<PAGE>
File Nos. 333-12197
811-4092
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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]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 [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
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's telephone number including area code: (630) 684-9200
Name and Address of Agent for Service
-------------------------------------
Arnold R. Bergman
Vice President, General Counsel and Secretary
First Variable Life Insurance Company
2122 York Road
Oak Brook, IL 60523
Copies to:
Raymond A. O'Hara III, Esq.
Blazzard, Grodd & Hasenaver, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1999 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.
<PAGE>
FIRST VARIABLE ANNUITY FUND E
CROSS REFERENCE SHEET
(Pursuant to Rule 495(a))
Item No. in
Form N-4
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<CAPTION>
PART A Location
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<S> <C>
Item 1. Cover Page Cover Page
Item 2. Definitions DEFINITIONS
Item 3. Synopsis or Highlights HIGHLIGHTS
Item 4. Condensed Financial Information ACCUMULATION UNIT DATA; OTHER MATTERS, FINANCIAL
STATEMENTS; STATEMENT OF ADDITIONAL INFORMATION
Item 5. General Description of Registrant, FIRST VARIABLE LIFE INSURANCE COMPANY; THE SEPARATE
Depositor and Portfolio Companies ACCOUNT; SEPARATE ACCOUNT INVESTMENT OPTIONS; MFS
Variable Insurance Trust ;Variable Investors Series
Trust
Item 6. Deductions MORE ABOUT CHARGES AND DEDUCTIONS
Item 7. General Description of Variable THE CONTRACT; CONTRACT BENEFITS AND VALUES
Annuity Contracts
Item 8. Annuity Period Annuity Benefits
Item 9. Death Benefit THE CONTRACT; CONTRACT BENEFITS AND VALUES; Death
Benefits before the Annuity Date; Death Benefits
after the Annuity Date.
Item 10. Purchases and Contract Value HIGHLIGHTS; YOUR INVESTMENT OPTIONS; Purchase
Payments; Allocation of Purchase Payments; CONTRACT
BENEFITS AND VALUES
Item 11. Redemptions HIGHLIGHTS; YOUR INVESTMENT OPTIONS; THE CONTRACT;
CONTRACT BENEFITS AND VALUES; SURRENDER AND
WITHDRAWALS
Item 12. Taxes FEDERAL TAX MATTERS
Item 13. Legal Proceedings OTHER MATTERS; Financial Statements; Legal
Proceedings
Item 14. Table of Contents of the Statement of TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
Additional Information INFORMATION
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item No.
Form N-4 Location
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PART B
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Item 15. Cover Page.................................................. Cover Page
Item 16. Table of Contents........................................... TABLE OF CONTENTS
Item 17. General Information and History............................. FIRST VARIABLE LIFE
INSURANCE COMPANY
Item 18. Services.................................................... Not Applicable
Item 19. Purchase of Securities Being Offered........................ Not Applicable
Item 20. Underwriters................................................ DISTRIBUTOR; DISTRIBUTION AND OTHER AGREEMENTS
Item 21. Calculation of Performance Data............................. YIELD CALCULATION FOR FIS PRIME MONEY FUND II
INVESTMENT OPTION; CALCULATION OF OTHER
PERFORMANCE INFORMATION
Item 22. Annuity Payments............................................ Annuity Benefits; ANNUITY PROVISIONS
Item 23. Financial Statements........................................ FINANCIAL STATEMENTS
</TABLE>
PART C
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Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of this Registration Statement.
<PAGE>
Prospectus [Date]
CAPITAL SIX VA
FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACTS
Issued by
FIRST VARIABLE LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
OUR MARKETING AND EXECUTIVE OFFICE: OUR VARIABLE SERVICE CENTER: OR, FOR EXPRESS DELIVERIES:
<S> <C> <C>
2122 York Road P.O. Box 1317 1206 Mulberry Street
Oak Brook, IL 60523 Des Moines, IA 50305-1317 Des Moines, IA 50309
Automated Information Line: (800) 845-0689
(800)-59-FUNDS
</TABLE>
The Contract described in this prospectus provides for the payment of monthly
annuity payments on a fixed or variable basis beginning on a preselected Annuity
Date. The Contract also permits you to accumulate Account Value until the
Annuity Date, based on the payments you make, the charges and expenses of the
Contract, and the investment results of your underlying investment options. You
have the flexibility to adjust the amount and frequency of payments, and may use
the Contract as "Qualified Contract" in a tax-qualified retirement plan or as a
"Non-Qualified Contract" for other long-term savings and retirement purposes.
You may allocate your payments and your Contract's Account Value among nineteen
different investment options, or to our Fixed Account. The investment options
are available through our segregated asset account called First Variable Annuity
Fund E (the "Separate Account"). The Separate Account invests in selected
portfolios of eight mutual funds (the "Funds"). The portfolios currently
available under the Contract are:
<TABLE>
<CAPTION>
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SEPARATE ACCOUNT INVESTMENT OPTIONS
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AIM American BT Insurance Federated Templeton Lord Abbett
MUTUAL Variable Century Funds Insurance Variable Series
FUND Insurance Variable Trust Series Products Fund, Inc.
Funds, Inc. Portfolios, Inc. ("BT") ("FIS") Series Fund ("LA")
("AIM") ("ACS") ("FT")
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<S> <C> <C> <C> <C> <C> <C>
V.I. Capital Small Cap Prime International Growth &
Appreciation V.P. Value Index Money Fund Income
PORTFOLIOS Fund II (Class 2 Shares)
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V.I. Growth Equity 500
Index
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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MUTUAL MFS Variable Insurance Trust Variable Investors Series Trust
FUND ("MFS") ("VIST")
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<S> <C> <C> <C> <C> <C> <C>
MFS New Matrix
Discovery MFS Growth Small Cap Growth Growth & Equity -
Series- Series Growth Income sector
seeks weighted
PORTFOLIOS capital equities
appreciation
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MFS Growth Stocks, Multiple World High Income U.S.
with Income Bonds & Cash Strategies - Equity Bond Government
Series stocks, Bond
bonds
& cash
========================================================================================================
</TABLE>
This prospectus contains information you should know before investing.
Additional information about the Contract and Separate Account is in our
Statement of Additional Information (the "Statement"). For a free copy, please
write to our Variable Service Center or call the number shown above. The
Statement, dated May 1, 1999, has been filed with the Securities and Exchange
Commission and is incorporated into this prospectus by reference. The table of
contents of the Statement is on page __ of this prospectus.
The Contracts are not bank deposits; are not federally insured; are not endorsed
by any bank or government agency; and are not guaranteed and may be subject to
loss of principal.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE
FUNDS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION NOT CONTAINED IN THIS
PROSPECTUS (OR IN ANY SALES LITERATURE WE HAVE APPROVED.) WE DO NOT OFFER THE
CONTRACTS EVERYWHERE, AND THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER ANYWHERE
THAT IT WOULD BE UNLAWFUL. IN CERTAIN JURISDICTIONS, VARIOUS TIME PERIODS AND
OTHER TERMS AND CONDITIONS MAY VARY FROM WHAT IS DESCRIBED IN THIS PROSPECTUS.
ANY SUCH VARIATIONS THAT APPLY TO YOUR CONTRACT WILL BE INCLUDED IN THE CONTRACT
OR A RELATED RIDER OR ENDORSEMENT.
<PAGE>
TABLE OF CONTENTS
DEFINITIONS................................................................
HIGHLIGHTS.................................................................
SUMMARY OF EXPENSES........................................................
FIRST VARIABLE LIFE INSURANCE COMPANY......................................
THE SEPARATE ACCOUNT.......................................................
YOUR INVESTMENT OPTIONS....................................................
The Available Options....................................................
Transfers Among Investment Options.......................................
General Requirements...................................................
Automatic Transfer Programs............................................
Restrictions on Transfers..............................................
Automatic Transfer of Small Accounts...................................
Mixed and Shared Funding.................................................
MORE ABOUT CHARGES AND DEDUCTIONS..........................................
Daily Deductions.........................................................
Annual Deductions........................................................
Annual Contract Maintenance Charge.....................................
Optional Additional Benefit Charges....................................
Withdrawal Charge........................................................
Free Withdrawal Amount.................................................
Premium Taxes............................................................
Other Charges and Expenses...............................................
Fund Expenses..........................................................
Income Taxes...........................................................
Special Service Fees...................................................
Elimination, Reduction or Refund of Charges and Deductions...............
Group and Sponsored Arrangements.......................................
Gender-Neutral Policies................................................
Purpose of Contract Changes..............................................
THE CONTRACT...............................................................
Application and Issuance of a Contract...................................
Free Look Right........................................................
Purchase Payments........................................................
General Requirements...................................................
Automatic Investment Plan..............................................
Termination of Small Accounts..........................................
Allocation of Purchase Payments..........................................
General................................................................
Delayed Investment Allocation Date.....................................
Telephone Transactions...................................................
CONTRACT BENEFITS AND VALUES...............................................
Determination of Account.................................................
Death Benefits Before the Annuity Date...................................
Death of the Annuitant.................................................
Death of the Owner.....................................................
BASIC DEATH BENEFIT........................................................
BONUS DEATH BENEFIT........................................................
Optional Death Benefit Riders..............................................
BEST ANNIVERSARY VALUE DEATH BENEFIT.......................................
EXTRA PROTECTOR DEATH BENEFIT..............................................
Surrender and Withdrawals................................................
<PAGE>
Surrender..............................................................
Withdrawals............................................................
Systematic Withdrawals.................................................
Payment of Proceeds......................................................
Tax Withholding and Tax Penalties......................................
Annuity Benefits.........................................................
General................................................................
Annuity Benefits.........................................................
General................................................................
Annuity Options........................................................
OPTION A. Life Annuity...............................................
OPTION B. Life Annuity with Periods Certain of 60,...................
120, 180 or 240 Months.....................................
OPTION C. Joint and Survivor Annuity.................................
OPTION D. Joint and Contingent Annuity...............................
OPTION E. Fixed Payments for a Period Certain........................
Form of Annuity Payments...............................................
Annuity Date...........................................................
Annuitization Bonus....................................................
Calculation of Annuity Payments........................................
Death Benefits after the Annuity Date..................................
Guaranteed Minimum Income Payment Rider................................
Death of the Annuitant.................................................
Death of the Owner.....................................................
OTHER PROVISIONS OF THE CONTRACT.........................................
Misstatement of Age or Sex.............................................
Owner and Beneficiary..................................................
Beneficiary..........................................................
Changes and Assignments..............................................
Assignments............................................................
Change of Annuitant Designation........................................
Texas Optional Retirement Program......................................
Voting Rights..........................................................
Suspension of Payments or Transfers....................................
DISTRIBUTION AND OTHER AGREEMENTS........................................
FEDERAL TAX MATTERS......................................................
General................................................................
Our Taxation...........................................................
Income Tax Deferral on Increases in Account Value......................
Contracts Owned by Other than Natural Persons........................
Diversification Requirements.........................................
Investment Control...................................................
Distributions from Non-Qualified Contracts.............................
Penalty tax on Premature Distributions...............................
Annuity Payments.....................................................
Death Benefits.......................................................
Multiple Contracts...................................................
Tax-Qualified Retirement Plans.........................................
Traditional IRS and Roth IRAs........................................
Corporate and Self-Employed ("H.R. 10" and "Keogh")..................
Pension and Profit Sharing Plans...................................
403(b) Annuities.....................................................
Section 457 Plans....................................................
Distributions from Qualified Contracts.................................
Roth IRAs............................................................
Penalty tax on Pre-retirement Distributions..........................
Tax-Sheltered Annuities--Withdrawal Limitations......................
Federal Income Tax Withholding.........................................
ADVERTISING PRACTICES....................................................
FIS Prime Money Fund II Portfolio......................................
Other Portfolios.......................................................
OTHER MATTERS............................................................
Financial Statements...................................................
Legal Proceedings......................................................
Transfers by the Company...............................................
YEAR 2000 ISSUES.........................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............
APPENDIX A. Accumulation Unit Data.......................................
<PAGE>
DEFINITIONS
ACCOUNT VALUE - The value of a Contract during the Accumulation Period.
ACCUMULATION PERIOD - The time between the Contract Date and the Annuity Date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate the Account
Value.
ANNUITANT - The natural person on whose life annuity payments are based.
ANNUITY DATE - The date on which annuity payments are scheduled to begin.
ANNUITY - A series of payments we make to the payee you select. "Fixed" annuity
payments are those where we guarantee the dollar amount of each payment.
"Variable" annuity payments are those where the dollar amount of each payment
will change to reflect the investment experience of the applicable Separate
Account Investment Option.
BUSINESS DAY - Each day the New York Stock Exchange is open for regular trading.
The New York Stock Exchange is currently closed on weekends and on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Each Business Day ends at the close of regular trading for the
day on the exchange, which usually is 4:00 p.m., Eastern Time.
CONTRACT ANNIVERSARY - An anniversary of the Contract Date.
<PAGE>
CONTRACT DATE - The date the Contract takes effect, as shown on the Owner's
Contract data page.
CONTRACT MONTH - Each one-month period beginning on the Contract Date and
generally on the same day of each month after that.
CONTRACT QUARTER - One quarter of a Contract Year. The first Contract Quarter
begins on the Contract Date and ends on the last Business Day of the third
Contract Month.
CONTRACT YEAR - One year from the Contract Date and from each Contract
Anniversary.
WITHDRAWAL VALUE - The value of a Contract available during the Accumulation
Period upon surrender or withdrawal. Withdrawal Value equals your Account Value
reduced by any applicable withdrawal charges, any taxes not previously deducted,
and by any annual deductions for the Contract Year.
HIGHLIGHTS
These highlights discuss certain important aspects of the Contract. The rest of
this prospectus explains these and other aspects in greater detail. Be sure to
read the prospectus and the prospectuses of the Funds for more complete
information.
HOW DO INVESTMENT RESULTS AFFECT A CONTRACT?
You invest purchase payments and the Account Value under your Contract in one or
more of the investment options we offer. Your Account Value increases or
decreases by the amount of any positive or negative return it earns in those
options. Your Account Value also will decrease by the amount of all charges and
deductions we make under your Contract.
Account Value invested in our Separate Account investment options is not
guaranteed, and you bear the entire investment risk under those options.
Account Value allocated to our Fixed Account, however, is provided with our
guarantees of principal and a minimum 3% rate of interest on an annual basis.
After the Annuity Date, the investment results of our Separate Account will
affect the dollar amount of variable annuity payments. If you select a fixed
annuity, we will guarantee the amount of each annuity payment.
HOW MUCH CAN I (OR MUST I) INVEST IN A CONTRACT?
We generally require you to make a minimum initial purchase payment of $5,000
for Non-Qualified Contracts and $2,000 for Qualified Contracts. You may make
additional purchase payments after that, but each additional purchase payment
must be at least $200.
We will reduce our minimum purchase payment requirements if you participate in
certain automatic investment plans described in this prospectus. We reserve the
right to decline any purchase payment and, unless we consent otherwise, the
maximum amount of all payments for a Contract cannot exceed $1 million.
WILL I HAVE ACCESS TO MY ACCOUNT VALUE?
You may take amounts from your Contract's Withdrawal Value at any time up to the
Annuity Date. You may surrender (i.e., cancel) your Contract at any time up to
the Annuity Date, and we will pay you the Withdrawal Value.
You may take a "free withdrawal amount" from your Account Value each year up to
the Annuity Date without the imposition of a Withdrawal Charge. The annual free
withdrawal amount is equal to 15% of your purchase payments. We will also
permit you to withdraw 100% of the purchase payments you make after the first
contract year without a Withdrawal Charge.
On the Annuity Date, we will use your Account Value to determine the amount of
annuity payments that we will make. (We will use the Withdrawal Value instead of
the Account Value if annuity payments begin during the first 2 Contract Years.)
<PAGE>
WHAT GENERAL INCOME TAX CONSEQUENCES WILL I HAVE FROM OWNING A CONTRACT?
A 10% percent federal income tax penalty may apply to the income portion of any
distribution that you take from a Non-Qualified Contract before you are age 59
1/2, with certain exceptions. Separate tax withdrawal penalties and restrictions
apply to a Qualified Contract.
This prospectus contains more information in the FEDERAL TAX MATTERS section,
including a discussion of owner control of the underlying investments in a
variable annuity contract and general information on the taxation of death
benefits.
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A CONTRACT?
We make the following charges and deductions:
Daily Deductions - composed of an administrative charge at an annual rate of
.25% of the daily net assets in each Separate Account Investment Option, and a
mortality and expense risk charge at an annual rate of 1.25% of the daily net
assets in each Separate Account Investment Option.
Annual Deductions - composed of a contract maintenance charge of $30 if your
Account Value is less than $100,000, and any charges for optional additional
benefit riders.
Withdrawal Charge - will be assessed from certain withdrawals of Account Value
during the first 6 Contract Years or if you surrender your Contract during that
time. It will also be deducted if the Annuity Date is within the first 2
Contract Years. The Withdrawal Charge varies for each of the 6 Contract Years,
and ranges from 7% of purchase payments in the first Contract year to 2% of
purchase payments in the sixth Contract Year.
Premium Taxes - no deductions are made for premium or other taxes payable to a
state or other governmental entity, unless imposed by the state where you
reside.
Fund Expenses - There are deductions and expenses paid out of the assets of the
Funds that are described in the accompanying prospectuses for the Funds.
Other Expenses - currently none, but we reserve the right to impose charges for
other taxes that may be payable and are attributable to the Contracts in the
future.
SUMMARY OF EXPENSES
- ---------------------------------------------------------
OWNER TRANSACTION EXPENSES
Sales Load on Purchase Payments NONE
Withdrawal Charge - as a percentage of
purchase payments:
Contract Year 1 7%
Contract Year 2 6%
Contract Year 3 5%
Contract Year 4 4%
Contract Year 5 3%
Contract Year 6 2%
Contract Year 7+ NONE
Transfer Fee - on transfers of Account Value NONE
between Investment Options
ANNUAL CONTRACT MAINTENANCE CHARGE - $30
waived for Contracts with Account Value of
$100,000 or more
- ---------------------------------------------------------
<PAGE>
SEPARATE ACCOUNT EXPENSES - as a percentage of
average Account Value
Administrative Charge 0.25%
Mortality and Expense Risk Charge 1.25%
----
Total Separate Account Annual Expenses 1.50%
ANNUAL FUND EXPENSES AFTER EXPENSE REIMBURSEMENTS
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12b-1 Other Total
Management 1 Operating Expenses*
Mutual Fund Portfolio Fees Fees Expenses ---------
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<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation 0.62% 0.00% 0.05% 0.67%
AIM V.I. Growth 0.64% 0.00% 0.08% 0.72%
ACS V.P. Value 1.00% - 0.00% 1.00%
BT Small Cap Index 0.35% - 0.10% 0.45%
BT Equity 500 Index 0.20% - 0.10% 0.30%
FIS Prime Money
Fund II 0.50% - 0.30% 0.80%
FT International
(Class 2 shares) 0.69% 0.25% 0.19% 1.13%
LA Growth & Income 0.50% - 0.01% 0.51%
MFS New Discovery
Series 0.90% - 0.27% 1.17%
MFS Growth Series 0.75% - 0.25% 1.00%
MFS Growth with
Income Series 0.75% - 0.20% 0.95%
VIST Small Cap
Growth 0.85% - 0.50% 1.35%
VIST World Equity 0.70% - 0.50% 1.20%
VIST Growth 0.70% - 0.32% 1.02%
VIST Matrix Equity 0.65% - 0.50% 1.15%
VIST Growth &
Income 0.75% - 0.50% 1.25%
VIST Multiple
Strategies 0.70% - 0.45% 1.15%
VIST High Income
Bond 0.70% - 0.50% 1.20%
VIST U.S.
Government Bond 0.60% - 0.25% 0.85%
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</TABLE>
* "Total Expenses" for the Portfolios before reimbursement by the relevant
------
Fund's investment advisor, for the period ended December 31, 1998, were as
follows: 5.22% for the MFS New Discovery Portfolio; 1.84 % for the VIST Small
Cap Growth Portfolio; 1.51% for the VIST World Equity Portfolio; 1.03% for the
VIST Growth Portfolio; 1.48% for the VIST Matrix Equity Portfolio; 1.33% for the
VIST Growth & Income Portfolio; 1.46% for the VIST High Income Bond Portfolio;
and 1.59% for the VIST U.S. Government Bond Portfolio of average daily net
assets.
The purpose of this Table is to assist you in understanding the various costs
and expenses that you will bear directly and indirectly. The Table reflects
charges and expenses of the Separate Account as well as the Funds. For
additional information, see "MORE ABOUT CHARGES AND DEDUCTIONS" on page __ and
the Funds prospectuses that accompany this prospectus.
<PAGE>
EXPENSES ON A HYPOTHETICAL $1,000 CONTRACT, ASSUMING 5% GROWTH, IN EXISTING
INVESTMENT OPTIONS:
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<CAPTION>
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If you Annuitize a Contract during the first 2 If you Annuitize after 2 Contract Years, or if
contract Years, or if you surrender: you do not surrender:
- ----------------------------
Mutual Fund Portfolio 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ---------------------- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIS Prime Money Fund II $ 95 $127 $161 $279 $25 $77 $131 $279
VIST Small Cap Growth $101 $144 $189 $335 $31 $94 $159 $335
VIST World Equity $ 99 $139 $182 $320 $29 $89 $152 $320
VIST Growth $ 97 $133 $172 $302 $27 $83 $142 $302
VIST Matrix Equity $ 99 $138 $179 $315 $29 $88 $149 $315
VIST Growth & Income $100 $141 $184 $325 $30 $91 $154 $325
VIST Multiple Strategies $ 99 $138 $179 $315 $29 $88 $149 $315
VIST High Income Bond $ 99 $139 $182 $320 $29 $89 $152 $320
VIST U.S. Government Bond $ 95 $128 $163 $284 $25 $78 $133 $284
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXPENSES ON A HYPOTHETICAL $1,000 CONTRACT, ASSUMING 5% GROWTH, IN INVESTMENT
OPTIONS AVAILABLE MAY 1, 1999:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
If you Annuitize a Contract during If you Annuitize after 2 Contract
the first 2 Contract Years, or if Years, or if you do not surrender:
you surrender:
- -----------------------------
Mutual Fund Portfolio 1 Year 3 Years 1 Year 3 Years
- --------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
AIM V.I. Capital
Appreciation $94 $122 $24 $72
AIM V.I. Growth $94 $124 $24 $74
ACS V.P. Value $97 $133 $27 $83
BT Small Cap Index $91 $115 $21 $65
BT Equity 500 Index $90 $111 $20 $61
FIS Prime Money Fund II $95 $ 27 $25 $77
FT International (class 2
shares) $98 $136 $28 $86
LA Growth & Income $92 $117 $22 $67
MFS New Discovery
Series $99 $138 $29 $88
MFS Growth Series $97 $133 $27 $83
MFS Growth with Income $96 $131 $26 $81
Series
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Do not consider the examples a representation of past or future expenses. Actual
expenses may be greater or less than those shown. For example, the examples do
not reflect premium tax charges or any optional benefit riders. The impact of
the 15% free withdrawal amount is also not reflected because it is not available
on a full surrender of a Contract.
FIRST VARIABLE LIFE INSURANCE COMPANY
We are a stock life insurance company that was organized under Arkansas law in
1968. We engage principally in the business of variable life insurance,
variable annuities, and fixed annuities. We hold licenses to sell insurance in
49 states, the District of Columbia and the U.S. Virgin Islands. Irish Life of
North America, Inc. ("ILoNA") owns all of our outstanding stock, and Irish Life
& Permanent plc. ("Irish Life & Permanent"), in turn, owns all of ILoNA. Irish
Life & Permanent is a leading life and financial services group in Ireland with
total assets of over $25 billion at May 1, 1999.
We have an A (Excellent) rating from A.M. Best Company, an independent firm that
analyzes insurance carriers. We also have an AA- rating from Standard and
Poor's and an AA- rating from Duff & Phelps Credit Rating Co. on claims paying
ability. These ratings only reflect the opinion of the rating company on our
relative financial strength, and on our ability to satisfy our obligations under
the Policies. The ratings do not reflect the investment performance of the
Separate Account, or the degree of risk associated with an investment in the
Separate Account.
<PAGE>
THE SEPARATE ACCOUNT
We authorized the establishment of First Variable Separate Account E (the
"Separate Account) under Arkansas law on December 4, 1979; and we have
registered the Separate Account with the Securities and Exchange Commission
("SEC") as a unit investment trust-type investment company.
The Separate Account's assets belong to us. However, our other creditors could
reach only the amount (if any) in the Separate Account that exceeds the current
value of our obligations to policyholders who have chosen a Separate Account
investment option.
The Separate Account has several different investment options within it. We
invest the assets allocated to each investment option in one Portfolio of a
Fund.
We may add other investment options to the Contracts that, in turn, may be
invested in other Portfolios of a Fund, or in portfolios of other mutual funds.
We may restrict these other investment options to customers of specified
distributors.
YOUR INVESTMENT OPTIONS
THE AVAILABLE OPTIONS
You may allocate your premium payments and existing Account Value to one or more
of our Separate Account investment options and/or to our Fixed Account. The
currently available Portfolios for our Separate Account investment options are
listed on the cover page of this prospectus. More information, including a
discussion of potential risks, appears in the current prospectuses for the
Funds, which accompany this prospectus. (The prospectuses for the Funds may
also describe other portfolios that are not available under a Contract.) You
should read this prospectus and the prospectuses for the Funds carefully before
investing in any Separate Account investment option.
We do 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 our judgment, further investment in the shares should become inappropriate or
inadvisable in view of the purpose of the Contracts, we may substitute shares of
another portfolio or investment vehicle for shares already purchased or to be
purchased in the future. We also may, in our discretion, remove Portfolios for
transfers or new investments. No substitution of securities may take place
without prior approval of the SEC, to the extent required, and in compliance
with requirements the SEC may impose.
We may also combine separate account investment options or operate them in any
form permitted by law, including a form that allows them to make direct
investments.
This prospectus generally describes only the Contract and Separate Account
investment options. Because of certain exemptions, interests in our Fixed
Account are not registered under the securities laws, nor have we registered the
Fixed Account as an investment company. Accordingly, the protections of the
federal securities laws do not apply to our Fixed Account. We will credit your
Account Values in the Fixed Account with at least a minimum effective rate of
interest per year. We may credit additional amounts of "current" interest in
our sole discretion. New purchase payments and transfers from the Separate
Account to the Fixed Account may each receive different current interest rate(s)
than the current interest rate(s) credited to Account Value that has been
previously invested in the Fixed Account. We determine current interest rates
in advance, and credit interest daily to your Account Value in the Fixed
Account.
TRANSFERS AMONG INVESTMENT OPTIONS
General Requirements. You may transfer Account Value among investment options
by written request or telephone. The minimum amount you may transfer is the
lesser of (a) $1,000 or (b) your entire interest in the applicable investment
option. You should mail, fax or express written transfer requests to our
Variable Service Center shown on the front cover of this prospectus. You can
also request a transfer by phoning 1-800-845-0689.
Transfer requests must clearly specify the amount to be transferred and the
investment options affected. All transfer requests made at the same time for
Separate Account investment options will be treated as a single request. The
transfer will be effective at the prices we next compute after we receive the
transfer request at our Variable Service Center.
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Unless we consent, transfers from the Fixed Account to other investment options
during the first Contract Year cannot total more than 25% of the Fixed Account
Value on the Contract Date.
After the first Contract Year, your transfers from the Fixed Account during the
Accumulation Period may not exceed the greater of:
. 25% of your Account Value in the Fixed Account as of the immediately
preceding Contract Anniversary; or
. 100% of your Account Value in the Fixed Account that you transferred to other
investment options during the immediately preceding Contract Year.
After the Annuity Date, you may make a transfer once each Contract Year, subject
to certain procedures outlined in the Contract:
. from one or more Separate Account investment options to other Separate
Account Investment Options; or
. to the Fixed Account.
No transfers are permitted from the Fixed Account to the Separate Account once
annuity payments begin.
Automatic Transfer Programs - You can participate in automatic transfer
arrangements, including dollar cost averaging and asset rebalancing programs.
You initiate these programs by making a written or telephone request to our
Variable Service Center shown on the front cover of this prospectus. We make
the automatic transfers on the last business day of whichever of the following
intervals you request: quarterly, semi-annually, annually, monthly (for dollar
cost averaging only), or at any other interval that we approve. You may request
us to cease automatic transfers at any time.
Automatic transfers from the Fixed Account are subject to the restrictions
described above in General Requirements (except that, for dollar cost averaging
only, you can transfer up to 100% of your Account Value in the Fixed Account
within one Contract Year if you have selected the monthly interval.) We
currently do not charge you for an automatic transaction program, although we
reserve the right to do so in the future.
The dollar cost averaging program permits transfers from the FIS Prime Money
Fund II investment option or the Fixed Account to other Separate Account
investment options on a regularly scheduled basis. Such systematic transfers may
prevent investing too much when the price of securities is high or too little
when the price is low. There is no guarantee of this, however.
Also, since systematic transfers, such as dollar cost averaging, involve
continuous investment regardless of fluctuating price levels, you should
consider your ability to continue purchases through all phases of the market
cycle.
The minimum amount, for each dollar cost averaging transfer, is $100. You must
have $1,200 of Account Value in the FIS Prime Money Fund II investment option 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
above, except that 100% of amounts in the Fixed Account may be systematically
transferred before the Annuity Date if transfers are made monthly for a one-year
period.
The asset rebalancing program enables you to select the percentage levels of
Account Value you wish to maintain in particular investment options. At the
intervals you select, we will automatically rebalance your Account Value to
maintain the indicated percentages by transfers among the investment options.
You must include all of your Account Value allocated to the Separate Account
investment options in any asset rebalancing program.
Other investment programs, such as systematic transfers and systematic
withdrawals, or other transfers or withdrawals may not work well in concert with
the asset rebalancing program. Therefore, you should monitor your use of these
programs while the asset rebalancing program is being used.
We currently do not charge for enrolling in these programs, but we reserve the
right to do so.
Restrictions on Transfers. Generally, you may make an unlimited number of
transfers in any Contract Year. Frequent requests to transfer, however, may have
a detrimental effect on the value of Portfolio shares held in the Separate
Account. We 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:
. the purchase 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 Account Value or Portfolio share prices.
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We may also at any time suspend or cancel acceptance of third party transfer
requests 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. We will not impose any restrictions, however, if
we have received satisfactory evidence that:
. you, as Owner, have appointed the third party to act on your behalf for all
financial affairs; or
. a court of competent jurisdiction has appointed the third party to act on the
Owner's behalf.
We also reserve the right at any time and without prior notice to otherwise
modify, suspend or stop the transfer privileges.
Automatic Transfer of Small Accounts. We reserve the right, subject to any
applicable law, to transfer Account Value from any investment option if less
than $250, to the investment option with the greatest Account Value.
Mixed and Shared Funding
We buy shares of the Funds for the Separate Account in connection with the
Contracts, and for allocation to separate accounts funding variable annuity
policies and other variable life insurance policies issued by us. The Funds
offer shares to other insurance companies and to other separate accounts, either
affiliated or unaffiliated with us, for the same purpose. In the future, it may
conceivably become disadvantageous for variable life insurance separate accounts
and variable annuity separate accounts to invest in one or more of the
Portfolios simultaneously, if the interests of variable life insurance and
variable annuity policy owners differ. The boards of trustees of the Funds
intend to monitor events to identify any material irreconcilable conflicts that
may arise and to determine what action, if any, they or the insurance companies
should take in response.
MORE ABOUT CHARGES AND DEDUCTIONS
DAILY DEDUCTIONS
Each Business Day, we deduct an administrative charge and a mortality and
expense risk charge, both before and after the Annuity Date, that we calculate
as a percentage of your Contract's net assets in each Separate Account
investment option. The annual rate for the administrative charge is 0.25%, and
the annual rate for the mortality and expense risk charge is 1.25%.
ANNUAL DEDUCTIONS
At the end of each Contract Year, we make an annual deduction from each
Contract's Account Value. We make the deduction from your Investment Options
in proportion to the amount of your Account Value in each (i.e., on a "pro-rata
basis") or by any other method you select and we approve.
For example, we will permit you to have deductions first taken from one or more
pre-selected investment options. You may also request deductions to first be
taken from the Separate Account investment option that has had the best
investment performance over the prior Contract Month.
The annual deductions are generally taken on each Contract Anniversary, based on
your Account Value at that time. If your Annuity Date is not a Contract
Anniversary, however, we will calculate the annual deductions on the Annuity
Date. Similarly, if you surrender your Contract, or make a total withdrawal at
a time other than a Contract Anniversary, we will calculate the annual
deductions on the transaction date.
The annual deductions include the following charges:
Annual Contract Maintenance Charge. This charge is $30.00 per Contract Year for
each Contract Year during the Accumulation Period. We will waive this charge for
a Contract Year if your Account Value for that year is $100,000 or more.
Optional Additional Benefit Charges. We will deduct additional amounts if you
elected to add optional additional benefit riders to your Contract. Charges for
the riders will be separately stated in your Contract. The charges for currently
offered riders range from 0.15% of your Account Value (for the Best Anniversary
Value Death Benefit Rider), to 0.20% of your Account Value (for the Extra
Protector Death Benefit Rider), to 0.25% of your Account Value (for the
Guaranteed Minimum Income Payment Rider). (Prior to May 1, 1999, a different
optional additional benefit rider was available for the charges stated in that
rider.) The charges for a rider are not taken for any Contract Year that begins
after:
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. the date annuity payments begin and the rider terminates; or
. the date the rider otherwise terminates
WITHDRAWAL CHARGE
We may assess a withdrawal charge if you withdraw Account Value or surrender
your Contract during the first 6 Contract Years. We will also impose the
withdrawal charge on the Annuity Date if the Annuity Date is within the first 2
Contract Years.
We determine the withdrawal charge by applying the percentages shown in the
Summary of Expenses table in the "Highlights" section of this prospectus to the
purchase payments we deem withdrawn or surrendered, or if the Annuity Date is
within the first 2 Contract years. Purchase payments are deemed withdrawn or
surrendered in the order in which they are made. We take withdrawal charges
from your investment options on a pro-rata basis, or by any other method you
select and we approve.
If the Account Value remaining in an Investment Option after a partial
withdrawal is insufficient to cover the applicable withdrawal charge, we will
deduct the charge from the amount withdrawn.
Free Withdrawal Amount. We will not assess a withdrawal charge on a partial
withdrawal of Account Value until the amount withdrawn for that Contract Year
exceeds a "free withdrawal amount" equal to 15% of your purchase payments. We
will also permit you to withdraw 100% of purchase payments you have made after
the first year without a withdrawal charge.
The free withdrawals do not reduce purchase payments for purposes of computing
the withdrawal charge. The charge will continue to apply to the amount withdrawn
or surrendered during any of the first 6 Contract Years that exceeds 15% of
--------
first year Purchase Payments. The unused portion of the "free withdrawal amount"
for one Contract Year does not carry over to the next Contract Year.
The free withdrawal amount is not available on a total withdrawal of Account
Value, a surrender of your Contract, or on withdrawal requests that would result
in less than $1,000 of remaining Account Value.
Waiver of Withdrawal Charge. We will waive the withdrawal charge:
. if any death benefits are paid; or
. if your Account Value is applied after the first 2 Contract Years to an
Annuity Option.
We also will waive the withdrawal charge (where permitted):
. if you or your spouse is diagnosed with a terminal illness (we may require
evidence of such illness, including an examination by a licensed physician of
our choice); or
. after the first Contract Year, if you or your spouse is confined in a
qualifying nursing home for 90 consecutive days immediately preceding the
Contract Anniversary.
To qualify for a waiver of charges based on confinement in a qualifying nursing
home, you or your spouse must never have been confined in a qualifying nursing
home at the time you apply for a Contract.
The availability and requirements of the terminal illness and/or nursing home
waiver may vary from state to state. Your Contract will contain a complete
description of charges and requirements for any terminal illness and nursing
home waiver.
PREMIUM TAXES
We will deduct premium taxes or other taxes payable to a state or other
governmental entity from your Contract. Some states assess premium taxes at the
time purchase payments are made; others assess premium taxes at the time annuity
payments begin. We currently intend to deduct premium taxes when incurred.
Premium taxes generally range from 0% to 4%.
OTHER CHARGES AND EXPENSES
Fund Expenses. Our Separate Account purchases shares of the Portfolios of the
Funds at net asset value, which reflects investment management fees, other
operating expenses and any expense reimbursement paid by an investment adviser
to the applicable Portfolio. (See "Highlights - Fund Expenses.")
<PAGE>
Income Taxes. While we currently do not reduce Account Value for federal income
taxes of the Separate Account, we reserve the right to do so, if we determine
that we will incur a tax because of the operation of the Separate Account. We
will deduct for any income taxes incurred as a result of the operation of the
Separate Account whether or not our possible reserve for taxes was sufficient.
We will deduct any withholding taxes required by applicable law when amounts are
distributed from a Contract.
Special Service Fees. We do not charge you for special services, such as
additional reports, dollar cost averaging, and asset rebalancing. Although we
do not currently intend to do so, we reserve the right to charge you for these
special services in the future.
ELIMINATION, REDUCTION OR REFUND OF CHARGES AND DEDUCTIONS
We may eliminate, reduce, or refund any charges and deductions on a Contract
when sales of Contracts are made to certain individuals or to group and
sponsored arrangements. We will do this when we expect savings of sales,
administration or other expenses, or a reduction in the level of risks we expect
to assume under the Contracts. (This prospectus describes such groups under
"Group and Sponsored Arrangements" below.) We determine any such adjustment to
charges and deductions after examination of relevant factors such as:
. the size and type of group, because large numbers of Contracts tend to lower
our per-Contract expenses;
. the total amount of premium payments to be received, because certain expenses
tend to be a smaller percentage of larger premium payments;
. any prior or existing relationship we have with the purchaser, because of the
likelihood of reduced marketing and implementation expenses;
. other circumstances, of which we are not presently aware, which could result
in reduced expenses; and.
. after a Contract is issued, if we anticipate expenses for later Contract
Years that are lower than initially projected.
We also may eliminate, reduce or refund charges and deductions when we issue a
Contract to an officer, director, employee or agent of ours or any of our
affiliates. We do not, however, guarantee any adjustment in charges and
deductions, and any adjustment may vary by group.
All adjustments will be made under our uniform administrative rules then in
effect. In no event will adjustments to charges or deductions be permitted if
the adjustment would be unfairly discriminatory to any person.
Group and Sponsored Arrangements. Group arrangements include those in which a
trustee, employer, association or similar entity purchases individual Contracts
covering a group of individuals on a group basis. An example of such an
arrangement is a non-tax qualified deferred compensation plan. Sponsored
arrangements include those in which an employer, an association or similar
entity permits the Company to offer Contracts to its employees or members on an
individual basis.
Gender-Neutral Policies. In 1983, the United States Supreme Court decided in
Arizona Governing Committee v. Norris that certain annuity contracts may not be
used to fund certain employee benefit programs where the contracts provided
values and benefits that varied with the gender of the participant. We may
therefor offer Contracts that do not vary by gender for use in connection with
certain employee benefit programs. We recommend that any employer proposing to
offer the Contracts to employees under a group or sponsored arrangement consult
its attorney before doing so.
We may also offer the Contract with provisions and charges that are gender
neutral in states where required, and where the "unisex" version of the Contract
has been approved. Currently, the State of Montana prohibits the use of
actuarial tables that distinguish between men and women in determining premiums
and annuity benefits.
PURPOSE OF CONTRACT CHARGES
We have designed the Contract charges to cover our direct and indirect costs of
selling, administering and providing benefits under the Contracts. Taken
together, these charges are also designed to compensate us for the risks we
assume. These include:
. mortality risks (such as the risk that Contract owners may, on average, die
before we expect, or Annuitants may, on average, live longer than we expect,
thereby increasing the amount of claims we must pay);
. investment risks (such as the risk that adverse investment performance will
make it more costly for us to provide the death benefits under the Contracts
or reduce the amount of our asset-based fee revenues below what we
anticipate);
. sales risks (such as the risk that we sell fewer Contracts and receive lower
net revenue than we expect, thereby depriving us of expected economies of
scale);
<PAGE>
. regulatory risks (such as the risk that tax or other regulations may be
changed in ways adverse to issuers of annuity contracts); and
. expense risks (such as the risk that the costs of administrative services
that we must provide will exceed what we currently project).
If, as expected, the charges we collect from the Contracts exceed our total
costs concerning the Contracts, we earn a profit. Otherwise, we incur a loss.
We have set the current and maximum rates of certain of our charges with
reference to estimates of the amount of specific types of expenses or risks that
we will incur. In some cases, this prospectus identifies such expenses or risks
in the name of the charge: e.g., the administrative charge, contract maintenance
charge, and mortality and expense risk charge.
However, the fact that any charge bears the name of a particular expense or risk
does not mean the amount we collect from that charge will never be more than the
amount of such expense or risk. It also does not mean that we may not be
compensated for such expense or risk out of any other charges deducted under
terms of the Contracts.
THE CONTRACT
APPLICATION AND ISSUANCE OF A CONTRACT
If you wish to purchase a Contract, you must submit an application to our
Variable Service Center, together with the minimum required initial Purchase
Payment. You select:
. the Annuitant , Annuity Date, and Annuity Option;
. the investment options to which we will allocate your purchase payment;
. the Beneficiary who will receive death benefits under the Contract if you die
during the Accumulation Period; and
. any optional additional benefit riders.
We generally will not issue Contracts to owners and Annuitants older than age
85. We will review an application under our underwriting rules, and we may
request additional information or reject the application. We will not retain a
purchase payment for more than 5 business days while processing an incomplete
application unless the purchaser has authorized us to do so. If we decline an
application, we will refund any purchase payment made.
If you or the Annuitant is older than age 70 1/2, you should consult with a
qualified tax adviser on the impact of minimum distribution requirements under
your tax-qualified retirement plan before purchasing a Qualified Contract. We
recommend that any required annual minimum distribution amount be withdrawn from
your existing tax qualified retirement plan before amounts are transferred to
purchase a Qualified Contract. (See "FEDERAL TAX MATTERS - Withdrawals from
Qualified Contracts.")
"Free Look Right." You have the right to review your Contract during an initial
inspection period specified in the Contract and, if dissatisfied, to return it
to us or to the agent through whom you purchased it. We will refund the Account
Value on a Contract returned during the permitted period, unless state law
requires a different amount. The "free look" period is typically 10 days, but
may be greater depending on state requirements.
PURCHASE PAYMENTS
General Requirements. Your initial purchase payment is due on the Contract Date
and is generally required to be at least $5,000 for Non-Qualified Contracts and
$2,000 for Qualified Contracts. Each subsequent purchase payment is generally
required to be $200. We reserve the right to decline any purchase payment, and,
unless we consent otherwise, the maximum permitted total for all your purchase
payments is $1 million.
Automatic Investment Plan. We will permit you to pay lower purchase payments for
a Contract if you choose to make payments by pre-authorized transfers from a
checking account. If you so choose, we will lower our initial purchase payment
requirements:
. to $1,000 for a Non-Qualified Contract, as long as you furnish us with bank
draft instructions for subsequent purchase payments of at least $100 each;
and
. to $500 for a Qualified Contract, as long as you furnish us with bank draft
instructions for subsequent purchase payments of at least $100 each.
<PAGE>
We will require, however, that the checking account be with a bank that is a
member of the Automated Clearing House (ACH). If you choose this method of
making payment, your purchase payments may only be allocated initially to
Separate Account investment options, although you may later transfer Account
Value to the Fixed Account.
We may further reduce our minimum purchase payment requirements for automatic
investment plans under certain group-sponsored arrangements. We also may suspend
or end your participation in the automatic investment if there are insufficient
funds in the checking account to cover any transfer.
Termination of Small Accounts. We reserve the right to cancel a Contract if
your Withdrawal Value falls below $1,000, and we have not received any purchase
payments during the current Contract Year and the preceding 2 Contract Years.
Before doing so, we will provide you with a 30-day period to make an additional
payment and increase your Account Value above the minimum amount. We will send
a notice of the need to make additional purchase payments to your last known
address.
ALLOCATION OF PURCHASE PAYMENTS
General. We allocate the purchase payments you make (after any deductions) to
the investment options you select. We use "Accumulation Units" to keep track of
your interest in any Separate Account investment option you select. We
determine the number of Accumulation Units credited to a Contract by dividing
the amount allocated to a Separate Account investment option by the value of the
applicable Accumulation Unit next determined after receipt of your purchase
payment. We calculate Accumulation Unit Values as of the end of each Business
Day. Purchase payments allocated to the Fixed Account are credited in dollars.
Premium payments are generally allocated to the Separate Account or the Fixed
Account as of the later of the Contract Date or the date we receive your
payment.
Delayed Investment Allocation Date. We reserve the right to allocate purchase
payments to the FIS Prime Money Fund II investment option for an investment
delay period before they will be invested (together with any investment gain) in
any other investment option(s) you designate. In that case, we would reallocate
your Account Value to the investment options you have selected at the end of
your Contract's "free look" period. We would measure the investment delay
period from the date your Contract is issued from our Variable Service Center
and would include up to 5 extra days in addition to the applicable "free look"
inspection period to provide time for mail or other delivery of the Contract to
you.
If we elect to delay your investment allocation date, your Contract will contain
a provision to that effect.
TELEPHONE TRANSACTIONS
You may initiate various transactions by calling 1-800-845-0689. These are:
transfers of Account Value, notification of a change in your address, change of
premium allocations among investment options, partial withdrawal requests, and
systematic withdrawals. You may authorize your representative to make these
calls on your behalf.
You may also call 1-800-59-FUNDS for current Accumulation Unit values, current
Account Value, and for telephone transfers of Account Value.
If you own a Contract jointly with another owner, unless both owners have
advised us to the contrary, we will accept instructions from either one of the
joint owners.
We will use reasonable procedures (such as requiring identifying information
from the caller, tape recording the telephone instructions, and providing
written confirmation of the transaction) in order to authenticate instructions
communicated by telephone. You will be responsible for any telephone
instructions we reasonably believe to be genuine. Therefore, you will bear any
losses arising from any errors in the communication of instructions. If we do
not employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, we may be liable to you for any losses due to dishonored
or fraudulent instructions. We may modify or terminate our procedures for
telephone transactions at any time.
<PAGE>
CONTRACT BENEFITS AND VALUES
DETERMINATION OF ACCOUNT VALUE
Your Account Value under a Contract includes its value in the Separate Account
and in the Fixed Account. Your Account Value in a Separate Account investment
option at any time before the Annuity Date equals the number of Accumulation
Units you hold in that option multiplied by the then-current value of one such
Accumulation Unit. We compute this value in such a way that the investment
return on your Account Value in any Separate Account investment option will
differ from the total return achieved by the underlying Fund Portfolio only by
the amount of the charges and deductions we make under your Contract from that
investment option.
Your Account Value in the Fixed Account investment option earns fixed rates of
interest as described elsewhere in this prospectus. Your Account Value in the
Fixed Account will increase by the amount of such interest, but will decrease by
the amount of any charges or deductions that we take from that account for your
Contract.
Your Account Value in any investment option will also vary by the amount of
transfers we make among those components of Account Value in response to
requests that you make. Your Account Value in each investment option also will
increase by the amount that you direct to that option from your purchase
payments and will decrease by the amount of any withdrawals that you take from
that option (including any applicable withdrawal charges).
DEATH BENEFITS BEFORE THE ANNUITY DATE
Death of the Annuitant. We generally do not pay a death benefit if you are not
the Annuitant and the Annuitant dies before the Annuity Date. Instead, you may
designate a new Annuitant within 30 days of the Annuitant's death. If you do
not, you will become the Annuitant. If you are a non-natural person, however,
the death of the Annuitant is treated as your death and a new Annuitant cannot
be designated.
Death of the Owner. If we receive proof that you have died before the Annuity
Date, we will pay a death benefit to the Beneficiary. (If you are a non-
natural person, we will consider the Annuitant to be "you" for purposes of
determining a death benefit.) You may elect for the death benefit to be paid in
a single sum or under one of our other Annuity Options. If no such election is
in effect, the Beneficiary may make an election during a 60-day period following
our receipt of proof of death. We will hold up payment of the death benefit in
the meantime.
If the Beneficiary is your spouse, he or she may elect to become the owner of
your Contract. If so, the Contract will continue in effect and we will not then
determine a death benefit. We will generally pay the entire death benefit
within 5 years of the date of your death unless the Beneficiary elects to have
the death benefit payable under an Annuity Option based on his or her life or
lifetime expectancy; and distributions start within one year after the date of
death.
The death benefit amount is the greater of:
. the BASIC DEATH BENEFIT; or
. the BONUS DEATH BENEFIT in effect; or
. the death benefit amount under any optional death benefit rider in effect.
If your Contract is owned jointly:
. we will determine a death benefit only when the first owner dies before the
Annuity Date; and
. the Bonus Death Benefit and the optional death benefit riders will not be
available."
BASIC DEATH BENEFIT. The Basic Death Benefit before the Annuity Date is the
greater of:
. your adjusted purchase payments (i.e., all amounts you paid for your Contract
less any withdrawals of Account Value, and less any charges on your
withdrawals of Account Value); or
. the Account Value on the date of your death.
BONUS DEATH BENEFIT. The Bonus Death Benefit before the Annuity Date is the
greater of:
. the Account Value on the date of your death; or
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. the "Step-Up" amount we last determined, plus all purchase payments you have
made since then.
On the Contract Date, we will determine the initial Step-Up amount, which will
be the amount of your initial purchase payment. We will determine a new Step-Up
amount at the end of 6 Contract Years, and at the end of each succeeding 6
Contract Years after that. Each new Step-Up amount will be the greater of:
. the last Step-Up amount we determined, adjusted for subsequent premiums and
withdrawals; or
. the current Account Value.
THE BONUS DEATH BENEFIT ENDS IF YOU MAKE A WITHDRAWAL OF ANY PART OF YOUR
ACCOUNT VALUE. IF YOU DO NOT WITHDRAW ACCOUNT VALUE, THE BENEFIT ENDS WHEN YOU
ATTAIN AGE 80. UNLESS WE AGREE OTHERWISE, IT WILL ALSO END IF YOU CHANGE THE
OWNER OF YOUR CONTRACT.
OPTIONAL DEATH BENEFIT RIDERS. We intend to offer one or more optional death
benefit riders subject to regulatory approval in your local area and to our
underwriting and issuance standards. For more complete information about the
following riders and their availability, you should consult your sales
representative or request a copy of the form of the rider in which you are
interested. Coverage under these riders provides our guarantee of a minimum
death benefit amount. The guaranteed amount will vary by the form of rider you
select. (Owners of Contracts issued before May 1, 1999 were permitted to
purchase an optional Annual Enhanced Death Benefit Rider that provided a
different guaranteed amount.) Annual Deductions from your Account Value increase
if you purchase an optional death benefit rider.
You may generally select an optional death benefit rider only at the time you
purchase a Contract. We may also offer one or more optional death benefit
riders from time to time after you purchase a Contract.
BEST ANNIVERSARY VALUE DEATH BENEFIT. The Best Anniversary Value Death Benefit
before the Annuity Date is based on the maximum adjusted Anniversary Value Death
Benefit we previously determined prior to your death:
. plus the sum of any purchase payments you paid for your Contract after our
last determination date to the date of your death; and
. less any withdrawals of Account Value after our last determination date to
the date of your death; and
. less any charges on these withdrawals.
We determine an Anniversary Value Death Benefit Value on each Contract
Anniversary Date up to the Contract Anniversary on or next following your 80th
birthday. The Anniversary Value Death Benefit is based on your Contract's then
current Account Value, the purchase payments you made, and the amount of
withdrawals (and charges on withdrawals) taken from Account Value. We will also
adjust any previously determined Anniversary Value Death Benefit at that time to
reflect purchase payments, withdrawals of Account Value, and charges on these
withdrawals, from the date of our last determination.
THE BEST ANNIVERSARY VALUE DEATH BENEFIT ENDS ON THE ANNUITY DATE. UNLESS WE
AGREE OTHERWISE, IT WILL ALSO END IF YOU CHANGE THE OWNER OF YOUR CONTRACT.
EXTRA PROTECTOR DEATH BENEFIT. The Extra Protector Death Benefit before the
Annuity Date is based on the higher of:
. the maximum adjusted Anniversary Value Death Benefit ; or
. a "roll-up value" that we compute.
We compute the maximum adjusted Anniversary Value Death Benefit in the same
manner as under the Best Anniversary Value Death Benefit rider. The "roll-up
value" is generally the sum of:
. your adjusted purchase payments (i.e., all amounts you paid for your Contract
less any withdrawals of Account Value, and less any charges on your
withdrawals of Account Value); and
. interest accumulated at an annual rate of 5.0 % to the earlier of the
Contract Anniversary on or next following your 80th birthday or the date of
your death.
THE EXTRA PROTECTOR DEATH BENEFIT ENDS ON THE ANNUITY DATE. UNLESS WE AGREE
OTHERWISE, IT WILL ALSO END IF YOU CHANGE THE OWNER OF YOUR CONTRACT.
<PAGE>
SURRENDER AND WITHDRAWALS
Surrender. You may surrender your Contract for its entire Withdrawal Value at
any time before the Annuity Date by a signed written request conforming to our
administrative procedures. We calculate the Withdrawal Value as of the close of
the Business Day when your surrender request is received at our Variable Service
Center. The Withdrawal Value equals your Account Value reduced by any
applicable withdrawal charges, any taxes not previously deducted, and by any
annual deductions for the Contract Year. Our liability to pay any death benefit
ends when you surrender your Contract.
Withdrawals. You may make a partial withdrawal of the Contract's Withdrawal
Value (minimum $1,000) before the Annuity Date. If a withdrawal request is made
that reduces the remaining Withdrawal Value below $1,000, we may deem the
Contract surrendered. In such event, the Contract will end and we will pay you
the Withdrawal Value of the Contract.
We will take any withdrawals from your Policy's investment options on a pro-rata
basis, unless you make a request in writing in advance for a different method.
We reserve the right to approve or disapprove any such request.
Systematic Withdrawals. You may elect to take partial withdrawals under a
systematic withdrawal program by either written or telephone request. Under the
program, systematic withdrawals are made on the same day (or next Business Day)
of each month or quarter. Systematic withdrawals may be transferred
automatically to your bank account if your bank is a member of the Automated
ClearingHouse (ACH). Systematic withdrawals are not allowed simultaneously with
a dollar cost averaging program.
We do not currently impose a fee for systematic withdrawals, but may do so in
the future. Partial withdrawals during a Contract Year that exceed the 15% "free
withdrawal" amount are subject to a withdrawal charge. (The "free withdrawal"
amount is not available if you surrender your contract. See the discussion in
the "Withdrawal Charge--Free Withdrawal Amount" section of this prospectus.)
We reserve the right to modify, suspend or eliminate the systematic withdrawal
program at any time.
PAYMENT OF PROCEEDS
We ordinarily will pay any Withdrawal Value (or death benefit proceeds) from the
Separate Account investment options within 7 days after receipt by our Variable
Service Center of a request (or proof of death), and all other required
elections and documentation in a form satisfactory to us. However, we may delay
payment or transfers from a Separate Account investment option in certain
circumstances. (See "Suspension of Payments and Transfers.")
Tax Withholding and Tax Penalties. All distributions from your Contract, or
portions thereof, which are included in your gross income are subject to federal
income tax withholding. We will generally withhold federal taxes at the rate of
10% from each distribution, unless you have previously provided us with a
written election not to have taxes withheld or to have taxes withheld at a
different rate. Mandatory withholding rules apply to certain distributions from
Qualified Contracts issued to 403(b) plans. Additionally, the Internal Revenue
Code provides that a 10% penalty tax may be imposed on certain early surrenders
and withdrawals. See the FEDERAL TAX MATTERS section of this prospectus for a
general discussion.
ANNUITY BENEFITS
General. We will make annuity payments after the Annuity Date to the Annuitant
unless you designate a different payee when you purchase a Contract. You may
also designate a payee, or change a previously designated payee, by sending a
written notice to the Variable Service Center at least 30 days before the
Annuity Date.
Annuity Options. You elect the Annuity Option and may change it by written
request to our Variable Service Center at least 30 days before the Annuity Date.
If no Annuity Option election is in effect 30 days before the Annuity Date, we
will make Annuity payments under Option B as a life Annuity with a 120-month
period certain.
You can choose from the following Annuity Options, or any other option we
approve:
OPTION A - Life Annuity. Monthly payments during the lifetime of the Annuitant.
Annuity payments cease when the Annuitant dies.
OPTION B - Life Annuity with Periods Certain of 60, 120, 180 or 240 Months.
Monthly payments during the lifetime of the Annuitant, and in any event for 60,
120, 180 or 240 months certain, as selected.
<PAGE>
OPTION C - Joint and Survivor Annuity. Monthly payments during the joint
lifetime of the Annuitant and a designated second person. At the death of either
payee, Annuity payments continue to the survivor payee. The survivor's Annuity
payments will equal 100%, 75%, 66 2/3% or 50% of the amount payable during the
joint lifetime, as chosen.
OPTION D - Joint and Contingent Annuity. Monthly payments during the lifetime of
the Annuitant and continued during the lifetime of a designated second person
after the Annuitant's death. The second person's Annuity payments will equal
100%, 75%, 66 2/3% or 50% of the amount payable, as chosen.
OPTION E - Fixed Payments for a Period Certain. Monthly payments of a fixed
amount for any specified period (at least 5 years but not exceeding 30 years),
as chosen.
Form of Annuity Payments. Annuity Options A, B, C & D are available for "fixed"
Annuity payments, "variable" Annuity payments or a combination of both. Annuity
Option E is available for fixed Annuity payments only. You may make a selection
of the form of Annuity payments by sending a written request to our Variable
Service Center no later than 7 calendar days before the Annuity Date. If you do
not, we will make a combination of fixed Annuity payments and variable Annuity
payments to reflect the allocation of your Account Value among the fixed Account
and the Separate Account investment options. (We will, however, transfer your
Account Value to the Fixed Account before making payments under Annuity Option
E.)
Annuity Date. You select the Annuity Date when you purchase a Contract, and may
later change it by sending a written request to our Variable Service Center at
least 30 days before the existing Annuity Date. If the Annuity Date you select
is less than 2 Contract Years from the Contract Date, we will deduct a
withdrawal charge from your Account Value before the first annuity payment is
made.
If the selected Annuity Date occurs when the Annuitant is at an advanced age,
such as over Age 85, it is possible that the Contract will not be considered an
annuity for federal tax purposes. If your Contract is a Qualified Contract, you
should select an Annuity Date that is consistent with the requirements of your
tax-qualified retirement plans. A qualified tax advisor should be consulted for
more information.
Annuitization Bonus. We will increase your Account Value by an "Annuitization
Bonus" when Account Value is applied to an Annuity Option. The increase will be
based on your Account Value at the end of the Business Day immediately preceding
the Annuity Date.
We determine the Annuitization Bonus rate for a Contract at the time of issue,
but the Bonus may be modified, reduced or eliminated for subsequently issued
Contracts. On the date of this prospectus, the Annuitization Bonus rate is 3% of
Account Value. We will pro-rate any increase among your Contract's investment
options on the Annuity Date. Under current federal income tax rules, this
increase is deemed "income" on a Contract. (See "FEDERAL TAX MATTERS.")
Calculation of Annuity Payments. The initial dollar amount of an Annuity payment
is based on the Account Value applied to a specific Annuity Option and the
annuity tables in your Contract. The annuity tables for variable Annuity
payments are based on a 3% assumed investment rate. If the actual net investment
rate exceeds 3%, variable Annuity payments increase. Conversely, if the actual
rate is less than 3%, variable Annuity payments decrease. Variable Annuity
payments will reflect the performance of your Contract's Separate Account
investment options.
We reserve the right to pay Annuity payments in one sum when the remaining
payments are less than $2,000 (or other minimum amount we may establish), or
when the Annuity option elected results in periodic payments of less than $100.
Guaranteed Minimum Income Payment Rider. This optional additional benefit
guarantees a minimum fixed lifetime Annuity payment for an additional annual
charge. You may select this rider only at the time you purchase a Contract, and
you may elect to begin payments under this rider only within a 30-day period
following the 7/th/ or later Contract Anniversary. In addition, payments under
the rider may not begin until the Anniversary Date on or immediately following
the Annuitant's 60/th/ birthday, nor may they begin after the Annuitant's 91/st/
birthday.
Guaranteed Monthly Income Payments are made either:
. for the lifetime of a single Annuitant or for 120 months, whichever is
longer; or
. for the lifetime of two Annuitants or for 240 months, whichever is longer.
<PAGE>
GMIP VALUE. The amount of a fixed annuity payment payable as a Guaranteed
Minimum Income Payment is based on the "GMIP Value," less any premium taxes,
that is applied to the GMIP Annuity Tables stated in the rider.
We determine a GMIP Value each year up to, and including, the Anniversary Date
on or immediately following the Annuitant's 80th birthday (the "Age 80
Anniversary Date"). After that, the GMIP Value is based on GMIP Value on the Age
80 Anniversary Date:
. plus any Purchase Payments we receive after the Age 80 Anniversary Date; and
. less a proportional reduction for any withdrawals of Contract Value after the
Age 80 Anniversary Date.
The GMIP Value up to the Age 80 Anniversary Date is the greater of:
. the "Best Anniversary Value" in effect; or
. the "Roll-Up Value" in effect.
Best Anniversary Value - based on the highest "Anniversary Value Amount" in
- ----------------------
effect. We determine an Anniversary Value Amount, and adjust previously
determined Anniversary Value Amounts, each year up to, and including, the Age 80
Anniversary Date. An Anniversary Value Amount equals the Contract Value at the
time of determination. Previously determined Anniversary Value amounts reflect:
. an increase for any Purchase Payments we received since our last
determination; and
. a proportional reduction for any withdrawals of Contract Value since our last
determination.
Roll-Up Value - based on:
- -------------
. Purchase Payments; and
. a proportional reduction for any withdrawals of Contract Value (including
charges) attributable to Purchase Payments; and
. interest accumulated at an annual rate of 5.0%.
Proportional Reductions - based on the ratio that a withdrawal of Contract
- -----------------------
Value, including charges on the withdrawal, bears to the total Contract Value
before the withdrawal.
GMIP Annuity Tables - based on the 1983a Annuity Mortality Table (40% Male,
- -------------------
pivotal age 65) and a benchmark rate of 2.5% per year, compounded annually. The
level of income provided under these tables is based on conservative actuarial
factors, and may often be less than the level that would be provided by applying
the Contract Value to other tables. If more favorable to the Annuitant, we will
determine monthly income by applying Contract Value to our current fixed annuity
payment rates for the annuity option selected.
GMIP VALUE DOES NOT GUARANTEE PERFORMANCE OF ANY INVESTMENT OPTION IN YOUR
CONTRACT, AND CANNOT BE USED TO INCREASE THE AMOUNTS AVAILABLE FOR WITHDRAWAL,
SURRENDER OR AS A DEATH BENEFIT BEFORE THE ANNUITY DATE. THE GMIP VALUE IS NOT
INCREASED BY THE AMOUNT OF ANY ANNUITIZATION BONUS.
DEATH BENEFITS AFTER THE ANNUITY DATE
Death of the Annuitant. Any remaining Annuity payments under Annuity Options B
or E are made to the Beneficiary. The Beneficiary may elect to receive the
commuted value of the remaining Annuity Payments in a single sum instead. We
determine the commuted value by discounting the remaining Annuity Payments at
the then current interest rate used for commutation.
Death of the Owner. No death benefits are provided under a Contract if you die
after the Annuity Date, unless you are also the Annuitant and Annuity payments
are made under Annuity Options B or E.
OTHER PROVISIONS OF THE CONTRACT
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant is misstated, we may change the annuity
benefits to those that correspond with the correct age and sex.
If the misstatement is discovered after the Annuity Date:
. we will add interest to any overpayments at the rate of 6% per year,
compounded annually, and deduct the amount against remaining annuity
payments; and
<PAGE>
. we will add interest to any underpayments at the rate of 6% per year,
compounded annually, and pay the amount in a single sum with the next Annuity
Payment.
OWNER AND BENEFICIARY
The Contract application names the Contract owner, who in turn may name a new
owner at any time before the Annuity Date. At the death of the owner, the
designated Beneficiary becomes the owner. Because the owner has the authority
to exercise most rights under a Contract, this prospectus generally refers to
the owner when it refers to "you" or "your."
We will permit the Contract to be owned jointly if one owner is the spouse of
the other, and we will generally assume that each owner has the authority to act
for all owners. However, we may require the written consent of all owners for
certain transactions, such as an assignment of a Contract.
Beneficiary. The Contract application also names the Beneficiary under the
Contract and any contingent Beneficiary. You may change the Beneficiary of the
Contract (other than an irrevocably named Beneficiary) at any time before death
benefits are payable. If your Contract is owned jointly by two spouses, we will
treat each spouse as the designated beneficiary for any death benefits that may
be payable upon the death of the other, unless you tell us otherwise.
Changes and Assignments. A change of owner or Beneficiary requires a written
request satisfactory to us that is dated and signed by all of the owners. The
change will take effect on the date it is signed, but is subject to all payments
made and actions taken by us under the Contract before we receive the request at
our Variable Service Center.
ASSIGNMENTS
The owner may assign (transfer) the owner's rights in a Contract to someone
else. An assignment requires a written request signed by all of the Contract's
owners. An assignment will take effect only when we record it at our Variable
Service Center. We have no responsibility for any assignment not submitted for
recording; nor for the sufficiency or validity of any assignment.
Unfavorable tax consequences, including recognition of taxable income and the
imposition of a 10% penalty tax may result from transferring ownership or making
an assignment. In addition, Qualified Contracts owned by tax-qualified
retirement plans may be subject to mandatory assignment restrictions.
Therefore, you should consult with a qualified tax adviser before transferring
your Contract.
CHANGE OF ANNUITANT DESIGNATION
The Owner may designate a new Annuitant before the Annuity Date, but not if a
non-natural person owns the Contract.
TEXAS OPTIONAL RETIREMENT PROGRAM
A Contract issued to a participant in the Texas Optional Retirement Program
("ORP") contains an ORP endorsement that amends the Contract to provide that:
. if for any reason a second year of ORP participation is not begun, the total
amount of the State of Texas' first-year contribution will be returned to the
appropriate institute of higher education upon its request; and
. 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.
VOTING RIGHTS
We will vote the shares of the Portfolios held by the Separate Account at
regular or special meetings of the Portfolio's shareholders in accordance with
instructions received from you and other owners having the voting interest in
the affected Portfolio(s). We compute the number of votes that an owner has
the right to instruct for a particular Portfolio by dividing the owner's Account
Value in that Portfolio by that Portfolio's net asset value per share. We will
vote a Portfolio's shares held in our Separate Account for which we do not
receive
<PAGE>
instructions, as well as shares held in our Separate Account that are not
attributable to owners in the same proportion as we vote that Portfolio's shares
held in the Separate Account for which we have received instructions.
SUSPENSION OF PAYMENTS OR TRANSFERS
We reserve the right to suspend or postpone payments for withdrawals or
transfers from the Separate Account investment options for any period when:
. the New York Stock Exchange is closed;
. trading on the New York Stock Exchange is restricted;
. an emergency exists that makes it impracticable to dispose of Separate
Account securities or determine the Separate Account net asset values; or
. any other period when so ordered by the Securities and Exchange Commission
for the protection of Owners.
We reserve 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 we receive the transaction request.
DISTRIBUTION AND OTHER AGREEMENTS
First Variable Capital Services, Inc. ("FVCS"), 2122 York Road, Oak Brook,
Illinois 60523, acts as distributor of the Contracts. FVCS, our wholly owned
subsidiary, was incorporated in Arkansas on July 26, 1991. It is registered
with the SEC as a broker/dealer under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers, Inc. FVCS offers the
Contracts on a continuous basis.
We and FVCS have agreements with various broker-dealers under which the
Contracts will be sold by registered representatives of the broker-dealers. The
registered representatives are required to be authorized under applicable state
regulations to sell variable annuity contracts. The commissions payable to a
broker-dealer for sales of the Contract may vary with the sales agreement, but
are not expected to exceed 7.00% of first year purchase payments and annual
renewal compensation of up to 1.00% of Account Value in later Contract Years.
Broker-dealers may also receive expense allowances, wholesaler fees, bonuses and
training fees.
FEDERAL TAX MATTERS
GENERAL
BECAUSE OF THE COMPLEXITY OF THE LAW AND BECAUSE TAX RESULTS WILL VARY ACCORDING
TO YOUR IDENTITY AND STATUS, YOU SHOULD SEEK INDIVIDUALIZED LEGAL AND TAX ADVICE
BEFORE PURCHASING OR TAKING ANY ACTION UNDER A CONTRACT.
We cannot provide a comprehensive description of the federal income tax
consequences regarding the Contracts in this prospectus, and special tax rules
may apply that we have not discussed herein. Nor does this discussion address
any applicable state, local, gift, inheritance, estate, and foreign or other tax
laws. This discussion assumes that you, the Contract's owner, are a natural
person and a U.S. citizen and resident. Finally, we would caution that the law
and the related regulations and interpretations on which we base our tax
analysis can change, and such changes can be retroactive.
OUR TAXATION
Under current federal income tax law, the operations of the Separate Account and
the Fixed Account do not require us to pay any tax. Thus, we currently impose
no charge for our federal income taxes. However, we may decide to charge the
Separate Account or Fixed Account for our federal income taxes, if there are
changes in federal tax law.
We may incur state and local taxes (in addition to premium taxes) in several
states. At present, these taxes are not significant and, accordingly, we do not
currently impose a charge for them. If they increase, however, we may impose a
charge for such taxes attributable to the Separate Account and/or Fixed Account.
<PAGE>
INCOME TAX DEFERRAL ON INCREASES IN ACCOUNT VALUE
In general, an owner of an annuity contract is not taxed on increases in the
contract's value until a distribution occurs, either in the form of a lump sum
payment or as annuity payments.
Contracts Owned by Other than Natural Persons. If you are a non-natural person,
e.g., a corporation, or certain other entities, your Contract will generally not
be treated as an annuity contract for federal income tax purposes, and you will
be subject to immediate taxation on the increases in your Contract's Account
Value. However, this treatment does not apply to Contracts held by a trust or
other entity as an agent for a natural person or to Qualified Contracts held by
a tax-qualified retirement plan (i.e., a plan that qualifies under section 401,
403(a), 403(b), 408, 408A or 457 of the Code).
Diversification Requirements. The Internal Revenue Code provides that a variable
annuity contract will not be treated as an annuity contract under the Code for
any period (and any subsequent period) for which the related investments are not
adequately diversified. We intend that all Portfolios of the Funds in which
your Contract may invest will comply with the diversification requirements. If
your Contract did not qualify as an annuity contract, you would be subject to
immediate taxation on the increases in your Contract's Account Value. This
treatment would apply for the period of non-compliance and subsequently, unless
and until we are able to settle the matter with the Internal Revenue Service.
We have no legal obligation to seek or agree to any such settlement, however.
Investment Control. The amount of investment control which you may exercise
under a Contract differs in some respects from the situations addressed in
published rulings issued by the Internal Revenue Service in which it held that
variable contract owners were not deemed, for federal income tax purposes, to
own the related assets held in a separate account by the issuing insurance
company. It is possible that these differences, such as your ability to
transfer among investment choices or the number and type of investment choices
available, would cause you to be taxed as if you were the owner of the Portfolio
shares that are attributable to your Contract. In that case, you would be
liable for income tax on an allocable portion of any current income and gains
realized by the Separate Account, even though you have received no distribution
of those amounts.
In the event any forthcoming guidance or ruling by federal income tax
authorities sets 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, result in your being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, we reserve the right to modify your
Contract in an attempt to maintain its intended tax treatment.
DISTRIBUTIONS FROM NON-QUALIFIED CONTRACTS
For a lump sum payment received upon surrender of a Contract, or upon a
withdrawal of Account Value, you will be taxed on the portion that exceeds your
investment in the Contract. The taxable portion is taxed as ordinary income.
Amounts that are not received as an annuity payment will be treated as coming
first from the earnings and then, only after that income portion is exhausted,
as coming from your investment in the Contract.
Penalty tax on Premature Distributions. The taxable portion of a distribution
from a Contract may be subject to a 10% penalty tax. However, the penalty is not
imposed on amounts received:
. after you reach age 59 1/2;
. after the death of the owner;
. if you are totally disabled as defined in Code section 72(m)(7));
. in a series of substantially equal periodic payments made not less frequently
than annually for your life (or life expectancy) or for the joint lives (or
joint life expectancies) of you and your Beneficiary;
. under an immediate annuity; or
. that are allocable to purchase payments made before August 14, 1982.
Annuity Payments. For annuity payments, the portion of each payment that exceeds
a pre-determined "exclusion amount" is considered taxable income. The
exclusion amount is determined:
. for payments based on a fixed annuity option, by multiplying the payment by
the ratio that your investment in the Contract (adjusted for any period
certain or refund feature) bears to the expected return under the Contract.
. for payments based on a variable annuity option, by dividing your investment
in the Contract (adjusted for any period certain or refund guarantee) by the
number of years over which the annuity is expected to be paid.
<PAGE>
Payments received after the total of the excludable amounts equals the
investment in the Contract are fully taxable. The taxable portion is taxed at
ordinary income tax rates.
Death Benefits. The Beneficiary is taxed on the portion of the Death Benefit
that exceeds your investment in the Contract. However, if the Beneficiary elects
to receive the Death Benefit under an Annuity Option, payments made to the
Beneficiary are taxed as annuity payments as discussed above.
Multiple Contracts. Multiple non-qualified annuity contracts issued within a
calendar year to the same contract owner by one company or its affiliates are
treated as one annuity contract when determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences, including
more rapid taxation of the distributed amounts from the combined contracts.
Owners should consult a tax adviser before purchasing more than one non-
qualified annuity contract in a calendar year.
TAX-QUALIFIED RETIREMENT PLANS
This prospectus offers a Contract that may be used under various types of tax-
qualified retirement plans. Taxation of participants varies with the type of
plan and terms and conditions of each specific qualified plan. The terms and
conditions of a plan may restrict the permitted contributions to, and benefits
of, a Contract issued to the plan, regardless of the terms and conditions of the
Contract itself. Because a retirement plan's contribution limits and
distribution and other requirements may not be not incorporated into our
administrative procedures, Contract owners, participants and beneficiaries are
responsible for determining that transactions with respect to the Contract
comply with applicable law.
The tax rules for tax-qualified retirement plans are very complex and will have
different applications depending on individual facts and circumstances. For
example, Contracts issued under tax qualified retirement plans are generally not
transferable, except upon surrender or annuitization. Contract owners,
annuitants and beneficiaries should therefor obtain competent tax advice before
purchasing a Contract issued under a tax-qualified retirement plan, or engaging
in various transactions (i.e., making contributions or taking distributions) in
connection with a Contract.
The 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:
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) 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
that will be deductible from the individual's gross income. The amounts
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 (An "education IRA"
under section 530 of the Code does not qualify for this treatment.). 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.
Corporate and Self-Employed ("H.R. 10" and "Keogh") Pension and Profit Sharing
Plans. Section 401(a) and 403(a) of the Code permit corporate and self-employed
individuals to establish Qualified Plans for themselves and their employees.
These retirement plans may permit the purchase of a Contract to provide benefits
under the plan. Contributions made to the plan for the benefit of the employees
are not 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 Internal Revenue Code places limitations
and restrictions on all plans including items such as:
. amount of allowable contributions;
. form, manner and timing of distributions;
. transferability of benefits;
. vesting and non-forfeitability of interests;
. incidental death benefits;
. nondiscrimination in eligibility and participation; and
<PAGE>
. the tax treatment of distributions, withdrawals and surrenders.
403(b) Annuities. Public schools and certain charitable, educational and
scientific organizations may purchase "403(b)" or "tax-sheltered annuities" (IRC
Section 501(c)(3)). These qualifying employers may contribute to a Contract for
the benefit of their employees. Such contributions are not included in the gross
income of the employees until employees receive distributions from the
Contracts. Tax-sheltered annuity contributions are limited to certain maximums.
Plus, additional restrictions govern such items as transferability,
distributions, nondiscrimination and withdrawals.
Section 457 Plans. Government and certain other tax-exempt employers may
establish deferred compensation plans for the benefit of their employees that
invest in annuity contracts. As in the case of Qualified Plans, limitations and
restrictions exist on eligibility, contributions and distributions. Under these
Plans, contributions made for the benefit of the employees will not be included
in the employee's gross income until distributed from the Plan.
DISTRIBUTIONS FROM QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract (other than a "qualified
distribution" from a Roth IRA), a portion of the amount received is taxable.
This is generally based on the ratio of the individual's cost basis to the
individual's total accrued benefit under the retirement plan.
Roth IRAs. 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:
. reaches age 59 1/2;
. dies or is disabled (IRC Section 72(m)(7)); or
. 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.
Penalty tax on Pre-retirement Distributions. The taxable portion of any
distribution from a qualified retirement plan may be subject to a 10% penalty
tax. This tax could apply to withdrawals from a Contract issued and qualified
under Code sections 401 (Corporate and Self-Employed 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:
. qualified rollovers or permitted direct transfers to a Traditional IRA, a
Roth IRA, or to another eligible qualified plan;
. distributions made on or after the date on which the Owner or Annuitant (as
applicable) reaches age 59 1/2;
. distributions following the death or disability (as defined in section
72(m)(7) of the Code) of the Owner or Annuitant (as applicable);
. distributions that are part of substantially equal periodic payments made not
less than annually for the life (or life expectancy) of the Owner or
Annuitant (as applicable) or the joint lives (or joint life expectancies) of
such Owner or Annuitant (as applicable) and his or her designated Beneficiary
(Qualified Plans other than Traditional IRAs and Roth IRAs require the
employee to be separated from service for this exception to apply);
. distributions made to the Owner or Annuitant (as applicable) for payment of
medical expenses which exceed 7.5% of adjusted gross income;
. distributions from a Traditional IRA or from a Roth IRA for payment of health
insurance premiums while unemployed, if certain conditions are met;
. amounts paid from a Traditional IRA and Roth IRA for qualified higher
education expenses (IRC Section 72(t)(7) of the Code); and
. amounts paid from a Traditional IRA or Roth IRA as a qualified first-time
homebuyer distribution (IRC Section 72(t)(8) of the Code).
The penalty tax for a Contract issued and qualified under Code sections 401 or
403(b) is also not imposed on:
. distributions to an Owner or Annuitant (as applicable) who has separated from
service after he has attained age 55; and
. distributions made to an alternate payee pursuant to a qualified domestic
relations order.
Generally, distributions from a qualified plan (other than a Roth IRA) must
start no later than April 1 of the calendar year following the year in which the
employee attains age 70 1/2 or retires, whichever is later. These required
distributions must span a period that does not exceed the life expectancy of the
individual or the joint lives or life expectancies of the individual and his or
her designated beneficiary. If required minimum distributions are not made, a
50% penalty tax is imposed on the amount not distributed.
<PAGE>
Tax-Sheltered Annuities--Withdrawal Limitations. Withdrawals from contributions
made according to a salary reduction agreement are limited to when the Owner:
. attains age 59 1/2;
. separates from service;
. dies;
. becomes disabled (IRC Section 72(m)(7) of the Code); or
. in the case of hardship.
Hardship withdrawals are restricted to the portion of the Owner's Contract Value
that represents contributions made by the Owner and do not include investment
results.
Withdrawal limitations 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 about distributions.
FEDERAL INCOME TAX WITHHOLDING
All distributions from your Contract, or portions thereof, that are included in
your gross income are subject to federal income tax withholding. We will
withhold federal taxes at the rate of 10% from each distribution. However, you
may elect not to have taxes withheld or to have taxes withheld at a different
rate.
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, may be subject to a mandatory 20% withholding for federal
income tax.
ADVERTISING PRACTICES
FIS PRIME MONEY FUND II PORTFOLIO
From time to time, the FIS Prime Money Fund II investment option 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 FIS Prime Money Fund II investment option refers to the
income generated by Account Values in the FIS Prime Money Fund II investment
option over a seven-day period (which 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 Account Values in the FIS Prime Money
Fund II investment option.
The "effective yield" is calculated similarly. However, when annualized, the
income earned by Account 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, we may advertise performance data for the Contract's other
Portfolios. Such data will show the percentage change in the value of an
Accumulation Unit based on the performance of an investment over a period of
time, usually a calendar year. It is determined by dividing the increase
(decrease) in value for that Unit by the Accumulation Unit value at the
beginning of the period. This percentage will reflect the deduction of any
asset-based charges and any applicable annual contract maintenance charges under
the Contracts.
Advertisements also will 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.
<PAGE>
We may make yield information available, 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.
We may also show historical Accumulation Unit values in certain advertisements
that contain illustrations. These illustrations will be based on Accumulation
Unit values for a specific period.
Quotations of standardized total return for any Investment Option will be
expressed in terms of the average annual compounded rate of return on a
hypothetical investment in a Contract over a period of one, five and ten years
(or, if less, up to the life of the Investment Option). They will reflect the
deduction of a Contract's daily and annual charges, the applicable withdrawal
charge, and fees and expenses of the underlying Portfolio. Quotations of non-
standardized total return may simultaneously be shown for the periods indicated
in the advertisement and may not reflect some or all of these deductions.
Total return performance information for Investment Options may also be
advertised based on the historical performance of the Portfolio underlying an
Investment Option for periods beginning before the date Accumulation Unit Values
were first calculated for Contracts funded in that Investment Option. Any such
performance calculation will be based on the assumption that the Investment
Option corresponding to the applicable Portfolio was in existence throughout the
stated period and that contractual charges and expenses of the Investment Option
during the period were equal to those currently assessed under a Contract.
We may also distribute sales literature that 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 that 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
assumes quarterly reinvestment of dividends.
We may also distribute sales literature that compares the performance of our
variable annuities' Accumulation Unit values with the unit values of variable
annuities issued through 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 that tracks
the performance of investment companies. The rankings compiled by Lipper may or
may not reflect the deduction of asset-based insurance charges. Our sales
literature using these rankings will indicate whether such charges were
deducted. Where the charges have not been deducted, the sales literature will
indicate that, had the charges been deducted, the ranking might have been lower.
The VARDS Report is a monthly variable annuity industry analysis compiled by
Variable Annuity Research & Data Service of Roswell, Georgia and published by
Financial Planning Resources, Inc. The VARDS rankings may or may not reflect the
deduction of asset-based insurance charges.
Morningstar rates each variable annuity investment option against its peers with
similar investment objectives. Morningstar does not rate any investment option
with fewer than three years of performance data.
OTHER MATTERS
Financial Statements
Our financial statements and the financial statements of the Separate Account
are included in the Statement of Additional Information.
LEGAL PROCEEDINGS
We are not subject to any material pending legal proceedings nor is the Separate
Account or the Distributor.
<PAGE>
TRANSFERS BY THE COMPANY
We may, subject to applicable regulatory approvals, transfer obligations under a
Contract to another qualified life insurance company under an assumption
reinsurance arrangement without the prior consent of the Owner.
YEAR 2000 ISSUES
Like other financial and business organizations around the world, we could be
adversely affected if our computer systems and those of our service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. We have completed an assessment of the Year 2000 impact
on our systems, procedures, customers and business processes. At December 31,
1998, our management is satisfied that our main operating systems are Year 2000
compliant. We are currently reviewing our general office systems and contacting
our service providers.
We believe that we will complete our Year 2000 project prior to any anticipated
impact on our operating systems. The date on which we believe we will complete
the Year 2000 project is based on our management's best estimates. Although
there can be no guarantee that these estimates will be achieved, our 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 our service providers.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information for the Separate Account and the
Contract contains the following information:
Item Page
---- ----
First Variable Life Insurance Company............
Independent Auditors.............................
Legal Counsel....................................
Distributor......................................
Yield Calculation for the FIS Prime Money Fund II
Investment Option...............................
Calculation of Other Performance Information.....
Annuity Provisions...............................
Variable Annuity................................
Fixed Annuity...................................
Annuity Unit....................................
Mortality and Expense Guarantee.................
Financial Statements.............................
<PAGE>
APPENDIX A
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 (Contract 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. Our financial statements and report of independent
auditors are also contained in the Statement of Additional Information.
<TABLE>
<CAPTION>
Period Ended PERIOD ENDED PERIOD ENDED PERIOD ENDED
------------ ------------ ------------ ------------
12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
V VIST SMALL CAP GROWTH INVESTMENT
OPTION (1)
Beginning of Period (5/4/95) $ 12.91 $ 13.01 $ 10.36 $10.00
End of Period $ 12.32 $ 12.91 $ 13.01 $10.36
Number of Accum. Units Outstanding 157,939 112,393 25,465 2,212
VIST WORLD EQUITY INVESTMENT OPTION
Beginning of Period $ 12.28 $ 11.33 $ 10.24 $10.00
End of Period $ 12.71 $ 12.28 $ 11.33 $10.24
Number of Accum. Units Outstanding 129,010 75,105 37,590 3,989
VIST GROWTH INVESTMENT OPTION (2)
Beginning of Period $ 15.31 $ 12.57 $ 10.14 $10.00
End of Period $ 20.10 $ 15.31 $ 12.57 $10.14
Number of Accum. Units Outstanding 282,153 106,746 30,672 6,026
VIST MATRIX EQUITY INVESTMENT OPTION (3)
Beginning of Period $ 13.16 $ 10.94 $ 10.62 $10.00
End of Period $ 15.70 $ 13.16 $ 10.94 $10.62
Number of Accum. Units Outstanding 186,146 43,263 11,951 918
VIST GROWTH & INCOME INVESTMENT OPTION
Beginning of Period (5/31/95) $ 14.84 $ 11.75 $ 10.63 $10.00
End of Period $ 16.43 $ 14.84 $ 11.75 $10.63
Number of Accum. Units Outstanding 358,265 152,210 51,500 2,754
VIST MULTIPLE STRATEGIES INVESTMENT
OPTION
Beginning of Period $ 14.10 $ 11.84 $ 10.15 $10.00
End of Period $ 18.07 $ 14.10 $ 11.84 $10.15
Number of Accum. Units Outstanding 264,274 77,185 30,934 5,995
VIST HIGH INCOME BOND INVESTMENT OPTION
Beginning of Period $ 12.80 $ 11.45 $ 10.17 $10.00
End of Period $ 13.00 $ 12.80 $ 11.45 $10.17
Number of Accum. Units Outstanding 306,492 114,612 30,956 1,905
VIST U.S. GOVERNMENT BOND INVESTMENT
OPTION
Beginning of Period $ 11.19 $ 10.39 $ 10.30 $10.00
End of Period $ 11.88 $ 11.19 $ 10.39 $10.30
Number of Accum. Units Outstanding 490,078 63,534 43,540 7,532
FIS PRIME MONEY FUND II INVESTMENT
OPTION (4)
Beginning of Period $ 10.74 $ 10.39 $ 10.06 $10.00
End of Period 11.10 $ 10.74 $ 10.39 $10.06
Number of Accum. Units Outstanding 135,376 89,012 39,582 0
</TABLE>
(1) Before May 1, 1997, the Small Cap Growth Sub-Account was known as the
"Small Cap Sub-Account."
(2) Before May 1, 1997, the Growth Investment Option was known as the "Common
Stock Sub-Account."
(3) Before May 1, 1997, the Matrix Equity Sub-Account was known as the "Tilt
Utility Sub-Account" and had different investment policies.
(4) On January 2, 1997, shares of Federated Prime Money Fund II were
substituted for shares of the VIST Cash Management Portfolio. Accumulation
Unit Values before that date are based on the value of VIST Cash Management
Portfolio shares held for the periods shown.
<PAGE>
CAPITAL SIX VA
FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACT
(the "Contract")
Issued by
FIRST VARIABLE LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
for
FIRST VARIABLE ANNUITY FUND E
(the "Separate Account")
This is not a prospectus. You should read this Statement of Additional
Information with the prospectus dated May 1, 1999 for the Contract referred to
above.
The prospectus concisely sets forth information that you ought to know before
investing in a Contract. For a copy of the prospectus, call or write us at 2122
York Road, Oak Brook, IL 60523 (800) 228-1035.
TABLE OF CONTENTS
Item Page
---- ----
First Variable Life Insurance Company............ SA-2
Independent Auditors............................. SA-2
Legal Counsel.................................... SA-2
Distributor...................................... SA-2
Yield Calculation for the FIS Prime Money Fund
II Investment Option............................. SA-2
Calculation of Other Performance Information..... SA-3
Annuity Provisions............................... SA-6
Variable Annuity............................... SA-6
Fixed Annuity.................................. SA-7
Annuity Unit................................... SA-7
Mortality and Expense Guarantee................ SA-7
Financial Statements............................. SA-7
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 1999.
SA-1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
You will find information about our company and its ownership in the prospectus.
INDEPENDENT AUDITORS
The consolidated financial statements of First Variable Life Insurance Company
at December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998 and the financial statements of First Variable Life
Insurance Company--First Variable Annuity Fund E at December 31, 1998 and 1997
appearing in this Statement of Additional Information have been audited by Ernst
& Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
on the authority of such firm as experts in accounting and auditing.
LEGAL COUNSEL
Our Legal Department reviewed legal matters about the Contracts. Blazzard, Grodd
& Hasenauer, P.C., Westport, Connecticut, advised us 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 First Variable Life Insurance Company. The
offering is on a continuous basis.
YIELD CALCULATION FOR FIS PRIME MONEY FUND II INVESTMENT OPTION
The FIS Prime Money Fund II Investment Option of the Separate Account calculates
its current yield based upon the seven-day period that ends on the date of
calculation. For the seven calendar days ended December 31, 1998, the
annualized yield was 3.06% and the effective yield was 3.10%.
To calculate the current yield, we create a hypothetical Contract account with a
balance of one Accumulation Unit of this investment option. We determine the net
change (exclusive of capital changes) in the value of the Accumulation Unit at
the beginning and at the end of the period. Next, we subtract the Annual
Contract Maintenance Charge and divide the difference by the value of the
hypothetical account at the beginning of the same period to obtain the base
period return. We then multiply the result by (365/7) to obtain the current
yield.
We calculate the "effective" yield according to the method prescribed by the
Securities and Exchange Commission. The effective yield reflects the
reinvestment of net income earned daily on FIS Prime Money Fund II Investment
Option 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.
You may find yield information useful as you review the performance of the FIS
Prime Money Fund II Investment Option and compare it with other investments.
However, the yield fluctuates, unlike bank deposits or other investments that
typically pay a fixed yield for a set period. You should therefor not consider
any yields quoted as a representation of the yield of the FIS Prime Money Fund
II Investment Option in the future. Actual yields depend on the type, quality
and maturities of the investments held by the Portfolio and changes in the
interest rates on such investments, as well as changes in expenses during the
period.
SA-2
<PAGE>
CALCULATION OF OTHER PERFORMANCE INFORMATION
From time to time, we may advertise standardized performance data as described
in the prospectus. These advertisements will include total return figures for
the times indicated in the advertisement. Total return figures will reflect the
deductions of:
. 1.25% Mortality and Expense Risk Charge,
. .25% Administrative Charge,
. investment advisory fee for the underlying Portfolio being advertised and
. any applicable withdrawal charges and Annual Charges (charges for optional
riders excluded).
To determine the hypothetical value of a Contract for the time periods described
in the advertisement, we will use the Accumulation Unit values for an initial
$1,000 purchase payment, and deduct any applicable Annual Contract Maintenance
Charges and Withdrawal Charges.
For periods before the date that actual Accumulation Unit Values were first
computed for the Contracts, we have derived Accumulation Unit Value performance
from the historical performance of the Portfolios. We determine the average
annual total return 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 the periods described.
Here is the formula used in these calculations:
[P x (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 of a hypothetical
$1,000 payment made at the
beginning of the applicable
periods.
The standardized average annualized total returns as of December 31, 1998, for 1
year, 3 years, 5 years, 10 years and for the life of the Separate Account
investment option are listed below:
<TABLE>
<CAPTION>
Since Sub-Account
-----------------
Separate Account Investment Option 1 Year 3 Years 5 Years 10 Years Inception
- ---------------------------------- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth (inception 5/4/95) -11.640% 0.98% N/A N/A 12.47%
VIST World Equity (inception 6/10/88) -3.532% 2.54% 7.61% 7.21% 6.38%
VIST Growth (inception 5/1/87) 24.231% 20.94% 18.47% 15.85% 14.56%
VIST Matrix Equity (inception 6/16/88) 12.238% 9.07% 10.78% 13.01% 12.69%
VIST Growth & Income (inception 5/31/95) 3.683% 10.80% N/A N/A 16.75%
VIST Multiple Strategies (inception 5/5/87) 20.154% 16.44% 14.22% 13.95% 11.73%
VIST High Income Bond (inception 6/1/87) -5.566% 3.58% 3.55% 8.66% 8.34%
VIST US Govt. Bond (inception 5/27/87) -0.887% -0.10% 2.56% 7.14% 6.89%
FIS Prime Money Fund II (1) -3.680% -1.70% N/A 3.37%
</TABLE>
(1) On December 3, 1997, we substituted shares of FIS Prime Money Fund II for
shares of the VIST Cash Management Portfolio. Calculations before that date are
based on the value of VIST Cash Management Portfolio shares held for the periods
shown.
SA-3
<PAGE>
The standardized average annualized total returns as of December 31, 1998, for 1
year, 3 years, 5 years and 10 years and the Portfolios inception, based on the
historical performance of the Portfolios as listed below:
<TABLE>
<CAPTION>
Since Portfolio
Separate Account Investment Option 1 Year 3 Years 5 Years 10 Years Inception (shown)
- ---------------------------------- ------ ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth (inception 5/4/95) -11.640% 0.98% N/A N/A 12.47%
VIST World Equity (inception 6/10/88) -3.532% 2.54% 7.61% 7.21% 6.38%
VIST Growth (inception 5/1/87) 24.231% 20.94% 18.47% 15.85% 14.56%
VIST Matrix Equity (inception 6/16/88) 12.238% 9.07% 10.78% 13.01% 12.69%
VIST Growth & Income (inception 5/31/95) 3.683% 10.80% N/A N/A 16.75%
VIST Multiple Strategies (inception 5/5/87) 20.154% 16.44% 14.22% 13.95% 11.73%
VIST High Income Bond (inception 6/1/87) -5.566% 3.58% 3.55% 8.66% 8.34%
VIST US Govt. Bond (inception 5/27/87) -0.887% -0.10% 2.56% 7.14% 6.89%
FIS Prime Money Fund II (11/94) -3.680% -1.70% N/A N/A 3.37%
AIM V.I. Capital Appreciation (5/5/93) 10.73% 12.66% N/A N/A 17.20%
AIM V.I. Growth (5/5/93) 25.55% 16.87% N/A N/A 19.30%
ACS VP Value (5/1/96) -3.76% N/A N/A N/A 14.37%
BT Equity 500 Index (10/1/97) 20.14% N/A N/A N/A 22.68%
BT Small Cap Index (8/25/97) -10.75% N/A N/A N/A -3.64%
LA Growth & Income Series (12/11/89) 4.25% 12.94% N/A N/A 14.60%
MFS New Discovery Series (5/1/98) N/A N/A N/A N/A 0.63%
MFS Growth with Income Series (10/9/95) 13.75% N/A N/A N/A 24.41%
MFS Growth Series (5/1/99) N/A N/A N/A N/A N/A
FT International Fund - Class 2 shares (5/1/97) 0.51% 7.17% N/A N/A 12.53%
</TABLE>
SA-4
<PAGE>
We may also advertise non-standardized performance information that does not
include withdrawal charges. The non-standardized average annualized total
returns as of December 31, 1998 for 1 year, 3 years, 5 years, 10 years and
Portfolio Inception based on the historical performance of the Portfolios are
listed below:
<TABLE>
<CAPTION>
Since Portfolio
Separate Account Investment Option 1 Year 3 Years 5 Years 10 Years Inception
- ---------------------------------- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
VIST Small Cap Growth (inception 5/4/95) N/A 6.05% N/A N/A 12.54%
VIST World Equity (inception 6/10/88) N/A 7.61% 10.68% 7.28% 6.45%
VIST Growth (inception 5/1/87) 24.231% 26.01% 21.54% 15.92% 14.63%
VIST Matrix Equity (inception 6/16/88) 12.238% 14.14% 13.85% 13.08% 12.76%
VIST Growth & Income (inception 5/31/95) 3.683% 15.87% N/A N/A 16.82%
VIST Multiple Strategies (inception 5/5/87) 20.154% 17.29% 14.02% 14.02% 11.80%
VIST High Income Bond (inception 6/1/87) -5.566% 8.65% 6.62% 8.73% 8.41%
VIST US Govt. Bond (inception 5/27/87) -0.887% 4.97% 5.63% 7.21% 6.96%
FIS Prime Money Fund II (11/94) -3.680% 3.37% N/A N/A 3.44%
AIM V.I. Capital Appreciation (5/5/93) 17.80% 15.73% N/A N/A 17.27%
AIM V.I. Growth (5/5/93) 32.62% 19.94% N/A N/A 19.37%
ACS VP Value (5/1/96) 3.31% N/A N/A N/A 14.44%
BT Equity 500 Index (10/1/97) 27.21% N/A N/A N/A 22.75%
BT Small Cap Index (8/25/97) -3.68% N/A N/A N/A -3.57%
LA Growth & Income Series (12/11/89) 11.32% 16.01% N/A N/A 14.67%
MFS New Discovery Series (5/1/98) N/A N/A N/A N/A 0.70%
MFS Growth with Income Series (10/9/95) 20.82% N/A N/A N/A 24.48%
FT International Fund - Class 2 shares (5/1/97) 7.58% 10.24% N/A N/A 12.60%
</TABLE>
SA-5
<PAGE>
CALCULATION OF OTHER PERFORMANCE INFORMATION (CONTINUED)
In addition to total return data, we may include yield information in our
advertisements. For each Investment Option (other than the Federated Prime
Money Fund II Investment Option) for which we advertise yield, we 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. We compute it 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:
a - b
Yield =2[( ----- + 1)/6/ -1]
cd
a = Net investment income earned during the period by the Portfolio
attributable to shares owned by the Separate Account investment option.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding during the
period.
d = The maximum offering price per Accumulation Unit on the last day of the
period.
The investment results of each Separate Account investment option will fluctuate
over time. Any presentation of a Separate Account investment option's total
return for any period should not be considered as a representation of future
performance.
ANNUITY PROVISIONS
VARIABLE ANNUITY
A variable annuity is an annuity with payments that:
. are not predetermined as to dollar amount; and
. will vary in amount with the net investment results of the Separate
Account investment option(s) selected.
At the Annuity Date, we will apply your Account Value in each Separate Account
investment option to the applicable Annuity table shown in your Contract to
determine the dollar amount of the initial Annuity payment. The Annuity table
we use depends on the Annuity Option chosen. If, as of the Annuity Date, the
then current Annuity Option rates applicable to this class of Contracts provide
an initial Annuity payment greater than that guaranteed under the same Annuity
Option table under your Contract, we will make the greater payment.
We next determine the number of "Annuity Units" for future payments from that
Separate Account investment option. To do this, we divide the dollar amount of
the initial Annuity payment by the applicable Annuity Unit value for that
investment option as of the Annuity Date. The number of Annuity Units remains
fixed during the Annuity Payment period.
Each month after the Annuity Date, we multiply the previously determined number
of Annuity Units by the applicable Separate Account investment option's Annuity
Unit value. (We use the Annuity Unit value at the end of the last Business Day
of the month preceding the month for which the payment is due.) This will be
the dollar amount of the current Annuity payment from that Separate Account
investment option. The total dollar amount of each variable Annuity payment is
the sum of all amounts payable from the selected Separate Account investment
options.
SA-6
<PAGE>
ANNUITY PROVISIONS (continued)
FIXED ANNUITY
A fixed annuity is a series of payments made after the Annuity Date that we
guarantee as to dollar amount. Fixed annuity payments do not vary with the
investment experience of the Separate Account.
At the Annuity Date, we will apply your Account Value in the Fixed Account to
the applicable Annuity table shown in your Contract to determine the dollar
amount of each "fixed" Annuity payment. (We use your Account Value in the Fixed
Account as of the day immediately before the Annuity Date).
ANNUITY UNIT
The initial value of an Annuity Unit for each Separate Account investment option
was arbitrarily set at $10. After that, the Annuity Unit value for that
Separate Account investment option is determined at the end of each Business
Day.
We determine an Annuity Unit's value by:
. calculating the assets of the applicable Separate Account investment option
that are attributable to Annuity Units;
. subtracting any unpaid daily and annual charges for the Contracts that are
attributable to that investment option;
. subtracting (or adding) any charges (or credits) for taxes that we have
reserved for that investment option;
. dividing the remainder by the number of then outstanding Annuity Units in
that investment option; and
. multiplying the result by a factor that neutralizes the assumed
investment rate of 3% contained in the Contract's annuity tables.
The value of an Annuity Unit will increase or decrease from Business Day to
Business Day, and will differ depending on the Separate Account investment
options selected.
MORTALITY AND EXPENSE GUARANTEE
We guarantee that the dollar amount of each Annuity payment after the Annuity
Date will not be affected by variations in our mortality or expense experience.
FINANCIAL STATEMENTS
The consolidated financial statements of First Variable Life Insurance Company
included herein should be considered only as bearing upon our ability to meet
our obligations under the Contracts.
SA-7
<PAGE>
Exhibit 10
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 2, 1999 with respect to the
consolidated financial statements financial statements of First Variable Life
Insurance Company and March 18, 1999 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.
333-12197) and related Prospectus of First Variable Life Insurance Company.
/s/ Ernst & Young LLP
----------------------------
ERNST & YOUNG LLP
Chicago, Illinois
April 27, 1999
<PAGE>
FINANCIAL STATEMENTS
FIRST VARIABLE LIFE INSURANCE COMPANY
FIRST VARIABLE ANNUITY FUND E
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Financial Statements
Year ended December 31, 1998
Contents
Report of Independent Auditors................................. 1
Financial Statements
Statement of Assets, Liabilities, and Contract Owners' Equity.. 2
Statement of Operations........................................ 3
Statements of Changes in Contract Owners' Equity............... 4
Notes to Financial Statements.................................. 6
<PAGE>
Report of Independent Auditors
To the Board of Directors of First Variable Life Insurance Company and Contract
Owners of First Variable Annuity Fund E
We have audited the accompanying statement of assets, liabilities, and contract
owners' equity of First Variable Life Insurance Company First Variable Annuity
Fund E as of December 31, 1998, 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,
1998 by correspondence with Variable Investors Series Trust and Federated
Insurance Series Trust. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Variable Life Insurance
Company First Variable Annuity Fund E at December 31, 1998, 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.
March 18, 1999
1
<PAGE>
First Variable Life Insurance Company -
Separate Account VL
Statement of Assets, Liabilities, and Contract Owners' Equity
December 31, 1998
<TABLE>
<CAPTION>
Federated High
Prime Income Multiple
Money Growth Bond Strategies
Total Fund II Division Division Division
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in Variable Investors Series Trust
at net asset value (cost $187,047,144) $189,876,015 $ -- $41,208,914 $ 19,827,645 $37,628,235
Investments in Federated Prime Money Fund II
at net asset value (cost $8,850,552) 8,850,552 8,850,552 -- -- --
Receivable from First Variable Life Insurance
Company 23,035 -- 2,758 254 9,158
--------------------------------------------------------------------
Total assets $198,749,602 $8,850,552 $41,211,672 $19,827,899 $37,637,393
====================================================================
Liabilities
Payable to First Variable Life Insurance Company $ 63,967 $ 35,129 $ -- $ -- $ --
Contract owners' equity
Annuity contracts in payment period 214,189 180,828 24,453 8,908 --
Variable annuity contract owners' equity 198,471,446 8,634,595 41,187,219 19,818,991 37,637,393
--------------------------------------------------------------------
Total contract owners' equity $198,685,635 8,815,423 41,211,672 19,827,899 37,637,393
Total liabilities and contract owners' equity $198,749,602 $8,850,552 $41,211,672 $19,827,899 $37,637,393
====================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. Small
Matrix Government World Growth & Cap
Equity Bond Equity Income Growth
Division Division Division Division Division
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in Variable Investors Series Trust
at net asset value (cost $187,047,144) $19,566,570 $13,063,728 $21,249,698 $24,822,360 $12,508,865
Investments in Federated Prime Money Fund II
at net asset value (cost $8,850,552) -- -- -- -- --
Receivable from First Variable Life Insurance
Company 7,055 -- -- 3,810 --
----------------------------------------------------------------
Total assets $19,573,625 $13,063,728 $21,249,698 $24,826,170 $12,508,865
================================================================
Liabilities
Payable to First Variable Life Insurance Company $ -- $ 7,417 $ 17,207 $ -- $ 4,214
Contract owners' equity
Annuity contracts in payment period -- -- -- -- --
Variable annnuity contract owners' equity 19,573,625 13,056,311 21,232,491 24,876,170 12,504,651
----------------------------------------------------------------
Total contract owners' equity 19,573,625 13,056,311 21,232,491 24,826,170 12,504,651
----------------------------------------------------------------
Total liabilities and contract owners' equity $19,573,625 $13,063,728 $21,249,698 $24,826,170 $12,508,865
================================================================
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company -
First Variable Annuity Fund E
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
Federated High
Prime Income Multiple
Money Growth Bond Strategies
Total Fund II Division Division Division
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $13,238,943 $497,442 $ 4,629,122 $1,559,125 $2,335,245
Expenses:
Fees paid to First Variable Life Insurance Company
--Risk and administrative charges 2,495,826 129,264 470,454 257,253 446,776
-------------------------------------------------------------------------
Net investment income (loss) 10,743,117 368,178 4,158,668 1,301,872 1,888,469
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on Variable Investors
Series Trust shares redeemed 14,293,220 -- 7,112,929 533,356 4,599,401
Net unrealized appreciation (depreciation)
on investments during the year (456,962) -- (1,318,859) (1,484,495) 1,734,525
-------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 13,836,258 -- 5,794,070 (951,139) 6,333,926
-------------------------------------------------------------------------
Net increase (decrease) in contract owners'
equity resulting from operations $24,579,375 $368,178 $ 9,952,738 $ 350,733 $8,222,395
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. Small
Matrix Government World Growth & Cap
Equity Bond Equity Income Growth
Division Division Division Division Division
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $1,015,411 $744,765 $1,731,526 $ 726,307 $ --
Expenses:
Fees paid to First Variable Life Insurance Company
--Risk and administrative charges 223,848 129,155 306,594 343,087 189,395
-----------------------------------------------------------------------
Net investment income (loss) 791,563 615,610 1,424,932 383,220 (189,395)
Realized and unrealized gain (loss) on investments:
Realized gain (loss) on Variable Investors
Series Trust shares redeemed 872,436 258,304 (384,016) 2,072,741 (771,931)
Net unrealized appreciation (depreciation)
on investments during the year 1,260,326 (344,581) (62,724) (808,198) 567,044
-----------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 2,132,762 (86,277) (446,740) 1,264,543 (204,887)
-----------------------------------------------------------------------
Net increase (decrease) in contract owners'
equity resulting from operations $2,924,325 $529,333 $ 978,192 $1,647,763 $(394,282)
=======================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Statements of Changes in Contract Owners' Equity
Periods ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Federated Cash
Prime Money Management
Total Fund II Division
1998 1997 1998 1997/(1)/ 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income $ 10,743,117 $ 13,847,091 $ 368,178 $ 414,356 $ --
Realized gain on Variable Investors
Series Trust shares redeemed 14,293,220 8,899,088 -- -- --
Net unrealized appreciation (depreciation)
on investments during the period (456,962) (1,368,372) -- -- --
---------------------------------------------------------------------
Net increase in contract owners' equity
resulting from operations 24,579,375 21,377,807 368,178 414,356 --
From contract owner transactions
Net proceeds from sale or transfer of
accumulation units 45,778,240 29,757,747 8,682,394 12,489,583 (6,961,706)
Cost of accumulation units terminated and
exchanged (41,929,218) (18,690,446) (9,536,847) 3,567,112 --
---------------------------------------------------------------------
Increase (decrease) in contract owners' equity
from contract owner transactions 3,849,022 11,067,301 (854,453) 8,922,471 (6,961,706)
---------------------------------------------------------------------
Increase (decrease) in contract owners' equity 28,428,397 32,445,108 (486,275) 9,336,827 (6,961,706)
Contract owners' equity at beginning of period 170,321,205 137,876,097 9,336,827 -- 6,961,706
---------------------------------------------------------------------
Contract owners' equity at end of period $198,749,602 $170,321,205 $ 8,850,552 $ 9,336,827 $ --
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Growth High Income
Division Bond Division
1998 1997 1998 1997
----------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 4,158,668 $ 2,248,848 $ 1,301,872 $ $879,975
Realized gain on Variable Investors
Series Trust shares redeemed 7,112,929 3,302,662 533,356 472,791
Net unrealized appreciation (depreciation)
on investments during the period (1,318,859) 219,193 (1,484,495) 222,004
----------------------------------------------------
Net increase in contract owners' equity
resulting from operations 9,952,738 5,770,703 350,733 1,574,770
From contract owner transactions
Net proceeds from sale or transfer of
accumulation units 4,781,700 4,963,450 5,374,821 2,901,716
Cost of accumulation units terminated and
exchanged (5,858,088) (4,311,406) (2,355,028) 82,682
----------------------------------------------------
Increase (decrease) in contract owners' equity
from contract owner transactions (1,076,388) 652,044 3,019,793 2,984,398
----------------------------------------------------
Increase (decrease) in contract owners' equity 8,876,350 6,422,747 3,370,526 4,559,168
Contract owners' equity at beginning of period 32,335,322 25,912,575 16,457,373 11,898,205
----------------------------------------------------
Contract owners' equity at end of period $41,211,672 $32,335,322 $19,827,899 $16,457,373
====================================================
</TABLE>
/(1)/ From commencement of operations, January 2, 1997
<PAGE>
First Variable Life Insurance Company -
First Variable Annuity Fund E
Statements of Changes in Contract Owners' Equity (continued)
Periods ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Multiple Strategies Matrix Equity
Division Division
1998 1997 1998 1997
-------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 1,888,469 $ 2,132,586 $ 791,563 $ 2,884,776
Realized gain (loss) on Variable Investors Series
Trust shares redeemed 4,599,401 2,381,747 872,436 686,314
Net unrealized appreciation (depreciation) on
investments during the period 1,734,525 635,135 1,260,326 (1,296,817)
-------------------------------------------------------
Net increase (decrease) in contract owners' equity
resulting from operations 8,222,395 5,149,468 2,924,325 2,274,273
From contract owner transactions
Net proceeds from sale or transfer of accumulation
units 3,898,136 3,127,507 5,265,161 1,033,568
Cost of accumulation units terminated and exchanged (5,723,614) (4,191,961) (1,852,605) (2,700,078)
-------------------------------------------------------
Increase (decrease) in contract owners' equity
from contract owner transactions (1,825,478) (1,064,454) 3,412,556 (1,666,510)
-------------------------------------------------------
Increase (decrease) in contract owners' equity 6,396,917 4,085,014 6,336,881 607,763
Contract owners' equity at beginning of period 31,240,476 27,155,462 13,236,744 12,628,981
-------------------------------------------------------
Contract owners' equity at end of period $37,637,393 $31,240,476 $19,573,625 $13,236,744
=======================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Bond World Equity
Division Division
1998 1997 1998 1997
-------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income (loss) $ 615,610 $ 396,715 $ 1,424,932 $ 3,089,382
Realized gain (loss) on Variable Investors Series
Trust shares redeemed 258,304 15,441 (384,016) 978,969
Net unrealized appreciation (depreciation) on
investments during the period (344,581) 115,355 (62,724) (2,246,616)
-------------------------------------------------------
Net increase (decrease) in contract owners' equity
resulting from operations 529,333 527,511 978,192 1,821,735
From contract owner transactions
Net proceeds from sale or transfer of accumulation
units 5,939,476 664,812 1,306,839 2,087,308
Cost of accumulation units terminated and exchanged (1,173,648) (1,034,432) (3,800,525) (2,919,066)
-------------------------------------------------------
Increase (decrease) in contract owners' equity
from contract owner transactions 4,765,828 (369,620) (2,493,686) (831,758)
-------------------------------------------------------
Increase (decrease) in contract owners' equity 5,295,161 157,891 (1,515,494) 989,977
Contract owners' equity at beginning of period 7,768,567 7,610,676 22,765,192 21,775,215
-------------------------------------------------------
Contract owners' equity at end of period $ 13,063,728 $ 7,768,567 $21,249,698 $22,765,192
=======================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Growth & Income Small Cap Growth
Division Division
1998 1997 1998 1997
<S> <C> <C> <C> <C>
-----------------------------------------------------
Operations
Net investment income (loss) $ 383,220 $ 1,443,555 $ (189,395) $ 356,898
Realized gain (loss) on Variable Investors Series
Trust shares redeemed 2,072,741 585,338 (771,931) 475,826
Net unrealized appreciation (depreciation) on
investments during the period (808,198) 1,514,112 567,044 (530,738)
-----------------------------------------------------
Net increase (decrease) in contract owners' equity
resulting from operations 1,647,763 3,543,005 (394,282) 301,986
From contract owner transactions
Net proceeds from sale or transfer of accumulation
units 9,202,472 4,199,159 1,327,241 5,252,350
Cost of accumulation units terminated and exchanged (5,983,494) 1,942,466 (5,645,369) (1,991,539)
-----------------------------------------------------
Increase (decrease) in contract owners' equity
from contract owner transactions 3,218,978 6,141,625 (4,318,128) 3,260,811
-----------------------------------------------------
Increase (decrease) in contract owners' equity 4,866,741 9,684,630 (4,712,410) 3,562,797
Contract owners' equity at beginning of period 19,959,429 10,274,799 17,221,275 13,658,478
-----------------------------------------------------
Contract owners' equity at end of period $24,826,170 $19,959,429 $12,508,865 $17,221,275
=====================================================
</TABLE>
See accompanying notes.
<PAGE>
First Variable Life Insurance Company --
First Variable Annuity Fund E
Notes to Financial Statements
Year ended December 31, 1998
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.
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, which approximates fair value, per share of the respective portfolios of
the Trust and Federated. Investment transactions are accounted for on the date
the shares are purchased
6
<PAGE>
First Variable Life Insurance Company--
First Variable Annuity Fund E
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
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.
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, 1998:
<TABLE>
<CAPTION>
Number of Net Asset
Shares Cost Value
--------------------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II 8,850,552 $ 8,850,552 $ 8,850,552
Growth Portfolio 1,005,002 40,004,973 41,208,914
High Income Bond Portfolio 2,163,305 21,120,533 19,827,645
Multiple Strategies Portfolio 2,194,916 35,267,861 37,628,235
Matrix Equity Portfolio 1,196,507 18,875,447 19,566,570
U.S. Government Bond Portfolio 1,265,595 13,602,096 13,063,728
World Equity Portfolio 1,560,352 22,421,844 21,249,698
Growth & Income Portfolio 1,560,895 23,936,783 24,822,360
Small Cap Growth Portfolio 828,870 11,817,607 12,508,865
--------------------------------
Totals $195,897,696 $198,726,567
================================
</TABLE>
7
<PAGE>
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, 1998, consists of the
following:
<TABLE>
<CAPTION>
Accumulation Accumulation
Units Unit Value Equity
-------------------------------------------------
<S> <C> <C> <C>
Vista l and Vista 2 policies
Federated Prime Money Fund II Division 147,317 16.005010 $ 2,357,814
Growth Division 135,414 43.675995 5,914,343
High Income Bond Division 50,106 26.118041 1,308,674
Multiple Strategies Division 208,688 37.168910 7,756,722
Matrix Equity Division 64,747 37.650817 2,437,782
U.S. Government Bond Division 116,243 21.812200 2,535,508
World Equity Division 131,597 20.319037 2,673,919
Growth & Income Division 26,886 17.485140 470,102
Small Cap Growth Division 40,864 15.505965 633,629
------------
Subtotal 26,088,493
Cap Five and Vista policies
Federated Prime Money Fund II
Division 369,800 12.909533 4,773,951
Growth Division 842,634 33.895612 28,561,591
High Income Bond Division 697,426 20.830072 14,527,430
Multiple Strategies Division 812,067 30.916582 25,106,329
Matrix Equity Division 495,732 28.672354 14,213,793
U.S. Government Bond Division 265,035 17.726046 4,698,021
World Equity Division 925,789 18.274482 16,918,317
Growth & Income Division 1,061,988 17.391289 18,469,338
Small Cap Growth Division 642,229 15.454384 9,925,250
------------
Subtotal 137,194,020
FPA 2 policies
Growth Division 21,151 49.191328 1,040,430
</TABLE>
8
<PAGE>
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 Accumulation
Units Unit Value Equity
------------------------------------------
<S> <C> <C> <C>
Cap No Load and Cap Six policies
Federated Prime Money Fund II
Division 135,376 11.101139 $ 1,502,830
Growth Division 282,153 20.098484 5,670,855
High Income Bond Division 306,492 12.995091 3,982,887
Multiple Strategies Division 264,274 18.065897 4,774,342
Matrix Equity Division 186,146 15.697602 2,922,050
U.S. Government Bond Division 490,078 11.881327 5,822,782
World Equity Division 129,010 12.714210 1,640,255
Growth & Income Division 358,265 16.431215 5,886,730
Small Cap Growth Division 157,939 12.319756 1,945,772
------------
Subtotal 34,148,503
------------
$198,471,446
============
</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, 1998 are shown below:
<TABLE>
<CAPTION>
Purchases Sales
---------------------------
<S> <C> <C>
Federated Prime Money Fund II Portfolio $ 34,798,600 $ 35,718,708
Growth Portfolio 33,307,219 30,219,647
High Income Bond Portfolio 21,794,069 17,463,190
Multiple Strategies Portfolio 24,688,183 24,640,297
Matrix Equity Portfolio 15,007,396 10,807,665
U.S. Government Bond Portfolio 16,415,963 10,930,228
World Equity Portfolio 22,152,746 23,188,143
Growth & Income Portfolio 19,133,986 15,576,000
Small Cap Growth Portfolio 9,850,077 14,265,778
---------------------------
$197,148,239 $182,809,656
===========================
</TABLE>
9
<PAGE>
First Variable Life Insurance Company --
First Variable Annuity Fund E
Notes to Financial Statements (continued)
6. Expenses
As more fully disclosed in the prospectus, First Variable Life charges the Fund,
based on the value of the Fund, various charges. For FPA 2 policies, First
Variable Life charges at an annual rate of .6% for mortality risks, .15% for
distribution expense risks, and .40% for administrative expense risks. First
Variable Life charges the Fund, based on the value of the Fund, at an annual
rate of .75% for mortality expense risks, and .50% for administrative expense
risks, on Vista 1 and Vista 2 policies. First Variable Life charges the Fund,
based on the value of the Fund, at an annual rate of .85% for mortality risks,
.40% for expense risks, and .15% for administrative charges on Cap Five and
Vista policies. First Variable Life charges the Fund, based on the value of the
Fund, at an annual rate of .85% for mortality risks, .40% for expense risks, and
.25% for administrative charges on Cap No Load and Cap Six policies. Total
charges to the Fund for all the policy forms for the year ended December 31,
1998, was $2,495,826.
7. Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the 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.
10
<PAGE>
First Variable Life Insurance Company --
First Variable Annuity Fund E
Notes to Financial Statements (continued)
9. Year 2000 Issues (unaudited)
Like other financial and business organizations around the world, First Variable
Life 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. First Variable Life has completed an
assessment of the Year 2000 impact on its systems, procedures, customers, and
business processes and has begun converting critical data processing systems.
In addition, First Variable Life is gathering information about the Year 2000
compliance status of its significant service providers and will continue to
monitor their compliance. First Variable Life believes it has taken the
necessary steps to address the Year 2000 issue; however, there can be no
assurances that these steps will be sufficient to avoid any adverse impact on
the Fund.
11
<PAGE>
Consolidated Financial Statements
First Variable Life Insurance Company
Years ended December 31, 1998, 1997, and 1996
with Report of Independent Auditors
<PAGE>
First Variable Life Insurance Company
Consolidated Financial Statements
Years ended December 31, 1998, 1997, and 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................... 1
Consolidated Financial Statements
Consolidated Balance Sheets.............................................. 2
Consolidated Statements of Income........................................ 3
Consolidated Statements of Changes in Stockholder's Equity............... 4
Consolidated Statements of Cash Flows.................................... 5
Notes to Consolidated Financial Statements............................... 6
</TABLE>
<PAGE>
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, 1998 and 1997, 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, 1998.
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, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
February 2, 1999
1
<PAGE>
First Variable Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Investments (Note 3):
Fixed maturities - Available-for-sale, at fair value
(amortized cost: 1998 - $245,795,000; 1997 - $274,439,000) $264,741,000 $294,961,000
Option contracts 2,279,000 1,057,000
Equity securities - Available-for-sale, at fair value
(cost: $684,000 in 1998 and 1997) 173,000 825,000
Policy loans 606,000 267,000
--------------------------------------
Total investments 267,799,000 297,110,000
Cash and cash equivalents 3,353,000 3,029,000
Accrued investment income 4,878,000 5,744,000
Deferred policy acquisition costs 10,481,000 7,520,000
Value of insurance in force acquired (Note 4) 15,089,000 16,939,000
Property and equipment, less allowances for depreciation of
$836,000 in 1998 and $773,000 in 1997 574,000 445,000
Goodwill, less accumulated amortization of $621,000
in 1998 and $475,000 in 1997 2,302,000 2,448,000
Other assets 659,000 732,000
Assets held in separate accounts 266,257,000 219,807,000
--------------------------------------
Total assets $571,392,000 $553,774,000
======================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for annuity and life products $206,069,000 $233,988,000
Unearned revenue reserve 278,000 282,000
Supplementary contracts without life contingencies 22,955,000 21,711,000
Deferred income tax liability (Note 5) 5,850,000 6,692,000
Due to affiliates 139,000
Other liabilities 2,149,000 2,837,000
Liabilities related to separate accounts 266,257,000 219,807,000
--------------------------------------
Total liabilities 503,697,000 485,317,000
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
Accumulated other comprehensive income 8,195,000 9,066,000
Retained earnings 3,896,000 3,787,000
--------------------------------------
Total stockholder's equity 67,695,000 68,457,000
--------------------------------------
Total liabilities and stockholder's equity $571,392,000 $553,774,000
======================================
</TABLE>
See accompanying notes.
2
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Revenues:
Annuity and life product charges $ 4,026,000 $ 3,141,000 $ 2,408,000
Net investment income 22,295,000 22,597,000 23,458,000
Realized gains on investments 2,723,000 1,227,000 972,000
Other income 1,576,000 1,368,000 1,114,000
-----------------------------------------------
Total revenues 30,620,000 28,333,000 27,952,000
Benefits and expenses:
Annuity and life benefits 15,643,000 14,856,000 16,336,000
Underwriting, acquisition, and
insurance expenses 9,828,000 8,313,000 6,176,000
Amortization of value of insurance
in force acquired and deferred
policy acquisition costs 3,473,000 1,602,000 1,099,000
Management fee paid to parent 480,000 480,000 480,000
Other expenses 1,469,000 2,610,000 1,421,000
-----------------------------------------------
Total benefits and expenses 30,893,000 27,861,000 25,512,000
-----------------------------------------------
Income (loss) before income tax (273,000) 472,000 2,440,000
(benefit)
Income tax (benefit) (382,000) 153,000 836,000
-----------------------------------------------
Net income $ 109,000 $ 319,000 $ 1,604,000
===============================================
</TABLE>
See accompanying notes.
3
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
CAPITAL PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,500,000 $53,104,000 $13,189,000 $1,864,000 $70,657,000
Net income - - - 1,604,000 1,604,000
Net unrealized investment loss,
net of reclassification
adjustment - - (5,865,000) - (5,865,000)
-----------
Comprehensive loss (4,261,000)
-------------------------------------------------------------------------------------
Balance at December 31, 1996 2,500,000 53,104,000 7,324,000 3,468,000 66,396,000
Net income - - - 319,000 319,000
Net unrealized investment gain,
net of reclassification
adjustment - - 1,742,000 - 1,742,000
-----------
Comprehensive income 2,061,000
-------------------------------------------------------------------------------------
Balance at December 31, 1997 2,500,000 53,104,000 9,066,000 3,787,000 68,457,000
Net income - - - 109,000 109,000
Net unrealized investment loss,
net of reclassification adjustment
- - (871,000) - (871,000)
-----------
Comprehensive loss (762,000)
-------------------------------------------------------------------------------------
Balance at December 31, 1998 $2,500,000 $53,104,000 $ 8,195,000 $3,896,000 $67,695,000
=====================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
First Variable Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 109,000 $ 319,000 $ 1,604,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Adjustments related to interest-sensitive products:
Annuity benefits 15,643,000 14,856,000 16,336,000
Annuity product charges (4,022,000) (3,141,000) (2,408,000)
Realized gains on investments (2,723,000) (1,227,000) (972,000)
Policy acquisition costs deferred (3,665,000) (3,208,000) (2,800,000)
Amortization of deferred policy
acquisition costs 912,000 594,000 360,000
Provision for depreciation and other
amortization 2,154,000 937,000 524,000
Provision for income taxes (382,000) 153,000 836,000
Other 478,000 3,560,000 (1,949,000)
-------------------------------------------------
Net cash provided by operating activities 8,504,000 12,843,000 11,531,000
INVESTING ACTIVITIES
Sale, maturity, or repayment of fixed
maturity investments 61,253,000 24,657,000 21,770,000
Acquisition of fixed maturities (29,074,000) (19,142,000) (7,517,000)
Acquisition of option contracts (1,223,000) (963,000) (94,000)
Policy loans and other (840,000) (267,000) (193,000)
-------------------------------------------------
Net cash provided by investing 30,116,000 4,285,000 13,966,000
activities
FINANCING ACTIVITIES
Receipts from interest-sensitive products
credited to policyholder account balances 58,317,000 64,181,000 58,175,000
Return of policyholder account balances on
interest-sensitive products (96,613,000) (80,713,000) (86,824,000)
-------------------------------------------------
Net cash used in financing activities (38,296,000) (16,532,000) (28,649,000)
-------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 324,000 596,000 (3,152,000)
Cash and cash equivalents at beginning
of year 3,029,000 2,433,000 5,585,000
-------------------------------------------------
Cash and cash equivalents at end of year $ 3,353,000 $ 3,029,000 $ 2,433,000
=================================================
</TABLE>
See accompanying notes.
5
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1998
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) are categorized as "available-for-sale," and
as a result, are reported at fair value, with unrealized gains and losses on
these securities included directly in accumulated other comprehensive income in
stockholder's equity, net of certain adjustments (see Note 3).
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 or accreted using methods
which result in a constant yield over the securities' expected lives.
Amortization or accretion 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 accumulated other comprehensive income in stockholder's equity.
6
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE ACQUIRED
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. The
value of insurance in force acquired is an asset that arose at the date the
Company was acquired by ILoNA. The initial value was determined by an actuarial
study using expected future gross profits as a measurement of the net present
value of the insurance acquired. Interest accrues on the current unamortized
balance at 7%.
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.
7
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 will
assess the fair value of the underlying business and reduce 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 of goodwill.
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 3.0% to 7.0% in 1998, and 4.5% to 6.5% in 1997.
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.
8
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Approximately 35%, 42%, and 68% of the direct business written (as measured by
premiums received) during the periods ended December 31, 1998, 1997, and 1996,
respectively, were written through three wholesalers. 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.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS), No. 130, Reporting Comprehensive Income. SFAS 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the new standard had no impact on the Company's net income
or stockholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to the adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.
9
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENDING ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivatives Instruments and for Hedging Activities. SFAS No. 133
requires all derivatives to be recorded on the balance sheet at fair value and
establishes "special accounting" for the following three different types of
hedges; hedges of changes in the fair value of assets, liabilities, or firm
commitments; hedges of the variable cash flows of forecasted transactions; and
hedges of foreign currency exposures of net investments in foreign operations.
SFAS No. 133 is effective for years beginning after June 15, 1999, with earlier
adoption permitted. The Company has not determined the impact of adopting SFAS
No. 133.
RECLASSIFICATION
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the presentations made in the current years.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS 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 sheets, 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 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.
10
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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: The Company has not determined the fair values associated with
its policy loans, 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,
1998 and 1997, the interest rate related to the outstanding policy loans is
5%.
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.
11
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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 107 at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- --------------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities -
Available-for-sale $264,741,000 $264,741,000 $294,961,000 $294,961,000
Option contracts 2,279,000 2,279,000 1,057,000 1,057,000
Equity securities 173,000 173,000 825,000 825,000
Policy loans 606,000 606,000 267,000 267,000
Cash and cash equivalents 3,353,000 3,353,000 3,029,000 3,029,000
Assets held in separate
accounts 266,257,000 266,257,000 219,807,000 219,807,000
LIABILITIES
Future policy benefits for
annuity and life products 206,069,000 206,069,000 233,988,000 233,988,000
Supplementary contracts
without life contingencies 22,955,000 22,955,000 21,711,000 21,711,000
Liabilities related to
separate accounts 266,257,000 266,257,000 219,807,000 219,807,000
</TABLE>
12
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
3. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and fair value information on fixed
maturities (bonds) and equity securities (common stocks) at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed maturities -
Available-for-sale:
United States Government and
agencies:
Mortgage and asset-backed
securities $ 996,000 $ 15,000 $ - $ 1,011,000
Other 20,025,000 1,717,000 9,000 21,733,000
State, municipal, and other
governments 3,987,000 252,000 - 4,239,000
Public utilities 59,463,000 7,622,000 7,000 67,078,000
Industrial and miscellaneous 161,324,000 10,041,000 685,000 170,680,000
-----------------------------------------------------------------------
Total fixed maturities -
Available-for-sale $245,795,000 $19,647,000 701,000 $ 264,741,000
=======================================================================
Equity securities $ 684,000 $ - $511,000 $ 173,000
=======================================================================
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
=======================================================================
</TABLE>
13
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and fair value of the Company's portfolio of fixed-maturity
securities at December 31, 1998, 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
AMORTIZED MARKET
COST VALUE
------------------------------
<S> <C> <C>
Due in one year or less $ 19,051,000 $ 19,307,000
Due after one year through five years 106,314,000 113,217,000
Due after five years through ten years 37,572,000 38,992,000
Due after ten years 81,862,000 92,214,000
Mortgage and asset-backed securities 996,000 1,011,000
------------------------------
$245,795,000 $264,741,000
==============================
</TABLE>
The unrealized gain or loss on fixed-maturity and equity securities available-
for-sale is reported as accumulated other comprehensive income, 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 that are recorded as accumulated other comprehensive income
were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
Unrealized gain on fixed-maturity and equity
securities available-for-sale $18,435,000 $20,663,000
Adjustments for assumed changes in
amortization pattern of:
Deferred policy acquisition costs (1,572,000) (1,780,000)
Value of insurance in force acquired (4,446,000) (5,157,000)
Deferred income tax liability (4,222,000) (4,660,000)
-------------------------------
Net unrealized investment gains $ 8,195,000 $ 9,066,000
===============================
</TABLE>
14
<PAGE>
First Variable Life Insuance 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
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Income from:
Fixed maturities $21,181,000 $22,183,000 $23,364,000
Cash and cash equivalents 155,000 225,000 288,000
Option contracts 1,118,000 408,000 -
Policy loans 37,000 - -
-----------------------------------------------
22,491,000 22,816,000 23,652,000
Less investment expenses (196,000) (219,000) (194,000)
-----------------------------------------------
Net investment income $22,295,000 $22,597,000 $23,458,000
===============================================
</TABLE>
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized gain (loss) on investments
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
REALIZED
Fixed maturities $ 2,723,000 $1,227,000 $ 972,000
===============================================
UNREALIZED
Fixed maturities $(1,576,000) $4,632,000 $(12,756,000)
Equity securities (652,000) 134,000 369,000
-----------------------------------------------
Unrealized gain (loss) on
investments $(2,228,000) $4,766,000 $(12,387,000)
===============================================
</TABLE>
15
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
A summary of the net unrealized gain (loss) recognized in other comprehensive
income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Realized gain on securities included
in net income $ 2,723,000 $ 1,227,000 $ 972,000
==============================================
Other comprehensive income:
Net unrealized gain (loss) arising
during the year, net of taxes of
$166,000, $2,020,000, and
($3,881,000), respectively $ 315,000 $ 3,970,000 $(7,534,000)
Reclassification adjustment, net of
taxes of $926,000, $416,000, and
$331,000, respectively (1,797,000) (811,000) (641,000)
----------------------------------------------
(1,482,000) 3,159,000 (8,175,000)
Adjustments:
Deferred policy acquisition costs,
net of taxes of $70,000 and
($195,000), respectively 138,000 (385,000) -
Value of insurance in force
acquired, net of taxes of
$238,000, ($525,000), and 473,000 (1,032,000) 2,310,000
$1,190,000, respectively
----------------------------------------------
611,000 (1,417,000) 2,310,000
----------------------------------------------
Net unrealized gain (loss)
recognized in other comprehensive income $ (871,000) $ 1,742,000 $(5,865,000)
==============================================
</TABLE>
An analysis of sales, maturities, and principal repayments of the Company's
fixed maturities portfolio for the years ended December 31, 1998, 1997, and 1996
is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
---------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
Scheduled principal
repayments and calls $29,801,000 $ 909,000 $ 1,000 $30,709,000
Sales 28,729,000 1,861,000 46,000 30,544,000
---------------------------------------------------------
$58,530,000 $2,770,000 $47,000 $61,253,000
=========================================================
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
---------------------------------------------------------
$23,431,000 $1,298,000 $72,000 $24,657,000
=========================================================
</TABLE>
16
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
---------------------------------------------------
<S> <C> <C> <C> <C>
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
---------------------------------------------------
$20,798,000 $1,044,000 $72,000 $21,770,000
===================================================
</TABLE>
Income taxes during the years ended December 31, 1998, 1997, and 1996 include a
provision of $926,000, $416,000, and $331,000, respectively, for the tax effect
of realized gains.
OTHER
At December 31, 1998, fixed maturities with a carrying value of $8,894,000 were
held on deposit with state agencies to meet regulatory requirements.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded 10% of stockholder's equity
at December 31, 1998.
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 $2,279,000 and $1,057,000 at December 31,
1998 and 1997, respectively.
CONCENTRATIONS OF CREDIT RISK
The Company's investment in public utility bonds at December 31, 1998 represents
25% of total investments and 12% 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.
17
<PAGE>
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 years ended December 31, 1998, 1997, and
1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Excluding impact on net
unrealized investment gains and
losses:
Balance at beginning of year $22,096,000 $23,094,000 $23,833,000
Accretion of interest during
the year 1,457,000 1,582,000 1,642,000
Amortization of asset (4,018,000) (2,580,000) (2,381,000)
-----------------------------------------------
Balance prior to impact of net
unrealized investment gains and
losses 19,535,000 22,096,000 23,094,000
Impact of net unrealized
investment gains and losses (4,446,000) (5,157,000) (3,600,000)
-----------------------------------------------
Balance at end of year $15,089,000 $16,939,000 $19,494,000
===============================================
</TABLE>
During the year ended December 31, 1998, the amortization of value of insurance
in force acquired was increased by $1,600,000 due to gains realized on
securities sold supporting the acquired block of business. Amortization of the
value of insurance in force acquired for the next five years ending December 31
is expected to be as follows: 1999 - $1,242,000; 2000 - $1,380,000; 2001 -
$1,329,000; 2002 - $1,281,000; and 2003 - $1,231,000.
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 on 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.
18
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
Income tax expense (benefit) is included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Income tax (benefit) expense in
consolidated statements of income
on income before income tax (benefit) $(382,000) $ 153,000 $ 836,000
-------------------------------------------
(382,000) 153,000 836,000
Tax (benefit) expense in
consolidated statements of changes
in stockholder's equity:
Amounts attributable to change in
accumulated other comprehensive
income during year - Deferred (438,000) 887,000 (3,022,000)
-------------------------------------------
$(820,000) $1,040,000 $(2,186,000)
===========================================
</TABLE>
The effective tax rate on income (loss) before income tax (benefit) is different
from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Income (loss) before income tax (benefit) $(273,000) $472,000 $ 2,440,000
==========================================
Income tax (benefit) at federal
statutory rate (34%) $ (93,000) $160,000 $ 830,000
Tax effect (decrease) of:
Other (289,000) (7,000) 6,000
------------------------------------------
Income tax (benefit) expense $(382,000) $153,000 $ 836,000
==========================================
</TABLE>
19
<PAGE>
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 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 2,342,000 $ 1,969,000
Operating loss carryforwards 2,406,000 2,590,000
Other 163,000 124,000
------------------------------
4,911,000 4,683,000
Deferred tax liabilities:
Investments (5,031,000) (5,946,000)
Deferred policy acquisition costs (3,247,000) (2,523,000)
Value of insurance in force acquired (2,090,000) (2,533,000)
Other (393,000) (373,000)
------------------------------
(10,761,000) (11,375,000)
------------------------------
Deferred income tax liability $ (5,850,000) $ (6,692,000)
==============================
</TABLE>
The Company has federal net operating loss carryforwards reportable on its
federal tax return aggregating $7,076,000 at December 31, 1998 which expire from
2009 to 2012.
6. RETIREMENT AND COMPENSATION PLANS
Substantially all full-time employees of the Company are covered by a
noncontributory defined benefit pension plan sponsored by ILoNA. The benefits
are based on years of service and the employee's compensation. In addition,
effective January 1, 1996, ILoNA adopted a nonqualified supplemental plan to
provide benefits in excess of limitations established by the Internal Revenue
Code (the Code). The Company records its required contributions as pension
expense related to these plans. There were no material contributions to the plan
during the years ended December 31, 1998, 1997, or 1996.
20
<PAGE>
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 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 $10,000 in 1998) 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 $77,000, $37,000, and $27,000 for the
years ended December 31, 1998, 1997, and 1996, 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 1999,
this annual limitation aggregates $3,045,000; 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 ($37,000,000 at
December 31, 1998) 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.
Net loss for the Company, as determined in accordance with statutory accounting
practices, was $2,466,000, $1,240,000, and $1,507,000 for the years ended
December 31, 1998, 1997, and 1996, respectively. Total statutory capital and
surplus was $30,451,000 at December 31, 1998 and $33,556,000 at December 31,
1997.
21
<PAGE>
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 1998, the Company moved to
its current location and subleased its previous office space. Rent received
under the sublease agreement is netted against rent expense in 1998. During the
years ended December 31, 1998, 1997, and 1996, rent expense totaled $361,000,
$228,000, and $206,000, respectively. At December 31, 1998, minimum rental
payments due under all noncancelable operating leases, including the lease
agreement on the Company's previous office space with initial terms of one year
or more are:
Year ending December 31:
1999 $ 673,000
2000 689,000
2001 328,000
2002 6,000
Thereafter 3,000
----------
$1,699,000
==========
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, 1998 and 1997, the Company has not accrued for guaranty fund
assessments based on its historical experience and information available from
those making guaranty fund assessments. During 1997, the American Institute of
Certified Public Accountants issued Statement of Position 97-3 (SOP 97-3),
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments," that will require, beginning in 1999, the accrual of guaranty fund
assessments. The Company has not determined the impact of adopting SOP 97-3.
22
<PAGE>
First Variable Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS
The Company has a management agreement with ILoNA to provide for certain
management services. Amounts paid by the Company pursuant to this agreement were
$480,000 in both 1998 and 1997. In addition, an expense allocation agreement was
entered into with Interstate Assurance Company, a subsidiary of ILoNA, to
provide for certain administrative functions. Amounts paid during 1998 and 1997
by the Company pursuant to this agreement were $506,000 and $504,000,
respectively.
10. 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 was
substantially completed in June 1998.
11. 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 and has begun converting critical data processing systems. In
addition, the Company is gathering information about the Year 2000 compliance
status of its significant service providers and will continue to monitor their
compliance.
23
<PAGE>
FIRST VARIABLE ANNUITY FUND E
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements of First Variable Annuity Fund E and First Variable
Life Insurance Company
(b) Exhibits
--------
1. Resolution of Board of Directors for the Company authorizing the
establishment of the Separate Account (1)
2. Not Applicable
3(a). Form of Principal Underwriter's Agreement (2)
(b). Form of Broker-Dealer Agreement (2)
(c). Specimen Broker-Dealer Supervisory and Selling Agreement (3)
4.(a) Individual Flexible Purchase Payment Deferred Variable Annuity
Contract (4)
(b) Individual Flexible Purchase Payment Deferred Variable Annuity
Riders (5)
5. Application for Variable Annuity (4)
6(a). Articles of Incorporation of First Variable Life Insurance Company
(1)
(b) By-laws of First Variable Life Insurance Company (2)
7. Not Applicable
8.(a) Form of Fund Participation Agreements with Variable Investors
Series Trust (3)
(b) Form of Fund Participation Agreements with AIM Variable Insurance
Funds, Inc., et al; American Century Investment Management, Inc.;
BT Insurance Funds Trust, et al; Lord Abbett Series Fund, Inc., et
al; MFS Variable Insurance Trust, et al; and Templeton Variable
Products Series Fund, et al. (5)
9.(a) Consent of Counsel, First Variable Life Insurance Company (4)
(b) Consent of Blazzard, Grodd & Hasenauer, P.C. (4)
10. Consent of Ernst & Young LLP, Independent Auditors (5)
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information (5)
14. Not Applicable
15. Powers of Attorney (6) - 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 Philip R. O'Connor
Michael J. Corey Jeff S. Liebmann
Michael R. Ferrari Kenneth R. Meyer
_______________
(1) Incorporated by reference to the Registrant's Post-Effective Amendment No.
4 to the Form N-4 Registration Statement (Registration No. 33-86738) filed
electronically with the Securities and Exchange Commission on or about
April 27, 1998.
<PAGE>
(2) Incorporated by reference to the Pre-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 November 15, 1996 (File No. 333-05053).
(3) Incorporated by reference to the Registrant's Form N-4 Registration
Statement (Registration No. 333-12197) filed electronically with the
Securities and Exchange Commission on September 14, 1996.
(4) Incorporated by reference to the Registrant's Post-Effective Amendment No.
2 to the Form N-4 Registration Statement (Registration No. 333-12197)
filed electronically with the Securities and Exchange Commission on April
27, 1998.
(5) Filed herewith.
(6) 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).
ITEM 25. OFFICERS AND DIRECTORS OF DEPOSITOR
- -------- -----------------------------------
The following are the Directors and Executive Officers of First Variable Life
Insurance Company. Unless otherwise noted, our directors are located at 2211
York Road, Suite 202, Oak Brook, Illinois 60523 and all our executive officers
are located at 2122 York Road, Suite 300, Oak Brook, Illinois 60523.
Directors
Ronald M. Butkiewicz, Chairman.
Michael J. Corey - 401 East Host Drive. Lake Geneva, WI 53147.
Norman A. Fair
Michael R. Ferrari, 25th & University Ave., Des Moines, IA
Shane W. Gleeson
Jeff S. Liebmann, Esq., 1301 Avenue of the Americas
New York, NY 10019
Kenneth R. Meyer, Lincoln Capital Management Co., 200 South Wacker Dr., Suite
2100, Chicago, IL 60606
Philip R. O'Connor, President of NEV Midwest, LLC 111 West Washington, Suite
1247, Chicago, IL 60602
Clark Ramsey
Executive Officer & Director
John M. Soukup, President
Other Executive Officers
Steven J. Horn, Senior Vice President and Chief Operations Officer
Arnold R. Bergman, Vice President, General Counsel & Secretary
Thomas Gualdoni, Vice President, Sales
Martha Gross, Vice President, Administration
Christopher S. Harden, Vice President & Treasurer
Martin Sheerin, Vice President & Chief Actuary.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
- -------- -------------------------------------------------------------------
REGISTRANT.
- ----------
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
- -------- -------------------------
As of March 31, 1999, there were 226 Owners of Qualified Contracts and 265
Owners of Non-Qualified Contracts.
ITEM 28. INDEMNIFICATION
- -------- ---------------
Insofar as indemnification for liability arising under the Securities Act of
1933 ("Act") may be permitted to directors and officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
- -------- ---------------------
(a) First Variable Capital Services, Inc. ("FVCS") is the principal underwriter
for the Contracts and for the following investment companies:
First Variable Annuity Fund A
Separate Account VL of First Variable Life Insurance Company
(b) The following persons are directors and officers of FVCS. Unless otherwise
noted, FVCS directors and officers are located at 2122 York Road, Suite 300, Oak
Brook, Illinois 60523:
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
Arnold R. Bergman Secretary and Director
Thomas Gualdoni Vice President - Sales
Robert Miner Treasurer
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
- -------- --------------------------------
Our Secretary and our Treasurer 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.
ITEM 32. UNDERTAKINGS
- -------- ------------
1. 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.
2. 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.
<PAGE>
3. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under
this Form promptly upon written or oral request.
4. In accordance with section 26(e) of the Investment Company Act of 1940, First
Variable Life Insurance Company hereby represents that the fees and charges
deducted under the Contract described in this Registration Statement on Form
N-4, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by First Variable
Life Insurance Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter issued
to the American Council of Life Insurance dated November 28, 1988 (Commission
ref. IP-6-88) and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions imposed
by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions imposed
by Section 403(b) (11) in any sales literature used in connection with the
offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restriction on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to
the Registration Statement and has caused this Amendment to the Registration
Statement to be signed on its behalf, in the City of Oak Brook, and the State of
Illinois, on this 27th day of April, 1999.
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:
------------------------------------
John M. Soukup
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities indicated with First Variable Life Insurance Company on this 27th day
of April, 1999.
PRINCIPAL EXECUTIVE OFFICER:
/s/ John M. Soukup
- --------------------------------
John M. Soukup
President
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Christopher S. Harden
- --------------------------------
Christopher S. Harden
Vice President & Treasurer
DIRECTORS:
/s/ Ronald M. Butkiewicz /s/ Clark Ramsey
- ------------------------ ----------------
Ronald M. Butkiewicz Clark Ramsey
/s/ John M. Soukup /s/ Jeff S. Liebmann*
- ------------------ ---------------------
John M. Soukup Jeff S. Liebmann
/s/ Michael J.Corey* /s/ Kenneth R. Meyer*
- ------------------- --------------------
Michael J. Corey Kenneth R. Meyer
/s/ Michael R. Ferrari* /s/ Philip R. O'Connor*
- ---------------------- ----------------------
Michael R. Ferrari Philip R. O'Connor
/s/ Shane W. Gleason /s/ Norman A. Fair
- -------------------- ------------------
Shane W. Gleeson Norman A. Fair
* By: /s/ Arnold R. Bergman
---------------------
Arnold R. Bergman
Attorney-in-Fact
<PAGE>
FIRST VARIABLE ANNUITY FUND E
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
No. Title of Exhibit Page
- --- ---------------- ----
<S> <C> <C>
EX-99.B4(b) Individual Flexible Purchase Payment Deferred Variable Annuity Riders
EX-99.B8(b) Form of Fund Participation Agreements: AIM Variable Insurance Funds, Inc.,
et al; American Century Investment Management, Inc.; BT Insurance Funds
Trust, et al; Lord Abbett Series Fund, Inc., et al; MFS Variable Insurance
Trust, et al; and Templeton Variable Products Series Fund, et al
EX-99.B10. Consent of Ernst & Young LLP, Independent Auditors
EX-99.B13 Calculation of Performance Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EX-99.B4(b) Individual Flexible Purchase Payment Deferred Variable Annuity Riders
</TABLE>
<PAGE>
[LOGO OF FIRST VARIABLE LIFE INSURANCE COMPANY]
A stock life insurance company
Little Rock, Arkansas
BEST ANNIVERSARY VALUE DEATH BENEFIT RIDER
The Contract is amended as follows:
1. The CHARGES AND DEDUCTIONS section includes the following:
The Company will deduct a charge for the Best Anniversary Value Death Benefit
(the "BAVDB"). The charge is shown on the Contract Data Page. It is deducted:
. on each Contract Anniversary prior to the Annuity Date;
. on the Annuity Date; and
. upon surrender of the Contract
based on the Contract Value at that time.
The charge is taken from each Investment Option in the ratio that the Contract
Value in an Investment Option bears to the total Contract Value. Other methods
may be requested, but must be approved by the Company in advance. Accumulation
Units credited to the Contract are cancelled when the charge is taken.
2. The DEATH OF OWNER section includes the following:
Best Anniversary Value Death Benefit. The Death Benefit prior to the Annuity
Date is the higher of:
. the BAVDB amount in effect on the date of the Owner's death; or
. the Death Benefit under this Contract without regard to the BAVDB.
BAVDB During the First Contract Year. On the Contract Date, the Anniversary
Value Death Benefit Amount is equal to the Account Value. During the first
Contract Year, the BAVDB is equal to such amount:
. plus the sum of any Purchase Payments received by the Company after the
Contract Date;
. less any withdrawals of Account Value; and
. less any charges on these withdrawals
Anniversary Value Death Benefit Amounts After the First Contract Year. After the
Contract Date, the Company will determine a new Anniversary Value Death Benefit
Amount, and adjust a previously determined Anniversary Value Death Benefit:
. on the first Contract Anniversary; and
. on each Contract Anniversary after that; up to and including
. the Anniversary Date on or immediately following the Owner's 80th birthday.
Each previously determined Anniversary Death Benefit Amount will be adjusted at
the same time.
The new Anniversary Value Death Benefit Amount will be equal to the Account
Value on that Contract Anniversary.
Previously determined Anniversary Value Death Benefit Amounts are adjusted by:
. subtracting the sum of any withdrawals of Account Value taken during the
immediately preceding Contract Year; and by
. subtracting the sum of any charges on these withdrawals from such Anniversary
Value Death Benefit Amount.
1
<PAGE>
BAVDB After the First Contract Year. After the first Contract Year, and until
the Contract Anniversary on or next following the Owner's 80th birthday, the
BAVD is:
. the greater of (a) the most recently determined Anniversary Value Death
Benefit Amount or (b) the maximum adjusted Anniversary Value Death Benefit
Amount most recently determined by the Company; plus
. the sum of any Purchase Payments received by the Company from the most recent
Anniversary Date to the date of the Owner's death; less
. any withdrawals of Account Value from the last Anniversary Date to the date
of the Owner's death; and less
. any charges on these withdrawals.
After the Anniversary Date on or next following the Owner's 80th birthday, the
BAVDB is:
. the amount of the BAVDB on the Owner's 80th birthday; plus
. the sum of any Purchase Payments received by the Company after the Owner's
80th birthday to the date of the Owner's death; less
. any withdrawals of Account Value from the Owner's 80th birthday to the date
of the Owner's death; and less
. any charges on these withdrawals.
Non-natural Owner. If the Owner is a non-natural person, the Annuitant will be
considered the Owner for purposes of determining the BAVD.
Spousal Beneficiary. If the Beneficiary is the spouse of the Owner and elects
to continue the Contract, the Contract Value remains unchanged and no
determination of the Death Benefit is made at that time.
TERMINATION OF RIDER: This Rider will end on the earliest of:
. the death of the Owner before the Annuity Date;
. a change of designation of Owner, unless the Company consents otherwise;
. the Annuity Date;
. the Contract Anniversary following the Owner's request to terminate the
Rider; and
. termination of the Contract.
A request to end this Rider must be received by the Company at its Variable
Service Center no later than 30 days before a Contract Anniversary. If a
request is not received during this period, the Rider will remain in force
(unless ended for other reasons) during the next Contract Year.
The BAVDB charge stated on the Contract Data Page will be deducted when this
Rider ends, unless termination is due to death of the Owner before the Annuity
Date.
/s/ Arnold A. Bergman /s/ John M. Soukeip
Secretary President
First Variable Life Insurance Company
Little Rock, Arkansas
2
<PAGE>
[LOGO OF FIRST VARIABLE LIFE INSURANCE COMPANY]
A stock life insurance company
Little Rock, Arkansas
EXTRA PROTECTOR DEATH BENEFIT RIDER
The Contract is amended as follows:
1. The DEFINITIONS section includes the following:
AGE 80 ANNIVERSARY DATE: The Anniversary Date on or immediately following the
Owner's 80th birthday.
BAVD: The "Best Anniversary Value Death Benefit."
RDB: The "Roll-Up Death Benefit."
2. The CHARGES AND DEDUCTIONS section includes the following:
The Company deducts a charge for the Extra Protector Death Benefit. The charge
is shown on the Contract Data Page. It is deducted:
. on each Contract Anniversary prior to the Annuity Date;
. on the Annuity Date;
. on termination of the Extra Protector Death Benefit Rider, unless termination
is due to the Owner's death; and
. upon surrender of the Contract
based on the Contract Value at that time.
The Company takes the charge from each Investment Option in the ratio that the
Contract Value in an Investment Option bears to the total Contract Value. Other
methods may be requested, but must be approved by the Company in advance.
Accumulation Units credited to the Contract are cancelled when the charge is
taken.
2. The DEATH OF OWNER section includes the following:
If the Owner dies before the Annuity Date, the Death Benefit payable under this
Contract is the greater of the Extra Protector Death Benefit or the Death
------- --
Benefit otherwise payable under this Contract. The Company will not pay the
Extra Protector Death Benefit in addition to the Death Benefit otherwise payable
under this Contract.
Extra Protector Death Benefit:
The Extra Protector Death Benefit up to the Age 80 Anniversary Date is the
higher of:
. the Best Anniversary Value Death Benefit amount in effect on the date of the
Owner's death; or
. the Roll-Up Death Benefit amount in effect on the date of the Owner's Death.
The Extra Protector Death Benefit on the Age 80 Anniversary Date is the higher
of:
. the BAVDB amount then in effect; or
. the RDB amount then in effect.
3
<PAGE>
The Extra Protector Death Benefit after the Age 80 Anniversary Date is:
. the Extra Protector Death Benefit on the Age 80 Anniversary Date; plus
. any Purchase Payments received by the Company after the Age 80 Anniversary
Date; less
. any withdrawals of Contract Value after the Age 80 Anniversary Date to the
date of the Owner's death; and less
. any charges on these withdrawals.
Determination of BAVDB:
Anniversary Value Death Benefit Amounts - the Company determines an
- ---------------------------------------
"Anniversary Value Death Benefit Amount":
. on the Contract Date; and
. on each Contract Anniversary after that up to, and including, the Age 80
Anniversary Date.
The Anniversary Value Death Benefit Amount on the Contract Date is equal to the
Contract Value.
The Anniversary Value Death Benefit Amount on each subsequent Anniversary Date
(up to the Age 80 Anniversary Date) is the higher of:
. the Contract Value on the Anniversary Date; or
. the most recently determined previous Anniversary Value Death Benefit Amount,
adjusted for Purchase Payments and withdrawals during the immediately
preceding Contract Year. Purchase Payments increase it. Withdrawals of
Contract Value, and charges on the withdrawals, decrease it.
BAVD Amounts - the BAVD is:
- -------------
. the Anniversary Value Death Benefit Amount most recently determined by the
Company; plus
. the sum of any Purchase Payments received by the Company after the most
recent Anniversary Date (or, during the first Contract Year, after the
Contract Date) to the date of the Owner's death; less
. any withdrawals of Contract Value after the last Anniversary Date to the date
of the Owner's death; and less
. any charges on these withdrawals.
Determination of RDB:
On the Contract Date - the RDB is equal to the Contract Value.
- --------------------
After the Contract Date Until the Age 80 Anniversary Date - the RDB is an amount
- ---------------------------------------------------------
equal to:
. Purchase Payments, less the amount of withdrawals of Contract Value
during the Owner's lifetime (including applicable charges); and
. interest accumulated at an annual rate of 5.0% up to a maximum
amount equal to two (2) times the sum of Purchase Payments.
Non-natural Owner. If the Owner is a non-natural person, the Annuitant will be
considered the Owner when the Extra Protector Death Benefit is determined.
Spousal Beneficiary. The Extra Protector Death Benefit is not paid when the
Owner dies if a spousal Beneficiary elects to continue the Contract. Instead,
this rider will remain in effect and the spouse will become the Owner.
TERMINATION OF RIDER: This Rider will end on the earliest of:
. the death of the Owner before the Annuity Date, unless continued by a spousal
beneficiary;
. a change of designation of Owner, unless the Company consents otherwise;
. the Annuity Date;
. the Contract Anniversary following the Owner's request to terminate the
Rider; and
. termination of the Contract.
4
<PAGE>
A request to end this Rider must be received by the Company at its Variable
Service Center. It must be received no later than 30 days before a Contract
Anniversary. If a request is not received during this period, the Rider will
remain in force (unless ended for other reasons) during the next Contract Year.
/s/ Arnold A. Bergman /s/ John M. Soukeip
Secretary President
First Variable Life Insurance Company
Little Rock, Arkansas
5
<PAGE>
[LOGO OF FIRST VARIABLE LIFE INSURANCE COMPANY]
A stock life insurance company
Little Rock, Arkansas
GUARANTEED MINIMUM INCOME PAYMENT RIDER
Unless stated otherwise below, all provisions of the Contract also apply to this
rider. This rider starts on the same date as the Contract unless a different
rider date is shown on the Contract Data Page.
The Contract is amended as follows:
3. The DEFINITIONS section includes the following:
AGE 80 ANNIVERSARY DATE: The Anniversary Date on or immediately following the
Annuitant's 80th birthday. If there are joint Annuitants, the Age 80
Anniversary Date is the date on or immediately following the older Annuitant's
80th birthday.
GMIP ANNUITY DATE: The date Guaranteed Minimum Income Payments begin.
GMIP ANNUITY TABLES: The rate tables contained in the Guaranteed Minimum Income
Payment Rider for the available forms of Guaranteed Minimum Income Payments:
. Life Annuity with Period Certain of 120 Months
. Joint and Survivor Life Annuity with Period Certain of 240 Months
The Company may make other GMIP Annuity Tables available for other forms of
Guaranteed Minimum Income Payments.
GMIP VALUE: An amount calculated by the Company that is used to determine
Guaranteed Minimum Income Payments.
GUARANTEED MINIMUM INCOME PAYMENTS: A series of Fixed Annuity Payments that the
Owner may elect in lieu of any other form of Annuity Payments under the
Contract.
2. The CHARGES AND DEDUCTIONS section includes the following:
The Company will deduct a charge for the GUARANTEED MINIMUM INCOME PAYMENT
Rider. The charge is shown on the Contract Data Page. It is deducted:
. on each Contract Anniversary prior to the Annuity Date or GMIP Annuity Date;
. on the earlier of the Annuity Date or the GMIP Annuity Date; and
. upon surrender of the Contract or termination of the Guaranteed Minimum
Income Payment rider
based on the Contract Value at that time.
The charge is taken from each Investment Option in the ratio that the Contract
Value in an Investment Option bears to the total Contract Value. Other methods
may be requested, but must be approved by the Company in advance. Accumulation
Units credited to the Contract are cancelled when the charge is taken.
3. The first sentence in the DEATH BENEFITS - DEATH OF OWNER subsection is
deleted and the following inserted in its place:
"Upon the death of an Owner prior to the earlier of the Annuity Date or the GMIP
Annuity Date, the Death Benefit will be paid to the Beneficiary designated by
the Owner."
6
<PAGE>
4. The ANNUITY PROVISIONS section includes the following:
GUARANTEED MINIMUM INCOME PAYMENTS
General. The Owner may elect to begin Guaranteed Minimum Income Payments only
during a GMIP Election Period, as described below. The Owner may select the form
of Guaranteed Minimum Income Payments by written request to the Company at its
Variable Service Center at least seven (7) days prior to the GMIP Annuity Date.
The available forms of Guaranteed Minimum Income Payments are described in the
GMIP Annuity Tables. Guaranteed Minimum Income Payments are based on the then
current GMIP Value and the applicable GMIP Annuity Tables.
Guaranteed Minimum Income Payments will be made to the Annuitant, unless a
different payee is selected by the Owner by written request to the Company at
its Variable Service Center. The request must be made at least 30 days prior to
the GMIP Annuity Date.
On the GMIP Annuity Date, any Contract Value in the Separate Account will be
transferred to the Company's general account and no further withdrawals of
Contract Value will be permitted.
GMIP Election Period and GMIP Annuity Date. The Owner may elect to start
Guaranteed Minimum Income Payments only during a GMIP Election Period. The
election must be made in writing to the Company at its Variable Service Center.
The first GMIP Election Period begins on the later of:
. the seventh Contract Anniversary; or
. the Anniversary Date on or immediately following the Annuitant's 60th
birthday. If there are joint Annuitants, this is the Anniversary Date on or
immediately following the older Annuitant's 60th birthday.
Additional GMIP Election Periods begin on each subsequent Anniversary Date until
the earlier of:
. the date the Guaranteed Minimum Income Payment rider ends; or
. the Annuitant's 91st birthday. If there are joint Annuitants, this is the
older Annuitant's 91st birthday.
Each GMIP Election Period ends 30 days after it begins.
Unless otherwise permitted by the Company, the GMIP Annuity Date is the last day
of the GMIP Election Period in which the Owner elects to begin Guaranteed
Minimum Income Payments. Any death benefits under the Contract that end of the
Annuity Date will also end on the GMIP Annuity Date.
GMIP Value. The GMIP Value up to the Age 80 Anniversary Date is the higher of:
. the Best Anniversary Value ("BAV") amount in effect on the GMIP Annuity Date;
or
. the Roll-Up Value ("RUV") amount in effect on the GMIP Annuity Date.
The GMIP Value on the Age 80 Anniversary Date is the higher of:
. the BAV amount then in effect; or
. the RUV amount then in effect.
The GMIP Value after the Age 80 Anniversary Date is:
. the GMIP Value on the Age 80 Anniversary Date; plus
. any Purchase Payments received by the Company after the Age 80 Anniversary
Date; less
. a proportional reduction for any withdrawals of Contract Value after the Age
80 Anniversary Date.
The Company reserves the right to reduce the GMIP Value for any premium taxes
that may apply and for any indebtedness under the Contract. The GMIP Value does
not guarantee performance of any Investment Option. The company uses GMIP Value
only to calculate Guaranteed Minimum Income Payments.
7
<PAGE>
Determination of Best Anniversary Value. The Company determines a Best
Anniversary Value, or "BAV," based on its calculations of Anniversary Value
Amounts and adjustments to previously determined Anniversary Value Amounts.
8
<PAGE>
Anniversary Value Amounts - An Anniversary Value Amount is determined:
- -------------------------
. on the Issue Date; and
. on each Contract Anniversary after that up to, and including, the Age 80
Anniversary Date.
The Anniversary Value Amount on the Issue Date is equal to the Contract Value.
The Anniversary Value Amount on each subsequent Anniversary Date (up to the Age
80 Anniversary Date) is the higher of:
. the Contract Value on the Anniversary Date; or
. the most recently determined previous Anniversary Value Amount, adjusted for
Purchase Payments and withdrawals during the immediately preceding Contract
Year. Purchase Payments increase it. Withdrawals of Contract Value cause a
proportional reduction of Anniversary Value Amount.
BAV Amounts - the Best Anniversary Value is:
- -----------
. the Anniversary Value Amount most recently determined by the Company; plus
. the sum of any Purchase Payments received by the Company after the most
recent Anniversary Date (or, during the first Contract Year, after the Issue
Date) to the GMIP Annuity Date; less
. a proportional reduction for any withdrawals of Contract Value after the last
Anniversary Date to the GMIP Annuity Date.
Determination of Roll-Up Value. The Roll-Up Value, or "RUV" on the Issue Date is
equal to the Contract Value. After the Issue Date until the Age 80 Anniversary
Date, the RUV is an amount equal to:
. Purchase Payments; less
. a proportional reduction for any withdrawals of Contract Value; less
. the amount of any indebtedness under the Contract; plus
. interest accumulated at an annual rate of 5.0%.
Proportional Reductions. Withdrawals of Contract Value cause a proportional
reduction of:
. GMIP Value for withdrawals on and after the Age 80 Anniversary Date; and
. Anniversary Value Amounts for withdrawals before the Age 80 Anniversary Date;
and
. Roll-Up Value for withdrawals before the Age 80 Anniversary Date.
The reduction is made in the ratio that a withdrawal of Contract Value,
including charges on the withdrawal, bears to the total Contract Value before
the withdrawal.
GMIP Annuity Tables. The monthly income factors on the attached tables show the
dollar amount of a Guaranteed Minimum Income Payment for each $1,000 of GMIP
Value applied. If more favorable to the Annuitant, monthly income will be
determined by applying Contract Value to the Company's current fixed annuity
payment rates for the annuity option selected.
The Company computes monthly income factors for GMIP Life Annuity with Period
Certain of 120 or 240 Months based on mortality tables and benchmark rates. The
Company uses the 1983a Annuity Mortality Table projected using projection scale
G (40% Male, pivotal age 65). The benchmark rate is 2.5% per year, compounded
annually. The Owner can request monthly income factors for any Age not shown in
the tables. The Company may provide monthly income factors for other forms of
GMIP Annuity options.
Minimum Monthly Income Factors For Each $1,000 Of GMIP Value
- ------------------------------------------------------------
. Life Annuity with Period Certain of 120 Months. This form provides monthly
payments based on the lifetime of a single Annuitant or for 120 months,
whichever is longer:
<TABLE>
Age of Per Age of Per Age of Per Age of Per Age of Per
Annuitant $1,000 Annuitant $1,000 Annuitant $1,000 Annuitant $1,000 Annuitant $1,000
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40 2.97 50 3.41 60 4.12 70 5.36 80 7.24
41 3.00 51 3.46 61 4.22 71 5.52 81 7.45
42 3.04 52 3.52 62 4.32 72 5.69 82 7.65
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 3.08 53 3.58 63 4.43 73 5.86 83 7.85
44 3.12 54 3.65 64 4.54 74 6.04 84 8.04
45 3.16 55 3.72 65 4.66 75 6.23 85 8.22
46 3.21 56 3.79 66 4.79 76 6.43 86 8.40
47 3.25 57 3.87 67 4.92 77 6.63 87 8.56
48 3.30 58 3.95 68 5.06 78 6.83 88 8.72
49 3.35 59 4.03 69 5.20 79 7.03 89 8.86
90 8.98
</TABLE>
10
<PAGE>
GMIP Annuity Tables (continued).
. Joint and Survivor Life Annuity with Period Certain of 240 Months. This form
provides monthly payments based on the lifetime of two Annuitants or for 240
months, whichever is longer:
<TABLE>
Age Per Age Per Age Per
of Annuitants $1,000 of Annuitants $1,000 of Annuitants $1,000
Life 1 Life 2 Life 1 Life 2 Life 1 Life 2
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 50 3.06 60 60 3.58 70 70 4.38
50 55 3.16 60 65 3.73 70 75 4.57
55 55 3.29 65 65 3.94 75 75 4.82
55 60 3.41 65 70 4.12 75 80 4.97
</TABLE>
ELECTION TO TERMINATE RIDER: The Owner may elect to end this Rider after it has
been in effect for at least 7 Contract Years. Once this Rider is ended, it may
not be elected again. The Company must receive a request to end this rider at
its Variable Service Center. If the request is received within 30 days of a
Contract Anniversary, the Rider will remain in force (unless ended for other
reasons) during the next Contract Year.
TERMINATION DATE OF RIDER: The termination date of this Rider is the earliest
of:
. the death of the Owner before the Annuity Date (or GMIP Annuity Date), unless
continued by a spousal beneficiary;
. a change of designation of the Annuitant, unless the Company consents
otherwise;
. the earlier of the Annuity Date or GMIP Annuity Date;
. the Contract Anniversary following the Owner's election to end the Rider
after it has been in effect for at least 7 Contract Years; and
. termination of the Contract.
Signed for the Company.
/s/ Arnold A. Bergman /s/ John M. Soukeip
Secretary President
First Variable Life Insurance Company
Little Rock, Arkansas
11
<PAGE>
<TABLE>
<S> <C>
EX-99.B8(b) Form of Fund Participation Agreements AIM Variable Insurance Funds, Inc.,
et al; American Century Investment Management, Inc.; BT Insurance Funds
Trust, et al; Lord Abbett Series Fund, Inc., et al; MFS Variable Insurance
Trust, et al; and Templeton Variable Products Series Fund, et al
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
FIRST VARIABLE LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
FIRST VARIABLE CAPITAL SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C> <C>
Section 1. Available Funds................................................ 2
1.1 Availability................................................ 2
1.2 Addition, Deletion or Modification of Funds................. 2
1.3 No Sales to the General Public.............................. 2
Section 2. Processing Transactions........................................ 3
2.1 Timely Pricing and Orders................................... 3
2.2 Timely Payments............................................. 3
2.3 Applicable Price............................................ 3
2.4 Dividends and Distributions................................. 4
2.5 Book Entry.................................................. 4
Section 3. Costs and Expenses............................................. 4
3.1 General..................................................... 4
3.2 Parties To Cooperate........................................ 4
Section 4. Legal Compliance............................................... 5
4.1 Tax Laws.................................................... 5
4.2 Insurance and Certain Other Laws............................ 7
4.3 Securities Laws............................................. 7
4.4 Notice of Certain Proceedings and Other Circumstances....... 8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF... 9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY... 10
Section 5. Mixed and Shared Funding....................................... 11
5.1 General..................................................... 11
5.2 Disinterested Directors..................................... 12
5.3 Monitoring for Material Irreconcilable Conflicts............ 12
5.4 Conflict Remedies........................................... 13
5.5 Notice to LIFE COMPANY...................................... 14
5.6 Information Requested by Board of Directors................. 14
5.7 Compliance with SEC Rules................................... 14
5.8 Other Requirements.......................................... 14
Section 6. Termination.................................................... 15
6.1 Events of Termination....................................... 15
6.2 Notice Requirement for Termination.......................... 16
6.3 Funds To Remain Available................................... 16
6.4 Survival of Warranties and Indemnifications................. 16
6.5 Continuance of Agreement for Certain Purposes............... 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C> <C>
Section 7. Parties To Cooperate Respecting Termination.................... 17
Section 8. Assignment..................................................... 17
Section 9. Notices........................................................ 17
Section 10. Voting Procedures............................................. 18
Section 11. Foreign Tax Credits........................................... 18
Section 12. Indemnification............................................... 19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER............. 19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM............. 21
12.3 Effect of Notice............................................ 23
12.4 Successors.................................................. 23
Section 13. Applicable Law................................................ 23
Section 14. Execution in Counterparts..................................... 24
Section 15. Severability.................................................. 24
Section 16. Rights Cumulative............................................. 24
Section 17. Headings...................................................... 24
Section 18. Confidentiality............................................... 24
Section 19. Trademarks and Fund Names..................................... 25
Section 20. Parties to Cooperate.......................................... 26
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of _________, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
First Variable Life Insurance Company, an Arkansas life insurance company ("LIFE
COMPANY"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts"); and First Variable Capital
Services, Inc., an affiliate of LIFE COMPANY and the principal underwriter of
the Contracts ("UNDERWRITER") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of thirteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, AIM is a broker-dealer registered with the SEC under the Securities
Exchange Act of 1934 ("1934 Act") and a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Funds
---------------------------
1.1 Availability.
------------
<PAGE>
AVIF will make Shares of each Fund available to LIFE COMPANY for purchase
and redemption at net asset value and with no sales charges, subject to the
terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 Addition, Deletion or Modification of Funds.
-------------------------------------------
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 No Sales to the General Public.
------------------------------
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
Section 2. Processing Transactions
-----------------------------------
2.1 Timely Pricing and Orders.
-------------------------
(a) AVIF or its designated agent will use its best efforts to provide LIFE
COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central
Time on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF
calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business
Day, and will place corresponding orders to purchase or redeem Shares with AVIF
by 9:00 a.m. Central Time the following Business Day; provided, however, that
AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is
unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above.
Such additional time shall be equal to the additional time that AVIF takes to
make the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and of
redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 Timely Payments.
---------------
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the
<PAGE>
order is placed in order to enable LIFE COMPANY to pay redemption proceeds
within the time specified in Section 22(e) of the 1940 Act or such shorter
period of time as may be required by law.
2.3 Applicable Price.
----------------
(a) Share purchase payments and redemption orders that result from purchase
payments, premium payments, surrenders and other transactions under Contracts
(collectively, "Contract transactions") and that LIFE COMPANY receives prior to
the close of regular trading on the New York Stock Exchange on a Business Day
will be executed at the net asset values of the appropriate Funds next computed
after receipt by AVIF or its designated agent of the orders. For purposes of
this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for
receipt of orders relating to Contract transactions on each Business Day and
receipt by such designated agent shall constitute receipt by AVIF; provided that
AVIF receives notice of such orders by 9:00 a.m. Central Time on the next
following Business Day or such later time as computed in accordance with Section
2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 Dividends and Distributions.
---------------------------
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 Book Entry.
----------
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
Section 3. Costs and Expenses
------------------------------
3.1 General.
-------
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear, or arrange for others to bear, all
expenses incident to its performance under this Agreement.
3.2 Parties To Cooperate.
--------------------
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
Section 4. Legal Compliance
----------------------------
4.1 Tax Laws.
--------
(a) AVIF represents and warrants that each Fund is currently qualified as a
regulated investment company ("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and represents that it will use its best
efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF
will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
<PAGE>
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of
Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating, pursuant
to Treasury Regulations Section 1.817-5(a)(2), to the
Commissioner of the IRS that such failure was inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal
and accounting advisors to participate in any conferences,
settlement discussions or other administrative or judicial
proceeding or contests (including judicial appeals thereof)
with the IRS, any Participant or any other claimant regarding
any claims that could give rise to liability to AVIF or its
affiliates as a result of such a failure or alleged failure;
provided, however, that LIFE COMPANY will retain control of the
conduct of such conferences discussions, proceedings, contests
or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection with
any of the foregoing proceedings or contests (including,
without limitation, any such materials to be submitted to the
IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)),
(a) shall be provided by LIFE COMPANY to AVIF (together with
any supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least ten (10)
business days or such shorter period to which the Parties
hereto agree prior to the day on which such proposed materials
are to be submitted, and (b) shall not be submitted by LIFE
COMPANY to any such person without the express written consent
of AVIF which shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to review
the relevant books and records of LIFE COMPANY) in order to
facilitate review by AVIF or its advisors of any written
submissions provided to it pursuant to the preceding clause or
its assessment of the validity or amount of any claim against
its arising from such a failure or alleged failure;
(vii) LIFE COMPANY shall not with respect to any claim of the IRS or
any Participant that would give rise to a claim against AVIF or
its affiliates (a) compromise or settle any claim, (b) accept
any adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the express written
consent of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that LIFE COMPANY shall not be
required, after
<PAGE>
exhausting all administrative penalties, to appeal any adverse
judicial decision unless AVIF or its affiliates shall have
provided an opinion of independent counsel to the effect that a
reasonable basis exists for taking such appeal; and provided
further that the costs of any such appeal shall be borne
equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if LIFE COMPANY fails to comply
with any of the foregoing clauses (i) through (vii), and such
failure could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, LIFE COMPANY
may, in its discretion, authorize AVIF or its affiliates to act in the name of
LIFE COMPANY in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; provided, that in no event shall LIFE COMPANY have any liability
resulting from AVIF's refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. LIFE COMPANY will use its best efforts to continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
4.2 Insurance and Certain Other Laws.
--------------------------------
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Arkansas and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Section 23-81-402 of the Arkansas
Insurance Law and the regulations thereunder, and (iii) the Contracts comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
4.3 Securities Laws.
---------------
(a) LIFE COMPANY represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Arkansas law, (iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act, (iv) each Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all
<PAGE>
times comply in all material respects with the requirements of the 1933 Act and
the rules thereunder, (vi) LIFE COMPANY will amend the registration statement
for its Contracts under the 1933 Act and for its Accounts under the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts or as may otherwise be required by applicable law, and (vii) each
Account Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule 12b-
1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 Notice of Certain Proceedings and Other Circumstances.
-----------------------------------------------------
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF Prospectus that may affect the offering of Shares
of AVIF, (iii) the initiation of any proceedings for that purpose or for any
other purpose relating to the registration or offering of AVIF's Shares, or (iv)
any other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop
<PAGE>
order, cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
4.5 LIFE COMPANY To Provide Documents; Information About AVIF.
---------------------------------------------------------
(a) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such
sales literature, until such time as AVIF appoints another designated agent by
giving notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with the sale of the Contracts other than
(i) the information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g., on-
line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF To Provide Documents; Information About LIFE COMPANY .
---------------------------------------------------------
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
LIFE COMPANY in a timely manner so as to enable LIFE COMPANY, as the case may
be, to print and distribute such materials within the time required by law to be
furnished to Participants.
<PAGE>
(c) AVIF will provide to LIFE COMPANY or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if LIFE COMPANY or its designated agent objects
to such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. LIFE
COMPANY shall receive all such sales literature until such time as it appoints a
designated agent by giving notice to AVIF in the manner required by Section 9
hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by LIFE COMPANY for distribution; or (iii) in sales literature or other
promotional material approved by LIFE COMPANY or its affiliates, except with the
express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g., on-
line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
Section 5. Mixed and Shared Funding
------------------------------------
5.1 General.
-------
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 Disinterested Directors.
-----------------------
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this
<PAGE>
condition shall be suspended (a) for a period of forty-five (45) days if the
vacancy or vacancies may be filled by the Board;(b) for a period of sixty (60)
days if a vote of shareholders is required to fill the vacancy or vacancies; or
(c) for such longer period as the SEC may prescribe by order upon application.
5.3 Monitoring for Material Irreconcilable Conflicts.
------------------------------------------------
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 Conflict Remedies.
-----------------
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different
investment medium, including another Fund of AVIF, or submitting
the question whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all Participants)
that votes in favor of such segregation, or offering to the
affected Participants the option of making such a change; and
<PAGE>
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a management
company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a
result of such withdrawal. Any such withdrawal must take place within six (6)
months after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to LIFE COMPANY conflicts with the
majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts.
LIFE COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 Notice to LIFE COMPANY.
----------------------
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
-------------------------------------------
LIFE COMPANY and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or
any exemptive order granted by the SEC to permit Mixed and Shared Funding, and
said reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 Compliance with SEC Rules.
-------------------------
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-
2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect
to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed modified
if and only to the extent required in order also to comply with the terms and
conditions of such exemptive relief that is afforded by any of said rules that
are applicable.
5.8 Other Requirements.
------------------
<PAGE>
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
Section 6. Termination
-----------------------
6.1 Events of Termination.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to the
Fund, upon six (6) months advance written notice to the other parties, or, if
later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings against
LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE
COMPANY reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the
Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares are
not registered and, in all material respects, issued and sold in accordance with
any applicable federal or state law, or (ii) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
<PAGE>
6.2 Notice Requirement for Termination.
----------------------------------
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 Funds To Remain Available.
-------------------------
Notwithstanding any termination of this Agreement, AVIF will, at the option
of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 Survival of Warranties and Indemnifications.
-------------------------------------------
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 Continuance of Agreement for Certain Purposes.
---------------------------------------------
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date
as of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
Section 7. Parties To Cooperate Respecting Termination
------------------------------------------------------
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
Section 8. Assignment
----------------------
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
<PAGE>
Section 9. Notices
-------------------
Notices and communications required or permitted will be given by means
mutually acceptable to the Parties concerned. Each other notice or
communication required or permitted by this Agreement will be given to the
following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AIM Variable Insurance Funds, Inc.
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
First Variable Life Insurance Company
First Variable Capital Services, Inc.
2122 York Road, Suite 300
Oakbrook, Illinois 60523
Facsimile: 630-684-9300
Attn: Arnold R. Bergman, Esq.
Section 10. Voting Procedures
------------------------------
Subject to the cost allocation procedures set forth in Section 3 hereof,
LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants.
Neither LIFE COMPANY nor any of its affiliates will in any way recommend action
in connection with or oppose or interfere with the solicitation of proxies for
the Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect thereto.
Section 11. Foreign Tax Credits
--------------------------------
AVIF agrees to consult in advance with LIFE COMPANY concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
<PAGE>
Section 12. Indemnification
----------------------------
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER.
-----------------------------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, AIM,
their affiliates, and each person, if any, who controls AVIF, AIM, or their
affiliates within the meaning of Section 15 of the 1933 Act and each of their
respective directors and officers, (collectively, the "Indemnified Parties" for
purposes of this Section 12.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
Account's 1933 Act registration statement, any Account
Prospectus, the Contracts, or sales literature or advertising
for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading; provided, that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to LIFE COMPANY or UNDERWRITER by or on behalf of
AVIF or AIM for use in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or sales
literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied
for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or
their respective affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of LIFE COMPANY, UNDERWRITER or their respective
affiliates or persons under their control (including, without
limitation, their employees and "persons associated with a
member," as that term is defined in paragraph (q) of Article I
of the NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to any
of the foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon and in
conformity with information furnished to AVIF, AIM or their
affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or
their respective affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of
the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER
to perform the obligations, provide the services and furnish
the materials required of them under the terms of this
Agreement, or any material breach of any representation and/or
warranty made by LIFE COMPANY or UNDERWRITER in this Agreement
or arise out of or result from any other material breach of
this Agreement by LIFE COMPANY or UNDERWRITER; or
<PAGE>
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any
Fund's failure to comply with Subchapter M or Section 817(h) of
the Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section
12.1 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF or AIM.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF or AIM
shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER's election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees
and expenses of any additional counsel retained by it, and neither LIFE
COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM.
-----------------------------------------------
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e),
below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF and/or AIM) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus or sales literature
or advertising of AVIF (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its
affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their
respective affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or advertising
or otherwise for use in connection with the sale of Contracts or
Shares (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising for the
Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
<PAGE>
AVIF, AIM or their affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF, AIM or their affiliates or persons under their
control (including, without limitation, their employees and
"persons associated with a member" as that term is defined in
Section (q) of Article I of the NASD By-Laws), in connection
with the sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any
Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement
or omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY, UNDERWRITER or their
respective affiliates by or on behalf of AVIF or AIM for use in
any Account's 1933 Act registration statement, any Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made by
AVIF in this Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e)
hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of AVIF
and/or AIM) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF
and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the
defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM
and shall bear the fees and expenses of any additional counsel retained by it,
and AVIF and AIM will not be liable to such Indemnified Party under this
Agreement for any legal
<PAGE>
or other expenses subsequently incurred by such Indemnified Party independently
in connection with the defense thereof, other than reasonable costs of
investigation.
(e) In no event shall AVIF or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 Effect of Notice.
----------------
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 Successors.
----------
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
Section 13. Applicable Law
---------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
--------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 15. Severability
-------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
------------------------------
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Headings
---------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
<PAGE>
Section 18. Confidentiality
----------------------------
AVIF acknowledges that the identities of the customers of LIFE COMPANY or
any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
Section 19. Trademarks and Fund Names
--------------------------------------
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other tradenames, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to LIFE COMPANY (the "AIM licensed marks" or the "licensor's licensed
marks") and is authorized to use and to license other persons to use such marks.
LIFE COMPANY and its affiliates are hereby granted a non-exclusive license to
use the AIM licensed marks in connection with LIFE COMPANY's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the licensor
for the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approvals shall not be unreasonably withheld.
(d) During the term of this grant of license, a licensor may request that a
licensee submit samples of any materials bearing any of the licensor's licensed
marks which were previously approved by the licensor but, due to changed
circumstances, the licensor may wish to reconsider. If, on reconsideration, or
on initial review,
<PAGE>
respectively, any such samples fail to meet with the written approval of the
licensor, then the licensee shall immediately cease distributing such
disapproved materials. The licensor's approval shall not be unreasonably
withheld, and the licensor, when requesting reconsideration of a prior approval,
shall assume the reasonable expenses of withdrawing and replacing such
disapproved materials. The licensee shall obtain the prior written approval of
the licensor for the use of any new materials developed to replace the
disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to the
best of the knowledge of the licensee, the licensor's licensed marks are valid
and enforceable trademarks and/or service marks and that such licensee does not
own the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (ii) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (iii) acknowledges and agrees that
the use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
Section 20. Parties to Cooperate
---------------------------------
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest:______________________________ By:_____________________________
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest:______________________________ By: _____________________________
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
FIRST VARIABLE LlFE INSURANCE
COMPANY, on behalf of itself
and its separate accounts
Attest:______________________________ By: _____________________________
Name:________________________________ Name:____________________________
Title:_______________________________ Title:___________________________
FIRST VARIABLE CAPITAL SERVICES, INC.
Attest:______________________________ By: _____________________________
Name:________________________________ Name:____________________________
Title:_______________________________ Title:___________________________
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SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
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. AIM VARIABLE INSURANCE FUNDS, INC.
[LIST APPLICABLE PORTFOLIOS]
SEPARATE ACCOUNTS UTILIZING THE FUNDS
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CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
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SCHEDULE B
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM_________________________ Fund
. AIM and Design
[LOGO OF AIM APPEARS HERE]
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Schedule C
EXPENSE ALLOCATIONS
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Life Company AVIF / AIM
<S> <C>
preparing and filing the Account's registration preparing and filing the Fund's registration statement
statement
text composition for Account prospectuses and text composition for Fund prospectuses and
supplements supplements
text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and
supplements (Account) supplements (Fund)
printing Account and Fund prospectuses and a camera ready Fund prospectus
supplements
text composition and printing Account SAIs text composition and printing Fund SAIs
mailing and distributing Account SAIs to policy mailing and distributing Fund SAIs to policy owners
owners upon request by policy owners upon request by policy owners
mailing and distributing prospectuses (Account and
Fund) and supplements (Account and Fund) to policy
owners of record as required by Federal Securities
Laws and to prospective purchasers
text composition (Account), printing, mailing, and text composition of annual and semi-annual reports
distributing annual and semi-annual reports for (Fund)
Account (Fund and Account as, applicable)
text composition, printing, mailing, distributing, and text composition, printing, mailing, distributing and
tabulation of proxy statements and voting instruction tabulation of proxy statements and voting instruction
solicitation materials to policy owners with respect to solicitation materials to policy owners with respect to
proxies related to the Account proxies related to the Fund
preparation, printing and distributing sales material and
advertising relating to the Funds, insofar as such
materials relate to the Contracts and filing such
materials with and obtaining approval from, the SEC,
the NASD, any state insurance regulatory authority,
and any other appropriate regulatory authority, to the
extent required
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SHAREHOLDER SERVICES AGREEMENT
THIS SHAREHOLDER SERVICES AGREEMENT is made and entered into as of
___________, 1999 by and between FIRST VARIABLE LIFE INSURANCE COMPANY (the
"Company"), and AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. ("ACIM").
WHEREAS, the Company offers to the public certain group and individual
variable annuity and variable life insurance contracts (the "Contracts"); and
WHEREAS, the Company wishes to make available as investment options under the
Contracts, VP Balanced, VP Income & Growth, VP International and VP Value (the
"Funds"), each of which is a series of mutual fund shares registered under the
Investment Company Act of 1940, as amended, and issued by American Century
Variable Portfolios, Inc. (the "Issuer"); and
WHEREAS, on the terms and conditions hereinafter set forth, ACIM desires to
make shares of the Funds available as investment options under the Contracts and
to retain the Company to perform certain administrative services on behalf of
the Funds, and the Company is willing and able to furnish such services;
NOW, THEREFORE, the Company and ACIM agree as follows:
1. Transactions in the Funds. Subject to the terms and conditions of this
Agreement, ACIM will cause the Issuer to make shares of the Funds available to
be purchased, exchanged, or redeemed, by or on behalf of the Accounts (defined
in Section 7(a) below) through a single account per Fund at the net asset value
applicable to each order. The Funds' shares shall be purchased and redeemed on
a net basis in such quantity and at such time as determined by the Company to
satisfy the requirements of the Contracts for which the Funds serve as
underlying investment media. Dividends and capital gains distributions will be
automatically reinvested in full and fractional shares of the Funds.
2. Administrative Services. The Company agrees to provide all administrative
services for the Contract owners, including but not limited to those services
specified in EXHIBIT A (the "Administrative Services"). Neither ACIM nor the
Issuer shall be required to provide Administrative Services for the benefit of
Contract owners. The Company agrees that it will maintain and preserve all
records as required by law to be maintained and preserved in connection with
providing the Administrative Services, and will otherwise comply with all laws,
rules and regulations applicable to the marketing of the Contracts and the
provision of the Administrative Services. Upon request, the Company will
provide ACIM or its representatives reasonable information regarding the quality
of the Administrative Services being provided and its compliance with the terms
of this Agreement.
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3. Timing of Transactions. ACIM hereby appoints the Company as agent for the
Funds for the limited purpose of accepting purchase and redemption orders for
Fund shares from the Contract owners. On each day the New York Stock Exchange
(the "Exchange") is open for business (each, a "Business Day"), the Company may
receive instructions from the Contract owners for the purchase or redemption of
shares of the Funds ("Orders"). Orders received and accepted by the Company
prior to the close of regular trading on the Exchange (the "Close of Trading")
on any given Business Day (currently, 4:00 p.m. Eastern time) and transmitted to
the Funds' transfer agent by 9.00 a.m. Eastern time on the next Business Day,
will be executed at the net asset value determined as of the Close of Trading on
such Business Day. Any Orders received by the Company on such day but after the
Close of Trading, and all Orders that are transmitted to the Funds' transfer
agent after 9.00 a.m. Eastern time on the next Business Day, will be executed at
the net asset value determined as of the Close of Trading on the next Business
Day following the day of receipt of such Order. The day as of which an Order is
executed by the Funds' transfer agent pursuant to the provisions set forth above
is referred to herein as the "Trade Date".
4. Processing of Transactions.
(a) If transactions in Fund shares are to be settled through the National
Securities Clearing Corporation's Mutual Fund Settlement, Entry, and
Registration Verification (Fund/SERV) system, the terms of the FUND/SERV
AGREEMENT, between Company and American Century Services Corporation, shall
apply.
(b) If transactions in Fund shares are to be settled directly with the Funds'
transfer agent, the following provisions shall apply:
(1) By 6:30 p.m. Eastern time on each Business Day, ACIM (or one of its
affiliates) will provide to the Company via facsimile or other electronic
transmission acceptable to the Company the Funds' net asset value, dividend and
capital gain information and, in the case of income funds, the daily accrual for
interest rate factor (mil rate), determined at the Close of Trading. If ACIM (or
one of its affiliates) provides the Company with a materially incorrect net
asset value for any Fund, the Company, on behalf of the Accounts, shall be
entitled to an adjustment to the number of shares purchased or redeemed to
reflect the correct share net asset value. Any material error in the calculation
of net asset value per share, dividend or capital gain information shall be
reported to the Company promptly upon discovery. If the Company has been
provided with a materially incorrect net asset value for any Fund, ACIM shall
reimburse the Company its reasonable out-of-pocket expenses in correcting
records, including costs of outside service providers incurred specifically
because of the error, printing and postage.
(2) By 9:00 a.m. Eastern time on each Business Day, the Company will
provide to ACIM via facsimile or other electronic transmission acceptable to
ACIM a report stating whether the instructions received by the Company from
Contract owners by the Close of Trading on the immediately prior Business Day
resulted in the Accounts being a net purchaser or net seller of shares of the
Funds. As used in this Agreement, the phrase "other electronic transmission
acceptable to ACIM" includes the use of remote computer terminals located at the
premises of the Company, its agents or affiliates, which terminals may be linked
electronically to the computer system of ACIM, its agents or affiliates
(hereinafter, "Remote Computer Terminals").
(3) Upon the timely receipt from the Company of the report described in
(2) above, the Funds' transfer agent will execute the purchase or redemption
transactions (as the case may be) at the net asset value computed as of the
Close of Trading on the Trade Date. Payment for net purchase transactions shall
be made by wire transfer to the applicable Fund custodial account designated by
the Funds on the Business Day next following the Trade Date. Such wire transfers
shall be initiated by the Company's bank prior to 4:00 p.m. Eastern time and
received by the Funds prior to 6:00 p.m. Eastern time on the Business Day next
following the Trade Date ("T+1"). If payment for a purchase Order is not timely
received, such Order will be executed at the net asset value next computed
following receipt of payment. Payments for net redemption transactions shall be
made by wire transfer by the Issuer to the account(s) designated by the Company
on T+1; provided, however, the Issuer reserves the right to settle redemption
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transactions within the time period set forth in the applicable Fund's then-
current prospectus. On any Business Day when the Federal Reserve Wire Transfer
System is closed, all communication and processing rules will be suspended for
the settlement of Orders. Orders will be settled on the next Business Day on
which the Federal Reserve Wire Transfer System is open and the original Trade
Date will apply.
<PAGE>
5. Prospectus and Proxy Materials.
(a) ACIM shall provide the Company with copies of the Issuer's proxy
materials, periodic fund reports to shareholders and other materials that are
required by law to be sent to the Issuer's shareholders. In addition, ACIM shall
provide the Company with a sufficient quantity of prospectuses of the Funds to
be used in conjunction with the transactions contemplated by this Agreement,
together with such additional copies of the Issuer's prospectuses as may be
reasonably requested by Company. If the Company provides for pass-through voting
by the Contract owners, or if the Company determines that pass-through voting is
required by law, ACIM will provide the Company with a sufficient quantity of
proxy materials for each, as directed by the Company. If requested by the
Company, ACIM shall provide such documentation (including a "camera ready" copy
of the new prospectus as set in type or, at the request of the Company, as a
diskette in the form sent to the printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if the
Funds' prospectuses are supplemented or amended) to have the prospectus or
private offering memorandum for the Contracts and the prospectuses for the Funds
printed together in one document together with other funds available under the
Contracts.
(b) ACIM will provide the Company with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements and all amendments or supplements to any of the above
that relate to the Funds as soon as reasonably practicable after the filing of
each such document with the Securities and Exchange Commission (the "SEC") or
other regulatory authority or is available for shareholders. The Company will
provide ACIM with at least one complete copy of all prospectuses, private
offering memoranda, statements of additional information, annual and semi-annual
reports, proxy statements and all amendments or supplements to any of the above
that relate to an Account as soon as reasonably practicable after the filing, if
applicable, of each such document with the SEC or other regulatory authority or
after it is available for shareholders.
(c) The cost of preparing, printing and shipping of the prospectuses, proxy
materials, periodic fund reports and other materials of the Issuer to the
Company shall be paid by ACIM or its agents or affiliates; provided, however,
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that if at any time ACIM or its agent reasonably deems the usage by the Company
of such items to be excessive, it may, prior to the delivery of any quantity of
materials in excess of what is deemed reasonable, request that the Company
demonstrate the reasonableness of such usage. If ACIM believes the
reasonableness of such usage has not been adequately demonstrated, it may
request that the party responsible for such excess usage pay the cost of
printing (including press time) and delivery of any excess copies of such
materials. Unless the Company agrees to make such payments, ACIM may refuse to
supply such additional materials and ACIM shall be deemed in compliance with
this Section 5 if it delivers to the Company at least the number of prospectuses
and other materials as may be required by the Issuer under applicable law.
(d) The cost of any distribution of prospectuses, proxy materials, periodic
fund reports and other materials of the Issuer to the Contract owners shall be
paid by the Company and shall not be the responsibility of ACIM or the Issuer.
6. Compensation and Expenses.
(a) The Accounts shall be the sole shareholder of Fund shares purchased for
the Contract owners pursuant to this Agreement (the "Record Owner"). The Record
Owner shall properly complete any applications or other forms required by ACIM
or the Issuer from time to time.
(b) ACIM acknowledges that it will derive a substantial savings in
administrative expenses, such as a reduction in expenses related to postage,
shareholder communications and recordkeeping, by virtue of having a single
shareholder account per Fund for the Accounts rather than having each Contract
owner as a shareholder. In consideration of the Administrative Services and
performance of all other obligations under this Agreement by the Company, ACIM
will pay the Company a fee (the "Administrative Services Fee") equal to 25 basis
points (0.25%) per annum of the average aggregate amount invested by the Company
under this Agreement.
<PAGE>
(c) The payments received by the Company under this Agreement are for
administrative and shareholder services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution.
(d) For the purposes of computing the payment to the Company contemplated by
this Section 6, the average aggregate amount invested by the Company on behalf
of the Accounts in the Funds over a one month period shall be computed by
totaling the Company's aggregate investment (share net asset value multiplied by
total number of shares of the Funds held by the Company) on each Business Day
during the month and dividing by the total number of Business Days during such
month.
(e) ACIM will calculate the amount of the payment to be made pursuant to this
Section 6 at the end of each calendar quarter and will make such payment to the
Company within 30 days thereafter. The check for such payment will be
accompanied by a statement showing the calculation of the amounts being paid by
ACIM for the relevant months and such other supporting data as may be reasonably
requested by the Company and shall be mailed to:
First Variable Life Insurance Company
2122 York Road, Suite 300
Oak Brook Terrace, IL 60523
Attention: Vice President & Treasurer
7. Representations.
(a) The Company represents and warrants that (i) this Agreement has been duly
authorized by all necessary corporate action and, when executed and delivered,
shall constitute the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms; (ii) it has established the Separate
Account VL and the First Variable Annuity Fund E (the "Accounts"), which are
duly authorized and established separate accounts under Arkansas insurance law,
exempt from being registered as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"), and will serve as investment vehicles for
the Contracts; (iii) each Contract provides for the allocation of net amounts
received by the Company to an Account for investment in the shares of one or
more specified investment companies selected among those companies available
through the Account to act as underlying investment media; (iv) selection of a
particular investment company is made by the Contract owner under a particular
Contract, who may change such selection from time to time in accordance with the
terms of the applicable Contract; and (v) the activities of the Company
contemplated by this Agreement comply in all material respects with all
provisions of federal and state securities laws applicable to such activities.
(b) ACIM represents that (i) this Agreement has been duly authorized by all
necessary corporate action and, when executed and delivered, shall constitute
the legal, valid and binding obligation of ACIM, enforceable in accordance with
its terms; (ii) the investments of the Funds will at all times be adequately
diversified within the meaning of Section 817(h) of the Internal Revenue Service
Code of 1986, as amended (the "Code"), and the regulations thereunder, and that
at all times while this Agreement is in effect, all beneficial interests in each
of the Funds will be owned by one or more insurance companies' segregated asset
accounts or by any other party permitted under Section 1.817-5(f)(3) of the
Regulations promulgated under the Code; (iii) each Fund has elected to be taxed
as a "regulated investment company" under Subchapter M of the Code; (iv) the
prospectus of each Fund complies in all material respects with federal and state
securities laws; (v) shares of the Issuer are registered and authorized for sale
in accordance with all federal and state securities laws; and (vi) it is duly
registered and licensed under all applicable federal and state securities laws
where the failure to be so registered would have a material adverse effect on
its business.
8. Additional Covenants and Agreements.
(a) Each party shall comply with all provisions of federal and state laws
applicable to its respective activities under this Agreement. All obligations of
each party under this Agreement are subject to compliance with applicable
federal and state laws.
(b) Each party shall promptly notify the other parties in the event that it
is, for any reason, unable to perform any of its obligations under this
Agreement.
<PAGE>
(c) The Company covenants and agrees that all Orders accepted and transmitted
by it hereunder with respect to each Account on any Business Day will be based
upon instructions that it received from the Contract owners, in proper form
prior to the Close of Trading of the Exchange on that Business Day. The Company
shall time stamp all Orders or otherwise maintain records that will enable the
Company to demonstrate compliance with Section 8(c) hereof.
(d) The Company covenants and agrees that all Orders transmitted to the
Issuer, whether by telephone, telecopy, or other electronic transmission
acceptable to ACIM, shall be sent by or under the authority and direction of a
person designated by the Company as being duly authorized to act on behalf of
the owner of the Accounts. ACIM shall be entitled to rely on the existence of
such authority and to assume that any person transmitting Orders for the
purchase, redemption or transfer of Fund shares on behalf of the Company is "an
appropriate person" as used in Sections 8-107 and 8-401 of the Uniform
Commercial Code with respect to the transmission of instructions regarding Fund
shares on behalf of the owner of such Fund shares. The Company shall maintain
the confidentiality of all passwords and security procedures issued, installed
or otherwise put in place with respect to the use of Remote Computer Terminals
and assumes full responsibility for the security therefor. The Company further
agrees to be responsible for the accuracy, propriety and consequences of all
data transmitted to ACIM by the Company by telephone, telecopy or other
electronic transmission acceptable to ACIM.
(e) The Company agrees that, to the extent it is able to do so, it will use
its best efforts to give equal emphasis and promotion to shares of the Funds as
is given to other underlying investments of the Accounts, subject to applicable
Securities and Exchange Commission rules. In addition, the Company shall not
impose any fee, condition, or requirement for the use of the Funds as investment
options for the Contracts that operates to the specific prejudice of the Funds
vis-a-vis the other investment media made available for the Contracts by the
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Company.
(f) The Company will furnish, or will cause to be furnished, to ACIM each
piece of sales literature or other promotional material in which the Issuer or
ACIM is named, at least fifteen (15) Business Days prior to its intended use. No
such sales literature or promotional material will be used if ACIM objects to
its use in writing within ten (10) Business Days after receipt of such material.
(g) ACIM will furnish, or will cause to be furnished, to the Company, each
piece of sales literature or other promotional material in which the Company or
its Separate Accounts are named, at least fifteen (15) Business Days prior to
its intended use. No such material will be used if the Company objects to its
use in writing within ten (10) Business Days after receipt of such material.
(h) The Company, its affiliates and agents shall not, without the written
consent of ACIM, make representations concerning the Issuer or the shares of the
Funds except those contained in the then-current prospectus and in current
printed sales literature approved by ACIM or the Issuer. ACIM, its affiliates
and agents, shall not, without the written consent of the Company, make
representations concerning the Company, the Account or the Contracts except
those contained in the then-current registration statement, prospectus or
private offering memorandum and in current printed sales literature or other
promotional material produced or approved by the Company or its designee.
(i) For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. (the "NASD")
rules, the 1940 Act or the Securities Act of 1933.
(j) ACIM will notify the Company as soon as reasonably practicable if a Fund
has ceased to be qualified as a regulated investment company under Subchapter M
of the Code.
<PAGE>
9. Use of Names. Except as otherwise expressly provided for in this
Agreement, neither ACIM nor any of its affiliates or the Funds shall use any
trademark, trade name, service mark or logo of the Company, or any variation of
any such trademark, trade name, service mark or logo, without the Company's
prior written consent, the granting of which shall be at the Company's sole
option. Except as otherwise expressly provided for in this Agreement, the
Company shall not use any trademark, trade name, service mark or logo of the
Issuer, ACIM or any of its affiliates or any variation of any such trademarks,
trade names, service marks, or logos, without the prior written consent of
either the Issuer or ACIM, as appropriate, the granting of which shall be at the
sole option of ACIM and/or the Issuer.
10. Proxy Voting.
(a) The Company shall provide pass-through voting privileges to all Contract
owners so long as the SEC continues to interpret the 1940 Act as requiring such
privileges. It shall be the responsibility of the Company to assure that it and
the separate accounts of the other Participating Companies (as defined in
Section 12(a) below) participating in any Fund calculate voting privileges in a
consistent manner.
(b) The Company will distribute to Contract owners all proxy material
furnished by ACIM and will vote shares in accordance with instructions received
from such Contract owners. The Company shall vote Fund shares for which no
voting instructions are received in the same proportion as shares for which such
instructions have been received. The Company and its agents shall not oppose or
interfere with the solicitation of proxies for Fund shares held for such
Contract owners.
11. Indemnity.
(a) ACIM agrees to indemnify and hold harmless the Company and its officers,
directors, employees, agents, affiliates and each person, if any, who controls
the Company within the meaning of the Securities Act of 1933 (collectively, the
"Indemnified Parties" for purposes of this Section 11(a)) against any losses,
claims, expenses, damages or liabilities (including amounts paid in settlement
thereof) or litigation expenses (including legal and other expenses)
(collectively, "Losses"), to which the Indemnified Parties may become subject,
insofar as such Losses:
(i) arise out of or are based upon any untrue statement of material
fact contained in the registration statement or prospectus of the Issuer (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that this
indemnification shall not apply as to any Indemnified Party if such statement or
omission was made in reliance upon and in conformity with information furnished
to ACIM or the Issuer by or on behalf of the Company for use in the Issuer's
registration statement or prospectus (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or the Issuer's
shares;
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus, or private placement memorandum for the Contracts not supplied by
ACIM or the Issuer or their agents) or wrongful conduct of the Issuer or its
agents, with respect to the sale or distribution of the Contracts or the
Issuer's shares;
(iii) arise out of any untrue statement of a material fact contained in a
registration statement or prospectus covering the Account or the Contracts, or
any amendment thereof or supplement thereto or the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Company for inclusion
therein by or on behalf of the Issuer; or
(iv) result from a breach by ACIM of a material provision of this
Agreement.
ACIM will reimburse any legal or other expenses reasonably incurred by the
Indemnified Parties in connection with investigating or defending any such
Losses. ACIM shall not be liable for indemnification hereunder if such Losses
are
<PAGE>
attributable to the willful misfeasance, bad faith or negligence of the Company
in performing its obligations under this Agreement or the Company's reckless
disregard of its obligations or duties hereunder.
(b) The Company agrees to indemnify and hold harmless ACIM and the Issuer,
and their respective officers, directors, employees, agents, affiliates and each
person, if any, who controls Issuer or ACIM within the meaning of the Securities
Act of 1933 (collectively, the "Indemnified Parties" for purposes of this
Section 11(b)) against any Losses to which the Indemnified Parties may become
subject, insofar as such Losses:
(i) arise out of or are based upon any untrue statement of any material
fact contained in the registration statement, prospectus or private offering
memorandum for the Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Issuer for use in
the registration statement, prospectus or private offering memorandum for the
Contracts or in the Contracts (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or the Issuer's shares;
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement or
prospectus of the Issuer not supplied by the Company or its agents) or wrongful
conduct of the Company or its agents, with respect to the sale or distribution
of the Contracts or the Issuer's shares;
(iii) arise out of any untrue statement of material fact contained in a
registration statement or prospectus of the Issuer or any amendment thereof or
supplement thereto or the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and in conformity with
information furnished to the Issuer by or on behalf of the Company;
(iv) result from a breach by the Company of a material provision of this
Agreement; or
(v) result from the use by any person of the Remote Computer Terminals.
The Company will reimburse any legal or other expenses reasonably incurred by
the Indemnified Parties in connection with investigating or defending any such
Losses. The Company shall not be liable for indemnification hereunder if such
Losses are attributable to the willful misfeasance, bad faith or negligence of
ACIM or the Issuer in performing their obligations under this Agreement or their
reckless disregard of their obligations or duties hereunder.
(c) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 11. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 11 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such action, the
indemnifying party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of the
indemnified parties in such action, or permit a default or consent to the entry
of any judgment in respect thereof, unless in connection with such settlement,
compromise or consent, each indemnified party receives from such claimant an
unconditional release from all liability in respect of such claim.
<PAGE>
12. Potential Conflicts
(a) The Company has received a copy of an application for exemptive relief,
as amended, filed by the Issuer on December 21, 1987, with the SEC and the order
issued by the SEC in response thereto (the "Shared Funding Exemptive Order").
The Company has reviewed the conditions to the requested relief set forth in
such application for exemptive relief. As set forth in such application, the
Board of Directors of the Issuer (the "Board") will monitor the Issuer for the
existence of any material irreconcilable conflict between the interests of the
contract owners of all separate accounts ("Participating Companies") investing
in funds of the Issuer. An irreconcilable material conflict may arise for a
variety of reasons, including: (i) an action by any state insurance regulatory
authority; (ii) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar actions by insurance, tax or
securities regulatory authorities; (iii) an administrative or judicial decision
in any relevant proceeding; (iv) the manner in which the investments of any
portfolio are being managed; (v) a difference in voting instructions given by
variable annuity contract owners and variable life insurance contract owners; or
(vi) a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order by providing the Board
with all information reasonably necessary for the Board to consider issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with regard
to contract owner investments in a Fund, the Board shall give prompt notice to
all Participating Companies. If the Board determines that the Company is
responsible for causing or creating said conflict, the Company shall at its sole
cost and expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Board members), take such action as is necessary
to remedy or eliminate the irreconcilable material conflict. Such necessary
action may include but shall not be limited to:
(i) withdrawing the assets allocable to the Accounts from the Fund and
reinvesting such assets in a different investment medium or submitting the
question of whether such segregation should be implemented to a vote of all
affected contract owners and as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to the affected contract owners
the option of making such a change; and/or
<PAGE>
(ii) establishing a new registered management investment company or
managed separate account.
(d) If a material irreconcilable conflict arises as a result of a decision by
the Company to disregard its contract owner voting instructions and said
decision represents a minority position or would preclude a majority vote by all
of its contract owners having an interest in the Issuer, the Company at its sole
cost, may be required, at the Board's election, to withdraw an Account's
investment in the Issuer and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
(e) For the purpose of this Section 12, a majority of the disinterested Board
members shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict, but in no event will the Issuer be
required to establish a new funding medium for any Contract. The Company shall
not be required by this Section 12 to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the irreconcilable material
conflict.
13. Termination; Withdrawal of Offering.
(a) This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
(b) This Agreement shall terminate in accordance with the following
provisions:
(i) At the option of the Company or ACIM at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the parties;
(ii) At the option of the Company, if the Issuer's shares are not
reasonably available to meet the requirements of the Contracts as determined by
the Company. Prompt notice of election to terminate shall be furnished by the
Company, said termination to be effective ten days after receipt of notice
unless the Issuer makes available a sufficient number of shares to reasonably
meet the requirements of the Contracts within said ten-day period;
(iii) At the option of the Company, upon the institution of formal
proceedings against the Issuer or ACIM by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in the Company's reasonable judgment, materially impair the
Issuer's or ACIM's ability to meet and perform their obligations and duties
hereunder. Prompt notice of election to terminate shall be furnished by the
Company with said termination to be effective upon receipt of notice;
<PAGE>
(iv) At the option of ACIM, upon the institution of formal proceedings
against the Company by the SEC, the NASD, or any other regulatory body, the
expected or anticipated ruling, judgment or outcome of which would, in ACIM's
reasonable judgment, materially impair the Company's ability to meet and perform
its obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by ACIM with said termination to be effective upon receipt of
notice;
(v) In the event ACIM's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the use
of such shares as the underlying investment medium of Contracts issued or to be
issued by the Company. Termination shall be effective upon receipt of notice by
the Company, which ACIM shall provide promptly upon such occurrence;
(vi) At the option of the Issuer if the Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the Code, or
if ACIM reasonably believes that the Contracts may fail to so qualify.
Termination shall be effective upon receipt of notice by the Company;
(vii) At the option of either party, upon the other party's breach of
any material provision of this Agreement, which breach has not been cured to the
satisfaction of the non-breaching party within ten days after written notice of
such breach is delivered to the breaching party;
(viii) At the option of ACIM, if the Contracts are not registered, issued
or sold in accordance with applicable federal and/or state law. Termination
shall be effective upon receipt of notice by ACIM, which the Company shall
provide promptly upon such occurrence.
Notwithstanding any termination of this Agreement, ACIM will cause the Issuer
to continue to make available additional shares, as provided below, for so long
as the Company desires pursuant to the terms and conditions of this Agreement,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted to reallocate
or redeem investments in the Funds. In addition, for a period of 2 years after
the date of termination, ACIM will remain obligated to pay the Company the
Administrative Services Fee for assets attributable to the Existing Contracts.
This Agreement shall survive termination to the extent necessary for each party
to perform its obligations with respect to shares for which the Administrative
Services Fee continues to be due subsequent to such termination.
14. Non-Exclusivity. Each of the parties acknowledges and agrees that this
Agreement and the arrangement described herein are intended to be non-exclusive
and that each of the parties is free to enter into similar agreements and
arrangements with other entities.
15. Survival. The provisions of Section 9 (use of names) and Section 11
(indemnity) of this Agreement shall survive termination of this Agreement.
16. Amendment. Neither this Agreement, nor any provision hereof, may be
amended, waived, discharged or terminated orally, but only by an instrument in
writing signed by all of the parties hereto.
17. Notices. All notices and other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to whom they are directed at
the following addresses, or at such other addresses as may be designated by
notice from such party to all other parties.
To the Company:
First Variable Life Insurance Company
2122 York Road, Suite 300
Oak Brook Terrace, IL 60523
Attention: Vice President & Treasurer
<PAGE>
To the Issuer or ACIM:
American Century Investment Management, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: General Counsel
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed in this
Section 17 shall be deemed to have been delivered on receipt.
18. Successors and Assigns. This Agreement may not be assigned without the
written consent of all parties to the Agreement at the time of such assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
20. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
21. Entire Agreement. This Agreement, including the attachments hereto,
constitutes the entire agreement between the parties with respect to the matters
dealt with herein, and supersedes all previous agreements, written or oral, with
respect to such matters.
22. Cooperation. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
This covenant shall survive any termination of the Agreement.
23. Cumulative Rights. The rights, remedies and obligations contained in
this Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
FIRST VARIABLE LIFE INSURANCE AMERICAN CENTURY INVESTMENT
COMPANY MANAGEMENT, INC.
By:_______________________________ By:_______________________________
Name:_____________________________ William M. Lyons
Title:____________________________ Executive Vice President
EXHIBIT A
ADMINISTRATIVE SERVICES
<PAGE>
Pursuant to the Agreement to which this is attached, the Company shall perform
all administrative and shareholder services required or requested under the
Contracts with respect to the Contract owners, including, but not limited to,
the following:
1. Maintain separate records for each Contract owner, which
records shall reflect the shares purchased and redeemed and share balances of
such Contract owners. The Company will maintain a single master account with
each Fund on behalf of the Contract owners and such account shall be in the name
of the Company (or its nominee) as the record owner of shares owned by the
Contract owners.
2. Disburse or credit to the Contract owners all proceeds of
redemptions of shares of the Funds and all dividends and other distributions not
reinvested in shares of the Funds.
3. Prepare and transmit to the Contract owners, as required by
law or the Contracts, periodic statements showing the total number of shares
owned by the Contract owners as of the statement closing date, purchases and
redemptions of Fund shares by the Contract owners during the period covered by
the statement and the dividends and other distributions paid during the
statement period (whether paid in cash or reinvested in Fund shares), and such
other information as may be required, from time to time, by the Contracts.
4. Transmit purchase and redemption orders to the Funds on behalf
of the Contract owners in accordance with the procedures set forth in Section 4
to the Agreement.
5. Distribute to the Contract owners copies of the Funds'
prospectus, proxy materials, periodic fund reports to shareholders and other
materials that the Funds are required by law or otherwise to provide to their
shareholders or prospective shareholders.
6. Maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Administrative
Services for the Contracts.
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the ____ day of _____________, _______ by and among
BT Insurance Funds Trust ("TRUST"), a Massachusetts business trust, Bankers
Trust Company ("ADVISER"), a New York banking corporation, and First Variable
Life Insurance Company ("LIFE COMPANY"), a life insurance company organized
under the laws of the State of Arkansas.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "`40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Portfolio"), with
those Portfolios currently available being listed on Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the TRUST to be sold to and held by Variable Contract Separate
Accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more Separate
Accounts to offer Variable Contracts and is desirous of having TRUST as one of
the underlying funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
LIFE COMPANY intends to purchase shares of TRUST to fund the aforementioned
Variable Contracts and TRUST is authorized to sell such shares to LIFE COMPANY
at such shares' net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
--------------------
1.1 TRUST agrees to make available to the Separate Accounts of LIFE COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section
1.2, LIFE COMPANY shall be the designee of TRUST for receipt of such orders from
the designated Separate Account and receipt by such designee shall constitute
receipt by TRUST; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as
<PAGE>
TRUST and LIFE COMPANY may agree in writing) of such order by 10:00 a.m. New
York time on the next Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which TRUST calculates
its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or fractional
shares of TRUST held by LIFE COMPANY, executing such requests on a daily basis
at the net asset value next computed after receipt by TRUST or its designee of
the request for redemption, in accordance with the provisions of this Agreement
and TRUST's Registration Statement. (In the event of a conflict between the
provisions of this Agreement and the Trust's Registration Statement, the
provisions of the Registration Statement shall govern.) For purposes of this
Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of requests
for redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by TRUST; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and TRUST receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and LIFE
COMPANY may agree in writing) of such request for redemption by 10:00 a.m. New
York time on the next Business Day.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. TRUST shall notify LIFE COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
If TRUST provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any
material error in the calculation of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to LIFE
COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, LIFE COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of TRUST shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to
TRUST by LIFE COMPANY by 10:00 a.m. New York Time on the Business Day next
following LIFE COMPANY's receipt of such requests and premiums in accordance
with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require TRUST to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within the time period permitted by the '40 Act or the rules, orders or
regulations thereunder, and TRUST shall notify the person designated in writing
by LIFE COMPANY as the recipient for such notice of such delay by 3:00 p.m. New
York Time on the same Business Day that LIFE COMPANY transmits the redemption
order to TRUST. If LIFE COMPANY's order requests the application of redemption
proceeds from the redemption of shares to the purchase of shares of another Fund
advised by ADVISER, TRUST shall so apply such proceeds on the same Business Day
that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold only
to Participating Insurance Companies which have agreed to participate in TRUST
to fund their Separate Accounts and/or to Qualified Plans, all in accordance
with the requirements of Section 817(h)(4) of the Internal Revenue Code of 1986,
as amended ("Code") and Treasury Regulation 1.817-5. Shares of the TRUST's
Portfolios will not be sold directly to the general public.
<PAGE>
1.9 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the TRUST
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 LIFE COMPANY represents and warrants that it is an insurance company duly
organized and in good standing under the laws of Arkansas and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws, and that First Variable Capital Services, Inc. the
principal underwriter for the Variable Contracts, is registered as a broker-
dealer under the Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior to
any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the `40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will be
registered under the Securities Act of 1933 (the "`33 Act") unless an exemption
from registration is available prior to any issuance or sale of the Variable
Contracts, and that the Variable Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws (including
all applicable blue sky laws) and further that the sale of the Variable
Contracts shall comply in all material respects with applicable state insurance
law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify TRUST immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the `40 Act prior to and at the time of any issuance or sale of such shares.
TRUST, subject to Section 1.9 above, shall amend its registration statement
under the `33 Act and the `40 Act from time to time as required in order to
effect the continuous offering of its shares. TRUST shall register and qualify
its shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by TRUST.
2.6 TRUST represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance.
2.7 TRUST represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
-------------------------------
<PAGE>
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with as
many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. TRUST or its designee shall provide LIFE COMPANY, at LIFE
COMPANY's expense, with as many copies of the current prospectus (or
prospectuses) for the shares as LIFE COMPANY may reasonably request for
distribution to prospective purchasers of Variable Contracts. If requested by
LIFE COMPANY, TRUST or its designee shall provide such documentation (including
a "camera ready" copy of the current prospectus (or prospectuses) as set in type
or, at the request of LIFE COMPANY, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in order for
the parties hereto once a year (or more frequently if the prospectus (or
prospectuses) for the shares is supplemented or amended) to have the prospectus
for the Variable Contracts and the prospectus (or prospectuses) for the TRUST
shares printed together in one document. The expenses of such printing will be
apportioned between LIFE COMPANY and TRUST in proportion to the number of pages
of the Variable Contract and TRUST prospectus, taking account of other relevant
factors affecting the expense of printing, such as covers, columns, graphs and
charts; TRUST shall bear the cost of printing the TRUST prospectus portion of
such document for distribution only to owners of existing Variable Contracts
funded by the TRUST shares and LIFE COMPANY shall bear the expense of printing
the portion of such documents relating to the Separate Account; provided,
however, LIFE COMPANY shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to owners of
existing Variable Contracts not funded by the shares. In the event that LIFE
COMPANY requests that TRUST or its designee provide TRUST's prospectus in a
"camera ready" or diskette format, TRUST shall be responsible for providing the
prospectus (or prospectuses) in the format in which it is accustomed to
formatting prospectuses and shall bear the expense of providing the prospectus
(or prospectuses) in such format (e.g. typesetting expenses), and LIFE COMPANY
shall bear the expense of adjusting or changing the format to conform with any
of its prospectuses.
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature or other promotional material in which
TRUST or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if TRUST or ADVISER objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from
<PAGE>
time to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by LIFE COMPANY or its designee, except with
the written permission of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any information
or make any representations on behalf of TRUST or concerning TRUST other than
the information or representations contained in a registration statement or
prospectus for TRUST, as such registration statement and prospectus may be
amended or supplemented from time to time, or in sales literature or other
promotional material approved by TRUST or its designee, except with the written
permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the `40 Act, the '33 Act or rules thereunder.
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The parties acknowledge that TRUST has received an order from the SEC
granting relief from various provisions of the '40 Act and the rules thereunder
to the extent necessary to permit TRUST shares to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. The Exemptive Order
requires TRUST and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5. The
TRUST will not enter into a participation agreement with any other Participating
Insurance Company unless it imposes the same conditions and undertakings as are
imposed on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts and with participants of Qualified Plans investing in TRUST.
An irreconcilable material conflict may arise for a variety of reasons, which
may include: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of TRUST are being managed; (e) a difference in voting instructions
given by Variable Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts of which it
becomes aware to the Board. LIFE COMPANY will be responsible for assisting the
Board in carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
The responsibility includes, but is not limited to, an obligation by the LIFE
COMPANY to inform the Board whenever it has determined to disregard Variable
Contract owner voting instructions. These responsibilities of LIFE COMPANY
will be carried out with a view only to the interests of the Variable Contract
owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of TRUST, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable
<PAGE>
Contract owners and as appropriate, segregating the assets of any appropriate
group (i.e., variable annuity or variable life insurance Contract owners of one
or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Variable Contract owners the option of
making such a change; and (c) establishing a new registered management
investment company (or series thereof) or managed separate account. If a
material irreconcilable conflict arises because of LIFE COMPANY's decision to
disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, LIFE COMPANY
may be required, at the election of TRUST, to withdraw the Separate Account's
investment in TRUST, and no charge or penalty will be imposed as a result of
such withdrawal. The responsibility to take such remedial action shall be
carried out with a view only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will TRUST or
ADVISER (or any other investment adviser of TRUST) be required to establish a
new funding medium for any Variable Contract. Further, LIFE COMPANY shall not
be required by this Section 5.4 to establish a new funding medium for any
Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable material
conflict and its implications shall be made known promptly and in writing to
LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
------
6.1 LIFE COMPANY will provide pass-through voting privileges to all Variable
Contract owners so long as the SEC continues to interpret the `40 Act as
requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
TRUST calculates voting privileges in a manner consistent with other
Participating Insurance Companies, in accordance with the Prospectus. LIFE
COMPANY will vote shares for which it has not received timely voting
instructions, as well as shares it owns, in the same proportion as its votes
those shares for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule
6e-3 is adopted, to provide exemptive relief from any provision of the `40 Act
or the rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then TRUST, and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule 6e-2
and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
Rules are applicable.
Article VII. INDEMNIFICATION
---------------
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and
-------------------------------
hold harmless TRUST, ADVISER and each of their Trustees, directors, principals,
officers, employees and agents and each person, if any, who controls TRUST or
ADVISER within the meaning of Section 15 of the `33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY,
which consent shall not be unreasonably withheld) or litigation or threatened
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Variable Contracts or
contained in the Variable Contracts (or any amendment or supplement to
any of the foregoing), or arise
<PAGE>
out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished in
writing to LIFE COMPANY by or on behalf of TRUST for use in the
registration statement or prospectus for the Variable Contracts or in
the Variable Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Variable Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of TRUST not
supplied by LIFE COMPANY, or persons under its control) or (ii)
wrongful conduct of LIFE COMPANY or persons under its control, with
respect to the sale or distribution of the Variable Contracts or TRUST
shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of TRUST or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished in writing to TRUST
by or on behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this Agreement or arise
out of or result from any other material breach of this Agreement by LIFE
COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by TRUST. TRUST agrees to indemnify and hold harmless
-------------------------
LIFE COMPANY and each of its directors, officers, employees, and agents and each
person, if any, who controls LIFE COMPANY within the meaning of Section 15 of
the `33 Act (collectively, the "Indemnified Parties") against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of TRUST which consent shall not be unreasonably withheld)
or litigation or threatened litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, or
regulation, at common law or otherwise, insofar as
<PAGE>
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of TRUST's shares
or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of TRUST (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in writing to
ADVISER or TRUST by or on behalf of LIFE COMPANY for use in the registration
statement or prospectus for TRUST or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Variable
Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
ADVISER or TRUST or persons under its control) or (ii) gross negligence or
wrongful conduct or willful misfeasance of TRUST or persons under its control,
with respect to the sale or distribution of the Variable Contracts or TRUST
shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity with
information furnished in writing to LIFE COMPANY for inclusion therein by or
on behalf of TRUST; or
(d) arise as a result of (i) a failure by TRUST to provide substantially
the services and furnish the materials under the terms of this Agreement; or
(ii) a failure by a Portfolio(s) invested in by the Separate Account to
comply with the diversification requirements of Section 817(h) of the Code; or
(iii) a failure by a Portfolio(s) invested in by the Separate Account to
qualify as a "regulated investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by TRUST in this Agreement or arise out of or result from
any other material breach of this Agreement by TRUST.
7.5 TRUST shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
7.6 TRUST shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified TRUST in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify TRUST of any such claim shall not relieve TRUST
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, TRUST shall
be entitled to participate at its own expense in the defense thereof. TRUST also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from TRUST to such party of TRUST's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and TRUST will not
be liable to such party under this Agreement for any legal or
<PAGE>
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the
parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not reasonably
available to meet the requirements of the Variable Contracts as determined by
LIFE COMPANY. Prompt notice of election to terminate shall be furnished by
LIFE COMPANY, said termination to be effective ten days after receipt of
notice unless TRUST makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts within said ten-day
period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST by the SEC, the NASD, or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which would, in
LIFE COMPANY's reasonable judgment, materially impair TRUST's ability to meet
and perform TRUST's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY with said termination
to be effective upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal proceedings
against LIFE COMPANY and/or its broker-dealer affiliates by the SEC, the NASD,
or any other regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in TRUST's reasonable judgment, materially impair LIFE
COMPANY's ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by TRUST with said
termination to be effective upon receipt of notice;
(e) In the event TRUST's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the use
of such shares as the underlying investment medium of Variable Contracts
issued or to be issued by LIFE COMPANY. Termination shall be effective upon
such occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the Code,
or if TRUST reasonably believes that the Variable Contracts may fail to so
qualify. Termination shall be effective upon receipt of notice by LIFE
COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of LIFE COMPANY within ten days after written notice of such
breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of TRUST within ten days after written notice of such breach is
delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without
notice;
<PAGE>
In the event this Agreement is assigned without the prior written consent of
LIFE COMPANY, TRUST, and ADVISER, termination shall be effective immediately
upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement, subject to this
provision, TRUST will, at the option of LIFE COMPANY continue to make available
additional TRUST shares, pursuant to the terms and conditions of this
Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts or LIFE
COMPANY, whichever shall have legal authority to do so, shall be permitted to
reallocate investments in TRUST (as in effect on such date), redeem investments
in TRUST and/or invest in TRUST upon the making of additional purchase payments
under the Existing Contracts. In the event of a termination of this Agreement
pursuant to Section 8.2 hereof, LIFE COMPANY shall notify TRUST and ADVISER,
as promptly as is practicable under the circumstances whether LIFE COMPANY
elects to have TRUST shares continued to be made available after such
termination. If TRUST shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either TRUST or LIFE COMPANY may terminate the Agreement as so
continued pursuant to this Section 8.3, upon ninety (90) days' prior written
notice to the other party. The parties agree that this Section 8.3 will not
apply (a) to any terminations under Article V or (b) terminations required as a
result of the TRUST no longer being authorized under applicable law to make
shares available. In addition, notwithstanding this Section 8.3, the parties
recognize the absolute right of the TRUST to close a Portfolio on 180 days
advance written notice to LIFE COMPANY.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, or as
permitted by an order of the SEC pursuant to section 26(b) of the '40 Act, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
8.5 The representations and warranties contained in Article II of this
Agreement shall survive the termination of this Agreement.
Article IX. NOTICES
-------
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to TRUST:
BT Insurance Funds Trust
c/o First Data Investor Services Group, Inc.
One Exchange Place
53 State Street, Mail Stop BOS 865
Boston, MA 02109
Attn: Elizabeth Russell, Legal Dep't
and
c/o BT Alex. Brown
One South Street, Mail Stop 1-18-6
Baltimore, MD 21202
Attn: Mutual Fund Services
If to ADVISER:
Bankers Trust Company
130 Liberty Street
<PAGE>
New York, NY 10006
Attn.: Vinay Mendiratta, Mail Stop 2355
If to LIFE COMPANY:
First Variable Life Insurance Company
2122 York Road
Suite 300
Oak Brook, IL 60523-1930
Attn: Arnold Bergman, Legal Dep't
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
-------------
10.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It shall also
be subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the shareholders
of shares of any Portfolio nor the Trustees or officers of TRUST or any
Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with TRUST or a
Portfolio must look solely to the property of TRUST or that Portfolio,
respectively, for enforcement of any claims against TRUST or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 If the Agreement terminates, the parties agree that Article 7 and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by TRUST, ADVISER
and the LIFE COMPANY.
10.10 No failure or delay by a party in exercising any right or remedy
under this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in
<PAGE>
this Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
10.11 This Agreement shall not be assigned without the written consent of the
parties, provided, however, that this Agreement may be assigned without prior
--------
consent by any party to any company that acquires all or substantially all of
that party's assets or equity, or any company or entity into which the party is
merged or otherwise reorganized.
10.12 Each party represents and warrants that it has taken, or will take,
commercially reasonable measures, to the extent necessary, to adjust its
computer systems so that its operations and the services provided under this
Agreement will not be materially affected upon January 1, 2000.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Fund Participation Agreement as of the date and year first above
written.
BT INSURANCE FUNDS TRUST
By:_______________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_______________________________________
Name:
Title:
FIRST VARIABLE LIFE INSURANCE COMPANY
By:_______________________________________
John M. Soukup
President
<PAGE>
Appendix A
To Participation Agreement by and among FIRST VARIABLE LIFE INSURANCE COMPANY,
BANKERS TRUST COMPANY and BT INSURANCE FUNDS TRUST
List of portfolios:
Equity 500 Index
Small Cap Index
Appendix B
To Participation Agreement by and among FIRST VARIABLE LIFE INSURANCE COMPANY,
BANKERS TRUST COMPANY and BT INSURANCE FUNDS TRUST
List of variable separate accounts:
Separate Account VL
First Variable Annuity Fund E
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 12th day of April, 1999, by and among Lord
Abbett Series Fund, Inc. ("FUND"), a Maryland Corporation, Lord, Abbett & Co.
("ADVISER"), a New York Partnership, Lord Abbett Distributor LLC, a New York
limited liability company (the "Distributor") and First Variable Life Insurance
Company (the "COMPANY"), a life insurance company organized under the laws of
the State of Arkansas.
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "`40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several Portfolios
("Portfolios"), those currently available are listed on Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies") and also offers its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND intends to apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans ("Exemptive
Order"); and
WHEREAS, the COMPANY has established or will establish one or more separate
accounts ("Separate Accounts") to offer Variable Contracts and is desirous of
having FUND as one of the underlying funding vehicles for such Variable
Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act") and acts as
the FUND's investment adviser and the Distributor, a wholly-owned subsidiary of
ADVISER, is registered with the SEC as a broker-dealer under the Securities
Exchange Act of 1934, as amended (the "`34 Act") and acts as Fund's principal
underwriter; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
the COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the COMPANY,
FUND, DISTRIBUTOR and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
-------------------
1.1 FUND agrees to make available to the Separate Accounts of the COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's registration statement (hereinafter the
"Registration Statement").
1.2 FUND agrees to sell to the COMPANY those shares of the selected
Portfolios of FUND which the COMPANY orders, executing such orders on a daily
basis at the net asset value next computed
<PAGE>
after receipt by FUND or its designee of the order for the shares of FUND. For
purposes of this Section 1.2, the COMPANY shall be the designee of FUND for
receipt of such orders from the designated Separate Account and receipt by such
designee shall constitute receipt by FUND; provided that the COMPANY receives
the order by 4:00 p.m. New York time and FUND receives notice from the COMPANY
by telephone or facsimile (or by such other means as FUND and the COMPANY may
agree in writing) of such order by 9:00 a.m. Central time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which FUND calculates its net asset value
pursuant to the rules of the SEC.
1.3 FUND agrees to redeem on the COMPANY's request, any full or fractional
shares of FUND held by the COMPANY, executing such requests on a daily basis at
the net asset value next computed after receipt by FUND or its designee of the
request for redemption, in accordance with the provisions of this agreement and
FUND's Registration Statement. For purposes of this Section 1.3, the COMPANY
shall be the designee of FUND for receipt of requests for redemption from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that the COMPANY receives the request for redemption
by 4:00 p.m. New York time and FUND receives notice from the COMPANY by
telephone or facsimile (or by such other means as FUND and the COMPANY may agree
in writing) of such request for redemption by 9:00 a.m. Central time on the
next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to the
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolios of FUND. The COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. FUND shall notify the COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to the COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
In the event that FUND is unable to meet the 6:30 p.m. time stated herein, it
shall provide additional time for the COMPANY to place orders for the purchase
and redemption of shares. Such additional time shall be equal to the additional
time which FUND takes to make the net asset value available to the COMPANY. If
FUND provides COMPANY with materially incorrect share net asset value
information, COMPANY shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any
material error in the calculation of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to COMPANY.
1.6 At the end of each Business Day, the COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, the COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of FUND shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to FUND
by the COMPANY by 9:00 a.m. Central time on the Business Day next following
the COMPANY's receipt of such requests and premiums in accordance with the terms
of Sections 1.2 and 1.3 hereof.
1.7 If the COMPANY's order requests the purchase of FUND shares, the
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by the COMPANY.
If the COMPANY's order requests a net redemption resulting in a payment of
redemption proceeds to the COMPANY, FUND shall use its best efforts to wire the
redemption proceeds to the COMPANY by the next Business Day, unless doing so
would require FUND to dispose of Portfolio securities or otherwise incur
additional costs. In any event, proceeds shall be wired to the COMPANY within
three Business Days or within the period permitted by the '40 Act or the rules,
orders or regulations thereunder and FUND shall notify the person designated in
writing by the COMPANY as the recipient for such notice of such delay by 3:00
p.m. New York time the same Business Day that the
<PAGE>
COMPANY transmits the redemption order to FUND. If the COMPANY's order requests
the application of redemption proceeds from the redemption of shares to the
purchase of shares of another Portfolio advised by ADVISER, FUND shall so apply
such proceeds the same Business Day that the COMPANY transmits such order to
FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold
only to Participating Insurance Companies which have agreed to participate in
FUND to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
Portfolios of FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolios to any person, or
suspend or terminate the offering of the shares of any Portfolios if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Directors of the FUND (the "Board"), deemed
necessary, desirable or appropriate.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to the COMPANY or the Separate Accounts.
Shares ordered from Portfolios will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 The COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Arkansas and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws.
2.2 The COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the `40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 The COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933, as amended (the "`33 Act")
unless an exemption from registration is available prior to any issuance or sale
of the Variable Contracts and that the Variable Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and further that the sale of the Variable Contracts shall comply in
all material respects with state insurance law suitability requirements.
2.4 The COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the `33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the `40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the `33 Act and the `40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify the COMPANY immediately upon having
<PAGE>
a reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the
Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify the COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 DISTRIBUTOR represents and warrants that it is and will be a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD") and is and will be registered as a broker-dealer with the SEC. ADVISER
further represents that Distributor will sell and distribute Portfolio shares in
accordance with all applicable state and federal laws and regulations, including
without limitation the '33 Act, the '34 Act and the '40 Act.
2.9 ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
2.10 DISTRIBUTOR is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities laws and
shall perform its obligations hereunder in compliance in all material respects
with any applicable state and federal laws.
Article III. PROSPECTUS, REPORTS AND PROXY STATEMENTS
----------------------------------------
3.1 FUND shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND.
Except for the costs and fees the Distributor is obligated to pay pursuant to
its distribution agreement with the FUND, the FUND shall bear the costs of
registration and qualification of shares of the Portfolios, preparation and
filing of the documents listed in this Section 3.1 and all taxes and filing fees
to which an issuer is subject on the issuance and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide the COMPANY,
free of charge, with as many copies of the current prospectus for the shares of
the Portfolios as the COMPANY may reasonably request for distribution to
existing Variable Contract owners. FUND or its designee shall provide the
COMPANY, at the COMPANY's expense, with as many more copies of the current
prospectus for the shares as the COMPANY may reasonably request for distribution
to prospective purchasers of Variable Contracts. If requested by the COMPANY in
lieu thereof, FUND or its designee shall provide such documentation (including a
"camera ready" copy of the new prospectus as set in type or, at the request of
the COMPANY, as a diskette in the form sent to the financial printer) and other
assistance as is reasonably necessary in order for the parties hereto once a
year (or more frequently if the prospectus for the shares is supplemented or
amended) to have the prospectus for the Variable Contracts and the prospectus
for FUND shares and any other fund shares offered as investments for the
Variable Contracts printed together in one document. FUND or its designee
shall also provide the COMPANY, free of charge, with as many copies of FUND's
current Statement of Additional Information for distribution to all existing
Variable Contract owners who request receipt of Statement of Additional
Information.
3.3 FUND or its designee shall provide the COMPANY, free of charge, with
as many copies of any proxy statements and other materials related to all proxy
solicitations initiated by or on behalf of FUND as the COMPANY may reasonably
request for distribution, at FUND's expense, to existing VARIABLE contract
owners.
3.4 FUND or its designee shall provide the Company, free of charge, with
as many copies of any annual and semi-annual reports of the FUND as the COMPANY
may reasonably request for distribution to existing Variable Contract owners.
-
<PAGE>
3.5 FUND will provide the COMPANY with a reasonable number of copies of
all prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios within a
reasonable time after the filing of each such document with the SEC or other
regulatory authority. The COMPANY will provide FUND with a reasonable number
of copies of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all amendments
or supplements to any of the above that relate to a Separate Account within a
reasonable time after the filing of each such document with the SEC or other
regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 The COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in which
FUND or ADVISER or DISTRIBUTOR is named, at least fifteen (15) Business Days
prior to its intended use. No such material will be used if FUND, ADVISER or
DISTRIBUTOR objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.2 FUND and DISTRIBUTOR will furnish, or will cause to be furnished, to
the COMPANY, each piece of sales literature or other promotional material in
which the COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if the
COMPANY objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any information or
make any representations on behalf of the COMPANY or concerning the COMPANY, the
Separate Accounts, or the Variable Contracts issued by the COMPANY, other than
the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by the COMPANY or its designee, except with the written permission of
the COMPANY.
4.4 The COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND, ADVISER or
DISTRIBUTOR or concerning FUND, ADVISER or DISTRIBUTOR other than the
information or representations contained in a registration statement or
prospectus for FUND, as such registration statement and prospectus may be
amended or supplemented from time to time, or in sales literature or other
promotional material approved by FUND, ADVISER or DISTRIBUTOR or its designee,
except with the written permission of FUND, ADVISER or DISTRIBUTOR, as the case
may be.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD, the `40 Act or the '33 Act.
<PAGE>
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The parties acknowledge that FUND intends to file an application with
the SEC to request an order granting relief from various provisions of the '40
Act and the rules thereunder to the extent necessary to permit FUND shares to be
sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans. It is anticipated that the Exemptive Order, when and if
issued, shall require FUND and each Participating Insurance Company to comply
with conditions and undertakings substantially as provided in this Section 5.
If the Exemptive Order imposes conditions materially different from those
provided for in this Section 5, the conditions and undertakings imposed by the
Exemptive Order shall govern this Agreement and the parties hereto agree to
amend this Agreement consistent with the Exemptive Order.
5.2 The Board will monitor FUND for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts investing in FUND. An irreconcilable material conflict may
arise for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by variable annuity and variable
life insurance Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 The COMPANY will report any potential or existing conflicts to the
Board. The COMPANY will be responsible for assisting the Board in carrying out
its duties in this regard by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. The responsibility
includes, but is not limited to, an obligation by the COMPANY to inform the
Board whenever it has determined to disregard Variable Contract owner voting
instructions. These responsibilities of the COMPANY will be carried out with a
view only to the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested members,
determines that a material irreconcilable conflict exists, affecting the
COMPANY, the COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested members), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group (i.e.
variable annuity or variable life insurance contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of the COMPANY's decision to disregard Variable Contract
owner voting instructions, and that decision represents a minority position or
would preclude a majority vote, the COMPANY may be required, at the election of
FUND to withdraw the Separate Account's investment in FUND, and no charge or
penalty will be imposed as a result of such withdrawal. The responsibility to
take such remedial action shall be carried out with a view only to the interests
of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, the COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been
<PAGE>
declined by a vote of a majority of Variable Contract owners materially and
adversely affected by the irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to the COMPANY.
5.6 No less than annually, the COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
5.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the .40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Exemptive
Order, then FUND, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-
3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VI. VOTING
------
6.1 The COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, the COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. The COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
FUND calculates voting privileges in a manner consistent with applicable laws,
rules and orders of the SEC. The COMPANY will vote shares for which it has not
received timely voting instructions, as well as shares it owns, in the same
proportion as its votes those shares for which it has received voting
instructions.
Article VII - INDEMNIFICATION
---------------
7.1 Indemnification by the COMPANY. The COMPANY agrees to indemnify and
hold harmless FUND, ADVISER and DISTRIBUTOR and each of their respective
trustees, directors, members, principals, officers, partners, employees and
agents and each person, if any, who controls FUND, ADVISER or DISTRIBUTOR within
the meaning of Section 15 of the '33 Act (each, a "FUND Indemnified Party," and
collectively, the "FUND Indemnified Parties" for purposes of this Article VII)
against any and all losses, costs, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the COMPANY, which
consent shall not be unreasonably withheld) and expenses (including legal and
other expenses) (collectively, "Indemnification Costs"), to which the FUND
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such Indemnification Costs are related to
the sale, distribution or acquisition of FUND shares or the Variable Contracts
and:
(a) arise out of or based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement, prospectus or statement of additional information, if any,
for the Variable Contracts (or any amendment or supplement to any of
the foregoing), or in any sales literature of or pertaining to COMPANY
relating to the Variable Contracts, insofar as such sales literature
relates to the sale of the FUND shares under the Variable Contracts
and is prepared by Company, persons controlling COMPANY or persons
under COMPANY's control (each a "COMPANY Document," and collectively,
the "COMPANY Documents"), or arise out of or are based upon the
omission or the alleged omission to state in such COMPANY Documents a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any FUND Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
COMPANY by or on
<PAGE>
behalf of a FUND Indemnified Party for use in such COMPANY Documents,
or otherwise for use in connection with the sale or distribution of
the Variable Contracts or FUND shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus or
statement of additional information of FUND (or any amendment or
supplement thereto), or sales literature of or pertaining to the FUND,
insofar as such sales literature relates to the sale of FUND shares
under the Variable Contracts and is prepared by the FUND, persons
controlling FUND, or persons under FUND's control (each a "FUND
Document," and collectively, the FUND Documents"), or the omission or
alleged omission to state in any FUND Document a material fact required
to be stated therein or necessary to make the statements therein not
misleading , only if and to the extent that any such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to FUND by or on
behalf of the COMPANY; or
(c) arise out of or as a result of statements or representations (other
than statements or representations contained in FUND Documents not
supplied by the Company, persons controlling the COMPANY, or persons
under Company's control) or wrongful conduct of the COMPANY, persons
controlling the COMPANY, or person's under COMPANY's control, with
respect to the sale or distribution of the Variable Contracts or FUND
shares; or
(d) arise as a result of any failure by the COMPANY to provide the
services and furnish the materials under the terms of this Agreement;
or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the COMPANY in this Agreement or arise out of
or result from any other material breach of this Agreement by the
COMPANY.
7.2 The COMPANY shall not be liable under this indemnification provision
with respect to any Indemnification Costs incurred or assessed against a FUND
Indemnified Party as such may arise from such FUND Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such FUND
Indemnified Party's duties or by reason of such Fund Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
7.3 The COMPANY shall not be liable under this indemnification provision
with respect to any claim made against a FUND Indemnified Party unless such FUND
Indemnified Party shall have notified the COMPANY in writing within a reasonable
time after a summons or other first legal process giving information of the
nature of the claim shall have been served upon such FUND Indemnified Party (or
after such Fund Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the COMPANY of any such claim shall
not relieve the COMPANY from any liability which it may have to the FUND
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against a
FUND Indemnified Party, the Company shall be entitled to participate at its own
expense in the defense of such action. The COMPANY also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the COMPANY to such party of the COMPANY's election
to assume the defense thereof, the FUND Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the COMPANY will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by FUND. FUND agrees to indemnify and hold harmless
the COMPANY, the principal underwriter ("Underwriter") in respect of the
Variable Contracts issued by the COMPANY, and each of their respective
directors, officers, employees, and agents and each person, if any, who controls
the COMPANY or Underwriter within the meaning of Section 15 of the `33 Act (each
, a
<PAGE>
"COMPANY Indemnified Party", and collectively, the COMPANY Indemnified Parties"
for the purposes of this Article VII) against any and all Indemnification Costs
to which the COMPANY Indemnified Parties may become subject under any statute,
or regulation, at common law or otherwise, insofar as such Indemnification Costs
are related to the sale, distribution or acquisition of FUND shares or the
Variable Contracts and:
(a) arise out of are based on any untrue statement or alleged untrue
statement of any material fact contained in a Fund Document, or
arise out of or are based upon the omission or the alleged omission to
state in any FUND Document a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
COMPANY Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf of a
COMPANY Indemnified Party for use in such FUND Documents or otherwise
for use in connection with the sale or distribution of the Variable
Contracts or FUND shares; or
(b) arise out of any untrue statements or alleged untrue statement of a
material fact contained in any COMPANY Document, or the omission or
alleged omission to state in any COMPANY Document a material fact
required to be stated therein or necessary to make the statements
therein not misleading , if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the COMPANY for inclusion therein by or on
behalf of FUND; or
(c) arise out of or as a result of statements or representations (other
than statements or representations contained in any COMPANY Document
not supplied by FUND, persons controlling FUND, or persons under
FUND's control) or wrongful conduct of FUND, persons controlling FUND,
or persons under FUND's control, with respect to the sale or
distribution of the Variable Contracts or FUND shares; or
(d) arise as a result of (i) a failure by FUND to provide the services and
furnish the materials under the terms of this Agreement, including,
without limitation, any failure by the FUND, persons controlling FUND,
or persons under FUND's control, as applicable, to inform the COMPANY
of the correct net asset values per share of the selected Portfolio(s)
on a timely basis sufficient to ensure the timely execution of all
purchase and redemption orders at the correct net asset value per
share; or (ii) a failure by a Portfolio invested in by the Separate
Account to comply with the diversification requirements of Section 817
(h) of the Code; or (iii) a failure by a Portfolio invested in by the
Separate Account to qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by FUND in this Agreement or
arise out of or result from any other material breach of this
Agreement by FUND.
7.6 FUND shall not be liable under this indemnification provision with
respect to any Indemnification Costs incurred or assessed against a COMPANY
Indemnified Party as such may arise from such COMPANY Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
COMPANY Indemnified Party's duties or by reason of such COMPANY Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
7.7 FUND shall not be liable under this indemnification provision with
respect to any claim made against a COMPANY Indemnified Party unless such
COMPANY Indemnified Party shall have notified FUND, in writing within a
reasonable time after a summons or other first legal process giving information
of the nature of the claim shall have been served upon such COMPANY Indemnified
Party (or after such COMPANY Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify FUND of any such
claim shall not relieve FUND from any liability which it
<PAGE>
may have to the COMPANY Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against a COMPANY Indemnified Party, FUND shall be entitled to
participate at its own respective expense in the defense thereof. FUND also
shall be entitled to assume the defense of such action, with counsel
satisfactory to the party named in the action. After notice from the FUND to any
such party of FUND's election to assume the defense thereof, the COMPANY
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and FUND will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
Article VIII. TERM; TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of the COMPANY or FUND at any time from the date hereof
upon one year's notice, unless a shorter time is agreed to by the
parties;
(b) At the option of the COMPANY, if FUND shares are not reasonably
available to meet the requirements of the Variable Contracts as
determined by the COMPANY. Prompt notice of election to terminate
shall be furnished by the COMPANY, said termination to be effective
ten days after receipt of notice unless FUND makes available a
sufficient number of shares to reasonably meet the requirements of
the Variable Contracts within said ten-day period;
(c) At the option of the COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in the COMPANY's reasonable judgment,
materially impair FUND's ability to meet and perform FUND's
obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by the COMPANY with said termination to
be effective upon receipt of notice;
(d) At the option of FUND, upon the institution of formal proceedings
against the COMPANY by the SEC, the NASD, or any other regulatory
body, the expected or anticipated ruling, judgment or outcome of
which would, in FUND's reasonable judgment, materially impair the
COMPANY's ability to meet and perform its obligations and duties
hereunder. Prompt notice of election to terminate shall be furnished
by FUND with said termination to be effective upon receipt of notice;
(e) In the event FUND's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law
precludes the use of such shares as the underlying investment medium
of Variable Contracts issued or to be issued by the COMPANY.
Termination shall be effective upon such occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under
the Code, or if FUND reasonably believes that the Variable Contracts
may fail to so qualify. Termination shall be effective upon receipt
of notice by the COMPANY;
(g) At the option of the COMPANY, upon FUND's breach of any material
provision of this Agreement, which breach has not been cured to the
<PAGE>
satisfaction of the COMPANY within ten days after written notice of
such breach is delivered to FUND;
(h) At the option of FUND, upon the COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of FUND within ten days after written notice of such
breach is delivered to the COMPANY;
(i) At the option of FUND, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state
law. Termination shall be effective immediately upon such occurrence
without notice;
(j) In the event this Agreement is assigned without the prior written
consent of the COMPANY, FUND, and ADVISER, termination shall be
effective immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement, FUND at the option
of the COMPANY will continue to make available additional FUND shares, as
provided below, pursuant to the terms and conditions of this Agreement, for all
Variable Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts or the COMPANY,
whichever shall have legal authority to do so, shall be permitted to reallocate
investments in FUND, redeem investments in FUND and/or invest in FUND upon the
payment of additional premiums under the Existing Contracts.
Article IX. NOTICES
-------
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to FUND, or ADVISER.
Lord, Abbett & Co.
The GM Building - 767 Fifth Avenue
New York, New York 10153-0203
Attn: Legal Department
If to the COMPANY:
First Variable Life Insurance Company
2122 York Road, Suite 300
Oak Brook, IL 60523-1930
Attn: Legal Department
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
-------------
10.1 The COMPANY shall be reimbursed for service expenses as provided for
in the Service Agreement attached hereto as Appendix C under the terms and
conditions set forth in such Service Agreement; provided, however, that in the
-----------------
event that COMPANY shall elect to continue to make available Fund shares in
accordance with section 8.1 of this Agreement, the COMPANY shall continue to be
<PAGE>
reimbursed for the service expenses described in such Service Agreement provided
that such services continue to be provided by the COMPANY to the FUND in
accordance with the terms of such Service Agreement and provided further that
the Distributor continues to receive such service expenses from the FUND in
accordance with the Service Agreement.
10.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.5 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York,
without regard to its conflict of law provisions. It shall also be subject to
the provisions of the federal securities laws and the rules and regulations
thereunder and to any orders of the SEC granting exemptive relief therefrom and
the conditions of such orders.
10.6 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Board or officers of FUND or any
Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios listed in Exhibit B shall be
deemed to be entering into a separate Agreement with the COMPANY so that it is
as if each of the Portfolios had signed a separate Agreement with the COMPANY
and that a single document is being signed simply to facilitate the execution
and administration of the Agreement.
10.7 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit each other and such authorities
reasonable access to its books and records in connection with any investigation
or inquiry or due diligence review relating to this Agreement or the
transactions contemplated hereby with due regard for the fact that ADVISER is a
private partnership.
10.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by FUND,
ADVISER and the COMPANY.
- --------------------------------------------------------------------------------
10.10 If this Agreement terminates, the parties agree that Article 7
and Sections 8.3, 10.1, 10.6, 10.7 and 10.8 shall remain in effect after
termination.
10.11 This Agreement shall not be assigned by any party without the
prior written consent of the other parties hereto.
10.12 ADVISER and FUND shall maintain and execute a Year 2000
compliance plan reasonably designed to ensure that the computer systems which
the FUND will use in performing its everyday operations will perform all data
related functions in respect of dates prior to the year 1999 accurately, and
will perform all such functions in respect to dates during and after the year
1999 with the same accuracy
- --------------------------------------------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
Lord Abbett Series Fund, Inc.
By:_____________________________
Name:
Title:
Lord, Abbett & Co.
By:_____________________________
Name:
Title:
FIRST VARIABLE LIFE INSURANCE COMPANY
By:______________________________
Name:
Title:
<PAGE>
Appendix A
FUND and its Portfolios
- ------------------------
Lord Abbett Series Fund, Inc. Growth and Income Portfolio
<PAGE>
Appendix B
Separate Accounts Selected Portfolios
- ----------------- -------------------
First Variable Annuity Fund E Growth and Income Portfolio
Separate Account VL Growth and Income Portfolio
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 12th day of April, 1999, by and among Lord
Abbett Series Fund, Inc. ("FUND"), a Maryland Corporation, Lord, Abbett & Co.
("ADVISER"), a New York Partnership, Lord Abbett Distributor LLC, a New York
limited liability company (the "Distributor") and First Variable Life Insurance
Company (the "COMPANY"), a life insurance company organized under the laws of
the State of Arkansas.
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "`40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several Portfolios
("Portfolios"), those currently available are listed on Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies") and also offers its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND intends to apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans ("Exemptive
Order"); and
WHEREAS, the COMPANY has established or will establish one or more separate
accounts ("Separate Accounts") to offer Variable Contracts and is desirous of
having FUND as one of the underlying funding vehicles for such Variable
Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act") and acts as
the FUND's investment adviser and the Distributor, a wholly-owned subsidiary of
ADVISER, is registered with the SEC as a broker-dealer under the Securities
Exchange Act of 1934, as amended (the "`34 Act") and acts as Fund's principal
underwriter; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
the COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the COMPANY,
FUND, DISTRIBUTOR and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
-------------------
1.1 FUND agrees to make available to the Separate Accounts of the COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's registration statement (hereinafter the
"Registration Statement").
1.2 FUND agrees to sell to the COMPANY those shares of the selected
Portfolios of FUND which the COMPANY orders, executing such orders on a daily
basis at the net asset value next computed
<PAGE>
after receipt by FUND or its designee of the order for the shares of FUND. For
purposes of this Section 1.2, the COMPANY shall be the designee of FUND for
receipt of such orders from the designated Separate Account and receipt by such
designee shall constitute receipt by FUND; provided that the COMPANY receives
the order by 4:00 p.m. New York time and FUND receives notice from the COMPANY
by telephone or facsimile (or by such other means as FUND and the COMPANY may
agree in writing) of such order by 9:00 a.m. Central time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which FUND calculates its net asset value
pursuant to the rules of the SEC.
1.3 FUND agrees to redeem on the COMPANY's request, any full or
fractional shares of FUND held by the COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by FUND or its
designee of the request for redemption, in accordance with the provisions of
this agreement and FUND's Registration Statement. For purposes of this Section
1.3, the COMPANY shall be the designee of FUND for receipt of requests for
redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by FUND; provided that the COMPANY receives the request
for redemption by 4:00 p.m. New York time and FUND receives notice from the
COMPANY by telephone or facsimile (or by such other means as FUND and the
COMPANY may agree in writing) of such request for redemption by 9:00 a.m.
Central time on the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to the
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolios of FUND. The COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. FUND shall notify the COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
1.6 1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to the COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
In the event that FUND is unable to meet the 6:30 p.m. time stated herein, it
shall provide additional time for the COMPANY to place orders for the purchase
and redemption of shares. Such additional time shall be equal to the additional
time which FUND takes to make the net asset value available to the COMPANY. If
FUND provides COMPANY with materially incorrect share net asset value
information, COMPANY shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any
material error in the calculation of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to COMPANY.
1.6 At the end of each Business Day, the COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, the COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of FUND shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to FUND by the COMPANY by 9:00 a.m. Central time on the Business
Day next following the COMPANY's receipt of such requests and premiums in
accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If the COMPANY's order requests the purchase of FUND shares, the
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by the COMPANY.
If the COMPANY's order requests a net redemption resulting in a payment of
redemption proceeds to the COMPANY, FUND shall use its best efforts to wire the
redemption proceeds to the COMPANY by the next Business Day, unless doing so
would require FUND to dispose of Portfolio securities or otherwise incur
additional costs. In any event, proceeds shall be wired to the COMPANY within
three Business Days or within the period permitted by the '40 Act or the rules,
orders or regulations thereunder and FUND shall notify the person designated in
writing by the COMPANY as the recipient for such notice of such delay by 3:00
p.m. New York time the same Business Day that the
<PAGE>
COMPANY transmits the redemption order to FUND. If the COMPANY's order requests
the application of redemption proceeds from the redemption of shares to the
purchase of shares of another Portfolio advised by ADVISER, FUND shall so apply
such proceeds the same Business Day that the COMPANY transmits such order to
FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold
only to Participating Insurance Companies which have agreed to participate in
FUND to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
Portfolios of FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolios to any person, or
suspend or terminate the offering of the shares of any Portfolios if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Directors of the FUND (the "Board"), deemed
necessary, desirable or appropriate.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to the COMPANY or the Separate Accounts.
Shares ordered from Portfolios will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 The COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Arkansas and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws.
2.2 The COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the `40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 The COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933, as amended (the "`33 Act")
unless an exemption from registration is available prior to any issuance or sale
of the Variable Contracts and that the Variable Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and further that the sale of the Variable Contracts shall comply in
all material respects with state insurance law suitability requirements.
2.4 The COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the `33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the `40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the `33 Act and the `40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify the COMPANY immediately upon having
<PAGE>
a reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the
Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify the COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 DISTRIBUTOR represents and warrants that it is and will be a member
in good standing of the National Association of Securities Dealers, Inc.
("NASD") and is and will be registered as a broker-dealer with the SEC. ADVISER
further represents that Distributor will sell and distribute Portfolio shares in
accordance with all applicable state and federal laws and regulations, including
without limitation the '33 Act, the '34 Act and the '40 Act.
2.9 ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
2.10 DISTRIBUTOR is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities laws and
shall perform its obligations hereunder in compliance in all material respects
with any applicable state and federal laws.
Article III. PROSPECTUS, REPORTS AND PROXY STATEMENTS
----------------------------------------
3.1 FUND shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND.
Except for the costs and fees the Distributor is obligated to pay pursuant to
its distribution agreement with the FUND, the FUND shall bear the costs of
registration and qualification of shares of the Portfolios, preparation and
filing of the documents listed in this Section 3.1 and all taxes and filing fees
to which an issuer is subject on the issuance and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide the COMPANY,
free of charge, with as many copies of the current prospectus for the shares of
the Portfolios as the COMPANY may reasonably request for distribution to
existing Variable Contract owners. FUND or its designee shall provide the
COMPANY, at the COMPANY's expense, with as many more copies of the current
prospectus for the shares as the COMPANY may reasonably request for distribution
to prospective purchasers of Variable Contracts. If requested by the COMPANY in
lieu thereof, FUND or its designee shall provide such documentation (including a
"camera ready" copy of the new prospectus as set in type or, at the request of
the COMPANY, as a diskette in the form sent to the financial printer) and other
assistance as is reasonably necessary in order for the parties hereto once a
year (or more frequently if the prospectus for the shares is supplemented or
amended) to have the prospectus for the Variable Contracts and the prospectus
for FUND shares and any other fund shares offered as investments for the
Variable Contracts printed together in one document. FUND or its designee shall
also provide the COMPANY, free of charge, with as many copies of FUND's current
Statement of Additional Information for distribution to all existing Variable
Contract owners who request receipt of Statement of Additional Information.
3.3 FUND or its designee shall provide the COMPANY, free of charge, with
as many copies of any proxy statements and other materials related to all proxy
solicitations initiated by or on behalf of FUND as the COMPANY may reasonably
request for distribution, at FUND's expense, to existing VARIABLE contract
owners.
3.4 FUND or its designee shall provide the Company, free of charge, with
as many copies of any annual and semi-annual reports of the FUND as the COMPANY
may reasonably request for distribution to existing Variable Contract owners.
<PAGE>
3.5 FUND will provide the COMPANY with a reasonable number of copies of
all prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios within a
reasonable time after the filing of each such document with the SEC or other
regulatory authority. The COMPANY will provide FUND with a reasonable number
of copies of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all amendments
or supplements to any of the above that relate to a Separate Account within a
reasonable time after the filing of each such document with the SEC or other
regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 The COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in which
FUND or ADVISER or DISTRIBUTOR is named, at least fifteen (15) Business Days
prior to its intended use. No such material will be used if FUND, ADVISER or
DISTRIBUTOR objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.2 FUND and DISTRIBUTOR will furnish, or will cause to be furnished, to
the COMPANY, each piece of sales literature or other promotional material in
which the COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if the
COMPANY objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any information or
make any representations on behalf of the COMPANY or concerning the COMPANY, the
Separate Accounts, or the Variable Contracts issued by the COMPANY, other than
the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by the COMPANY or its designee, except with the written permission of
the COMPANY.
4.4 The COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND, ADVISER or
DISTRIBUTOR or concerning FUND, ADVISER or DISTRIBUTOR other than the
information or representations contained in a registration statement or
prospectus for FUND, as such registration statement and prospectus may be
amended or supplemented from time to time, or in sales literature or other
promotional material approved by FUND, ADVISER or DISTRIBUTOR or its designee,
except with the written permission of FUND, ADVISER or DISTRIBUTOR, as the case
may be.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD, the `40 Act or the '33 Act.
<PAGE>
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The parties acknowledge that FUND intends to file an application with
the SEC to request an order granting relief from various provisions of the '40
Act and the rules thereunder to the extent necessary to permit FUND shares to be
sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans. It is anticipated that the Exemptive Order, when and if
issued, shall require FUND and each Participating Insurance Company to comply
with conditions and undertakings substantially as provided in this Section 5.
If the Exemptive Order imposes conditions materially different from those
provided for in this Section 5, the conditions and undertakings imposed by the
Exemptive Order shall govern this Agreement and the parties hereto agree to
amend this Agreement consistent with the Exemptive Order.
5.2 The Board will monitor FUND for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts investing in FUND. An irreconcilable material conflict may
arise for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by variable annuity and variable
life insurance Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 The COMPANY will report any potential or existing conflicts to the
Board. The COMPANY will be responsible for assisting the Board in carrying out
its duties in this regard by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. The responsibility
includes, but is not limited to, an obligation by the COMPANY to inform the
Board whenever it has determined to disregard Variable Contract owner voting
instructions. These responsibilities of the COMPANY will be carried out with a
view only to the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested members,
determines that a material irreconcilable conflict exists, affecting the
COMPANY, the COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested members), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group (i.e.
variable annuity or variable life insurance contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of the COMPANY's decision to disregard Variable Contract
owner voting instructions, and that decision represents a minority position or
would preclude a majority vote, the COMPANY may be required, at the election of
FUND to withdraw the Separate Account's investment in FUND, and no charge or
penalty will be imposed as a result of such withdrawal. The responsibility to
take such remedial action shall be carried out with a view only to the interests
of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, the COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been
<PAGE>
declined by a vote of a majority of Variable Contract owners materially and
adversely affected by the irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to the COMPANY.
5.6 No less than annually, the COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
5.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the .40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Exemptive
Order, then FUND, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-
3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VI. VOTING
------
6.1 The COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, the COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. The COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
FUND calculates voting privileges in a manner consistent with applicable laws,
rules and orders of the SEC. The COMPANY will vote shares for which it has not
received timely voting instructions, as well as shares it owns, in the same
proportion as its votes those shares for which it has received voting
instructions.
Article VII - INDEMNIFICATION
---------------
7.1 Indemnification by the COMPANY. The COMPANY agrees to indemnify and
hold harmless FUND, ADVISER and DISTRIBUTOR and each of their respective
trustees, directors, members, principals, officers, partners, employees and
agents and each person, if any, who controls FUND, ADVISER or DISTRIBUTOR within
the meaning of Section 15 of the '33 Act (each, a "FUND Indemnified Party," and
collectively, the "FUND Indemnified Parties" for purposes of this Article VII)
against any and all losses, costs, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the COMPANY, which
consent shall not be unreasonably withheld) and expenses (including legal and
other expenses) (collectively, "Indemnification Costs"), to which the FUND
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such Indemnification Costs are related to
the sale, distribution or acquisition of FUND shares or the Variable Contracts
and:
(a) arise out of or based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement, prospectus or statement of additional information, if any,
for the Variable Contracts (or any amendment or supplement to any of
the foregoing), or in any sales literature of or pertaining to
COMPANY relating to the Variable Contracts, insofar as such sales
literature relates to the sale of the FUND shares under the Variable
Contracts and is prepared by Company, persons controlling COMPANY or
persons under COMPANY's control (each a "COMPANY Document," and
collectively, the "COMPANY Documents"), or arise out of or are based
upon the omission or the alleged omission to state in such COMPANY
Documents a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any FUND Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished to the COMPANY by or on
<PAGE>
behalf of a FUND Indemnified Party for use in such COMPANY Documents,
or otherwise for use in connection with the sale or distribution of
the Variable Contracts or FUND shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus or
statement of additional information of FUND (or any amendment or
supplement thereto), or sales literature of or pertaining to the
FUND, insofar as such sales literature relates to the sale of FUND
shares under the Variable Contracts and is prepared by the FUND,
persons controlling FUND, or persons under FUND's control (each a
"FUND Document," and collectively, the FUND Documents"), or the
omission or alleged omission to state in any FUND Document a material
fact required to be stated therein or necessary to make the
statements therein not misleading , only if and to the extent that
any such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to FUND by or on behalf of the COMPANY; or
(c) arise out of or as a result of statements or representations (other
than statements or representations contained in FUND Documents not
supplied by the Company, persons controlling the COMPANY, or persons
under Company's control) or wrongful conduct of the COMPANY, persons
controlling the COMPANY, or person's under COMPANY's control, with
respect to the sale or distribution of the Variable Contracts or FUND
shares; or
(d) arise as a result of any failure by the COMPANY to provide the
services and furnish the materials under the terms of this Agreement;
or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the COMPANY in this Agreement or arise out of
or result from any other material breach of this Agreement by the
COMPANY.
7.2 The COMPANY shall not be liable under this indemnification provision
with respect to any Indemnification Costs incurred or assessed against a FUND
Indemnified Party as such may arise from such FUND Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such FUND
Indemnified Party's duties or by reason of such Fund Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
7.3 The COMPANY shall not be liable under this indemnification provision
with respect to any claim made against a FUND Indemnified Party unless such FUND
Indemnified Party shall have notified the COMPANY in writing within a reasonable
time after a summons or other first legal process giving information of the
nature of the claim shall have been served upon such FUND Indemnified Party (or
after such Fund Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the COMPANY of any such claim shall
not relieve the COMPANY from any liability which it may have to the FUND
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against a
FUND Indemnified Party, the Company shall be entitled to participate at its own
expense in the defense of such action. The COMPANY also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the COMPANY to such party of the COMPANY's election
to assume the defense thereof, the FUND Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the COMPANY will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by FUND. FUND agrees to indemnify and hold harmless
the COMPANY, the principal underwriter ("Underwriter") in respect of the
Variable Contracts issued by the COMPANY, and each of their respective
directors, officers, employees, and agents and each person, if any, who controls
the COMPANY or Underwriter within the meaning of Section 15 of the `33 Act
(each, a
<PAGE>
"COMPANY Indemnified Party", and collectively, the COMPANY Indemnified Parties"
for the purposes of this Article VII) against any and all Indemnification Costs
to which the COMPANY Indemnified Parties may become subject under any statute,
or regulation, at common law or otherwise, insofar as such Indemnification Costs
are related to the sale, distribution or acquisition of FUND shares or the
Variable Contracts and:
(a) arise out of are based on any untrue statement or alleged untrue
statement of any material fact contained in a Fund Document, or arise
out of or are based upon the omission or the alleged omission to
state in any FUND Document a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
COMPANY Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf of a
COMPANY Indemnified Party for use in such FUND Documents or otherwise
for use in connection with the sale or distribution of the Variable
Contracts or FUND shares; or
(b) arise out of any untrue statements or alleged untrue statement of a
material fact contained in any COMPANY Document, or the omission or
alleged omission to state in any COMPANY Document a material fact
required to be stated therein or necessary to make the statements
therein not misleading , if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the COMPANY for inclusion
therein by or on behalf of FUND; or
(c) arise out of or as a result of statements or representations (other
than statements or representations contained in any COMPANY Document
not supplied by FUND, persons controlling FUND, or persons under
FUND's control) or wrongful conduct of FUND, persons controlling
FUND, or persons under FUND's control, with respect to the sale or
distribution of the Variable Contracts or FUND shares; or
(d) arise as a result of (i) a failure by FUND to provide the services
and furnish the materials under the terms of this Agreement,
including, without limitation, any failure by the FUND, persons
controlling FUND, or persons under FUND's control, as applicable, to
inform the COMPANY of the correct net asset values per share of the
selected Portfolio(s) on a timely basis sufficient to ensure the
timely execution of all purchase and redemption orders at the correct
net asset value per share; or (ii) a failure by a Portfolio invested
in by the Separate Account to comply with the diversification
requirements of Section 817 (h) of the Code; or (iii) a failure by a
Portfolio invested in by the Separate Account to qualify as a
"regulated investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by FUND in this Agreement or
arise out of or result from any other material breach of this
Agreement by FUND.
7.6 FUND shall not be liable under this indemnification provision with
respect to any Indemnification Costs incurred or assessed against a COMPANY
Indemnified Party as such may arise from such COMPANY Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
COMPANY Indemnified Party's duties or by reason of such COMPANY Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
7.7 FUND shall not be liable under this indemnification provision with
respect to any claim made against a COMPANY Indemnified Party unless such
COMPANY Indemnified Party shall have notified FUND, in writing within a
reasonable time after a summons or other first legal process giving information
of the nature of the claim shall have been served upon such COMPANY Indemnified
Party (or after such COMPANY Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify FUND of any such
claim shall not relieve FUND from any liability which it
<PAGE>
may have to the COMPANY Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against a COMPANY Indemnified Party, FUND shall be entitled to
participate at its own respective expense in the defense thereof. FUND also
shall be entitled to assume the defense of such action, with counsel
satisfactory to the party named in the action. After notice from the FUND to any
such party of FUND's election to assume the defense thereof, the COMPANY
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and FUND will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
Article VIII. TERM; TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of the COMPANY or FUND at any time from the date hereof
upon one year's notice, unless a shorter time is agreed to by the
parties;
(b) At the option of the COMPANY, if FUND shares are not reasonably
available to meet the requirements of the Variable Contracts as
determined by the COMPANY. Prompt notice of election to terminate
shall be furnished by the COMPANY, said termination to be effective
ten days after receipt of notice unless FUND makes available a
sufficient number of shares to reasonably meet the requirements of
the Variable Contracts within said ten-day period;
(e) At the option of the COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in the COMPANY's reasonable judgment,
materially impair FUND's ability to meet and perform FUND's
obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by the COMPANY with said termination to
be effective upon receipt of notice;
(f) At the option of FUND, upon the institution of formal proceedings
against the COMPANY by the SEC, the NASD, or any other regulatory
body, the expected or anticipated ruling, judgment or outcome of
which would, in FUND's reasonable judgment, materially impair the
COMPANY's ability to meet and perform its obligations and duties
hereunder. Prompt notice of election to terminate shall be furnished
by FUND with said termination to be effective upon receipt of notice;
(e) In the event FUND's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law
precludes the use of such shares as the underlying investment medium
of Variable Contracts issued or to be issued by the COMPANY.
Termination shall be effective upon such occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under
the Code, or if FUND reasonably believes that the Variable Contracts
may fail to so qualify. Termination shall be effective upon receipt
of notice by the COMPANY;
(g) At the option of the COMPANY, upon FUND's breach of any material
provision of this Agreement, which breach has not been cured to the
<PAGE>
satisfaction of the COMPANY within ten days after written notice of
such breach is delivered to FUND;
(h) At the option of FUND, upon the COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of FUND within ten days after written notice of such
breach is delivered to the COMPANY;
(i) At the option of FUND, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state
law. Termination shall be effective immediately upon such occurrence
without notice;
(j) In the event this Agreement is assigned without the prior written
consent of the COMPANY, FUND, and ADVISER, termination shall be
effective immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement, FUND at the option
of the COMPANY will continue to make available additional FUND shares, as
provided below, pursuant to the terms and conditions of this Agreement, for all
Variable Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts or the COMPANY,
whichever shall have legal authority to do so, shall be permitted to reallocate
investments in FUND, redeem investments in FUND and/or invest in FUND upon the
payment of additional premiums under the Existing Contracts.
Article IX. NOTICES
-------
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to FUND, or ADVISER.
Lord, Abbett & Co.
The GM Building - 767 Fifth Avenue
New York, New York 10153-0203
Attn: Legal Department
If to the COMPANY:
First Variable Life Insurance Company
2122 York Road, Suite 300
Oak Brook, IL 60523-1930
Attn: Legal Department
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
-------------
10.1 The COMPANY shall be reimbursed for service expenses as provided for
in the Service Agreement attached hereto as Appendix C under the terms and
conditions set forth in such Service Agreement; provided, however, that in the
-----------------
event that COMPANY shall elect to continue to make available Fund shares in
accordance with section 8.1 of this Agreement, the COMPANY shall continue to be
<PAGE>
reimbursed for the service expenses described in such Service Agreement provided
that such services continue to be provided by the COMPANY to the FUND in
accordance with the terms of such Service Agreement and provided further that
the Distributor continues to receive such service expenses from the FUND in
accordance with the Service Agreement.
10.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.5 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York,
without regard to its conflict of law provisions. It shall also be subject to
the provisions of the federal securities laws and the rules and regulations
thereunder and to any orders of the SEC granting exemptive relief therefrom and
the conditions of such orders.
10.6 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Board or officers of FUND or any
Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios listed in Exhibit B shall be
deemed to be entering into a separate Agreement with the COMPANY so that it is
as if each of the Portfolios had signed a separate Agreement with the COMPANY
and that a single document is being signed simply to facilitate the execution
and administration of the Agreement.
10.7 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit each other and such authorities
reasonable access to its books and records in connection with any investigation
or inquiry or due diligence review relating to this Agreement or the
transactions contemplated hereby with due regard for the fact that ADVISER is a
private partnership.
10.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by FUND,
ADVISER and the COMPANY.
- -------------------------------------------------------------------------------
10.10 If this Agreement terminates, the parties agree that Article 7
and Sections 8.3, 10.1, 10.6, 10.7 and 10.8 shall remain in effect after
termination.
10.11 This Agreement shall not be assigned by any party without the
prior written consent of the other parties hereto.
10.12 ADVISER and FUND shall maintain and execute a Year 2000
compliance plan reasonably designed to ensure that the computer systems which
the FUND will use in performing its everyday operations will perform all data
related functions in respect of dates prior to the year 1999 accurately, and
will perform all such functions in respect to dates during and after the year
1999 with the same accuracy
- -------------------------------------------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
Lord Abbett Series Fund, Inc.
By:_____________________________
Name:
Title:
Lord, Abbett & Co.
By:_____________________________
Name:
Title:
FIRST VARIABLE LIFE INSURANCE COMPANY
By:______________________________
Name:
Title:
<PAGE>
Appendix A
FUND and its Portfolios
- -----------------------
Lord Abbett Series Fund, Inc. Growth and Income Portfolio
<PAGE>
Appendix B
Separate Accounts Selected Portfolios
- ----------------- -------------------
First Variable Annuity Fund E Growth and Income Portfolio
Separate Account VL Growth and Income Portfolio
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
FIRST VARIABLE LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 1st day of May 1999, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), FIRST VARIABLE LIFE INSURANCE COMPANY, an Arkansas corporation (the
"Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange
<PAGE>
Act of 1934, as amended (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, First Variable Capital Services, Inc., the underwriter for the
individual variable annuity and the variable life policies, is registered as a
broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
--------------------
1.1. The trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by policy holders on that Business
Day, as defined below) and which are available for purchase by such
accounts, executing such orders on a daily basis at the net asset value
next computed after receipt by the Trust or its designee of the order for
the Shares. for purposes of this section 1.1, the Company shall be the
designee of the trust for receipt of such orders from policy owners and
receipt by such designee shall constitute receipt by the Trust; provided
--------
that the Trust receives notice of such orders by 9:30 a.m. new york time on
the next following business day. "Business Day" shall mean any day on
which the New York Stock Echange, Inc. (the "NYSE") is open for trading
and on which the trust calculates its net asset value pursuant to the rules
of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the sec and the Trust shall calculate such net asset
value on each day which the nyse is open for trading. notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any shares to the company and the accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of
the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements with
the Trust and MFS (the "Participating Insurance Companies") and their
separate accounts, qualified pension and retirement plans and mfs or its
affiliates as provided for under Section 817(h)(4) of the Internal Revenue
code of 1986, as amended (the "Code") and the regulations thereunder. The
Trust and MFS will not sell trust shares to any insurance company or
separate account unless an agreement containing provisions substantially
the same as Articles III and VII of this Agreement is in effect to govern
such sales. The Company will not resell the Shares except to the Trust or
its agents.
<PAGE>
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy owners on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section
1.4, the Company shall be the designee of the Trust for receipt of requests
for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of
such request for redemption by 9:30 a.m. New York time on the next
following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase
price by the Company and of redemption proceeds by the Trust, the Company
and the Trust shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the Portfolios in
accordance with Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for the Shares
by 2:00 p.m. New York time on the next Business Day after an order to
purchase the Shares is made in accordance with the provisions of Section
1.1. hereof. In the event of net redemptions, the Trust shall pay the
redemption proceeds by 2:00 p.m. New York time on the next Business Day
after an order to redeem the shares is made in accordance with the
provisions of Section 1.4. hereof. All such payments shall be in federal
funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The
Shares ordered from the Trust will be recorded in an appropriate title for
the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable on a
Portfolio's Shares in additional Shares of that Portfolio. The Trust shall
notify the Company of the number of Shares so issued as payment of such
dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. New York time. In the event that the Trust is unable to meet
the 6:30 p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust takes
to make the net asset value available to the Company. If the Trust
provides materially incorrect share net asset value information, the Trust
shall make an adjustment to the number of shares purchased or redeemed for
the Accounts to reflect the correct net asset value per share. Any
material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported promptly
upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
--------------------------------------------------
<PAGE>
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated asset
account under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the
1933 Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales in accordance with the securities laws of the various states only if
and to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), that it will maintain such treatment and
that it will notify the Trust or MFS immediately upon having a reasonable
basis for believing that the Policies have ceased to be so treated or that
they might not be so treated in the future.
2.3. The Company represents and warrants that First Variable Capital
Services, Inc., the underwriter for the individual variable annuity and the
variable life policies, is a member in good standing of the NASD and is a
registered broker-dealer with the SEC. The Company represents and warrants
that the Company and First Variable Capital Services, Inc. will sell and
distribute such policies in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under the
1940 Act. The Trust shall amend the registration statement for its Shares
under the 1933 Act and the 1940 Act from time to time as required in order
to effect the continuous offering of its Shares. The Trust shall register
and qualify the Shares for sale in accordance with the laws of the various
states only if and to the extent deemed necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
The Trust and MFS represent that the Trust and the Underwriter will sell
and distribute the Shares in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder.
<PAGE>
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material
respects with any applicable federal securities laws and with the
securities laws of The Commonwealth of Massachusetts. MFS represents and
warrants that it is not subject to state securities laws other than the
securities laws of The Commonwealth of Massachusetts and that it is exempt
from registration as an investment adviser under the securities laws of The
Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so
that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the SEC
has granted exemptive relief to permit mixed and shared funding (the "Mixed
and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
---------------------------------------
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares
as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. The Trust or its designee
shall provide the Company, at the Company's expense, with as many copies of
the current prospectus for the Shares as the Company may reasonably request
for distribution to prospective purchasers of Policies. If requested by
the Company in lieu thereof, the Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for the Shares is supplemented or amended) to have the
prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in proportion to
the number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear the
cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; provided, however, that the Company shall bear
--------
all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. The Company may print the prospectus for the
Shares in combination with other fund prospectuses in accordance with the
expenses allocation provisions set forth in the preceding sentence. In the
event that the Company requests that the Trust or its designee provides the
Trust's prospectus in a "camera ready" or diskette format, the Trust shall
be responsible for providing the prospectus in the format in which it or
MFS is accustomed to formatting prospectuses and shall bear the expense of
providing the prospectus in such format (e.g., typesetting expenses), and
----
the Company shall bear the expense of adjusting or changing the format to
conform with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its
<PAGE>
designee, at its expense, shall print and provide such statement of
additional information to the Company (or a master of such statement
suitable for duplication by the Company) for distribution to any owner of a
Policy funded by the Shares. The Trust or its designee, at the Company's
expense, shall print and provide such statement to the Company (or a master
of such statement suitable for duplication by the Company) for distribution
to a prospective purchaser who requests such statement or to an owner of a
Policy not funded by the Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders
in such quantity as the Company shall reasonably require for distribution
to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above,
or of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but
are not limited to, the printing of the Shares' prospectus or prospectuses
for distribution to prospective purchasers or to owners of existing
Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass through voting privileges for variable contract owners.
The Company will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Policy owners. The Company reserves the right to vote shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts holding Shares calculates voting privileges
in the manner required by the Mixed and Shared Funding Exemptive Order.
The Trust and MFS will notify the Company of any changes of interpretations
or amendments to the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
-------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS are named, at least
<PAGE>
three (3) Business Days prior to its use. No such material shall be used if
the Trust, MFS, or their respective designees reasonably objects to such
use within three (3) Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning the
Trust or any other such entity in connection with the sale of the Policies
other than the information or representations contained in the registration
statement, prospectus or statement of additional information for the
Shares, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or
in reports or proxy statements for the Trust, or in sales literature or
other promotional material approved by the Trust, MFS or their respective
designees, except with the permission of the Trust, MFS or their respective
designees. The Trust, MFS or their respective designees each agrees to
respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure
that information concerning the Trust, MFS or any of their affiliates which
is intended for use only by brokers or agents selling the Policies (i.e.,
----
information that is not intended for distribution to Policy owners or
prospective Policy owners) is so used, and neither the Trust, MFS nor any
of their affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named, at least three (3) Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of
the Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in reports for the Accounts,
or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The
Company or its designee agrees to respond to any request for approval on a
prompt and timely basis. The parties hereto agree that this Section 4.4.
is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the
Policies, or to the Trust or its Shares, prior to or contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
The Company and the Trust shall also each promptly inform the other of the
results of any examination by the SEC (or other regulatory authorities)
that relates to the Policies, the Trust or its Shares, and the party that
was the subject of the examination shall provide the other party with a
copy of relevant portions of
<PAGE>
any "deficiency letter" or other correspondence or written report regarding
any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trust's registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS
will cooperate with the Company so as to enable the Company to solicit
proxies from Policy owners or to make changes to its prospectus, statement
of additional information or registration statement, in an orderly manner.
The Trust and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement, sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
-----------------
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution and Shareholder servicing expenses, then, subject to obtaining
any required exemptive orders or regulatory approvals, the Trust may make
payments to the Company or to the underwriter for the Policies if and in
amounts agreed to by the Trust in writing. Each party, however, shall, in
accordance with the allocation of expenses specified in Articles III and V
hereof, reimburse other parties for expenses initially paid by one party
but allocated to another party. In addition, nothing herein shall prevent
the parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust and/or
to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders; setting in type and printing its prospectus and statement of
additional information (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the Trust by any federal or state law
with respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and proxy
materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under
<PAGE>
Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses of
marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and
of distributing the Trust's Shareholder reports to Policy owners. The
Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing and
distributing the Policy prospectus and statement of additional information;
and the cost of preparing, printing and distributing annual individual
account statements for Policy owners as required by state insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
---------------------------------------
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817 (h) (1) of
the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts,
as they may be amended from time to time (and any revenue rulings, revenue
procedures, notices, and other published announcements of the Internal
Revenue Service interpreting these sections), as if those requirements
applied directly to each such Portfolio. In the event the Portfolio is not
so diversified at the end of any applicable quarter, the Trust and MFS will
make every effort to (a) adequately diversify the Portfolio so as to
achieve compliance within the grace period offered by Treas. Reg. 1.817-5
and (b) notify the Company.
6.2. The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code
and that they will maintain such qualification (under Subchapter M or any
successor or similar provision) and that the Trust or its designee will
notify the Company promptly upon having a reasonable basis for believing
that any Portfolio has ceased to so qualify or might not so qualify in the
future.
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
----------------------------
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in the Trust. The Board shall have the sole authority to
determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of
any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set forth
in the Trust's exemptive application pursuant to which the SEC has granted
the Mixed and Shared Funding Exemptive Order by providing the Board, as it
may reasonably request, with all information necessary for the Board to
consider any issues raised and agrees that it will be responsible for
promptly
<PAGE>
reporting any potential or existing conflicts of which it is aware to the
Board including, but not limited to, an obligation by the Company to inform
the Board whenever contract owner voting instructions are disregarded. The
Company also agrees that, if a material irreconcilable conflict arises, it
will at its own cost remedy such conflict up to and including (a)
withdrawing the assets allocable to some or all of the Accounts from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Portfolio and reinvesting such assets
in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes
in favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their contracts
or policies, and (b) establishing a new registered management investment
company and segregating the assets underlying the Policies, unless a
majority of Policy owners materially adversely affected by the conflict
have voted to decline the offer to establish a new registered management
investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies
any material irreconcilable conflict. In the event that the Board
determines that any proposed action does not adequately remedy any material
irreconcilable conflict, the Company will withdraw from investment in the
Trust each of the Accounts designated by the disinterested trustees and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that
-------- -------
such withdrawal and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed and Shared Funding Exemptive Order, then (a) the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
---------------
8.1. Indemnification by the Company
-------------------------------
The Company agrees to indemnify and hold harmless the Trust, MFS,
any affiliates of MFS, and each of their respective directors/trustees,
officers and each person, if any, who controls the Trust or MFS within the
meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or expenses (including reasonable counsel
fees) to which any Indemnified Party may become subject under any statute,
regulation, at common law or otherwise, insofar as
<PAGE>
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of
the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Policies or contained in the Policies or
sales literature or other promotional material for the Policies
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading provided that this agreement to indemnify shall not
--------
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Company or its designee by or on behalf of the Trust or MFS for
use in the registration statement, prospectus or statement of
additional information for the Policies or in the Policies or
sales literature or other promotional material (or any amendment
or supplement) or otherwise for use in connection with the sale
of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional material of
the Trust not supplied by the Company or its designee, or persons
under its control and on which the Company has reasonably relied)
or wrongful conduct of the Company or persons under its control,
with respect to the sale or distribution of the Policies or
Shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the registration statement,
prospectus, statement of additional information, or sales
literature or other promotional literature of the Trust, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Trust by or on behalf
of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2. Indemnification by the Trust
- ----------------------------
<PAGE>
The Trust agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act, and any agents or
employees of the foregoing (each an "Indemnified Party," or collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or expenses (including
reasonable counsel fees) to which any Indemnified Party may become subject
under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Shares or the
Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional material of
the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not
misleading, provided that this agreement to indemnify shall not
--------
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Trust, MFS, the Underwriter or their respective designees by or
on behalf of the Company for use in the registration statement,
prospectus or statement of additional information for the Trust
or in sales literature or other promotional material for the
Trust (or any amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional material for
the Policies not supplied by the Trust, MFS, the Underwriter or
any of their respective designees or persons under their
respective control and on which any such entity has reasonably
relied) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or distribution of the Policies
or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the registration statement,
prospectus, statement of additional information, or sales
literature or other promotional literature of the Accounts or
relating to the Policies, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements or a failure to qualify as a regulated
<PAGE>
investment company each as specified in Article VI of this
Agreement) or arise out of or result from any other material
breach of this Agreement by the Trust; or
(e) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share
or dividend or capital gain distribution rate; or
(f) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating Insurance
Company or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of
any representation, warranty, and/or covenant made by the Company hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5. of notice of commencement of any action, such Indemnified Party will,
if a claim in respect thereof is to be made against the indemnifying party
under this section, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any Indemnified Party
otherwise than under this section. In case any such action is brought
against any Indemnified Party, and it notified the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the defense
thereof, with counsel satisfactory to such Indemnified Party. After notice
from the indemnifying party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional
counsel obtained by it, and the indemnifying party shall not be liable to
such Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
<PAGE>
8.6. Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
---------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
-----------------------------
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
------------
11.1. This Agreement shall terminate with respect to the Accounts, or one,
some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements
of the Policies or are not "appropriate funding vehicles" for the
Policies, as reasonably determined by the Company. Without
limiting the generality of the foregoing, the Shares of a
Portfolio would not be "appropriate funding vehicles" if, for
example, such Shares did not meet the diversification or other
requirements referred to in Article VI hereof; or if the Company
would be permitted to disregard Policy owner voting instructions
pursuant to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt
notice of the election to terminate for such cause and an
explanation of such cause shall be furnished to the Trust by the
Company; or
<PAGE>
(c) at the option of the Trust or MFS by written notice to the
Company upon institution of formal proceedings against the
Company by the NASD, the SEC, or any insurance department or any
other regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Policies, the operation
of the Accounts, or the purchase of the Shares; or
(d) at the option of the Company by written notice to the Trust and
MFS upon institution of formal proceedings against the Trust by
the NASD, the SEC, or any state securities or insurance
department or any other regulatory body regarding the Trust's or
MFS' duties under this Agreement or related to the sale of the
Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt of
any necessary regulatory approvals and/or the vote of the Policy
owners having an interest in the Accounts (or any subaccounts) to
substitute the shares of another investment company for the
corresponding Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had been selected
to serve as the underlying investment media. The Company will
give thirty (30) days' prior written notice to the Trust of the
Date of any proposed vote or other action taken to replace the
Shares; or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively,
shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its
business, operations, financial condition, or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to the Trust and
MFS, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or MFS has suffered a
material adverse change in this business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) at the option of any party to this Agreement by written notice to
the other parties, upon another party's material breach of any
provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from allocating
<PAGE>
payments to a Portfolio that was otherwise available under the Policies,
until thirty (30) days after the Company shall have notified the Trust of
its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this
Agreement, for all Policies in effect on the effective date of termination
of this Agreement (the "Existing Policies"), except as otherwise provided
under Article VII of this Agreement. Specifically, without limitation, the
owners of the Existing Policies shall be permitted to transfer or
reallocate investment under the Policies, redeem investments in any
Portfolio and/or invest in the Trust upon the making of additional purchase
payments under the Existing Policies.
11.6. If this Agreement terminates, the parties agree that Article VIII
and to the extent that all or a portion of assets of the Accounts continue
to be invested in the Trust, Articles I, II, III, VI and VII will remain in
effect after termination.
ARTICLE XII. NOTICES
--------
Any notice shall be sufficiently given when sent by registered or certified
mail, overnight courier or facsimile to the other party at the address of such
party set forth below or at such other address as such party may from time to
time specify in writing to the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
First Variable Life Insuance Company
2122 York Road, Suite 300
Oak Brook Terrace, IL 60523
Fax No.: (630) 684-9302
Attn: Arnold R. Bergman
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
-------------
<PAGE>
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement or as otherwise required by applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the
public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are
not binding upon any of the Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Trust in accordance with its proportionate interest
hereunder. The Company further acknowledges that the assets and liabilities
of each Portfolio are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or
property of the Portfolio on whose behalf the Trust has executed this
instrument. The Company also agrees that the obligations of each Portfolio
hereunder shall be several and not joint, in accordance with its
proportionate interest hereunder, and the Company agrees not to proceed
against any Portfolio for the obligations of another Portfolio.
13.9. The Agreement may not be assigned without the prior written consent
of the parties hereto.
13.10. No provision of this Agreement may be amended or modified in any
manner except by a written agreement executed by the parties hereto.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
FIRST VARIABLE LIFE INSURANCE COMPANY
By its authorized officer,
By:
-------------------------------
Title:
----------------------------
MFS VARIABLE INSURANCE TRUST,
on behalf of the Portfolios
By its authorized officer and not individually,
By:
-------------------------------
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By:
-------------------------------
Jeffrey L. Shames
Chairman & Chief Executive Officer
<PAGE>
As of May 1, 1999
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
--------------------------------------
<TABLE>
<CAPTION>
=============================================================================================
Name of Separate
Account and Date Policies Funded Portfolios
Established by Board of Directors by Separate Account Applicable to Policies
=============================================================================================
<S> <C> <C>
First Variable Fund E VA 8860 New Discovery Series
12/4/79 VA 20230 Growth with Income Series
VA 20224 Growth Series
VA 20045
- ----------------------------------------------------------------------------------------------
Separate Account VL VUL 8990 New Discovery Series
3/6/87 VUL 8980 Growth with Income Series
VUL 8960 Growth Series
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. and
FIRST VARIABLE LIFE INSURANCE COMPANY
THIS AGREEMENT made as of ____________, 1999, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and First Variable Life Insurance Company, a life insurance
company organized as a corporation under Illinois law (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
--------------------
WHEREAS, the Trust is registered with the Securities and Exchange Commission
(the "SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has an effective
registration statement relating to the offer and sale of the various series of
its shares under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as an
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts to be offered by life insurance
companies which have entered into fund participation agreements with the Trust
(the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several series
of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November 16, 1993
(File No. 812-8546), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised; and has registered
or will register certain variable annuity contracts and variable life insurance
policies, listed on Schedule C attached hereto, under which the portfolios are
to be made available as investment vehicles (the "Contracts") under the 1933 Act
unless such interests under the Contracts in the Accounts are exempt from
registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, on
the date shown for such account on Schedule A hereto, to set aside and invest
assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and is a member in good standing of the National Association
of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser") is
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Contracts and the Underwriter is
authorized to sell such shares to separate accounts such as each Account at net
asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree as
follows:
<PAGE>
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
-------------------------------------------------
1.1 For purposes of this Article I, the Company shall be the Trust's
agent for receipt of purchase orders and requests for redemption relating to
each Portfolio from each Account, provided that the Company notifies the Trust
of such purchase orders and requests for redemption by 9:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2 The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust shall
use its best efforts to calculate such net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for trading. The Company will transmit
orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the shareholders of
such Portfolio. Without limiting the foregoing, the Trustees have determined
that there is a significant risk that the Trust and its shareholders may be
adversely affected by investors whose purchase and redemption activity follows a
market timing pattern, and have authorized the Trust, the Underwriter and the
Trust's transfer agent to adopt procedures and take other action (including
without limitation rejecting specific purchase orders) as they deem necessary to
reduce, discourage or eliminate market timing activity.
1.3 The Company shall submit payment for the purchase of shares of a Portfolio
on behalf of an Account no later than the close of business on the next Business
Day after the Trust receives the purchase order. Payment shall be made in
federal funds transmitted by wire to the Trust or its designated custodian. Upon
receipt by the Trust of the federal funds so wired, such funds shall cease to be
the responsibility of the Company and shall become the responsibility of the
Trust for this purpose. "Business Day" shall mean any day on which the NYSE is
open for trading and on which the Trust calculates its net asset value pursuant
to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to the
Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
<PAGE>
1.8 The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Company agrees that all net amounts available under the Contracts
shall be invested in the Trust, in such other Funds advised by an Adviser or its
affiliates as may be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts may also be invested
in an investment company other than the Trust if: (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule D to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
1.12 Each party to this Agreement shall have the right to rely on information
or confirmations provided by any other party (or by any affiliate of any other
party), and shall not be liable in the event that an error results from any
incorrect information or confirmations supplied by any other party. If an error
is made in reliance upon incorrect information or confirmations, any amount
required to make a Contract owner's account whole shall be borne by the party
who provided the incorrect information or confirmation.
ARTICLE II.
Obligations of the Parties; Fees and Expenses
---------------------------------------------
2.1 The Trust shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares
of the Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall either
(a) provide the Company with as many copies of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners. The Company shall bear the costs of
distributing proxy materials (or similar materials such as voting solicitation
instructions), prospectuses and statements of additional information to Contract
owners. The Company assumes sole responsibility for ensuring that such materials
are delivered to Contract owners in accordance with applicable federal and state
securities laws.
<PAGE>
2.4 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or its
designee, at least one complete copy of each registration statement, prospectus,
statement of additional information, retirement plan disclosure information or
other disclosure documents or similar information, as applicable (collectively
"disclosure documents"), as well as any report, solicitation for voting
instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a timely
basis, with such information about the Trust, the Portfolios and each Adviser,
in such form as the Company may reasonably require, as the Company shall
reasonably request in connection with the preparation of disclosure documents
and annual and semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from disclosure documents for the Contracts (as such
disclosure documents may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales literature or
other promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, the Company will
provide pass-through voting privileges to Contract owners whose Contract values
are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares held by that registered Account
for which
<PAGE>
voting instructions are received. The Company and its agents will in no way
recommend or oppose or interfere with the solicitation of proxies for Portfolio
shares held to fund the Contracts without the prior written consent of the
Trust, which consent may be withheld in the Trust's sole discretion.
2.11 The Trust and Underwriter shall pay no fee or other compensation to the
Company under this Agreement except as provided on Schedule E, if attached.
Nevertheless, the Underwriter or an affiliate may make payments (other than
pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or to the
Contracts' underwriter in amounts agreed to by the Underwriter or an affiliate
in writing and such payments may be made out of fees otherwise payable to the
Underwriter or its affiliates, profits of the Underwriter or its affiliates, or
other resources available to the Underwriter or its affiliates.
ARTICLE III.
Representations and Warranties
------------------------------
3.1 The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of its state of incorporation and
that it has legally and validly established each Account as a segregated asset
account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each Account,
(1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each Contract,
(1) the Contract will be registered under the 1933 Act, or (2) if the Contract
is exempt from registration under Section 3(a)(2) of the 1933 Act or under
Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in good standing of the NASD; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under the
'40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
(a) each Account and sub-account thereof has a principal underwriter which
is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended;
(b) Trust shares are and will continue to be the only investment securities
held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard to the
voting of all proxies with respect to Trust shares and vote such
proxies only in accordance with such instructions or vote such
shares held by it in the same proportion as the vote of all other
holders of such shares; and
<PAGE>
(2) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the manner
provided in Section 26 of the '40 Act.
3.4 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Massachusetts and that it does and will
comply in all material respects with the 1940 Act and the rules and regulations
thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each Portfolio
will comply with the diversification requirements for variable annuity,
endowment or life insurance contracts set forth in Section 817(h) of the
Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation 1.817-
5, and will notify the Company immediately upon having a reasonable basis for
believing any Portfolio has ceased to comply or might not so comply and will in
that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act, the Trustees, including a majority who are not "interested persons" of the
Trust under the 1940 Act ( "disinterested Trustees" ), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors, officers,
employees, investment advisers, and other individuals or entities dealing with
the money and/or securities of the Trust are and shall be at all times covered
by a blanket fidelity bond or similar coverage for the benefit of the Trust, in
an amount not less than $5 million. The aforesaid bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable bonding company.
The Company agrees to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agrees to
notify the Trust and the Underwriter in the event that such coverage no longer
applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more classes of shares (each, a
"Class") to make payments to finance its distribution expenses, including
service fees, pursuant to a Plan adopted under Rule 12b-1 under the 1940 Act
("Rule 12b-1"), although it may determine to discontinue such practice in the
future. To the extent that any Class of the Trust finances its distribution
expenses pursuant to a Plan adopted under Rule 12b-1, the Trust undertakes to
comply with any then current SEC and SEC staff interpretations concerning Rule
12b-1 or any successor provisions.
ARTICLE IV.
Potential Conflicts
-------------------
<PAGE>
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination by the Trustees
that an irreconcilable material conflict exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or existing conflicts
of which it is aware to the Trustees. The Company will assist the Trustees in
carrying out their responsibilities under the Shared Funding Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions. All communications from the Company to the Trustees may be made in
care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawal of the assets of any appropriate
group (i.e. , annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that votes in
favor of such withdrawal, or offering to the affected Contract owners the option
of making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of
the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
<PAGE>
4.7 The Company shall at least annually submit to the Trustees such reports,
materials or data as the Trustees may reasonably request so that the Trustees
may fully carry out the duties imposed upon them by the Shared Funding Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
---------------
5.1 Indemnification By the Company
------------------------------
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers, employees
and agents and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually the "Indemnified Party" for purposes of this
Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of Trust Shares or
the Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived
from written information furnished to the Company by or on behalf
of the Trust for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in Section 5.2
(a)(i)) or wrongful conduct of the Company or persons under its
control, with respect to the sale or acquisition of the Contracts
or Trust shares; or
(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a)(i) or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance
upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(iv) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the
terms of this Agreement; or
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this
Agreement or to the Trust or Underwriter, whichever is applicable.
The Company shall also not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action
is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action.
After notice from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
5.2 Indemnification By The Underwriter
----------------------------------
(a) The Underwriter agrees to indemnify and hold harmless the Company,
the underwriter of the Contracts and each of its directors and officers and
each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually an "Indemnified Party" for purposes of this Section 5.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter, which
consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the
Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement, prospectus or sales literature of the Trust (or any
amendment or supplement to any of the foregoing) (collectively, the
"Trust Documents") or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission of such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or Trust by
or on behalf of the Company for use in the Registration Statement or
prospectus for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the disclosure
documents or sales literature for the Contracts not supplied by
<PAGE>
the Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a disclosure document or sales literature
covering the Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by or on behalf of
the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification representation specified in
Section 3.7 of this Agreement and the diversification requirements
specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Underwriter; as limited by and in accordance with the
provisions of Sections 5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to participate, at
its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
5.3 Indemnification By The Trust
----------------------------
(a) The Trust agrees to indemnify and hold harmless the Company, and each
of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 5.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Trust, which consent shall not be
unreasonably withheld) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the
Board or any member thereof, are related to the operations of the Trust,
and arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out of or
result from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Section 5.3(b) and
5.3(c) hereof. It is understood and expressly stipulated that neither the
holders of shares of the Trust nor any Trustee, officer,
<PAGE>
agent or employee of the Trust shall be personally liable hereunder, nor
shall any resort be had to other private property for the satisfaction of
any claim or obligation hereunder, but the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from
such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the Underwriter
or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the Trust
will be entitled to participate, at its own expense, in the defense
thereof. The Trust also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Trust to such party of the Trust's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the Trust of
the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
the Account, or the sale or acquisition of share of the Trust.
ARTICLE VI.
Termination
-----------
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios or any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or the
Underwriter upon written notice to the Company if:
(a) the Company notifies the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no longer
applies, or might not apply in the future, to the unregistered Accounts, or
that the exemption from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might not apply in the
future, to interests under the unregistered Contracts; or
(b) either one or both of the Trust or the Underwriter respectively,
shall determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(c) the Company gives the Trust and the Underwriter the written notice
specified in Section 1.10 hereof and at the same time such notice was given
there was no notice of termination outstanding under any other provision of
this Agreement; provided, however, that any termination under this Section
6.2(c) shall be effective forty-five (45) days after the notice specified
in Section 1.10 was given; or
<PAGE>
6.3 If this Agreement is terminated for any reason, except under Article IV
(Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement. If this Agreement is terminated pursuant to Article IV, the
provisions of Article IV shall govern.
6.4 The provisions of Articles II (Representations and Warranties) and V
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.5 The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
Notices.
--------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
First Variable Life Insurance Company
2122 York Road, Suite 300
Oak Brook, Illinois 60523
Attention: Arnold R. Bergman
ARTICLE VIII.
Miscellaneous
-------------
<PAGE>
8.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Florida. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders. Copies of any such orders shall be
promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all liabilities
of the Trust arising, directly or indirectly, under this Agreement, of any and
every nature whatsoever, shall be satisfied solely out of the assets of the
Trust and that no Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7 Each party hereto shall treat as confidential the names and addresses of
the Contract owners and all information reasonably identified as confidential in
writing by any other party hereto, and, except as permitted by this Agreement or
as required by legal process or regulatory authorities, shall not disclose,
disseminate, or utilize such names and addresses and other confidential
information until such time as they may come into the public domain, without the
express written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.9 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect, except as provided in Section 1.10.
8.10 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.11 No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by both parties.
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
The Company:
First Variable Life Insurance Company
-------------------------------------
By its authorized officer
By:
---------------------------------
Name:
Title:
The Trust:
Templeton Variable Products Series Fund
---------------------------------------
By its authorized officer
By:
---------------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
-------------------------------------
By its authorized officer
By:
---------------------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
<PAGE>
SCHEDULE A
Separate Accounts of
--------------------
First Variable Life Insurance Company
-------------------------------------
1. Separate Account VL
Date Established:
SEC Registration Number:
2. First Variable Annuity Fund E
Date Established:
SEC Registration Number: 811-4092
<PAGE>
SCHEDULE B
Trust Portfolios and Classes Available
--------------------------------------
Templeton Variable Products Series Adviser
- ---------------------------------- -------
Templeton International Fund Templeton Investment Counsel, Inc.
-Class 2
<PAGE>
SCHEDULE C
Variable Annuity Contracts
Issued by First Variable Life Insurance Company
-----------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Contract 1 Contract 2 Contract 3
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract/Product Name Capital Estate Capital Capital One
Builder VUL Solutions VUL Pay VL 8960
8990 8980
- -------------------------------------------------------------------------------------
Registered (Y/N) Yes Yes Yes
- -------------------------------------------------------------------------------------
SEC Registration Number
- -------------------------------------------------------------------------------------
Representative Form Numbers
- -------------------------------------------------------------------------------------
Separate Account Name Separate First Separate
Account VL Variable Account VL
Annuity Fund E
- -------------------------------------------------------------------------------------
SEC Registration Number 811-4092
- -------------------------------------------------------------------------------------
Templeton Variable Products Templeton Templeton Templeton
Series Portfolios and International International International
Classes (Adviser) Fund - Class 2 Fund - Class Fund - Class
(Templeton 2 (Templeton 2 (Templeton
Investment Investment Investment
Counsel, Inc.) Counsel, Inc.) Counsel, Inc.)
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE C (continued)
Variable Annuity Contracts
Issued by First Variable Life Insurance Company
-----------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Contract 4 Contract 5 Contract 6
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract/Product Name Capital Six VA Capital No Capital Five
8860 Load VA 20231 VA 20227
- -------------------------------------------------------------------------------------
Registered (Y/N) Yes Yes Yes
- -------------------------------------------------------------------------------------
SEC Registration Number 333-12197 33-86738 33-35749
- -------------------------------------------------------------------------------------
Representative Form Numbers
- -------------------------------------------------------------------------------------
Separate Account Name First Variable First First
Annuity Fund E Variable Variable
Annuity Fund E Annuity Fund E
- -------------------------------------------------------------------------------------
SEC Registration Number 811-4092 811-4092 811-4092
- -------------------------------------------------------------------------------------
Templeton Variable Products Templeton Templeton Templeton
Series Portfolios and International International International
Classes (Adviser) Fund - Class 2 Fund - Class 2 Fund - Class 2
(Templeton (Templeton (Templeton
Investment Investment Investment
Counsel, Inc.) Counsel, Inc.) Counsel, Inc.)
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE C (continued)
Variable Annuity Contracts
Issued by First Variable Life Insurance Company
-----------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Contract 7 Contract 8 Contract 9
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract/Product Name VISTA
- -----------------------------------------------------------------------------------------------------------------
Registered (Y/N) Yes
- -----------------------------------------------------------------------------------------------------------------
SEC Registration Number 33-35749
- -----------------------------------------------------------------------------------------------------------------
Representative Form Numbers
- -----------------------------------------------------------------------------------------------------------------
Separate Account Name First Variable Annuity Fund E
- -----------------------------------------------------------------------------------------------------------------
SEC Registration Number 811-4092
- -----------------------------------------------------------------------------------------------------------------
Templeton Variable Templeton International
Product Series - Class 2 (Templeton
Portfolios and Investment Counsel, Inc.)
Classes (Adviser)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE D
Other Portfolios Available under the Contracts
----------------------------------------------
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
Compensation Schedule
---------------------
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
- -------------- ---------------------------
TEMPLETON INTERNATIONAL FUND 0.25%
Agreement Provisions
--------------------
If the Company, on behalf of any Account, purchases Trust Portfolio
shares ("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under
the 1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") you provide administrative and other services which assist
in the promotion and distribution of Eligible Shares or Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing personal services to
owners of Contracts which may invest in Eligible Shares ("Contract Owners"),
answering routine inquiries regarding a Portfolio, coordinating responses to
Contract Owner inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or Contract may
require, maintaining customer accounts and records, or providing other services
eligible for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of its Accounts (determined in
the same manner as the Portfolio uses to compute its net assets as set forth in
its effective Prospectus).
You shall furnish us with such information as shall reasonably be
requested by the Trust's Boards of Trustees ("Trustees") with respect to the
Rule 12b-1 fees paid to you pursuant to the Plans. We shall furnish to the
Trustees, for their review on a quarterly basis, a written report of the amounts
expended under the Plans and the purposes for which such expenditures were made.
<PAGE>
The Plans and provisions of any agreement relating to such Plans must
be approved annually by a vote of the Trustees, including the Trustees who are
not interested persons of the Trust and who have no financial interest in the
Plans or any related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the Disinterested Trustees,
or by a vote of a majority of the outstanding shares as provided in the Plan, on
sixty (60) days' written notice, without payment of any penalty. The Plans may
also be terminated by any act that terminates the Underwriting Agreement between
the Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
<PAGE>
EX-99.B10
Consent of Ernst & Young LLP, Independent Auditors
<PAGE>
Exhibit 10
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 2, 1999 with respect to the
consolidated financial statements financial statements of First Variable Life
Insurance Company and March 18, 1999 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. 333-12197)
and related Prospectus of First Variable Life Insurance Company.
/s/ Ernst & Young LLP
--------------------------------
ERNST & YOUNG LLP
Chicago, Illinois
April 27, 1999
<PAGE>
EX-99.B13 Calculation of Performance Information
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
4/5/99
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Cash Management Direct Fund E Yield Calculations as of 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Seven Day Yield
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
12/31/98 Unit Price 11.101139 (A)
- -----------------------------------------------------------------------------------------------------------------------------
12/24/98 Unit Price 11.094632 (B)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Difference 0.006507 (C)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Base Return (C)/(B) 0.0005865
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Annualized Base Return = (C) / (B) * 365/7 = 3.06%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield = (1+Base Return) . (365/7) -1 = 3.10%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Return on Capital 6 Portfolios over respective periods
- -----------------------------------------------------------------------------------------------------------------------------
Formula P*(1+T) . N = ERV T = ((ERV/P) . 1/N) -1
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Policy Issue Fee 0
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Mnt Chg 30
- -----------------------------------------------------------------------------------------------------------------------------
Time Since Start 2.01
- -----------------------------------------------------------------------------------------------------------------------------
Time Since Start 2.01
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 1 70
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 2 60
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 3 50
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 4 40
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 5 30
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 6 20
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 7 0
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT CASH MANAGEMENT
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
ONE YEAR START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 11.10114 Unit Price EOP 11.101139
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 10.736713 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,033.94 Accum Value EOP 1,110.11
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.26
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 963.20 Surrender Value 1,047.85
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield -3.68% Effective Yield 2.348%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH GROWTH
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
ONE YEAR START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 20.098484 Unit Price EOP 20.098484
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 15.306706 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,313.05 Accum Value EOP 2,009.85
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.26
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 1,242.31 Surrender Value 1,947.59
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield 24.231% Effective Yield 39.24%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
MULTIPLE STRATEGIES MULTIPLE STRATEGIES
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
START OF PORTFOLIO START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 18.065897 Unit Price EOP 18.065897
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 14.199632 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,272.28 Accum Value EOP 1,806.59
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.26
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 1,201.54 Surrender Value 1,744.33
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield 20.154% Effective Yield 19.186%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT BOND U.S. GOVERNMENT BOND
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
START OF PORTFOLIO START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 11.881327 Unit Price EOP 11.881327
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 11.189067 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,061.87 Accum Value EOP 1,188.13
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.26
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 991.13 Surrender Value 1,125.87
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield -0.887% Effective Yield 3.811%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
HIGH INCOME BOND HIGH INCOME BOND
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
START OF PORTFOLIO START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 12.995091 Unit Price EOP 12.995091
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 12.802021 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,015.08 Accum Value EOP 1,299.51
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.27
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 944.34 Surrender Value 1,237.24
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield -5.566% Effective Yield 6.946%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
MATRIX EQUITY MATRIX EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
START OF PORTFOLIO START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 15.697602 Unit Price EOP 15.697602
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 13.156746 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,191.55 Accum Value EOP 1,569.76
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.26
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 1,122.38 Surrender Value 1,507.50
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield 12.238% Effective Yield 13.824%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
WORLD EQUITY WORLD EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
START OF PORTFOLIO START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 12.71421 Unit Price EOP 12.71421
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 12.279325 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,035.42 Accum Value EOP 1,271.42
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.27
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 964.68 Surrender Value 1,209.15
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield -3.532% Effective Yield 6.174%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
SMALL CAP SMALL CAP
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
START OF PORTFOLIO START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 12.319756 Unit Price EOP 12.319756
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 12.909255 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 954.34 Accum Value EOP 1,231.98
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.25
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 883.60 Surrender Value 1,169.73
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield -11.640% Effective Yield 5.070%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME GROWTH & INCOME
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
START OF PORTFOLIO START OF PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price EOP 16.431215 Unit Price EOP 16.431215
- -----------------------------------------------------------------------------------------------------------------------------
Unit Price BOP 14.835436 Unit Price BOP 10.000000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Accum Value EOP 1,107.57 Accum Value EOP 1,643.12
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Charge 70.00 Surrender Charge 60.00
- -----------------------------------------------------------------------------------------------------------------------------
Ann Contract Charge 0.74 Ann Contract Charge 2.26
- -----------------------------------------------------------------------------------------------------------------------------
Surrender Value 1036.83 Surrender Value 1580.86
- -----------------------------------------------------------------------------------------------------------------------------
Effective Yield 3.683% Effective Yield 15.543%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
