A PERIOD CERTAIN: Fixed monthly Annuity
Payments for any specified period (at least five years but not exceeding
thirty years), as selected.
Annuity Options A, B, C and 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. Election of a Fixed Annuity or a Variable Annuity must be
made no later than seven (7) days prior to the Annuity Date. If no election is
made as between a Fixed Annuity and a Variable Annuity, the Variable Annuity
will be the default option.
ANNUITY: If the Owner selects a Fixed Annuity, the Adjusted Contract Value is
allocated to the General Account and the Annuity is paid as a Fixed Annuity. If
the Owner selects a Variable Annuity, the Adjusted Contract Value will be
allocated to the Subaccount of the Separate Account in accordance with the
selection made by the Owner, and the Annuity will be paid as a Variable Annuity.
The Owner can also select a combination of a Fixed and Variable Annuity and the
Adjusted Contract Value will be allocated accordingly.
The Adjusted Contract Value will be applied to the applicable Annuity Table
contained in the Contract based upon the Annuity Option selected by the Owner.
The amount of the first payment for each $1,000 of Adjusted Contract Value is
shown in the Annuity Tables. If, as of the Annuity Date, the current Annuity
Option rates applicable to this class of contracts provide an initial Annuity
Payment greater than guaranteed under the same Annuity Option under this
Contract, the greater payment will be made.
FIXED ANNUITY: The Owner may elect to have the Adjusted Contract Value applied
to provide a Fixed Annuity. The dollar amount of each Fixed Annuity Payment
shall be determined in accordance with Annuity Tables contained in this Contract
which are based on the minimum guaranteed interest rate of 4.0% per year. After
the initial Fixed Annuity Payment, the payments will not change regardless of
investment, mortality or expense experience.
VARIABLE ANNUITY: Variable Annuity Payments reflect the investment performance
of the Separate Account in accordance with the allocation of the Adjusted
Contract Value to the Subaccounts during the Annuity Period.
Variable Annuity Payments are not guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity Payment is determined in
accordance with the description above. The dollar amount of Variable Annuity
Payments for each applicable Subaccount after the first Variable Annuity Payment
is determined as follows:
1. the dollar amount of the first Variable Annuity Payment is divided by
the value of an Annuity Unit for each applicable Subaccount as of the
Annuity Date. This sets the number of Annuity Units for each monthly
payment for the applicable Subaccount. The number of Annuity Units for
each applicable Subaccount remains fixed during the Annuity Period;
2. the fixed number of Annuity Units per payment in each Subaccount is
multiplied by the Annuity Unit Value for that Subaccount for the last
Valuation Period of the month preceding the month for which the payment
is due. This result is the dollar amount of the payment for each
applicable Subaccount.
The total dollar amount of each Variable Annuity Payment is the sum of all
Subaccount Variable Annuity Payments reduced by the applicable portion of the
Annual Contract Maintenance Charge.
ANNUITY UNIT: The value of any Annuity Unit for each Subaccount of the Separate
Account was arbitrarily set initially at $10.
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The Subaccount 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 Subaccount 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 Subaccount;
2. is the cumulative unpaid charge for the Mortality and Expense Risk
Charge and for the Administrative Charge, which are shown on the
Contract Data Page.
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 TABLES: The Annuity Tables contained in this Contract utilize an
Assumed Investment Rate of 4% for the determination of the initial Variable
Annuity Payment and a minimum guaranteed rate of 4% per year for the
determination of the monthly Fixed Annuity Payment.
The mortality table used in determining the Annuity Purchase Rates for Options
A, B, C, and D is the 1983 Blended Individual Annuity mortality table with 60%
female and 40% male lives and a pivotal age of 55. In using this mortality
table, Ages of Annuitants will be reduced by one year for Annuity Dates
occurring during the 1990's, reduced two years for Annuity Dates occurring
during the decade 2000-2009, and so on.
The dollar amount of an Annuity Payment for any Age or combination of Ages not
shown in the Tables or for any other form of Annuity Option agreed to by the
Company will be provided by the Company upon request.
SUPPLEMENTARY AGREEMENT: A Supplementary Agreement setting forth the terms of
the Annuity Option selected will be issued at the Annuity Date, at which time
this Contract will be exchanged for the Supplementary Agreement.
SUSPENSION OR DEFERRAL OF PAYMENTS
The Company reserves the right to suspend or postpone payments for a withdrawal
or transfer for any period when:
1. the New York Stock Exchange is restricted;
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.
ANNUITANT, OWNERSHIP, ASSIGNMENT PROVISIONS
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.
OWNER: The Owner has all rights and may receive all benefits under this
Contract. Prior to the Annuity Date, the Owner is the person designated in the
Application, unless changed. On and after the Annuity Date:
1. the Annuitant is the Owner; and
2. 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:
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1. made in writing; and
2. received by the Company at the Annuity 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.
JOINT OWNER: The Contract can be owned by Joint Owners. If Joint Owners are
named, 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.
ASSIGNMENT: The Owner may, at any time during his or her lifetime, assign his or
her rights under this 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.
BENEFICIARY PROVISIONS
BENEFICIARY: The Beneficiary is named in the Application, unless changed. The
Beneficiary 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 to the survivor(s) as follows:
1. to the Primary Beneficiary(ies) who survive the Owner's death; or if
there are none
2. to the Contingent Beneficiary(ies) 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. 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.
GENERAL PROVISIONS
THE CONTRACT: The entire Contract consists of:
1. this Contract;
2. the Application which is attached to this Contract; and
3. any riders or endorsements attached to this Contract.
This Contract may be changed or altered only by the President or Vice President
and the Secretary of the Company. A change or alteration must be made in
writing.
MISSTATEMENT OF AGE: If the Age of the Annuitant, or the Age of any designated
second person, has been misstated, any Annuity benefits payable will be the
Annuity benefits provided by the correct Age. After Annuity Payments have begun,
any underpayments will be made up in one sum with the next Annuity Payment. Any
overpayments will be deducted from future Annuity Payments until the total is
repaid.
INCONTESTABILITY: The Contract will not be contestable after it has been in
force for a period of two years from the Issue Date.
MODIFICATION: This Contract may be modified in order to maintain compliance with
applicable state and federal law.
NON-PARTICIPATING: This Contract will not share in any distribution of
dividends.
EVIDENCE OF SURVIVAL: The Company may require satisfactory evidence of the
continued survival of any person(s) on whose life Annuity Payments are based.
PROOF OF AGE: The Company may require evidence of Age of any payee under Annuity
Options A, B, C, and D and of the designated second person under Annuity Options
C and D.
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PROTECTION OF PROCEEDS: To the extent permitted by law, Death Benefits and
Annuity Payments shall be free from legal process and the claim of any creditor
if the person is entitled to them under this Contract. No payment and no amount
under this Contract can be taken or assigned in advance of its payment date
unless the Company receives the Owner's written consent.
REPORTS: At least once each calendar year, the Company will furnish the Owner
with a report showing the Contract Value and any other information as may be
required by law. The Company will also furnish an annual report of the Separate
Account. Reports will be sent to the last known address of the Owner.
TAXES: Any taxes paid to any governmental entity relating to this Contract will
be deducted from the Purchase Payment or Contract Value when incurred. The
Company will, in its sole discretion, determine when taxes have resulted from:
the investment experience of the Separate Account; receipt by the Company of the
Purchase Payments; or commencement of Annuity Payments. The Company may, at its
sole discretion, pay taxes when due and deduct that amount from the Contract
Value at a later date. Payment at an earlier date does not waive any right the
Company may have to deduct amounts at a later date. The Company will deduct any
withholding taxes required by applicable law.
TRANSFER BY THE COMPANY: The Company reserves the right to transfer its
obligations hereunder to another qualified life insurance company under an
assumption reinsurance arrangement without the prior consent of the Owner.
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ANNUITY OPTION TABLES
OPTIONS A AND B - LIFETIME PAYMENT OPTION
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED
<TABLE>
<CAPTION>
Payments Guaranteed For Payments Guaranteed For
Adjusted Life Only 5 Years 10 Years 20 Years Adjusted Life Only 5 Years 10 Years 20
Years
Age Age
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 4.64 4.63 4.60 4.50 70 7.16 7.05 6.73 5.68
51 4.70 4.69 4.66 4.55 71 7.40 7.275 6.90 5.73
52 4.77 4.76 4.73 4.50 72 7.66 7.51 7.07 5.77
53 4.85 4.83 4.80 4.66 73 7.94 7.76 7.25 5.81
54 4.92 4.91 4.87 4.71 74 8.24 8.02 7.43 5.84
55 5.01 4.99 4.95 4.77 75 8.56 8.31 7.61 5.87
56 5.09 5.08 5.03 4.83 76 8.91 8.60 7.80 5.90
57 5.19 5.17 5.11 4.89 77 9.29 8.92 7.98 5.92
58 5.29 5.27 5.20 4.95 78 9.70 9.25 8.17 5.94
59 5.39 5.37 5.30 5.02 79 10.14 9.60 8.35 5.95
60 5.50 5.48 5.40 5.08 80 10.61 9.97 8.53 5.97
61 5.62 5.60 5.51 5.15 81 11.12 10.35 8.70 5.98
62 5.75 5.72 5.62 5.21 82 11.67 10.75 8.86 5.98
63 5.89 5.85 5.73 5.28 83 12.27 11.16 9.01 5.99
64 6.04 5.99 5.86 5.34 84 12.90 11.58 9.15 5.99
65 6.20 6.14 5.99 5.40 85 13.59 12.00 9.28 6.00
66 6.36 6.30 6.12 5.46
67 6.54 6.47 6.27 5.52
68 6.74 6.65 6.41 5.58
69 6.94 6.85 6.57 5.63
</TABLE>
Monthly payment rates for all other ages will be furnished on request. For
quarterly payments, multiply the monthly payment rate by 2.99. For semi-annual
payments, multiply by 5.95. For annual payment, multiply by 11.78.
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OPTIONS C AND D - JOINT LIFETIME PAYMENT
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED PAYMENTS FOR TWO
LIVES ONLY
<TABLE>
<CAPTION>
ANNUITANTS' AGES PERCENTAGE OF PAYMENT PAYABLE
TO SURVIVING
ANNUITANT IS:
PRIMARY JOINT 50% 66 2/3% 75% 100%
<S> <C> <C> <C> <C>
(A) Payments reduce upon the death of either the Annuitant
or the Joint Annuitant:
50 50 4.64 4.47 4.39 4.18
50 55 4.81 4.62 4.53 4.28
55 55 5.01 4.80 4.70 4.43
55 60 5.24 5.00 4.88 4.57
60 60 5.50 5.24 5.11 4.77
60 65 5.83 5.51 5.36 4.96
65 65 6.20 5.84 5.68 5.24
65 70 6.65 6.21 6.02 5.50
(B) Payments reduce only upon the death of the Annuitant
(ERISA Joint and Survivor Annuity Option):
50 50 4.39 4.32 4.28 4.18
50 55 4.45 4.39 4.37 4.28
55 50 4.62 4.50 4.44 4.28
55 55 4.70 4.61 4.56 4.43
55 60 4.78 4.71 4.67 4.57
60 55 4.99 4.84 4.77 4.57
60 60 5.11 4.99 4.93 4.77
60 65 5.22 5.13 5.09 4.96
65 60 5.51 5.31 5.22 4.96
65 65 5.68 5.52 5.45 5.24
65 70 5.83 5.71 5.66 5.50
70 65 6.22 5.96 5.84 5.50
</TABLE>
Monthly payment rates for other age combinations will be furnished on request.
For quarterly payments, multiply the monthly payment rate by 2.99. For
semi-annual payments, multiply by 5.95. For annual payment, multiply by 11.78.
OPTION E - FIXED TIME PAYMENT
MINIMUM MONTHLY PAYMENT RATES FOR EACH $1,000 APPLIED
<TABLE>
<CAPTION>
YEARS MONTHLY PAYMENT YEARS MONTHLY PAYMENT YEARS MONTHLY PAYMENT
<S> <C> <C> <C> <C> <C>
1 Not Available 11 $9.31 21 $5.81
2 Not Available 12 8.69 22 5.64
3 Not Available 13 8.17 23 5.49
4 Not Available 14 7.72 24 5.35
5 18.32 15 7.34 25 5.22
6 15.56 16 7.00 26 5.10
7 13.59 17 6.71 27 5.00
8 12.12 18 6.44 28 4.90
9 10.97 19 6.21 29 4.80
10 10.06 20 6.00 30 4.72
</TABLE>
For quarterly payments, multiply the monthly payment rate by 2.99. For
semi-annual payments, multiply by 5.95. For annual payment, multiply by 11.78.
105
<PAGE> 18
FIRST VARIABLE LIFE
FIRST VARIABLE LIFE INSURANCE COMPANY
LITTLE ROCK, ARKANSAS
GENERAL ACCOUNT RIDER
ONE YEAR INTEREST GUARANTEE PERIOD
This Rider is part of the Contract to which it is attached and is effective upon
issuance. The Contract is amended as follows:
DEFINITIONS
CONTRACT VALUE -- The sum of the Owner's interest in the Subaccounts of the
Separate Account and in the General Account.
GENERAL ACCOUNT VALUE -- The Owner's interest in the General Account.
VARIABLE ACCOUNT VALUE -- The Owner's interest in the Subaccounts of the
Separate Account.
PURCHASE PAYMENT PROVISIONS
ALLOCATION OF PURCHASE PAYMENTS -- The Purchase Payments for the General Account
Rider shall be allocated to the General Account. The minimum and maximum
subsequent Purchase Payments are shown on the Contract Data Page.
CONTRACT VALUE PROVISION
CONTRACT VALUE -- The Purchase Payments for this General Account Rider shall be
allocated to the General Account.
The Contract Value on any Valuation Date is the sum of the Owner's interest in
the Subaccounts of the Separate Account and in the General Account. The General
Account Value at any time is equal to the sum of the Purchase Payments allocated
to the General Account, amounts transferred to the General Account and interest
credited to the General Account less amounts transferred from the General
Account, any partial withdrawals, Withdrawal Charges, Contract Maintenance
Charges, Transfer Fees and applicable taxes.
106
<PAGE> 19
ANNUAL CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR ANNUAL CONTRACT MAINTENANCE CHARGE - This charge is deducted from
the General Account Value and the Separate Account Value by subtracting values
from the General Account Value and/or canceling Accumulation Units from each
applicable Subaccount in the ratio that the value of each account bears to the
total Contract Value.
TRANSFER PROVISIONS
The Transfers Prior to the Annuity Date section is replaced in its entirety by
the following provisions:
TRANSFERS PRIOR TO THE ANNUITY DATE - Prior to the Annuity Date, the Owner may
transfer all or a part of the Owner's interest in a Subaccount or the General
Account without the imposition of any fee or charge if there have been no more
than the number of free transfers shown on the Contract Data Page for the
Contract Year.
All transfers are subject to the following:
(1) if more than the number of free transfers have been made in the Contract
Year, the Company will deduct a Transfer Fee. The Transfer Fee is shown
on the Contract Data Page. The Transfer Fee will be deducted from the
Account from which the transfer is made. However, if the entire interest
in an Account is being transferred, the Transfer Fee will be deducted
from the amount which is transferred.
(2) the minimum amount which may be transferred and which must remain in the
Account is shown on the Contract Data Page.
(3) any transfer direction must clearly specify: (A) the amount which is to
be transferred; and (B) the Accounts which are to be affected.
(4) the Company reserves the right at any time and without prior notice to
any party to terminate, suspend or modify the transfer privileges
described above.
(5) 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.
If the Owner elects to use the transfer privilege, the Company will not be
liable for transfers made in accordance with the Owner's instruction.
INTEREST CREDITS
INTEREST TO BE CREDITED - The Company guarantees that the interest rate credited
to the General Account Value will not be less than the minimum Guaranteed
Interest Rate equal to: an effective rate of 3% per year. The Company may credit
additional interest in its sole discretion. The Initial Guaranteed Interest Rate
shall be as set forth on the Contract Data Page for the Initial Interest
Guarantee Period which shall be for one year from the date the Purchase Payment
is allocated to the General Account. Upon the expiration of the Initial Interest
Guarantee Period, the Company will in its discretion determine the Guaranteed
Interest Rate for each subsequent Interest Guarantee Period. Such subsequent
Interest Guarantee Period shall be for successive one year periods after the
expiration of the Initial Interest Guarantee Period. The Guaranteed Interest
Rate for any subsequent Purchase Payments allocated to the General Account shall
be that rate in effect at the time of the allocation or transfer to the General
Account. Interest will be credited daily to the General Account Value.
107
<PAGE> 20
WITHDRAWAL PROVISIONS
A withdrawal will result in the cancellation of Accumulation Units for each
applicable Subaccount of the Separate Account or a reduction in the General
Account Value in the ratio that the Subaccount Value and/or the General Account
Value bears to the Contract Value. The Owner must specify in writing in advance
if other than the above method of cancellation and reduction is to be used.
SUSPENSION OR DEFERRAL OF PAYMENTS
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.
/s/Arnold R. Bergman /s/John Soukup
Secretary President
108
<PAGE> 1
EX-99.B5
Application for Variable Annuity
109
<PAGE> 2
FIRST VARIABLE LIFE INSURANCE COMPANY
_______________________________________________________________________________
Application for Capital No Load
Issued and Administered by First Variable Life Insurance Company
A stock company domiciled in Little Rock, Arkansas
_______________________________________________________________________________
INSTRUCTIONS: Please type or print in permanent black ink. This form will be
photocopied. Joint Owner must be spouse. Include date of birth and social
security number for both parties.
_______________________________________________________________________________
1. Annuitant (If no Owner is specified in Section 2, the Annuitant will be the
Owner)
Name :
Male Female
Social Security Number:_______________________________________________
Date of Birth:________________________________________________________
Permanent Address:____________________________________________________
____________________________________________________
________________________________________________________________________________
2. Owner (Complete only if different from the Annuitant)
Name :________________________________________________________________
Male Female
Social Security Number:_______________________________________________
Date of Birth:________________________________________________________
Permanent Address:____________________________________________________
____________________________________________________
________________________________________________________________________________
3. Beneficiary
Name (Primary):_______________________________________________________
Social Security Number:_______________________________________________
Date of Birth:________________________________________________________
Name (Contingent):____________________________________________________
Social Security Number:_______________________________________________
Date of Birth:________________________________________________________
_______________________________________________________________________________
4. Purchase Payment (Make check payable to: First Variable Life Insurance
Company)
Purchase Payment
Accompanying Application $___________________________
_________________Initial minimum: $20,000 (Non-qualified) or $2,000 (Qualified)
110
<PAGE> 3
_______________________________________________________________________________
5. Type of Plan
NON-QUALIFIED QUALIFIED
IRA (circle one):
Regular Rollover SEP Transfer
401 HR 10 (KEOGH)
401 Corporate
403(b) TSA
457 Deferred Compensation
If applicable indicate:
1035 Exchange (non-qualified) from*:_____________________________
(company name)
Transfer of Assets (qualified) from*:____________________________
(company name)
* If 1035 Exchange or other Transfer of Assets, attach a copy
of the exchange form or letter.
________________________________________________________________________________
6 Replacement
Will the proposed annuity contract replace any existing annuity or life
insurance contract?
No Yes (If "yes," state company, contract number, and annuitant
in the Additional Remarks Section. Attach replacement forms.)
________________________________________________________________________________
7. Fund Selection
____________% Federated-Prime Money Fund 11 Portfolio (Federated
Investment Counseling)
____________% U.S. Government Bond Portfolio (Strong Capital
Management, Inc.)
____________% High Income Bond Portfolio (Federated Investment
Counseling)
____________% Growth Portfolio (Value Line, Inc.)
____________% Multiple Strategies Portfolio (Value Line, Inc.)
____________% Matrix Equity Portfolio (State Street Global Advisors)
____________% World Equity Portfolio (Keystone Investment Management
Company)
____________% Growth & Income Portfolio (Warburg Pincus Counsellors,
Inc.)
____________% Small Cap Growth Portfolio (Pilgrim Baxter & Associates
Ltd.)
____________% Other ___________________________________________________
Fixed Account
____________% 1-Year Option
____________% Other ___________________________________________________
Use whole percentages only. Total Allocation must
equal 100%.
________________________________________________________________________________
111
<PAGE> 4
8. Telephone Transfers
By initialing this box,_________________________, I hereby authorize the
Company, either directly or through it agents, to transfer Contract Values
among the investment division available under the Contract upon telephone
instructions from the Owner or any other person who purports to give
instructions on his or her behalf. This authorization is subject to the
restrictions and limitations contained in the rules and procedures
established by the Company from time to time. (A copy of these rules will
be provided with your Contract.)
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if it does not, it may be liable
for any losses due to unauthorized or fraudulent transactions.
The Company is authorized, without prior disclosure, to record telephone
conversations containing telephone instructions.
The Owner agrees to examine promptly all confirmation statements reflecting
transfers made in accordance with telephone instructions. Errors shall be
reported to the Company immediately.
This authorization will continue in effect until the Company receives
written revocation from the Owner, or the Company discontinues telephone
transfers.
________________________________________________________________________________
9. Additional Remarks
Asset Rebalancing: Yes, I elect this service. Effective Date:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
________________________________________________________________________________
10. Signature
All statements made in this Application are true to the best of my
knowledge and belief I agree to all its terms and conditions. I further
agree that this application shall be a part of the annuity contract. I
verify my understanding that ALL PAYMENTS AND VALUES PROVIDED BY THE
CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE
VARIABLE AND NOT GUARANTEED AS TO DOLLAR AMOUNT.
ALLOCATION DURING FREE LOOK PERIOD: Under certain circumstances, as
described in the accompanying Prospectus, the initial purchase payment will
be allocated to the Cash Management Portfolio until the expiration of the
Free Look period. Thereafter, the purchase payments will be allocated as
directed in the Purchase Payment Allocation Section. I acknowledge receipt
of current prospectuses. I certify that the Social Security (or taxpayer
identification) number is correct as it appears in this application.
_____Check here if you wish to receive a copy of the Statement of
Additional Information.
Signed at City____________ State____________ Date____________
SIGNATURE OF ANNUITANT __________________________ PHONE #_________________
SIGNATURE OF OWNER (Completed only if Owner is different from Annuitant)
______________________________________
________________________________________________________________________________
11. Signature of Representative
To the best of my knowledge, this application ______ will ______ will
not replace or change an existing insurance policy or annuity.
(If replacement/change is involved, please give full details, including
name of company. Attach required documents.)
I have reviewed this Annuity program with the Applicant. I believe it to be
suitable in view of the Applicant's investment objectives, financial
situation, and needs.
112
<PAGE> 5
Signature of Representative:_____________________ Date:___________________
Representative's Name (please print)______________________________________
Phone #:____________________________ Soc. Sec. #:_________________________
Name of Broker Dealer (please print):_____________________________________
Comp ____ Trail
____ No Trail
________________________________________________________________________________
Send completed application with a check made out to FIRST VARIABLE LIFE
INSURANCE COMPANY to your investment dealer's home office or to:
First Variable Service Center
P.O. Box 1317
Des Moines, IA 50305-1317
(800) 228-1035
113
<PAGE> 1
EX-99.B9(a)
Consent of Arnold R. Bergman, Vice President, General Counsel and Secretary,
First Variable Life Insurance Company
114
<PAGE> 2
[FIRST VARIABLE LIFE LOGO]
April 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration of Variable Annuity Contract Interests
First Variable Annuity Fund E of First Variable Life Insurance Company
(File Nos. 33-86738 and 811-4092)
Dear Sir/Madam:
I consent to the use in Registration No. 33-86738 of my opinion letter dated
April 25, 1997.
Very truly yours,
s/Arnold R. Bergman
Arnold R. Bergman
Vice President, General Counsel* and Secretary
*Admitted in NY
115
<PAGE> 1
EX-99.B9(b)
Consent of Blazzard, Grodd & Hasenauer
116
<PAGE> 2
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 20, 1998
CONSENT OF COUNSEL
We consent to the reference to our Firm under the caption "Legal Counsel"
contained in the Statement of Additional Information which forms a part of the
Post-Effective Amendment No. 4 to the Registration Statement on Form N-4 (File
No. 33-86738) 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.
s/BLAZZARD, GRODD & HASENAUER, P.C.
BLAZZARD, GRODD & HASENAUER, P.C.
117
<PAGE> 1
EX-99.B10.
Consent of Ernst & Young LLP, Independent Auditors
118
<PAGE> 2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our reports dated February 6, 1998, with respect to
the consolidated financial statements of First Variable Life Insurance
Company and January 30, 1998, with respect to the financial statements of
First Variable Life Insurance Company-First Variable Annuity Fund E, in
Post-Effective Amendment No. 4 to the Registration Statement (Form N-4 No.
33-86738) and related Prospectus of First Variable Life Insurance Company.
s/Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 27, 1998
119
<PAGE> 1
EX-99.B13.
Calculation of Performance Information
120
<PAGE> 2
4/3/98
PRIME MONEY FUND II CAPITAL NO LOAD FUND E YIELD CALCULATIONS AS OF 12/31/97
Seven Day Yield
12/31/97 Unit Price 10.737 (A)
12/24/97 Unit Price 10.729 (B)
Difference 0.008 (C)
Base Return (C) / (B) 0.000745643
Annualized Base Return = (C) / (B) * 365/7 = 3.89%
Effective Yield = (1+Base Return) (to the power of) (365/7) -1 = 3.96%
TOTAL RETURN ON CAPITAL NO LOAD PORTFOLIOS OVER RESPECTIVE PERIODS
FORMULA
P*(1+T) (to the power of) N = ERV T = ((ERV/P) (to the power of) 1/N) -1
<TABLE>
<S> <C>
POLICY ISSUE FEE 0
ANN CONTRACT MNT CHG 30.00
TIME SINCE START 2.17
TIME SINCE START 2.17 (Small Cap & Growth & Income Portfolio's)
SURRENDAR CHARGE 1 0
SURRENDER CHARGE 2 0
SURRENDER CHARGE 3 0
SURRENDER CHARGE 4 0
SURRENDER CHARGE 5 0
SURRENDER CHARGE 6 0
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP GROWTH SMALL CAP GROWTH
<S> <C> <C> <C>
ONE YEAR START OF PORTFOLIO
Unit Price EOP 12.909 Unit Price EOP 12.909
Unit Price BOP 13.01 Unit Price BOP 10.000
Accum Value EOP 992.24 Accum Value EOP 1,290.90
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 991.82 Surrender Value 1,289.99
Total Return -0.818% Total Return 12.450%
WORLD EQUITY WORLD EQUITY
ONE YEAR START OF PORTFOLIO
</TABLE>
121
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Unit Price EOP 12.279 Unit Price EOP 12.279
Unit Price BOP 11.333 Unit Price BOP 10.000
Accum Value EOP 1,083.47 Accum Value EOP 1,227.90
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,083.05 Surrender Value 1,226.99
Total Return 8.305% Total Return 9.885%
GROWTH GROWTH
ONE YEAR START OF PORTFOLIO
Unit Price EOP 15.307 Unit Price EOP 15.307
Unit Price BOP 12.569 Unit Price BOP 10.000
Accum Value EOP 1,217.84 Accum Value EOP 1,530.70
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,217.42 Surrender Value 1,529.79
Total Return 21.742% Total Return 21.642%
MATRIX EQUITY MATRIX EQUITY
ONE YEAR START OF PORTFOLIO
Unit Price EOP 13.157 Unit Price EOP 13.157
Unit Price BOP 10.942 Unit Price BOP 10.000
Accum Value EOP 1,202.43 Accum Value EOP 1,315.70
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,202.01 Surrender Value 1,314.79
Total Return 20.201% Total Return 13.442%
GROWTH & INCOME GROWTH & INCOME
ONE YEAR
Unit Price EOP 14.835 Unit Price EOP 14.835
Unit Price BOP 11.747 Unit Price BOP 10.000
Accum Value EOP 1,262.88 Accum Value EOP 1,483.50
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,262.46 Surrender Value 1,482.59
Total Return 26.246% Total Return 19.898%
</TABLE>
122
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MULTIPLE STRATEGIES MULTIPLE STRATEGIES
ONE YEAR START OF PORTFOLIO
Unit Price EOP 14.102 Unit Price EOP 14.102
Unit Price BOP 11.835 Unit Price BOP 10.000
Accum Value EOP 1,191.55 Accum Value EOP 1,410.20
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,191.13 Surrender Value 1,409.29
Total Return 19.113% Total Return 17.129%
HIGH INCOME BOND HIGH INCOME BOND
ONE YEAR START OF PORTFOLIO
Unit Price EOP 12.802 Unit Price EOP 12.802
Unit Price BOP 11.446 Unit Price BOP 10.000
Accum Value EOP 1,118.47 Accum Value EOP 1,280.20
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,118.05 Surrender Value 1,279.29
Total Return 11.805% Total Return 12.020%
U.S. GOVERNMENT BOND U.S. GOVERNMENT BOND
ONE YEAR START OF PORTFOLIO
Unit Price EOP 11.189 Unit Price EOP 11.189
Unit Price BOP 10.385 Unit Price BOP 10.000
Accum Value EOP 1,077.42 Accum Value EOP 1,118.90
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,077.00 Surrender Value 1,117.99
Total Return 7.700% Total Return 5.274%
PRIME MONEY FUND II PRIME MONEY FUND II
ONE YEAR START OF PORTFOLIO
Unit Price EOP 10.737 Unit Price EOP 10.737
Unit Price BOP 10.387 Unit Price BOP 10.000
</TABLE>
123
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Accum Value EOP 1,033.70 Accum Value EOP 1,073.70
Surrender Charge - Surrender Charge -
Ann Contract Charge 0.42 Ann Contract Charge 0.91
Surrender Value 1,033.28 Surrender Value 1,072.79
Total Return 3.328% Total Return 3.291%
</TABLE>
124
