<PAGE>
File No. 333-12197
811-4092
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
-------
Post-Effective Amendment No. 5 [X]
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33 [X]
FIRST VARIABLE ANNUITY FUND E
-----------------------------
(Exact Name of Registrant)
FIRST VARIABLE LIFE INSURANCE COMPANY
-------------------------------------
(Name of Depositor)
2122 York Road
Oak Brook, IL 60523
----------------------------------------------------- -----
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's telephone number including area code: (630) 684-9200
Name and Address of Agent for Service
-------------------------------------
Jeffery K. Hoelzel
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 & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 2000 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))
<TABLE>
<CAPTION>
Item No. in
Form N-4
PART A Location
- ------ --------
<S> <C> <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; AIM
Variable Insurance Funds, Inc.; American Century
Variable Portfolios, Inc.; Deutsche Asset
Management VIT Funds; Federated Insurance Series;
Lord Abbett Series Fund, Inc; MFS Variable
Insurance Trust; Seligman Portfolios, Inc.;
Templeton Variable Products Series Fund; Variable
Insurance Products Funds; 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 theAnnuity 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 TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
of Additional Information INFORMATION
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item No.
Form N-4 Location
- ------- --------
PART B
- ------
<S> <C>
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;
CALCULATIONOF OTHER PERFORMANCE
INFORMATION
Item 22. Annuity Payments...............................................................Annuity Benefits; ANNUITY PROVISIONS
Item 23. Financial Statements...........................................................FINANCIAL STATEMENTS
</TABLE>
PART C
- ------
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 May 1, 2000
CAPITAL SIX VA
FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACTS
Issued by
FIRST VARIABLE LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
<S> <C> <C>
Our Marketing and Executive Office: Our Variable Service Center: Or, for express deliveries:
2122 York Road P.O. Box 1317 4200 University Avenue
Oak Brook, IL 60523 Des Moines, IA 50305-1317 West Des Moines, IA 50266
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 a "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
twenty-nine 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 ten mutual funds (the "Funds"). The portfolios
currently available under the Contract are:
<PAGE>
<TABLE>
<CAPTION>
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
Mutual Fund Portfolio Mutual Fund Portfolio
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
<S> <C> <C> <C>
AIM Variable . V.I. Capital Appreciation Lord Abbett Series . Growth & Income
Insurance Funds, Inc. . V.I. Growth Fund Inc. ("LA")
("AIM")
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
American Century . V.P. Value MFS* Variable . Growth Series (Initial Class
Variable Portfolios, Insurance Trust shares -- not available for
Inc. ("ACS") ("MFS") new purchases)*
. Growth Series (Service Class
shares)
. Growth with Income Series
(Initial Class shares -- not
available for new purchases)*
. Growth with Income Series
(Service Class shares)
. New Discovery Series (Initial
Class shares -- not available for
new purchases)* seeks capital
appreciation
. New Discovery Shares (Service
Class Shares) seek capital
appreciation
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
Deutsche Asset . EAFE Index Segliman . Communications &
Management VIT Funds . Equity 500 Index Portfolios, Inc. Information
("DAM") . Small Cap Index ("SEL")
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
Federated Insurance . High Income Bond Fund II Templeton Variable . Growth Securities
Series . Prime Money Fund II Products Series (Class 2 shares)
("FIS") Fund ("TEM") . International Securities
(Class 2 shares)
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
Fidelity Variable . Contrafund Variable Investors . Small Cap Growth
Insurance Products seeks growth with income Series Trust . World Equity **
Funds ("FMR") . Equity - Income ("VIST") . Growth
. Growth Opportunities . Matrix Equity
(Service Class 2 shares) sector weighted equities
. Growth & Income
. Multiple Strategies
stocks, bonds & cash
. High Income Bond **
. U.S. Government Bond
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
* Initial Class Shares not
available for new purchases
** Not available for new purchases
- ----------------------- ------------------------------------ --------------------- ------------------------------------------
</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, 2000, 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...............................................
ESTATE PROTECTOR DEATH BENEFIT
Surrender and Withdrawals.................................................
Surrender...............................................................
Withdrawals.............................................................
<PAGE>
Systematic Withdrawals......................................................
Payment of Proceeds...........................................................
Tax Withholding and Tax Penalties...........................................
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 Benefit after the Annuity Date..........................................
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 IRSs 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..................................................................
<PAGE>
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 in a Separate Account Investment Option.
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
may vary 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.
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.
Contract Date - The date the Contract takes effect, as shown on the Owner's
Contract data page (as the Issue Date).
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.
<PAGE>
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.)
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.
<PAGE>
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 - waived for $30
Contracts with Account Value of $100,000 or more
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%
<PAGE>
<TABLE>
<CAPTION>
Annual Fund Expenses After Expense Reimbursements
Management 12b-1 Other Operating Expenses Total Expenses*
--------- ---------
Mutual Fund Portfolio Fees Fees
- --------------------- ---- ----
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation 0.62% 0.00% 0.11% 0.73%
AIM V.I. Growth 0.63% 0.00% 0.10% 0.73%
ACS V.P. Value 1.00% 0.00% 0.00% 1.00%
DAM EAFE Index 0.45% 0.00% 0.20% 0.65%
DAM Small Cap Index 0.35% 0.00% 0.10% 0.45%
DAM Equity 500 Index 0.20% 0.00% 0.10% 0.30%
FIS High Income Bond Fund II 0.60% 0.00% 0.19% 0.79%
FIS Prime Money Fund II 0.50% 0.00% 0.23% 0.73%
FMR Contrafund (Service Class 2) 0.58% 0.25% 0.12% 0.95%
FMR Equity - Income (Service Class 2) 0.48% 0.25% 0.10% 0.83%
FMR Growth Opportunities (Service Class 2) 0.58% 0.25% 0.13% 0.96%
LA Growth & Income 0.50% 0.00% 0.37% 0.87%
MFS New Discovery Series (Initial Class) 0.90% 0.00% 0.27% 1.17%
MFS New Discovery Series (Service Class) 0.90% 0.20% 0.17% 1.27%
MFS Growth Series (Initial Class) 0.75% 0.00% 0.26% 1.01%
MFS Growth Series (Service Class) 0.75% 0.20% 0.16% 1.11%
MFS Growth with Income Series
(Initial Class) 0.75% 0.00% 0.13% 0.88%
MFS Growth with Income Series
(Service Class) 0.75% 0.20% 0.13% 1.08%
SEL Communications & Information 0.75% 0.25% 0.11% 1.11%
TEM International (Class 2) 0.69% 0.25% 0.19% 1.13%
TEM Growth Securities (Class 2) 0.83% 0.25% 0.05% 1.13%
VIST Small Cap Growth 0.85% 0.00% 0.50% 1.35%
VIST World Equity 0.70% 0.00% 0.50% 1.20%
VIST Growth 0.70% 0.00% 0.32% 1.02%
VIST Matrix Equity 0.65% 0.00% 0.50% 1.15%
VIST Growth & Income 0.75% 0.00% 0.50% 1.25%
VIST Multiple Strategies 0.70% 0.00% 0.40% 1.10%
VIST High Income Bond 0.70% 0.00% 0.50% 1.20%
VIST U.S. Government Bond 0.60% 0.00% 0.25% 0.85%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* "Total Expenses" for the Portfolios before reimbursement by the relevant
Fund's investment advisor, for the period ended December 31, 1999, were as
follows: 0.43% for the DAM Equity 500 Index Portfolio; 1.18% for the DAM Small
Cap Index Portfolio; 1.15% for the DAM EAFE Index Portfolio; 2.49% for the MFS
New Discovery Series - Initial Class; 2.69% for the MFS New Discovery Series -
Service Class; 1.47% for the MFS Growth Series - Initial Class; 1.66% for the
MFS Growth Series - Service Class; 1.68 % for the VIST Small Cap Growth
Portfolio; 1.57% for the VIST World Equity Portfolio; 1.27% for the VIST Matrix
Equity Portfolio; 1.26% for the VIST Growth & Income Portfolio; 1.50% for the
VIST High Income Bond Portfolio; 1.39% 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>
Expense examples on a Hypothetical $1,000 investment in the Contract, Assuming
5% annual rate of return in existing Investment Options:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
If you Annuitize a Contract during the first 2 If you Annuitize after 2 Contract Years, or
Contract Years, or if you surrender: if 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 $94 $124 $157 $272 $24 $74 $127 $272
------------------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation $94 $124 $157 $272 $24 $74 $127 $272
------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth $94 $124 $157 $272 $24 $74 $127 $272
------------------------------------------------------------------------------------------------------------------------------
ACS V.P. Value $97 $133 $171 $300 $27 $83 $141 $300
------------------------------------------------------------------------------------------------------------------------------
DAM Small Cap Index $91 $115 $142 $242 $21 $65 $112 $242
------------------------------------------------------------------------------------------------------------------------------
DAM Equity 500 Index $90 $111 $134 $225 $20 $61 $104 $225
------------------------------------------------------------------------------------------------------------------------------
TEM International
(Class 2 shares) $98 $137 $178 $313 $28 $87 $148 $313
------------------------------------------------------------------------------------------------------------------------------
LA Growth & Income $96 $129 $165 $286 $26 $79 $135 $286
------------------------------------------------------------------------------------------------------------------------------
MFS New Discovery Series
(Initial Class shares) $99 $138 $180 $317 $29 $88 $150 $317
------------------------------------------------------------------------------------------------------------------------------
MFS Growth Series
(Initial Class shares) $97 $133 $172 $301 $27 $83 $142 $301
------------------------------------------------------------------------------------------------------------------------------
MFS Growth with Income
Series (Initial Class $96 $129 $165 $287 $26 $79 $135 $287
shares)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Expense examples on a Hypothetical $1,000 investment in the Contract, Assuming
5% annual rate of return, in Investment Options that became available May 1,
2000:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
If you Annuitize a If you Annuitize after
Contract during the 2 Contract Years, or
first 2 Contract Years, if you do not
or if you surrender: surrender:
--------------------------------------------------------------------------------
Mutual Fund Portfolio 1 Year 3 Years 1 Year 3 Years
---------------------- ------ ------- ------ -------
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS New Discovery Series
(Service Class shares) $100 $141 $30 $91
--------------------------------------------------------------------------------
MFS Growth Series
(Service Class shares) $98 $136 $28 $86
--------------------------------------------------------------------------------
MFS Growth with Income
Series (Service Class $98 $135 $28 $85
shares)
--------------------------------------------------------------------------------
SEL Communications &
Information $96 $128 $26 $78
--------------------------------------------------------------------------------
FMR Contrafund
(Service Class 2) $96 $131 $26 $81
--------------------------------------------------------------------------------
FMR Equity - Income
(Service Class 2) $95 $127 $25 $77
--------------------------------------------------------------------------------
FMR Growth Opportunities
(Service Class 2) $97 $132 $27 $82
--------------------------------------------------------------------------------
TEM Growth Securities
(Class 2 shares) $98 $137 $28 $87
--------------------------------------------------------------------------------
DAM EAFE Index $93 $122 $23 $72
--------------------------------------------------------------------------------
FIS High Income Bond Fund II $95 $126 $25 $76
--------------------------------------------------------------------------------
</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.
<PAGE>
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. ILona Financial Group,
Inc. ("ILona"), formerly known as Irish Life of North America, Inc., 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 $27
billion at May 1, 2000.
We have an A (Excellent) rating from A.M. Best Company, an independent firm that
analyzes insurance carriers. We also have an A+ 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.
THE SEPARATE ACCOUNT
We authorized the establishment of First Variable Annuity Fund 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.
The investment objectives and policies of certain Separate Account investment
options are similar to the investment objectives and policies of other mutual
funds that the investment advisers manage. Although the objectives and policies
may be similar, the investment results of the Separate Account investment
options may be higher or lower than the results of such other mutual funds. The
investment advisers cannot guarantee, and make no representation, that the
investment results of similar funds will be comparable even though the funds
have the same advisers.
We may enter into certain arrangements under which we are reimbursed by the
Portfolios' advisers, distributors and/or affiliates for the administrative
services which we provide to the Portfolios.
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 limit further
purchases of the shares or 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.
<PAGE>
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.
Prior to the Annuity Date. Contract Value to be transferred is subject to the
following:
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
<PAGE>
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. Currently, dollar
cost averaging and automatic account rebalancing may not be in effect
simultaneously.
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.
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.
<PAGE>
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 are: 0.15% of your Account Value for the Best Anniversary Value
Death Benefit Rider; 0.20% of your Account Value for the Extra Protector Death
Benefit Rider; 0.25% of your Account Value for the Guaranteed Minimum Income
Payment Rider; and 0.20% to 0.60% of your Account Value for the Estate Protector
Death Benefit Rider. (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:
. 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
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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 may 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.
<PAGE>
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 or before 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 all requirements and charges 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.")
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.
<PAGE>
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
therefore 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);
. 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. Any
required annual minimum distribution amount should 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.")
<PAGE>
"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.
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.
<PAGE>
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.
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.
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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
. 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 prior to the date of your death; and
. less any withdrawals of Account Value after our last determination date
prior to the date of your death; and
. less any charges on these withdrawals.
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On the Contract Date, the Anniversary Value Death Benefit is equal to the
Account Value. 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, adjusted for any purchase payments you
made, and the amount of withdrawals (and charges on withdrawals) taken from
Account Value. As set forth above, 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 the higher of:
. the maximum adjusted Anniversary Value Death Benefit; or
. a "roll-up value" that we compute as described below.
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 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.
ESTATE PROTECTOR DEATH BENEFIT. To elect the Estate Protector Death Benefit
Rider, the Owner must be 79 or younger when the Contract is issued. If the Owner
is 60 years old or less on the Issue Date, the Estate Protector Death Benefit
before the Annuity Date is:
. the Death Benefit under the Contract without regard to the Estate Protector
Death Benefit plus
. the Contract Value calculated as of the Death Benefit Date minus Purchase
Payments, and that amount multiplied by 40%
If the Owner is more than 60 years old but less than 80 years old on the Issue
Date, the Estate Protector Death Benefit before the Annuity Date is:
. the Death Benefit under the Contract without regard to the Estate Protector
Death Benefit plus
. the Contract Value calculated as of the Death Benefit Date minus Purchase
Payments, and that amount multiplied by 25%
The maximum benefit payable as a result of this rider shall not exceed the
amount of net Purchase Payments. The ESTATE PROTECTOR DEATH BENEFIT ends on the
Annuity Date. Unless we agree otherwise, it will also end if you change the
owner of your Contract.
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 Contract'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.
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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.
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%, 662/3% 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.)
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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 (except as provided in your Contract) 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.
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/th/
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
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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.
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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
. 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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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.
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.
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A qualified contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax deferred. However, the
contract has features and benefits other than tax deferral that may make it an
appropriate investment for a qualified plan. You should consult your tax adviser
regarding these features and benefits prior to purchasing a qualified 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 under certain conditions 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
. 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.
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-
<PAGE>
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 (a) April 1 of the calendar year following the year in which
the employee attains age 70 1/2 or (b) retirement, whichever is later. The
limitation set forth in subsection (b) does not apply to IRAs. 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.
Tax-Sheltered Annuities--Withdrawal Limitations. Withdrawals of amounts
attributable to 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.
<PAGE>
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.
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 Composite Stock Price Index is an unmanaged,
unweighted average of 500 stocks, the majority of which are listed on the New
York Stock Exchange.
The Dow Jones Industrial Average is an unmanaged, weighted average of thirty
blue chip industrial corporations listed on the New York Stock Exchange. Both
the Standard & Poor's 500 Composite Stock Price Index and the Dow Jones
Industrial Average assumes quarterly reinvestment of dividends.
<PAGE>
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.
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 have
been adversely affected if our computer systems and those of our service
providers did not properly process and calculate date-related information and
data from and after January 1, 2000. We did not experience any problems related
to the Year 2000 issue.
<PAGE>
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:
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
First Variable Life Insurance Company............... 2
Independent Auditors................................ 2
Legal Counsel....................................... 2
Distributor......................................... 2
Yield Calculation for the FIS Prime Money Fund II 2
Investment Option
Calculation of Other Performance Information........ 3
Annuity Provisions.................................. 6
Variable Annuity.................................. 6
Fixed Annuity..................................... 7
Annuity Unit...................................... 7
Mortality and Expense Guarantee................... 7
Financial Statements................................ 7
</TABLE>
<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
------------ ------------ ------------ ------------
12/31/99 12/31/98 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
VIST Small Cap Growth Investment Option (1)
Beginning of Period (5/4/95) $ 12.32 $ 12.91 $ 13.01 $ 10.36
End of Period 21.93 $ 12.32 $ 12.91 $ 13.01
Number of Accum. Units Outstanding 201,290 157,939 112,393 25,465
VIST World Equity Investment Option
Beginning of Period $ 12.71 $ 12.28 $ 11.33 $ 10.24
End of Period $ 19.47 $ 12.71 $ 12.28 $ 11.33
Number of Accum. Units Outstanding 207,955 129,010 75,105 37,590
VIST Growth Investment Option (2)
Beginning of Period $ 20.10 $ 15.31 $ 12.57 $ 10.14
End of Period $ 26.64 $ 20.10 $ 15.31 $ 12.57
Number of Accum. Units Outstanding 560,375 282,153 106,746 30,672
VIST Matrix Equity Investment Option (3)
Beginning of Period $ 15.70 $ 13.16 $ 10.94 $ 10.62
End of Period $ 17.65 $ 15.70 $ 13.16 $ 10.94
Number of Accum. Units Outstanding 230,160 186,146 43,263 11,951
VIST Growth & Income Investment Option
Beginning of Period (5/31/95) $ 16.43 $ 14.84 $ 11.75 $ 10.63
End of Period $ 17.20 $ 16.43 $ 14.84 $ 11.75
Number of Accum. Units Outstanding 403,888 358,265 152,210 51,500
VIST Multiple Strategies Investment Option
Beginning of Period $ 18.07 $ 14.10 $ 11.84 $ 10.15
End of Period $ 22.78 $ 18.07 $ 14.10 $ 11.84
Number of Accum. Units Outstanding 499,905 264,274 77,185 30,934
VIST High Income Bond Investment Option
Beginning of Period $ 13.00 $ 12.80 $ 11.45 $ 10.17
End of Period $ 13.04 $ 13.00 $ 12.80 $ 11.45
Number of Accum. Units Outstanding 256,064 306,492 114,612 30,956
VIST U.S. Government Bond Investment Option
Beginning of Period $ 11.88 $ 11.19 $ 10.39 $ 10.30
End of Period $ 11.48 $ 11.88 $ 11.19 $ 10.39
Number of Accum. Units Outstanding 488,100 490,078 63,534 43,540
FIS Prime Money Fund II Investment Option (4)
Beginning of Period $ 11.10 $ 10.74 $ 10.39 $ 10.06
End of Period $ 11.44 11.10 $ 10.74 $ 10.39
Number of Accum. Units Outstanding 376,738 135,376 89,012 39,582
AIM V.I. Growth
Beginning of Period $ 10.00
End of Period $ 12.52
Number of Accum. Units Outstanding 176,316
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended Period Ended
------------ ------------ ------------ ------------
12/31/99 12/31/98 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation
Beginning of Period $ 10.00
End of Period $ 13.92
Number of Accum. Units Outstanding 252,629
MFS New Discovery (Initial Class)
Beginning of Period $ 10.00
End of Period $ 16.28
Number of Accum. Units Outstanding 138,167
MFS Growth Series (Initial Class)
Beginning of Period $ 10.00
End of Period $ 13.86
Number of Accum. Units Outstanding 44,090
MFS Growth & Income (Initial Class)
Beginning of Period $ 10.00
End of Period $ 10.18
Number of Accum. Units Outstanding 51,939
DAM Equity 500 Index
Beginning of Period $ 10.00
End of Period $ 10.96
Number of Accum. Units Outstanding 168,120
DAM Small Cap Index
Beginning of Period $ 10.00
End of Period $ 11.63
Number of Accum. Units Outstanding 24,524
TEM International Fund (Class 2)
Beginning of Period $ 10.00
End of Period $ 11.18
Number of Accum. Units Outstanding 295,964
LA Growth & Income
Beginning of Period $ 10.00
End of Period $ 10.48
Number of Accum. Units Outstanding 137,865
ACS V.P. Value
Beginning of Period $ 10.00
End of Period $ 9.08
Number of Accum. Units Outstanding 79,433
</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>
PART B
<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, 2000 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
<TABLE>
<CAPTION>
Item Page
---- ----
<S> <C>
FIRST VARIABLE LIFE INSURANCE COMPANY................................... SA-2
INDEPENDENT AUDITORS.................................................... SA-2
LEGAL COUNSEL........................................................... SA-2
DISTRIBUTOR............................................................. SA-2
YIELD CALCULATION FOR FIS PRIME MONEY FUNDII
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
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED MAY 1, 2000.
SA-1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
You will find information about our company and its ownership in the prospectus.
EXPERTS
The consolidated balance sheet of First Variable Life Insurance Company and
subsidiaries as of December 31, 1999 and the related consolidated statements of
income, changes in stockholder's equity, and cash flows for the year then ended,
and the statement of assets and liabilities of First Variable Life Insurance
Company - First Variable Annuity Fund E at December 31, 1999, and the statements
of operations and changes in net assets for each of the periods for the years
then ended, have been included herein in reliance upon reports of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
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, 1999, the annualized
yield was 1.75% and the effective yield was 1.76%.
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
N = number of years return
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, 1999, for 1
and 3 years for the life of the Separate Account investment option are listed
below:
<TABLE>
<CAPTION>
Separate Account Investment Option 1 Year 3 Years Since Sub-Account
- ---------------------------------- ------ ------- -----------------
Inception
---------
<S> <C> <C> <C>
ACS V.P. Value (inception 5/1/96) N/A N/A -23.39%
AIM V.I. Capital Appreciation (inception 5/5/93) N/A N/A 51.78%
AIM V.I. Growth(inception 5/5/93) N/A N/A 28.37%
DAM Equity 500 Index(inception 10/1/97) N/A N/A 3.84%
DAM Small Cap Index(inception 8/25/97) N/A N/A 14.12%
FIS Prime Money Fund II (inception 11/94) -4.03% 1.61% 3.24%
LA Growth & Income Series (inception 12/11/89) N/A N/A -3.37%
MFS New Discovery Series (Initial class) N/A N/A 94.07
(inception 5/1/98)
MFS Growth Series (Initial class) (inception 5/1/99) N/A N/A 50.68%
MFS Growth with Income (Initial class) N/A N/A -7.83%
(inception 10/9/95)
TEM International Fund (Class 2 shares) N/A N/A 7.21%
(inception 5/1/97)
VIST Small Cap Growth (inception 5/4/95) 70.90% 17.76% 28.89%
VIST World Equity (inception 6/10/88) 46.08% 18.54% 23.83%
VIST Growth (inception 5/1/87) 25.46% 27.38% 37.67%
VIST Matrix Equity (inception 6/16/88) 5.37% 16.00% 19.76%
VIST Growth & Income (inception 5/31/95) -2.39% 12.19% 18.70%
VIST Multiple Strategies (inception 5/5/87) 19.02% 23.26% 30.58%
VIST High Income Bond (inception 6/1/87) -6.76% 2.81% 7.99%
VIST US Govt. Bond (inception 5/27/87) -10.43% 1.75% 3.38%
</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, 1999, 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
- ---------------------------------- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
ACS V.P. Value (inception 5/1/96) -9.42% 2.86% N/A N/A 9.53%
AIM V.I. Capital Appreciation (inception 5/5/93) 36.04% 18.54% 21.02% N/A 20.76%
AIM V.I. Growth (inception 5/5/93) 26.67% 25.45% 25.07% N/A 21.36%
DAM EAFE Index (inception 8/22/97) 19.03% N/A N/A N/A 15.48%
DAM Equity 500 Index (inception 10/1/97) 11.82% N/A N/A N/A 20.95%
DAM Small Cap Index (inception 8/25/97) 11.59% N/A N/A N/A 7.80%
FIS Prime Money Fund II (inception 11/94) -3.94% -1.74% 0.32% N/A 3.31%
FIS High Income Bond Fund II (inception 3/1/94) -6.26% -2.42% 5.91% N/A 6.65%
FMR Contrafund (Service Class 2)(inception 15.58% 17.45% N/A N/A 26.12%
1/3/95)
FMR Equity - Income (Service Class 2)(inception -2.32% 6.35% 14.00% 12.90% 12.19%
10/9/86)
FMR Growth Opportunities (Service Class 2) -4.39% 10.44% N/A N/A 19.90%
(inception 1/3/95)
LA Growth & Income Series (inception 12/11/89) 8.17% 11.42% 15.98% 14.68% 14.66%
MFS New Discovery Series
(Initial Class)(inception 5/1/98) 64.84% N/A N/A N/A 39.34%
MFS Growth Series (Initial class)(inception N/A N/A N/A N/A 8.44%
5/1/99)
MFS Growth with Income (Initial class)(inception -1.88% 12.63% N/A N/A 19.55%
10/9/95)
MFS New Discovery Series (Service class) 64.74% N/A N/A N/A 39.24%
MFS Growth Series (Service Class) N/A N/A N/A N/A 8.34%
MFS Growth with Income Series
(Service Class)(inception 5/1/99) -2.08% 12.43% N/A N/A 19.35%
SEL Communications & Information (inception 10/4/94) 77.24% 37.23% 31.55% N/A 33.87%
TEM International Fund (Service Class 2)
(inception 5/1/97) 14.66% 8.64% 12.46% N/A 13.68%
TEM Growth Securities (inception 3/15/94) 12.27% 7.77% 10.79% N/A 12.16%
VIST Small Cap Growth (inception 5/4/95) 72.09% 14.23% N/A N/A 24.30%
VIST World Equity (inception 6/10/88) 46.89% 15.01% 15.64% 9.34% 9.84%
VIST Growth (inception 5/1/87) 25.96% 23.82% 26.20% 15.83% 15.64%
VIST Matrix Equity (inception 6/16/88) 5.57% 12.48% 14.12% 11.82% 12.68%
VIST Growth & Income (inception 5/31/95) -2.30% 8.70% N/A N/A 14.01%
VIST Multiple Strategies (inception 5/5/87) 19.43% 19.70% 21.23% 14.52% 12.83%
VIST High Income Bond (inception 6/1/87) -6.74% -0.56% 5.55% 7.87% 7.68%
VIST US Govt. Bond (inception 5/27/87) -10.47% -1.60% 2.74% 5.52% 6.03%
</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, 1999 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>
ACS V.P. Value (inception 5/1/96) -2.35% 7.93% N/A N/A 9.60%
AIM V.I. Capital Appreciation (inception 5/5/93) 33.74% 30.52% 28.14% N/A 21.43%
AIM V.I. Growth (inception 5/5/93) 43.11% 23.61% 24.09% N/A 20.83%
DAM EAFE Index (inception 8/22/97) 26.10% N/A N/A N/A 15.55%
DAM Equity 500 Index (inception 10/1/97) 18.89% N/A N/A N/A 21.02%
DAM Small Cap Index (inception 8/25/97) 18.66% N/A N/A N/A 7.87%
FIS Prime Money Fund II (inception 11/94) 3.05% 3.33% 3.39% N/A 3.38%
FIS High Income Bond Fund II (inception 3/1/94) 0.81% 4.65% 8.98% N/A 6.72%
FMR Contrafund (Service Class 2) (inception 1/3/95) 22.65% 24.52% N/A N/A 26.19%
FMR Equity - Income (Service Class 2) (inception 10/9/86) 4.75% 13.42% 17.07% 12.97% 12.26%
FMR Growth Opportunities (Service Class 2) (inception 1/3/95) 2.68% 17.51% N/A N/A 19.97%
LA Growth & Income Series (inception 12/11/89) 15.24% 16.49% 19.05% 14.75% 14.73%
MFS New Discovery Series (Initial class) (5/1/98) 71.91% N/A N/A N/A 39.41%
MFS Growth Series (Initial class) (inception 5/1/99) N/A N/A N/A N/A 8.51%
MFS Growth with Income (Initial class) 5.19% 17.70% N/A N/A 19.62%
MFS New Discovery Series (Service class) 71.81% N/A N/A N/A 39.31%
MFS Growth Series (Service class) N/A N/A N/A N/A 8.41%
MFS Growth with Series (Service class) (inception 5/1/99) 4.99% 17.50% N/A N/A 19.42%
SEL Communications & Information (inception 10/4/94) 84.31% 44.30% 34.62% N/A 33.94%
TEM International Securities - Class 2)
(inception 5/1/97) 21.73% 13.71% 15.53% N/A 13.75%
TEM Growth Securities (Class 2) (inception 3/15/94) 19.34% 12.84% 13.86% N/A 12.23%
VIST Small Cap Growth (inception 5/4/95) 77.98% 19.30% N/A N/A 24.37%
VIST World Equity (inception 6/10/88) 53.15% 20.08% 18.71% 9.41% 9.91%
VIST Growth (inception 5/1/87) 32.53% 28.89% 29.27% 15.90% 15.71%
VIST Matrix Equity (inception 6/16/88) 12.44% 17.55% 17.19% 11.89% 12.75%
VIST Growth & Income (inception 5/31/95) 4.69% 13.77% N/A N/A 14.08%
VIST Multiple Strategies (inception 5/5/87) 26.09% 24.77% 24.30% 14.59% 12.90%
VIST High Income Bond (inception 6/1/87) 0.31% 4.51% 8.62% 7.94% 7.75%
VIST US Govt. Bond (inception 5/27/87) -3.36% 3.47% 5.81% 5.59% 6.10%
</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:
Yield = 2[(a-b + 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>
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
December 31, 1999
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholder of
First Variable Life Insurance Company and
Contract Owners of First Variable Annuity Fund E:
We have audited the accompanying statements of assets and liabilities of each of
the nineteen divisions comprising First Variable Life Insurance Company -First
Variable Annuity Fund E as of December 31, 1999 and the related statements of
operations and changes in net assets for each of the periods indicated in the
year 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. The accompanying
statements of changes in net assets of First Variable Life Insurance Company -
First Variable Annuity Fund E for the period ended December 31, 1998 was audited
by other auditors whose report thereon dated March 18, 1999 expressed an
unqualified opinion on those statements.
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,
1999 by correspondence with the transfer agent. 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 the nineteen divisions
comprising First Variable Life Insurance Company - First Variable Annuity Fund E
at December 31, 1999, the results of their operations and changes in their net
assets for each of the periods indicated in the year then ended, in conformity
with generally accepted accounting principles.
March 17, 2000
<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 changes in net assets of First
Variable Life Insurance Company - First Variable Annuity Fund E for the year
ended December 31, 1998. 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 audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of the securities owned as of
December 31, 1998, by correspondence and with Variable Investors Series Trust
and Federated Insurance Series Trust. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the changes in its net assets of First Variable Life
Insurance Company - First Variable Annuity Fund E for each of the year ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States.
3 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Statements of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
Variable Investors Series Trust
----------------------------------------------------------------------
Federated High U.S.
Prime Income Multiple Matrix Government World
Money Growth Bond Strategies Equity Bond Equity
Fund II Division Division Division Division Division Division
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in mutual funds
at net asset value (see cost below) $15,556,774 58,115,240 14,377,441 46,077,676 20,880,544 11,542,853 23,456,249
Receivable from First Variable Life
Insurance Company 5,337 11,312 697 -- 12,859 95 --
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets 15,562,111 58,126,552 14,378,138 46,077,676 20,893,403 11,542,948 23,456,249
----------- ---------- ---------- ---------- ---------- ---------- ----------
Liabilities:
Payable to First Variable Life
Insurance Company -- -- -- 3,335 -- -- 5,531
----------- ---------- ---------- ---------- ---------- ---------- ----------
$15,562,111 58,126,552 14,378,138 46,074,341 20,893,403 11,542,948 23,450,718
=========== ========== ========== ========== ========== ========== ==========
Net Assets:
Annuity contracts in accumulation
period $15,410,217 58,092,361 14,369,723 46,074,341 20,886,477 11,542,948 23,450,718
Annuity contracts in payment period 151,894 34,191 8,415 -- 6,926 -- --
----------- ---------- ---------- ---------- ---------- ---------- ----------
Total net assets $15,562,111 58,126,552 14,378,138 46,074,341 20,893,403 11,542,948 23,450,718
=========== ========== ========== ========== ========== ========== ==========
Investments in mutual funds at cost $15,556,774 46,588,527 14,443,162 37,233,519 18,385,552 12,144,940 16,054,262
=========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Variable Investors Series Trust
-------------------------------
Growth Small
and Capital
Income Growth
Division Division
----------- ----------
<S> <C> <C>
Assets:
Investments in mutual funds
at net asset value (see cost below) $24,347,339 16,676,794
Receivable from First Variable Life
Insurance Company 11,776 8,721
----------- ----------
Total assets 24,359,115 16,685,515
----------- ----------
Liabilities:
Payable to First Variable Life
Insurance Company -- --
----------- ----------
$24,359,115 16,685,515
=========== ==========
Net Assets:
Annuity contracts in accumulation
period $24,352,881 16,677,690
Annuity contracts in payment period 6,234 7,825
----------- ----------
Total net assets $24,359,115 16,685,515
=========== ==========
Investments in mutual funds at cost $23,490,435 9,614,230
=========== ==========
</TABLE>
See accompanying notes to financial statements.
(continued)
2
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Statements of Assets and Liabilities, continued
December 31, 1999
<TABLE>
<CAPTION>
Bankers Bankers Lord
AIM American Trust Trust Franklin Abbett
Capital AIM Century Equity Small Cap. Templeton Growth &
Assets: Appreciation Growth VP Value Index Index Int'l Income
------------ --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in mutual funds
at net asset value (see cost below) $ 4,378,205 5,348,859 1,532,895 3,675,603 486,329 4,154,501 2,624,584
Receivable from First Variable Life
Insurance Company -- -- 84 -- -- -- --
------------ --------- --------- --------- ---------- --------- ---------
Total assets 4,378,205 5,348,859 1,532,979 3,675,603 486,329 4,154,501 2,624,584
------------ --------- --------- --------- ---------- --------- ---------
Liabilities:
Payable to First Variable Life
Insurance Company 394 430 -- 450 68 315 61
------------ --------- --------- --------- ---------- --------- ---------
$ 4,377,811 5,348,429 1,532,979 3,675,153 486,261 4,154,186 2,624,523
============ ========= ========= ========= ========== ========= =========
Net Assets:
Annuity contracts in accumulation
period $ 4,377,811 5,348,429 1,532,979 3,675,153 486,261 4,154,186 2,624,523
Annuity contracts in payment period -- -- -- -- -- -- --
------------ --------- --------- --------- ---------- --------- ---------
Total net assets $ 4,377,811 5,348,429 1,532,979 3,675,153 486,261 4,154,186 2,624,523
============ ========= ========= ========= ========== ========= =========
Investments in mutual funds at cost $ 3,759,447 4,747,845 1,657,934 3,410,180 442,824 3,936,716 2,706,458
============ ========= ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
MFS MFS
New MFS Growth &
Assets: Discovery Growth Income
---------- --------- ---------
<S> <C> <C> <C>
Investments in mutual funds
at net asset value (see cost below) $ 3,849,291 1,693,409 937,930
Receivable from First Variable Life
Insurance Company -- -- --
----------- --------- ---------
Total assets 3,849,291 1,693,409 937,930
----------- --------- ---------
Liabilities:
Payable to First Variable Life
Insurance Company 681 137 20
----------- --------- ---------
$ 3,848,610 1,693,272 937,910
=========== ========= =========
Net Assets:
Annuity contracts in accumulation
period $ 3,848,610 1,693,272 937,910
Annuity contracts in payment period -- -- --
----------- --------- ---------
Total net assets $ 3,848,610 1,693,272 937,910
=========== ========= =========
Investments in mutual funds at cost $ 2,782,448 1,448,157 906,107
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
Variable Investors Series Trust
----------------------------------------------------------------------
Federated High U.S.
Prime Income Multiple Matrix Government World
Money Growth Bond Strategies Equity Bond Equity
Fund II Division Division Division Division Division Division
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income - dividends $ 580,112 1,785,401 22,220 1,176,446 399,805 10,295 283,583
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Fees paid to First Variable Life
Insurance Company - risk and
administrative charges 174,841 652,229 249,097 566,590 292,504 180,758 265,537
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss) 405,271 1,133,172 (226,877) 609,856 107,301 (170,463) 18,046
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on fund
shares redeemed -- 2,317,365 (863,209) 2,118,312 512,761 (203,235) (98,507)
Net unrealized appreciation
(depreciation) on investments
during the year -- 10,322,774 1,227,167 6,483,773 1,803,845 (63,719) 8,574,133
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments -- 12,640,139 363,958 8,602,085 2,316,606 (266,954) 8,475,626
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations $ 405,271 13,773,311 137,081 9,211,941 2,423,907 (437,417) 8,493,672
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Variable Investors Series Trust
-------------------------------
Growth Small
and Capital
Income Growth
Division Division
---------- ----------
<S> <C> <C>
Investment income - dividends $ 582,967 --
---------- ----------
Expenses:
Fees paid to First Variable Life
Insurance Company - risk and
administrative charges 372,609 155,114
---------- ----------
Net investment income (loss) 210,358 (155,114)
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on fund
shares redeemed 1,017,551 809,162
Net unrealized appreciation
(depreciation) on investments
during the year (26,770) 6,371,306
---------- ----------
Net realized and unrealized
gain (loss) on investments 990,781 7,180,468
---------- ----------
Net increase (decrease) in net
assets resulting from
operations $1,201,139 7,025,354
========== ==========
</TABLE>
See accompanying notes to financial statements.
(continued)
4
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Statements of Operations, continued
Year ended December 31, 1999
<TABLE>
<CAPTION>
Bankers Bankers Lord
AIM American Trust Trust Franklin Abbett
Capital AIM Century Equity Small Cap. Templeton Growth &
Appreciation /1/ Growth /1/ VP Value /1/ Index /1/ Index /1/ Int'l /1/ Income /1/
------------ --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income - dividends $ 85,091 174,926 -- 34,171 18,506 -- 204,098
Expenses:
Fees paid to First Variable Life
Insurance Company - risk and
administrative charges 11,611 19,391 9,567 28,591 3,703 16,253 11,984
------------ --------- --------- --------- ---------- --------- ---------
Net investment income (loss) 73,480 155,535 (9,567) 5,580 14,803 (16,253) 192,114
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on fund
shares redeemed 21,379 8,128 (52,953) 218,806 28,092 196,792 (4,107)
Net unrealized appreciation
(depreciation) on investments
during the year 618,758 601,014 (125,039) 265,423 43,504 217,786 (81,874)
------------ --------- --------- --------- ---------- --------- ---------
Net realized and unrealized
gain (loss) on investments 640,137 609,142 (177,992) 484,229 71,596 414,578 (85,981)
------------ --------- --------- --------- ---------- --------- ---------
Net increase (decrease) in net
assets resulting from
operations $ 713,617 764,677 (187,559) 489,809 86,399 398,325 106,133
============ ========= ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
MFS MFS
New MFS Growth &
Discovery /1/ Growth /1/ Income /1/
---------- --------- ---------
<S> <C> <C> <C>
Investment income - dividends $ 67,439 6,029 --
Expenses:
Fees paid to First Variable Life
Insurance Company - risk and
administrative charges 13,543 6,543 4,612
---------- --------- ---------
Net investment income (loss) 53,896 (514) (4,612)
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on fund
shares redeemed 46,560 15,553 (1,155)
Net unrealized appreciation
(depreciation) on investments
during the year 1,066,842 245,251 31,823
---------- --------- ---------
Net realized and unrealized
gain (loss) on investments 1,113,402 260,804 30,668
---------- --------- ---------
Net increase (decrease) in net
assets resulting from
operations $1,167,298 260,290 26,056
========== ========= =========
</TABLE>
/1/ From commencement of operations, May 1, 1999.
See accompanying notes to financial statements.
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Statements of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<CAPTION>
Variable Investors Series Trust
--------------------------------------------------------
Federated High
Prime Income Multiple Matrix
Money Growth Bond Strategies Equity
Fund II Division Division Division Division
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 405,271 1,133,172 (226,877) 609,856 107,301
Realized gain (loss) on fund shares redeemed - 2,317,365 (863,209) 2,118,312 512,761
Net unrealized appreciation (depreciation)
on investments during the period - 10,322,774 1,227,167 6,483,773 1,803,845
------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 405,271 13,773,311 137,081 9,211,941 2,423,907
------------ ----------- ----------- ----------- -----------
From contract owner transactions:
Net proceeds from sale or transfer of
accumulation units 11,151,565 10,337,970 2,820,608 7,361,146 2,374,837
Policy contract charges (6,030) (25,134) (8,158) (20,628) (11,428)
Cost of accumulation units terminated
and exchanged (4,839,247) (7,171,267) (8,399,292) (8,115,511) (3,467,538)
------------ ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from contract owner transactions 6,306,288 3,141,569 (5,586,842) (774,993) (1,104,129)
------------ ----------- ----------- ----------- -----------
Increase (decrease) in net assets 6,711,559 16,914,880 (5,449,761) 8,436,948 1,319,778
Net assets at beginning of period 8,850,552 41,211,672 19,827,899 37,637,393 19,573,625
------------ ----------- ----------- ----------- -----------
Net assets at end of period $ 15,562,111 58,126,552 14,378,138 46,074,341 20,893,403
============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Variable Investors Series Trust
--------------------------------------------------------
U.S.
Government World Growth & Small Cap.
Bond Equity Income Growth
Division Division Division Division
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ (170,463) 18,046 210,358 (155,114)
Realized gain (loss) on fund shares redeemed (203,235) (98,507) 1,017,551 809,162
Net unrealized appreciation (depreciation)
on investments during the period (63,719) 8,574,133 (26,770) 6,371,306
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations (437,417) 8,493,672 1,201,139 7,025,354
----------- ----------- ----------- -----------
From contract owner transactions:
Net proceeds from sale or transfer of
accumulation units 1,660,591 2,033,053 5,294,659 837,188
Policy contract charges (4,806) (8,664) (12,586) (7,047)
Cost of accumulation units terminated
and exchanged (2,739,148) (8,317,041) (6,950,267) (3,678,845)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
from contract owner transactions (1,083,363) (6,292,652) (1,668,194) (2,848,704)
----------- ----------- ----------- -----------
Increase (decrease) in net assets (1,520,780) 2,201,020 (467,055) 4,176,650
Net assets at beginning of period 13,063,728 21,249,698 24,826,170 12,508,865
----------- ----------- ----------- -----------
Net assets at end of period $11,542,948 23,450,718 24,359,115 16,685,515
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
(continued)
6
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Statements of Changes in Net Assets, continued
Year ended December 31, 1999
<TABLE>
<CAPTION>
Bankers Bankers
AIM American Trust Trust
Capital AIM Century VP Equity Small Cap
Appreciation/(1)/ Growth/(1)/ Value/(1)/ Index/(1)/ Index/(1)/
----------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 73,480 155,535 (9,567) 5,580 14,803
Realized gain (loss) on fund shares redeemed 21,379 8,128 (52,953) 218,806 28,092
Net unrealized appreciation (depreciation) on
investments during the period 618,758 601,014 (125,039) 265,423 43,504
----------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations 713,617 764,677 (187,559) 489,809 86,399
----------- ----------- ---------- ---------- ----------
From contract owner transactions:
Net proceeds from sale or transfer of
accumulation units 3,721,631 4,634,500 1,744,279 4,161,459 409,599
Policy contract charges (83) (346) (97) (463) (30)
Cost of accumulation units terminated and exchanged (57,354) (50,402) (23,644) (975,652) (9,707)
----------- ----------- ---------- ---------- ----------
Increase (decrease) in net assets from contract
owner transactions 3,664,194 4,583,752 1,720,538 3,185,344 399,862
----------- ----------- ---------- ---------- ----------
Increase (decrease) in net assets 4,377,811 5,348,429 1,532,979 3,675,153 486,261
Contract owners' equity at beginning of period - - - - -
----------- ----------- ---------- ---------- ----------
Contract owners' equity at end of period $ 4,377,811 5,348,429 1,532,979 3,675,153 486,261
=========== =========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Lord
Franklin Abbett MFS MFS
Templeton Growth & New MFS Growth &
Int'l/(1)/ Income Discovery/(1)/ Growth/(1)/ Income/(1)/
----------- ---------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ (16,253) 192,114 53,896 (514) (4,612)
Realized gain (loss) on fund shares redeemed 196,792 (4,107) 46,560 15,553 (1,155)
Net unrealized appreciation (depreciation) on
investments during the period 217,786 (81,874) 1,066,842 245,251 31,823
---------- --------- --------- --------- -------
Net increase (decrease) in net assets
resulting from operations 398,325 106,133 1,167,298 260,290 26,056
---------- --------- --------- --------- -------
From contract owner transactions:
Net proceeds from sale or transfer of
accumulation units 3,832,214 2,556,744 2,765,457 1,502,509 916,030
Policy contract charges (144) (108) (290) (70) (41)
Cost of accumulation units terminated and exchanged (76,209) (38,246) (83,855) (69,457) (4,135)
---------- --------- --------- --------- -------
Increase (decrease) in net assets from
contract owner transactions 3,755,861 2,518,390 2,681,312 1,432,982 911,854
---------- --------- --------- --------- -------
Increase (decrease) in net assets 4,154,186 2,624,523 3,848,610 1,693,272 937,910
Contract owners' equity at beginning of period - - - - -
---------- --------- --------- --------- -------
Contract owners' equity at end of period $4,154,186 2,624,523 3,848,610 1,693,272 937,910
========== ========= ========= ========= =======
</TABLE>
(1) From commencement of operations, May 1, 1999.
See accompanying notes to financial statements.
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
Variable Investors Series Trust
--------------------------------------------------------
Federated High
Prime Income Multiple Matrix
Money Growth Bond Strategies Equity
Fund II Division Division Division Division
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income $ 368,178 4,158,668 1,301,872 1,888,469 791,563
Realized gain (loss) on fund shares redeemed - 7,112,929 533,356 4,599,401 872,436
Net unrealized appreciation (depreciation)
on investments during the period - (1,318,859) (1,484,495) 1,734,525 1,260,326
------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 368,178 9,952,738 350,733 8,222,395 2,924,325
------------ ----------- ----------- ----------- -----------
From contract owner transactions:
Net proceeds from sale or transfer of
accumulation units 8,682,394 4,781,700 5,374,821 3,898,136 5,265,161
Cost of accumulation units terminated
and exchanged (9,536,847) (5,858,088) (2,355,028) (5,723,614) (1,852,605)
------------ ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from contract owner transactions (854,453) (1,076,388) 3,019,793 (1,825,478) 3,412,556
------------ ----------- ----------- ----------- -----------
Increase (decrease) in net assets (486,275) 8,876,350 3,370,526 6,396,917 6,336,881
Net assets at beginning of period 9,336,827 32,335,322 16,457,373 31,240,476 13,236,744
------------ ----------- ----------- ----------- -----------
Net assets at end of period $ 8,850,552 41,211,672 19,827,899 37,637,393 19,573,625
============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Variable Investors Series Trust
--------------------------------------------------------
U.S.
Government World Growth & Small Cap
Bond Equity Income Growth
Division Division Division Division
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 615,610 1,424,932 383,220 (189,395)
Realized gain (loss) on fund shares redeemed 258,304 (384,016) 2,072,741 (771,931)
Net unrealized appreciation (depreciation)
on investments during the period (344,581) (62,724) (808,198) 567,044
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 529,333 978,192 1,647,763 (394,282)
----------- ----------- ----------- -----------
From contract owner transactions:
Net proceeds from sale or transfer of
accumulation units 5,939,476 1,306,839 9,202,472 1,327,241
Cost of accumulation units terminated
and exchanged (1,173,648) (3,800,525) (5,983,494) (5,645,369)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
from contract owner transactions 4,765,828 (2,493,686) 3,218,978 (4,318,128)
----------- ----------- ----------- -----------
Increase (decrease) in net assets 5,295,161 (1,515,494) 4,866,741 (4,712,410)
Net assets at beginning of period 7,768,567 22,765,192 19,959,429 17,221,275
----------- ----------- ----------- -----------
Net assets at end of period $13,063,728 21,249,698 24,826,170 12,508,865
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Notes to Financial Statements
December 31, 1999
(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, amended
(the 1940 Act). Eight of the 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 eleven investment divisions are invested in the Federated Prime
Money Fund II (Federated), AIM Capital Appreciation, AIM Growth, American
Century VP Value, Bankers Trust Equity Index, Bankers Trust Small Cap.
Index, Franklin Templeton International, Lord Abbett Growth & Income, MFS
New Discovery, MFS Growth, and MFS Growth & Income, which are open end
management investment companies. 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 ILona Financial Group,
Inc. (ILona) (previously Irish Life of North America, Inc.) ILona is a
subsidiary of Irish Life, plc located in Dublin, Ireland. During 1999 Irish
Life plc merged with Irish Permanent plc to form Irish Life & Permanent
plc. 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 followed by
the Fund in preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
Investments
The Fund's investments in the corresponding series of mutual funds are
stated at the net asset values of the respective series, which
approximates fair value, per share of the respective portfolios.
Investment transactions are accounted for on the date the shares are
purchased or sold. The cost of shares sold and redeemed is determined
on the first in, first out method. Dividends and capital gain
distributions received from the mutual funds are reinvested in
additional shares of the respective mutual funds 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.
9
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Notes to Financial Statements
December 31, 1999
Contracts in Annuity Payment Period
Annuity reserves are computed for currently payable contracts
according to the 1983 Individual Annuity Mortality Table, using an
assumed investment return (AIR) equal to the AIR of the specific
contracts, which varies between 3% and 4%. Charges to annuity reserves
for mortality and risk expense are reimbursed to First Variable Life
if the reserves required are less than originally estimated. If
additional reserves are required, First Variable Life reimburses the
account.
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.
Other
Certain 1998 information has been restated to conform to the 1999
presentation.
10
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Notes to Financial Statements
December 31, 1999
(3) Investments
The following table presents selected data for investments in each of the
divisions of the Fund at December 31, 1999:
<TABLE>
<CAPTION>
Number Net
of asset
shares Cost value
---------- ------------- ----------
<S> <C> <C> <C>
Federated Prime Money Fund II 15,556,774 $ 15,556,774 15,556,774
Growth Division 1,096,014 46,588,527 58,115,240
High Income Bond Division 1,542,460 14,443,162 14,377,441
Multiple Strategies Division 2,158,706 37,233,519 46,077,676
Matrix Equity Division 1,140,058 18,385,552 20,880,544
U.S. Government Bond Division 1,140,777 12,144,940 11,542,853
World Equity Division 1,125,272 16,054,262 23,456,249
Growth and Income Division 1,472,136 23,490,435 24,347,339
Small Capital Growth Division 611,670 9,614,230 16,676,794
AIM Growth Division 165,856 4,747,845 5,348,859
AIM Capital Appreciation 123,052 3,759,447 4,378,205
American Century VP Value 257,629 1,657,934 1,532,895
Bankers Trust Equity Index 242,135 3,410,180 3,675,603
Bankers Trust Small Cap Index 41,889 442,824 486,329
Franklin Templeton Int'l 187,732 3,936,716 4,154,501
Lord Abbett Growth & Income 118,438 2,706,458 2,624,584
MFS New Discovery 222,889 2,782,448 3,849,291
MFS Growth 121,391 1,448,157 1,693,409
MFS Growth and Income 44,014 906,107 937,930
========== ============= ==========
</TABLE>
11
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Notes to Financial Statements
December 31, 1999
(4) Net Assets
Variable annuity net assets at December 31, 1999 consists of the following:
<TABLE>
<CAPTION>
Accumulation Accumulation 1999 total
units unit value Net assets return
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Vista 1 and Vista 2 policies:
Federated Prime Money Fund II 137,314 16.533772 $ 2,270,319 3.30%
Growth Division 115,059 58.029317 6,676,813 32.86
High Income Bond Division 36,035 26.265429 946,480 0.56
Multiple Strategies Division 166,027 46.983972 7,800,612 26.41
Matrix Equity Division 54,159 42.441805 2,298,617 12.72
U.S. Government Bond Division 81,995 21.132750 1,732,785 -3.11
World Equity Division 88,672 31.196191 2,766,218 53.53
Growth and Income Division 26,078 18.350451 478,547 4.95
Small Capital Growth Division 18,053 27.665892 499,446 78.42
Cap Five and Vista policies:
Federated Prime Money Fund II 674,538 13.316046 8,982,182 3.15
Growth Division 792,620 44.967350 35,642,016 32.66
High Income Bond Division 482,576 20.916217 10,093,659 0.41
Multiple Strategies Division 688,998 39.022082 26,886,140 26.22
Matrix Equity Division 450,299 32.272428 14,532,240 12.56
U.S. Government Bond Division 245,250 17.148125 4,205,576 -3.26
World Equity Division 593,795 28.015171 16,635,256 53.30
Growth and Income Division 929,138 18.224598 16,933,169 4.79
Small Capital Growth Division 428,465 27.476125 11,772,545 77.79
AIM Growth 250,554 12.532899 3,140,162 25.33*
AIM Capital Appreciation 61,729 13.933701 860,110 39.34*
American Century VP Value 89,411 9.082134 812,042 -9.18*
Bankers Trust Equity Index 167,026 10.969502 1,832,193 9.70*
Bankers Trust Small Cap Index 17,275 11.638026 201,046 16.38*
Franklin Templeton Int'l 75,442 11.191009 844,269 11.91*
Lord Abbett Growth & Income 112,473 10.487787 1,179,593 4.88*
MFS New Discovery 98,099 16.295699 1,598,596 62.96*
MFS Growth 78,021 13.869929 1,082,150 38.70*
MFS Growth & Income 40,196 10.183597 409,341 1.84*
FPA 2 policies - Growth Division 13,468 65.422492 881,086 33.00
========= ============ ============ ==========
</TABLE>
* Returns for periods less than one
year are not annualized
12
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Notes to Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
Accumulation Accumulation 1999 total
units unit value Net assets return
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Cap No-load and Cap Six policies:
Federated Prime Money Fund II 376,738 11.439276 $ 4,309,610 3.05%
Growth Division 560,375 26.636872 14,926,637 32.53
High Income Bond Division 256,064 13.035800 3,337,999 0.31
Multiple Strategies Division 499,905 22.779506 11,387,589 26.09
Matrix Equity Division 230,160 17.650965 4,062,546 12.44
U.S. Government Bond Division 488,100 11.482456 5,604,587 -3.36
World Equity Division 207,955 19.471732 4,049,244 53.15
Growth and Income Division 403,888 17.201301 6,947,399 4.69
Small Capital Growth Division 201,290 21.926196 4,413,524 77.98
AIM Growth 176,316 12.524484 2,208,267 25.24*
AIM Capital Appreciation 252,629 13.924375 3,517,701 39.24*
American Century VP Value 79,433 9.076039 720,937 -9.24*
Bankers Trust Equity Index 168,120 10.962170 1,842,960 9.62*
Bankers Trust Small Cap Index 24,524 11.630036 285,215 16.30*
Franklin Templeton Int'l 295,964 11.183543 3,309,917 11.84*
Lord Abbett Growth & Income 137,865 10.480760 1,444,930 4.81*
MFS New Discovery 138,167 16.284742 2,250,014 62.85*
MFS Growth 44,090 13.860785 611,122 38.61*
MFS Growth & Income 51,939 10.176727 528,569 1.77*
============ ============ ========== ==========
</TABLE>
* Returns for periods less than one
year are not annualized
13
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Notes to Financial Statements
December 31, 1999
(5) Purchases and Sales of Securities
Cost of purchases and proceeds from sales of each mutual fund during the
year ended December 31, 1999 are shown below:
<TABLE>
<CAPTION>
Proceeds
Purchases from sale
------------ ----------
<S> <C> <C>
Federated Prime Money Market II $42,449,629 35,743,407
Growth Division 16,732,535 12,466,349
High Income Bond Division 8,801,469 14,615,631
Multiple Strategies Division 15,385,299 15,537,954
Matrix Equity Division 4,921,958 5,924,615
U.S. Government Bond Division 3,416,459 4,670,380
World Equity Division 4,663,394 10,932,468
Growth and Income Division 7,335,649 8,799,548
Small Capital Growth Division 5,583,682 8,596,221
AIM Growth 4,887,798 148,081
AIM Capital Appreciation 7,887,230 4,149,162
American Century VP Value 2,226,304 515,417
Bankers Trust Equity Index 7,042,195 3,850,822
Bankers Trust Small Cap Index 1,082,605 668,053
Franklin Templeton Int'l 10,082,786 6,342,682
Lord Abbett Growth & Income 2,858,918 148,354
MFS New Discovery 3,258,454 522,566
MFS Growth 1,572,101 139,497
MFS Growth & Income 971,652 64,391
=========== ==========
</TABLE>
(6) Expenses
As more fully disclosed in the prospectus, First Variable Life charges the
Fund, based on the value of the Fund, various fees. For FPA 2 policies,
First Variable Life charges the fund 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 Cap Five, Cap Six and Vista policies for the year ended
December 31, 1999 was $1,974,087, $737,545, and $323,445, respectively.
14
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY -
FIRST VARIABLE ANNUITY FUND E
Notes to Financial Statements
December 31, 1999
(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.
(9) Year 2000 Issues (Unaudited)
Like other financial and business organizations around the world, First
Variable Life could have been adversely affected if its computer systems
and those of its service providers did not properly process and calculate
date-related information and data from and after January 1, 2000. The
Company did not experience any problems related to the year 2000 issue.
15
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholder
First Variable Life Insurance Company:
We have audited the accompanying consolidated balance sheet of First Variable
Life Insurance Company and subsidiaries (the Company) as of December 31, 1999
and the related consolidated statements of income, changes in stockholder's
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The accompanying
financial statements of First Variable Life Insurance Company and subsidiaries
as of December 31, 1998 and for each of the two years in the period ended
December 31, 1998 were audited by other auditors whose report thereon dated
February 2, 1999 expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides 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 and subsidiaries as of December 31, 1999 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1999 in conformity with generally accepted accounting principles.
March 10, 2000
<PAGE>
Report of Ernst & Young, LLP, Independent Auditors
The Board of Directors and Stockholder
First Variable Life Insurance Company
We have audited the accompanying consolidated balance sheet of First Variable
Life Insurance Company as of December 31, 1998, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the two 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 auditing standards generally accepted
in the United States. Those standards required 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 the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States.
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
Assets 1999 1998
----------- -----------
<S> <C> <C>
Investments:
Fixed maturities - available-for-sale, at fair value
(amortized cost: 1999 - $158,248; 1998 - $245,795) $ 156,056 264,741
Option contracts 2,939 2,279
Equity securities - at fair value
(cost: $684 in 1999 and 1998) 12 173
Policy loans 965 606
----------- -----------
Total investments 159,972 267,799
Cash and cash equivalents 3,944 3,353
Accrued investment income 3,003 4,878
Deferred policy acquisition costs 15,912 10,481
Value of insurance in force acquired 11,605 15,089
Property and equipment, less allowance for depreciation
of $1,106 in 1999 and $836 in 1998 1,023 574
Goodwill, less accumulated amortization of $767
in 1999 and $621 in 1998 2,156 2,302
Other assets 617 659
Assets held in separate accounts 304,341 266,257
----------- -----------
Total $ 502,573 571,392
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Future policy benefits for annuity and life products $ 119,252 206,069
Unearned revenue reserve 213 278
Supplementary contracts without life contingencies 20,831 22,955
Claim liability 66 -
Deferred income tax liability 111 5,850
Due to affiliates 303 139
Other liabilities 1,992 2,149
Liabilities related to separate accounts 304,341 266,257
----------- -----------
Total liabilities 447,109 503,697
----------- -----------
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 2,500
Additional paid-in capital 53,104 53,104
Accumulated other comprehensive (loss) income (909) 8,195
Retained earnings 769 3,896
----------- -----------
Total stockholder's equity 55,464 67,695
----------- -----------
Total liabilities and stockholder's equity $ 502,573 571,392
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Annuity and life product charges $ 4,767 4,026 3,141
Reinsurance premium (33) -- --
Net investment income 15,108 22,295 22,597
Realized gains on investments 7,209 2,723 1,227
Other income 3,940 1,576 1,368
---------- ---------- ----------
Total revenues 30,991 30,620 28,333
---------- ---------- ----------
Benefits and expenses:
Annuity and life benefits 10,208 15,643 14,856
Underwriting, acquisition, and insurance
expenses 9,758 9,828 8,313
Amortization of value of insurance in
force acquired and deferred policy
acquisition costs, net 13,030 3,473 1,602
Management fee paid to parent 589 480 480
Other expenses 1,491 1,469 2,610
---------- ---------- ----------
Total benefits and expenses 35,076 30,893 27,861
---------- ---------- ----------
(Loss) income before Federal income
tax (benefit) expense (4,085) (273) 472
Federal income tax (benefit) expense:
Current tax (4) 12 --
Deferred tax (954) (394) 153
---------- ---------- ----------
Total Federal income tax (benefit) expense (958) (382) 153
---------- ---------- ----------
Net (loss) income $(3,127) 109 319
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Capital paid-in comprehensive Retained stockholder's
stock capital income (loss) earnings equity
------- ---------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2,500 53,104 7,324 3,468 66,396
Net income - - - 319 319
Net unrealized investment
gain, net of reclassification
adjustment - - 1,742 - 1,742
------- ---------- ------------- -------- -------------
Comprehensive income 2,061
-------------
Balance at December 31, 1997 2,500 53,104 9,066 3,787 68,457
Net income - - - 109 109
Net unrealized investment
loss, net of reclassification
adjustment - - (871) - (871)
------- ---------- ------------- -------- -------------
Comprehensive loss (762)
-------------
Balance at December 31, 1998 2,500 53,104 8,195 3,896 67,695
Net loss - - - (3,127) (3,127)
Net unrealized investment
loss, net of reclassification
adjustment - - (9,104) - (9,104)
------- ---------- ------------- -------- -------------
Comprehensive loss (12,231)
-------------
Balance at December 31, 1999 $ 2,500 53,104 (909) 769 55,464
======= ========== ============= ======== =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net (loss) income $ (3,127) 109 319
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Adjustments related to interest-
sensitive products:
Annuity and life benefits 10,159 15,643 14,856
Annuity product charges (4,767) (4,026) (3,141)
Realized gains on investments (7,209) (2,723) (1,227)
Policy acquisition costs deferred (7,492) (3,665) (3,208)
Amortization of deferred policy
acquisition costs 4,151 912 594
Provision for depreciation and
other amortization 9,244 2,154 937
Provision for income taxes (1,061) (382) 153
Other 1,955 482 3,560
--------- ------- -------
Net cash provided by operating
activities 1,853 8,504 12,843
--------- ------- -------
Investing activities:
Sale, maturity, or repayment of fixed
maturity investments 111,503 61,253 24,657
Acquisition of fixed maturities (16,696) (29,074) (19,142)
Acquisition of option contracts (660) (1,223) (963)
Policy loans and other (1,078) (840) (267)
--------- ------- -------
Net cash provided by investing
activities 93,069 30,116 4,285
--------- ------- -------
Financing and other miscellaneous activities:
Receipts from interest-sensitive products
credited to policyholder account
balances 72,176 58,317 64,181
Return of policyholder account balances
on interest-sensitive products (166,507) (96,613) (80,713)
--------- ------- -------
Net cash used in financing
and other miscellaneous
activities (94,331) (38,296) (16,532)
--------- ------- -------
Net increase in cash and
cash equivalents 591 324 596
Cash and cash equivalents at beginning of year 3,353 3,029 2,433
--------- ------- -------
Cash and cash equivalents at end of year $ 3,944 3,353 3,029
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 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
ILona Financial Group, Inc. (ILona) (previously Irish Life of North
America, Inc.). ILona is a subsidiary of Irish Life plc located in Dublin,
Ireland. During 1999 Irish Life plc merged with Irish Permanent plc to form
Irish Life & Permanent plc.
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 changes in their intrinsic value resulting from
movements in the S&P 500 index. Changes in the intrinsic value are
credited to investment income.
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 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.
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
6 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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.
For variable universal life insurance and investment products, these costs
are being amortized generally in proportion to expected gross profits from
surrender charges and investment, mortality, and expense margins. That
amortization is adjusted retrospectively when estimates of current or
future gross profits (including the impact of investment gains and losses)
to be realized from a group of products are revised.
Property and Equipment
Property and equipment are reported at cost, less allowances for
depreciation. Depreciation expense is computed primarily using the
straight-line method over the estimated useful lives of the assets.
Goodwill
Goodwill represents the excess of the fair value of assets exchanged over
the net assets acquired at the date the Company was acquired by ILona.
Goodwill is being amortized on a straight-line basis over a period of
twenty years.
The carrying value of goodwill is regularly reviewed for indication 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 10% in
1999, and 3.0% to 7.0% in 1998.
7 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Deferred Income Taxes
Deferred income taxes or liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax
expenses or credits are based on the changes in the related asset or
liability from period to period.
Separate Accounts
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately
administered, principally for the benefit of certain policyholders who bear
the investment risk. The separate account assets and liabilities are
carried at fair value. Revenues and expenses related to the separate
account assets and liabilities, to the extent of benefits paid or provided
to the separate account policyholders, are excluded from the amounts
reported in the accompanying consolidated statements of income.
Recognition of Premium Revenues and Costs
Revenues for annuity and variable universal life products consist of policy
charges for the cost of insurance, administration charges, and surrender
charges assessed against policyholder account balances during the period.
Expenses related to these products include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances.
Approximately 60% of the direct business written (as measured by premiums
received) during the period ended December 31, 1999 was written through two
broker dealers. Approximately 35% and 42% of the direct business written
during the periods ended December 31 1998 and 1997, respectively, were
written through three broker dealers. 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.
8 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 has
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.
Pending Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivatives Instruments and for Hedging
Activities, effective for years beginning after June 15, 1999. SFAS
No. 133 requires all derivatives to be recorded on the balance sheet
at estimated fair value and it will broaden the definition of
derivative instruments to include all classes of financial assets and
liabilities. It will also require separate disclosure of identifiable
derivative instruments embedded in hybrid securities. The change in
fair value is to be recorded each period either in current earnings or
other comprehensive income, depending on whether a derivative is
designed as part of a hedge transaction and, if it is, on the type of
hedge transaction.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
SFAS No. 133. SFAS No. 137 defers for one year the effective date of
SFAS 133. The Company does not anticipate any material impact of
adopting SFAS No. 133.
Reclassification
Certain reclassifications have been made to the 1998 and 1997
financial statements to conform to the 1999 presentation.
(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.
9 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Fixed-Maturity Securities: Fair values of 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 Contacts: The fair values for option contracts are based on
settlement values and quoted market prices of comparable instruments.
Similar characteristics are aggregated for the purpose 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, 1999 and 1998, the
interest rate related to the outstanding policy loans ranges between
4% and 6%.
Cash and Cash Equivalents: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate their
fair value.
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
policyholder account value. The Company is not required to and has not
estimated fair value of its liabilities under other contracts.
10 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
Carrying Fair Carrying Fair
value value value value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(In thousands)
Assets:
Fixed maturities -
available-for-sale $ 156,056 156,056 264,741 264,741
Option contracts 2,939 2,939 2,279 2,279
Equity securities 12 12 173 173
Policy loans 965 965 606 606
Cash and cash equivalents 3,944 3,944 3,353 3,353
Assets held in separate
accounts 304,341 304,341 266,257 266,257
=============== =============== =============== ===============
Liabilities:
Future policy benefits for
annuity and life products $ 119,252 119,252 206,069 206,069
Supplementary contracts
without life contingencies 20,831 20,831 22,955 22,955
Liabilities related to separate
accounts 304,341 304,341 266,257 266,257
=============== =============== =============== ===============
</TABLE>
(Continued)
11
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(3) Investments
Fixed Maturities and Equity Securities
The following tables contain amortized costs and fair value information on
fixed maturities (bonds) and equity securities (commons stocks) at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------
Cost or Gross Gross
amortized unrealized unrealized Fair
cost gains losses value
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
(In thousands)
Fixed maturities - available-for-sale:
United States government
and agencies:
Mortgage and asset-
backed securities $ 15,278 627 160 15,745
Other 3,943 40 53 3,930
State, municipal, and
other governments 2,001 9 -- 2,010
Public utilities 29,233 819 484 29,568
Industrial and miscellaneous 107,793 1,124 4,114 104,803
--------------- -------------- -------------- ---------------
Total fixed maturities -
available-for-sale $ 158,248 2,619 4,811 156,056
=============== ============== ============== ===============
Equity securities $ 684 -- 672 12
=============== ============== ============== ===============
</TABLE>
(Continued)
12
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------
Cost or Gross Gross
amortized unrealized unrealized Fair
cost gains losses value
--------------- -------------- -------------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturities - available-for-sale:
United States government
and agencies:
Mortgage and asset-
backed securities $ 996 15 -- 1,011
Other 20,025 1,717 9 21,733
State, municipal, and
other governments 3,987 252 -- 4,239
Public utilities 59,463 7,622 7 67,078
Industrial and miscellaneous 161,324 10,041 685 170,680
--------------- -------------- -------------- ---------------
Total fixed maturities -
available-for-sale $ 245,795 19,647 701 264,741
=============== ============== ============== ===============
Equity securities $ 684 -- 511 173
=============== ============== ============== ===============
</TABLE>
The amortized cost and fair value of the Company's portfolio of fixed-maturity
securities at December 31, 1999, 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
--------------- ---------------
(In thousands)
<S> <C> <C>
Due in one year or less $ 8,183 8,209
Due after one year through five years 69,810 68,624
Due after five years through ten years 27,539 25,722
Due after ten years 37,438 37,756
Mortgage and asset-backed securities 15,278 15,745
--------------- ---------------
$ 158,248 156,056
=============== ===============
</TABLE>
(Continued)
13
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 reduced by 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,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
(In thousands)
Unrealized (loss) gain on fixed-maturity and equity securities
available-for-sale $ (2,864) 18,435
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs 518 (1,572)
Value of insurance in force acquired 948 (4,446)
Deferred income tax liability 489 (4,222)
-------------- --------------
Net unrealized investment (loss) gain $ (909) 8,195
============== ==============
</TABLE>
Net Investment Income
Components of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Income from:
Fixed maturities $ 14,473 21,181 22,183
Cash and cash equivalents 172 155 225
Option contracts 660 1,118 408
Policy loans 33 37 --
Other 8 -- --
-------------- -------------- --------------
15,346 22,491 22,816
Less investment expenses (238) (196) (219)
-------------- -------------- --------------
Net investment income $ 15,108 22,295 22,597
============== ============== ==============
</TABLE>
14 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Realized and Change in 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,
----------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Realized gain -
Fixed maturities $ 7,209 2,723 1,227
=============== ============== ==============
Change in unrealized:
Fixed maturities (21,138) (1,576) 4,632
Equity securities (161) (652) 134
--------------- -------------- --------------
Change in unrealized (loss)
gain on investments $ (21,299) (2,228) 4,766
=============== ============== ==============
</TABLE>
(Continued)
15
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
An analysis of sales, maturities, and principal repayments of the Company's
fixed maturities portfolio for the years ended December 31, 1999, 1998, and 1997
is as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
Gross Gross
Amortized realized realized
cost gains losses Proceeds
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
(In thousands)
Scheduled principal repayments and calls $ 28,387 2,051 4 30,434
Sales 75,907 5,431 269 81,069
-------------- ------------ ------------ --------------
$ 104,294 7,482 273 111,503
============== ============ ============ ==============
1998
----------------------------------------------------------------
Gross Gross
Amortized realized realized
cost gains losses Proceeds
-------------- ------------ ------------ --------------
(In thousands)
Scheduled principal repayments and calls $ 29,801 909 1 30,709
Sales 28,729 1,861 46 30,544
-------------- ------------ ------------ --------------
$ 58,530 2,770 47 61,253
============== ============ ============ ==============
1997
----------------------------------------------------------------
Gross Gross
Amortized realized realized
cost gains losses Proceeds
-------------- ------------ ------------ --------------
(In thousands)
Scheduled principal repayments and calls $ 11,636 447 -- 12,083
Sales 11,795 851 72 12,574
-------------- ------------ ------------ --------------
$ 23,431 1,298 72 24,657
============== ============ ============ ==============
</TABLE>
Income taxes during the years ended December 31, 1999, 1998, and 1997 include a
provision of $1,613,000, $926,000, and $416,000, respectively, for the tax
effect of realized gains.
16 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Other
At December 31, 1999 and 1998, fixed maturities with a carrying value of
$8,017,000 and $8,894,000, respectively, 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, 1999.
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.
Concentrations of Credit Risk
The Company's investment in public utility bonds at December 31, 1999
represents 18% of total investments and 6% of total assets. The holdings of
public utility bonds are widely diversified and all issues met the
Company'' investment policies and credit standards when purchased.
17 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(4) Comprehensive Income
A summary of the net unrealized gain (loss) recognized in other
comprehensive income is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Other comprehensive income:
Net unrealized (loss) gain arising during
the year, net of taxes of $5,662,
($166), and ($2,020), respectively $ (10,926) 315 3,970
Reclassification adjustment, net of taxes
of $1,608, $926, and $416, respectively (3,103) (1,797) (811)
-------------- -------------- --------------
(14,029) (1,482) 3,159
-------------- -------------- --------------
Adjustments:
Deferred policy acquisition costs, net
of taxes of $715, $70, and
($195) respectively 1,375 138 (385)
Value of insurance in force acquired,
net of taxes of $1,844, $238,
and ($525), respectively 3,550 473 (1,032)
-------------- -------------- --------------
4,925 611 (1,417)
-------------- -------------- --------------
Net unrealized (loss) gain recognized
in other comprehensive income $ (9,104) (871) 1,742
============== ============== ==============
</TABLE>
18 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(5) 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, 1999,
1998, and 1997 is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Excluding impact on net unrealized investment gains and
losses:
Balance at beginning of year $ 19,535 22,096 23,094
Accretion of interest during the year 1,289 1,457 1,582
Amortization of asset (10,167) (4,018) (2,580)
-------------- -------------- --------------
Balance prior to impact of net unrealized investment
gains and losses 10,657 19,535 22,096
Impact of net unrealized investment losses and gains 948 (4,446) (5,157)
-------------- -------------- --------------
Balance at end of year $ 11,605 15,089 16,939
============== ============== ==============
</TABLE>
During the year ended December 31, 1999, the amortization of value of
insurance in force acquired was increased by $3,900,000 due to gains
realized on securities sold supporting the acquired block of business. The
interest crediting rate applied to the value of insurance in force is 6.6%
in 1999 and 1998 and 6.9% in 1997. Amortization of the value of insurance
in force acquired for the next five years ending December 31 is expected to
be as follows: 2000 - $898,000; 2001 - $903,000; 2002 - $788,000; 2003 -
$774,000; and 2004 - $718,000.
19 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(6) Deferred Policy Acquisition Costs
Deferred policy acquisition costs is an asset which represents the deferral
of costs which vary with and directly relate to the production of new
business. An analysis of deferred acquisition costs for the years ended
December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(In thousands)
Excluding impact on net unrealized investment gains and
losses:
Balance at beginning of year $ 12,053 9,300 6,686
Capitalization's during the year 7,492 3,665 3,208
Net amortization of asset (4,151) (912) (594)
-------------- -------------- --------------
Balance prior to impact of net unrealized investment
gains and losses 15,394 12,053 9,300
Impact of net unrealized investment losses and gains 518 (1,572) (1,780)
-------------- -------------- --------------
Balance at end of year $ 15,912 10,481 7,520
============== ============== ==============
</TABLE>
During the year ended December 31, 1999, the amortization of deferred
policy acquisition costs was increased by $200,000 due to gains realized on
securities sold supporting the acquired block of business. The amortization
period is the remaining life of the policies, which is estimated to be 20
years from the date of original policy issue.
20 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(7) Federal Income Taxes
The Company and its subsidiaries each file separate federal income tax
returns. Income tax (benefit) expense is included in the consolidated
financial statements as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
(In thousands)
Income tax (benefit) expense in consolidated statements
of income on income before income tax (benefit)
expense $ (958) (382) 153
Tax (benefit) expense in consolidated statements of
changes in stockholder's equity -
Amounts attributable to change in accumulated
other comprehensive income during year -
deferred (4,711) (438) 887
------------- ------------- -------------
$ (5,669) (820) 1,040
============= ============= =============
</TABLE>
The effective tax rate on income (loss) before income tax (benefit) expense
is different from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
(In thousands)
(Loss) income before income tax (benefit) expense $ (4,085) (273) 472
============= ============ ============
Income tax (benefit) expense at federal statutory rate
(35% 1999, 34% 1998 and 1997) (1,430) (93) 160
Tax effect increase (decrease) of - other 472 (289) (7)
------------- ------------ ------------
Income tax (benefit) expense $ (958) (382) 153
============= ============ ============
</TABLE>
21 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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. The tax
effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Future policy benefits $ 2,958 2,342
Operating loss carryforwards 1,092 2,406
Unrealized depreciation on investments 202 --
Value of insurance in force acquired 188 --
Other 216 163
---------------- ----------------
4,656 4,911
---------------- ----------------
Deferred tax liabilities:
Unrealized appreciation on investments -- (5,031)
Deferred policy acquisition costs (4,320) (3,247)
Value of insurance in force acquired -- (2,090)
Other (447) (393)
---------------- ----------------
(4,767) (10,761)
---------------- ----------------
Net deferred tax liability $ (111) (5,850)
================ ================
</TABLE>
Based upon the Company's historical earnings, future expectations of
adjusted taxable income, as well as reversing gross deferred tax
liabilities, the Company believes it is more likely than not that gross
deferred tax assets will be fully realized and that a valuation allowance
with respect to the realization of the total gross deferred tax assets is
not necessary.
The Company has Federal net operating loss carryforwards reportable on its
Federal tax return aggregating $3,119,000 at December 31, 1999 which expire
from 2009 to 2012. The Company has a Federal income tax recoverable amount
at December 31, 1999 of $20,000.
(8) 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. Contributions made
to the plan during the years ended December 31, 1999, 1998, and 1997 were
not significant.
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
22 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(with a maximum contribution of $10,000 in 1999) 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 $87,000,
$77,000, and $37,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
The Company also has certain other benefit and incentive plans. These plans
are considered immaterial to the consolidated financial statements.
(9) Stockholder's Equity - Statutory Limitations on Dividend
The ability of the Company to pay dividends to ILona is restricted due to
the fact that prior approval of insurance regulatory authorities is
normally required for payment of dividends to the stockholder which exceed
an annual limitation. During 2000, this annual limitation aggregates to
$2.857,000; 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 ($24,000,000 at December 31, 1999)
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 income (loss) for the Company, as determined in accordance with
statutory accounting practices, was $222,000, ($2,466,000), and
($1,240,000) for the years ended December 31, 1999, 1998, and 1997,
respectively. Total statutory capital and surplus was $31,068,000 at
December 31, 1999 and $30,451,000 at December 31, 1998.
(10) Commitments and Contingencies
The Company leases it home office space and certain other equipment under
operating leases which run through 2002. 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 1999 and
1998. During the years ended December 31, 1999, 1998, and 1997, rent
expense totaled $387,000, $361,000, and $228,000, respectively. At December
31, 1999 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
--------------
(In thousands)
2000 $665
2001 302
----
$967
====
The Company is periodically subject to various lawsuits which arise in the
ordinary course of business. At December 31, 1999 the Company was not
involved in any such litigation.
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
23 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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.
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," which requires the accrual of guaranty
fund assessments. SOP 97-3 is effective beginning January 1, 1999. The
Company has recorded a liability of $165,000 at December 31, 1999 for
future payments of guarantee assessments, Which was charged to
underwriting, acquisition, and insurance expenses in the consolidated
statements of income.
(11) 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 $589,000 and $480,000 in 1999 and 1998, respectively. 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 1999, 1998, and 1997 by the Company pursuant
to this agreement were $684,000, $506,000, and $504,000, respectively.
24 (Continued)
<PAGE>
FIRST VARIABLE LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(12) Transfer of Block of Business
In 1999, the Company transferred a block of its deferred annuity business
relating to the State of Arkansas Deferred Compensation Plan. Fixed
reserves of $74,205,000 were transferred to AUSA Life, and bonds with a
book value of $70,647,000 were sold to fund this transfer. Separate account
assets and liabilities totaling $41,117,000 were also transferred to AUSA
Life.
The effect on the consolidated statements of income from this transaction
is as follows:
Year Ended
December 31,
1999
----------------
(In thousands)
Revenues:
Realized gains on investments $ 4,978
Other income 2,206
--------
Total revenues 7,184
Benefits and expenses:
Amortization of value of insurance
in force acquired and deferred
policy acquisition costs 4,100
--------
Income before income tax expense 3,084
Income tax expense 1,079
--------
Net income $ 2,005
========
(13) 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 employee 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.
(14) Year 2000 Issue (Unaudited)
Like other financial and business organizations around the world, the
Company could have been adversely affected if its computer systems and
those of its service providers did not properly process and calculate date-
related information and data from and after January 1, 2000. The Company
did not experience any problems related to the year 2000 issue.
25
<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; Best Anniversary Value Death Benefit Rider; Extra
Protector Death Benefit Rider; Guaranteed Minimum Income
Payment Rider(5), Estate Protector Death Benefit Rider (7)
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 Agreement with Variable Investors
Series Trust; Form of Fund Participation Agreement with
Federated Insurance Series(3) Form of Fund Participation
Agreements with AIM Variable Insurance Funds, Inc., et al;
American Century Investment Management, Inc.; Deutsche Asset
Management VIT Funds (formerly known as 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)
(b). Form of Fund Participation Agreements with Fidelity Variable
Insurance Products Funds, Fidelity Variable Insurance Products
Funds II; Fidelity Variable Insurance Products Funds III; and
Seligman Portfolios, Inc. (7)
9.(a) Consent of Counsel, First Variable Life Insurance Company (5)
(b) Consent of Blazzard, Grodd & Hasenauer, P.C. (5)
10. Consent of KPMG LLP, Independent Auditors (7)
Consent of Ernst & Young, Independent Auditors (7)
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information (7)
14. Not Applicable
<PAGE>
15. Powers of Attorney (6) - of the following individuals
appointing John M. Soukup 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.
(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) Incorporated by reference to the Registrant's Post-Effective Amendment No.
4 to the Form N-4 Registration Statement (Registration No. 333-12197) filed
electronically with the Securities and Exchange Commission on or about
April 29, 1999.
(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).
(7) Filed herewith.
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, Texas Christian University
P.O. Box 297080, Ft. Worth, TX 76219
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
<PAGE>
Executive Officer & Director
John M. Soukup, President
Other Executive Officers
David L. Anders, Senior Vice President, Sales
Steven J. Horn, Senior Vice President and Chief Operations Officer
Jeffery K. Hoelzel, Vice President, General Counsel & Secretary
Christopher S. Harden, Vice President & Treasurer
Martin Sheerin, Vice President & Chief Actuary
Kari S. Stanway, Vice President
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
- -------- ------------------------------------------------------
DEPOSITOR OR REGISTRANT.
-----------------------
[ORGANIZATIONAL CHART APPEARS HERE]
* The beneficiaries of the Voting Trust are as follows:
1. Irish Life International, B.V. a wholly owned subsidiary of Irish Life
Overseas, Limited
2. Irish Life Overseas, Limited a wholly owned subsidiary of Irish Life
Assurance plc
3. Irish Life Assurance plc, a wholly owned subsidiary of Irish Life plc,
headquartered in Dublin, Ireland
Note: An upstream company's ownership of a downstream company is 100% unless
otherwise noted. Guarantee Reserve Life Insurance Company is owned by
Irish Life of North America, Inc. (owns 16.11%) and GR Holding Co.,a
wholly owned subsidiary of Irish Life of North America, Inc. (owns
83.89%).
ITEM 27. NUMBER OF CONTRACT OWNERS
- ------- -------------------------
As of March 31, 2000, there were 652 Owners of Qualified Contracts and 512
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
<PAGE>
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
Jeffery K. Hoelzel Secretary & Director
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.
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.
<PAGE>
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, 2000.
FIRST VARIABLE ANNUITY FUND E
(Registrant)
By: FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John M. Soukup
----------------------------------
John M. Soukup, President
FIRST VARIABLE LIFE INSURANCE COMPANY
(Depositor)
By: /s/ John M. Soukup
--------------------
John M. Soukup
ATTEST:
/s/Jeffery K. Hoelzel
- ---------------------
Jeffery K. Hoelzel
Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 5 to the Registration Statement has been signed below by the
following persons in the capacities indicated with First Variable Life Insurance
Company on this day of April, 2000.
PRINCIPAL EXECUTIVE OFFICER:
_______________________________
John M. Soukup
President
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
________________________________
Christopher S. Harden
Vice President & Treasurer
DIRECTORS:
_________________________________ _________________________________
Ronald M. Butkiewicz Clark Ramsey
_________________________________ _________________________________
John M. Soukup Jeff S. Liebmann*
_________________________________ _________________________________
Michael J. Corey* Kenneth R. Meyer*
_________________________________ _________________________________
Michael R. Ferrari* Philip R. O'Connor*
_________________________________ _________________________________
Shane W. Gleeson Norman A. Fair
* By:_________________________
John M. Soukup
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
No. Title of Exhibit Page
- --- ---------------- ----
EX-99.B4(b) Estate Protector Death Benefit Rider
EX-99.B8(b) Form of Fund Participation Agreements with Fidelity
Variable Insurance Products Fund; Fidelity Variable
Insurance Products Funds II; Fidelity Variable
Insurance Products Funds III; and Seligman
Portfolios, Inc.
EX-99.B10 Consent of Ernst & Young LLP, Independent Auditors
Consent of KPMG LLP, Independent Auditors
EX-99.B13 Calculation of Performance Information
<PAGE>
[LOGO OF FIRST VARIABLE LIFE]
A stock life insurance company
Little Rock, Arkansas
ESTATE PROTECTOR 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 Estate 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; 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:
Estate Protector Death Benefit. The Death Benefit prior to the Annuity Date is:
. the Death Benefit under this Contract without regard to the Estate
Protector Death Benefit plus
. if the Owner is 60 years old or less on the Issue Date of the Contract, the
Contract Value calculated as of the Death Benefit Date minus Purchase
Payments, and that amount multiplied by 40%; or if the Owner is more than
60 years old but less than 80 years old on the Issue Date of the Contract,
the Contract Value calculated as of the Death Benefit Date minus Purchase
Payments, and that amount multiplied by 25%.
In no event shall the Estate Protector Death Benefit decrease the Death
Benefit.
The maximum benefit payable as a result of this rider shall not exceed the
amount of net Purchase Payments.
Non-natural Owner. If the Owner is a non-natural person, the Annuitant will be
considered the Owner for purposes of the Estate Protector Death Benefit.
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.
1
<PAGE>
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;
. termination of the Contract.
The Estate Protector Death Benefit 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/ Jeffery K. Hoelzel /s/ John M. Soukup
Secretary President
First Variable Life Insurance Company
Little Rock, Arkansas
2
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
Among
VARIABLE INSURANCE PRODUCTS FUND,
---------------------------------
FIDELITY DISTRIBUTORS CORPORATION
---------------------------------
and
FIRST VARIABLE LIFE INSURANCE COMPANY
-------------------------------------
THIS AGREEMENT, made and entered into as of the V day of May, 2000 by
and among FIRST VARIABLE LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Arkansas corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter 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 Fund to be sold to
and held by variable annuity
1
<PAGE>
and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the variable life insurance and/or variable annuity products
identified on Exhibit A hereto ("Contracts") have been or will be registered by
the Company under the 1933 Act, unless such Contracts are exempt from
registration thereunder; and
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 the aforesaid Contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act, unless such Account is exempt from
registration thereunder; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
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 each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the
2
<PAGE>
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. Beginning within three months of the effective date of
this Agreement, the Company agrees that all order for the purchase and
redemption of Fund shares on behalf of the Accounts will be placed by the
Company with the Funds or their transfer agent by electronic transmission.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") 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 is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article It
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the Contracts shall be invested in the Fund, in such
other Funds advised by the Adviser 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 Fund 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 all the Portfolios of the Fund; or (b) the Company gives the Fund
and the Underwriter 45 days written notice of its
3
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intention to make such other investment company available as a funding vehicle
for the Contracts; or (c) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company, which consent shall not be unreasonably withheld.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act or are exempt from registration
thereunder; that the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. 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 each Account prior to any
issuance or sale thereof as a segregated asset account pursuant to the Arkansas
Insurance Code and has registered or, prior to any issuance or sale of the
Contracts, will register each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
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<PAGE>
2.2. The Fund represents and warrants that Fund 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 State of Massachusetts and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund 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 Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, life insurance or annuity insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund 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 may make such payments
in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan
under which it makes no payments for distribution expenses. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
(b) With respect to Service Class shares and Service Class 2 shares,
the Fund has adopted Rule 12b-1 Plans under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board of
trustees, a majority of whom are not interested persons of the Fund, which has
formulated and approved each of its Rule l2b-1 Plans to finance distribution
expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plans will
be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Massachusetts and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Massachusetts to the extent required to perform
this Agreement.
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<PAGE>
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the Commonwealth of Massachusetts and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund 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.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals/
entities dealing with the money and/or securities of the Fund are and shall
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-(I) of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. 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 Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements, Voting
-----------------------------------------
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus, private offering
memorandum or other disclosure document ("Disclosure Document") for the
Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the
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Statement of Additional Information for the Contracts printed together in one
document Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in the
following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information provided
by the Company to its existing owners of Contracts in order to update disclosure
annually as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Fund. If the Company chooses to receive camera-ready film
in lieu of receiving printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Fund's per unit cost of typesetting and printing the Fund's prospectus. The
same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information which are covered in
Section 3. 1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund 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 participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
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<PAGE>
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund 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, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within five
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, 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 its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within five Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or Disclosure Document for the Contracts,
as such registration statement or Disclosure Document may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company 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
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<PAGE>
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Fund or its shares, contemporaneously with the filing
of such document with the Securities and Exchange Commission or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, Disclosure Documents, Statements of Additional
Information, reports, solicitations for voting instructions, 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
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities or, if a Contract and its
associated Account are exempt from registration, at the time such documents are
first published.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: 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 (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, and registration statements,
Disclosure Documents, Statements of Additional Information, shareholder reports,
and proxy materials.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
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<PAGE>
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus and reports to owners of Contracts issued by the Company. The Fund
shall bear the costs of soliciting Fund proxies from Contract owners, including
the costs of mailing proxy materials and tabulating proxy voting instructions,
not to exceed the costs charged by any service provider engaged by the Fund for
this purpose. The Fund and the Underwriter shall not be responsible for the
costs of any proxy solicitations other than proxies sponsored by the Fund.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. 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 Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. 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
any 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.
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7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question 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 Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. 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 Fund's election, to withdraw the affected Account's
investment in the Fund 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 members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs 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 members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action
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<PAGE>
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund 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 by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. 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
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 (a) the Fund 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;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 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
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (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 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, or investment in, the Fund'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 Disclosure
Documents for the Contracts or contained in the Contracts or sales
literature 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 the Company by or on behalf of the Fund for
use in any Disclosure Document relating to the Contracts or in the
Contracts or sales literature (or any amendment or
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<PAGE>
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund 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 a statement or omission was made in
reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) 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
(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,
as limited by and in accordance with the provisions of Sections 8. 1 (b) and 8.1
(c) hereof
8.1(b). The 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 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 or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The 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 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
13
<PAGE>
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.
8.1(d). 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 Fund Shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter 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 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) 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 are related to the sale or acquisition of, or investment in, the
Fund's shares or the Contracts and:
(i) 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 the
Fund (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 the Underwriter
or Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund, Adviser or Underwriter
or persons under their control, with respect to the sale or
distribution of the Contracts or Fund 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
14
<PAGE>
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 and in conformity with
information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any failure by the Fund 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 diversification
requirements specified in Article VI 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 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
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.
8.2(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 fees and 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.
15
<PAGE>
8.2(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.
8.3. Indemnification By the Fund
8.3(a). The Fund 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 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) 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 Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 83(b) and 83(c)
hereof.
8.3(b). The Fund 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 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 Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund 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 Fund 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 Fund of any
such claim shall not relieve the Fund 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 Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such
16
<PAGE>
party of the Fund'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 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.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund 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
Account, or the sale or acquisition of shares of the Fund.
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
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall continue in full force and effect until the
first to occur of
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under
17
<PAGE>
any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified
in Article VI hereof, or
(f) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company and/or its affiliated
companies 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 Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
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
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; provided,
however any termination under this Section 10.1(h) shall be
effective forty five (45) days after the notice specified in
Section 1.6(b) was given.
10.2. Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall at the option of the 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 shall be permitted to
reallocate investments in the Fund, 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 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.3. The provisions of Articles II (Representations and Warranties),
VIII (Indemnification), IX (Applicable Law) and XII (Miscellaneous) shall
survive termination of this Agreement. In addition, all other applicable
provisions of this Agreement shall survive termination as long as shares of the
Fund are held on behalf of Contract owners in accordance with section 10.2,
except that the Fund and Underwriter shall have no further obligation to make
Fund shares available in Contracts issued after termination.
18
<PAGE>
10.4. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (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 Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund 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 Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. 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 Fund: 82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company: First Variable Life Insurance Company
2122 York Road, Suite 300
Oak Brook, Illinois 60523
Attention: President
If to the Underwriter: 82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
-------------
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts
19
<PAGE>
and all information reasonably identified as confidential in writing by any
other party hereto and, except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information until such time as it may come into the public domain without the
express written consent of the affected party.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 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.
12.6 Each party hereto 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 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.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
20
<PAGE>
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after
the end of each quarterly period:
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon
as practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as
practical after the filing thereof,
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
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.
FIRST VARIABLE LIFE INSURANCE COMPANY
By:
Name: John M. Soukup
Title: President
VARIABLE INSURANCE PRODUCTS FUND
By:
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By:
Kevin J. Kelly
Vice President
21
<PAGE>
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
<TABLE>
<CAPTION>
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
- -------------------------------------- --------------------------
<S> <C>
First Variable Fund E VA 8860
12/4/79 VA 20230
VA 20224
VA 20045
VA 9000
Separate Account VL VUL 8990
3/6/87 VUL 8980
</TABLE> VL 8960
22
<PAGE>
SCHEDULE D
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contract owner/policyholder (the "Customer") as
of the Record Date. Allowance should be made for account adjustments made
after this date that could affect the status of the Customers' accounts as
of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
C. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
23
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by
the Insurance Company). Contents of envelope sent to Customers by Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company. The Fund must allow at least a 15-day
solicitation time to the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from (but
not including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
24
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards
that have "kicked out" (e.g. mutilated, illegible) of the procedure are
"hand verified," i.e., examined as to why they did not complete the system.
Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. Fidelity
Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
25
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
AIM Variable Insurance Funds, Inc.
American Century Variable Portfolios, Inc.
Deutsche Asset Management VIT Funds
Federated Insurance Series
Lord Abbett Series Fund, Inc.
MFS Variable Insurance Trust
Seligman Portfolios, Inc.
Templeton Variable Products Series Fund
Variable Investors Series Trust
26
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
Among
VARIABLE INSURANCE PRODUCTS FUND II
-----------------------------------
FIDELITY DISTRIBUTORS CORPORATION
---------------------------------
and
FIRST VARIABLE LIFE INSURANCE COMPANY
-------------------------------------
THIS AGREEMENT, made and entered into as of the 1" day of May, 2000 by
and among FIRST VARIABLE LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Arkansas corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND 11, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter 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 Fund to be sold to
and held by variable annuity
1
<PAGE>
and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the variable life insurance and/or variable annuity products
identified on Exhibit A hereto ("Contracts") have been or will be registered by
the Company under the 1933 Act, unless such Contracts are exempt from
registration thereunder; and
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 the aforesaid Contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act, unless such Account is exempt from
registration thereunder; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
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 each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the
2
<PAGE>
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. Beginning within three months of the effective date of
this Agreement, the Company agrees that all order for the purchase and
redemption of Fund shares on behalf of the Accounts will be placed by the
Company with the Funds or their transfer agent by electronic transmission.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") 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 is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the Contracts shall be invested in the Fund, in such
other Funds advised by the Adviser 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 Fund 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 all the Portfolios of the Fund; or (b) the Company gives the Fund
and the Underwriter 45 days written notice of its
3
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intention to make such other investment company available as a funding vehicle
for the Contracts; or (c) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company, which consent shall not be unreasonably withheld.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act or are exempt from registration
thereunder; that the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. 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 each Account prior to any
issuance or sale thereof as a segregated asset account pursuant to the Arkansas
Insurance Code and has registered or, prior to any issuance or sale of the
Contracts, will register each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
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<PAGE>
2.2. The Fund represents and warrants that Fund 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 State of Massachusetts and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund 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 Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, life insurance or annuity insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund 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 may make such payments
in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan
under which it makes no payments for distribution expenses. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
(b) With respect to Service Class shares and Service Class 2 shares,
the Fund has adopted Rule 12b-1 Plans under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board of
trustees, a majority of whom are not interested persons of the Fund, which has
formulated and approved each of its Rule 12b-1 Plans to finance distribution
expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plans will
be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Massachusetts and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Massachusetts to the extent required to perform
this Agreement.
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<PAGE>
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the Commonwealth of Massachusetts and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund 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.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall 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-(I) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, and that said
bond is issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. 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 Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide cameraready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus, private offering
memorandum or other disclosure document ("Disclosure Document") for the
Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the
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<PAGE>
Statement of Additional Information for the Contracts printed together in one
document. Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in the
following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information provided
by the Company to its existing owners of Contracts in order to update disclosure
annually as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Fund. If the Company chooses to receive camera-ready film
in lieu of receiving printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Fund's per unit cost of typesetting and printing the Fund's prospectus. The
same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund 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 participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
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<PAGE>
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
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, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within five
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, 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 its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within five Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or Disclosure Document for the Contracts,
as such registration statement or Disclosure Document may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company 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
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<PAGE>
for no-action letters, and all amendments to any of the above, that relate to
the Fund or its shares, contemporaneously with the filing of such document with
the Securities and Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, Disclosure Documents, Statements of Additional
Information, reports, solicitations for voting instructions, 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
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities or, if a Contract and its
associated Account are exempt from registration, at the time such documents are
first published.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: 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 (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, and registration statements,
Disclosure Documents, Statements of Additional Information, shareholder reports,
and proxy materials.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
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<PAGE>
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus and reports to owners of Contracts issued by the Company. The Fund
shall bear the costs of soliciting Fund proxies from Contract owners, including
the costs of mailing proxy materials and tabulating proxy voting instructions,
not to exceed the costs charged by any service provider engaged by the Fund for
this purpose. The Fund and the Underwriter shall not be responsible for the
costs of any proxy solicitations other than proxies sponsored by the Fund.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. 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 Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. 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
any 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.
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7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (Le., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. 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 Fund's election, to withdraw the affected Account's
investment in the Fund 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 members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs 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 members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action
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<PAGE>
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund 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 by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. 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
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 (a) the Fund 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;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 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
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (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 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, or investment in, the Fund'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 Disclosure
Documents for the Contracts or contained in the Contracts or sales
literature 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 the Company by or on behalf of the Fund for
use in any Disclosure Document relating to the Contracts or in the
Contracts or sales literature (or any amendment or
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supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund 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 a statement or omission was made in
reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) 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
(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,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The 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 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 or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The 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 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
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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.
8.1(d). 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 Fund Shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter 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 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) 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 are related to the sale or acquisition of, or investment in, the
Fund's shares or the Contracts and:
(i) 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 the
Fund (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 the Underwriter
or Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund, Adviser or Underwriter
or persons under their control, with respect to the sale or
distribution of the Contracts or Fund 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
14
<PAGE>
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 and in conformity with
information furnished to the Company by or on behalf of the Fund;
or
(iv) arise as a result of any failure by the Fund 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 diversification
requirements specified in Article VI 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 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
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.
8.2(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 fees and 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.
15
<PAGE>
8.2(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.
8.3. Indemnification By the Fund
8.3(a). The Fund 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 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) 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 Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof
8.3(b). The Fund 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 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 Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund 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 Fund 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 Fund of any
such claim shall not relieve the Fund 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 Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such
16
<PAGE>
party of the Fund'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 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.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund 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
Account, or the sale or acquisition of shares of the Fund.
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
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall continue in full force and effect until the
first to occur of
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under
17
<PAGE>
any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified
in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies 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 Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter 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
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective forty
five (45) days after the notice specified in Section 1.6(b) was
given.
10.2. Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall at the option of the 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 shall be permitted to
reallocate investments in the Fund, 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 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.3. The provisions of Articles II (Representations and Warranties),
VIII (Indemnification), IX (Applicable Law) and XII (Miscellaneous) shall
survive termination of this Agreement. In addition, all other applicable
provisions of this Agreement shall survive termination as long as shares of the
Fund are held on behalf of Contract owners in accordance with section 10.2,
except that the Fund and Underwriter shall have no further obligation to make
Fund shares available in Contracts issued after termination.
18
<PAGE>
10.4. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (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 Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund 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 Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. 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 Fund: 82 Devonshire Street Boston, Massachusetts 02109
Attention: Treasurer
If to the Company: First Variable Life Insurance Company 2122 York
Road, Suite 300 Oak Brook, Illinois 60523 Attention: President
If to the Underwriter: 82 Devonshire Street Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
-------------
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts
19
<PAGE>
and all information reasonably identified as confidential in writing by any
other party hereto and, except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information until such time as it may come into the public domain without the
express written consent of the affected party.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 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.
12.6 Each party hereto 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 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.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the
end of each fiscal year;
20
<PAGE>
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days
after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders, as
soon as practical after the delivery thereof to
stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as
soon as practical after the filing thereof,
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
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.
FIRST VARIABLE LIFE INSURANCE COMPANY
By:
Name: John M. Soukup
Title: President
VARIABLE INSURANCE PRODUCTS FUND II
By:
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By:
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
- -------------------------------------- --------------------------
First Variable Fund E VA 8860
12/4/79 VA 20230
VA 20224
VA 20045
VA 9000
Separate Account VL VUL 8990
3/6/87 VUL 8980
VL 8960
22
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contract owner/policyliolder (the "Customer")
as of the Record Date. Allowance should be made for account adjustments made
after this date that could affect the status of the Customers' accounts as
of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
23
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by the
Insurance Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company. The Fund must allow at least a 15-day
solicitation time to the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place in
another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is
the signature needed on the Card.
24
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards
that have "kicked out" (e.g. mutilated, illegible) of the procedure are
"hand verified," i.e., examined as to why they did not complete the system.
Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which s then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. Fidelity
Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
25
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
AIM Variable Insurance Funds, Inc.
American Century Variable Portfolios, Inc.
Deutsche Asset Management VIT Funds
Federated Insurance Series
Lord Abbett Series Fund, Inc.
MFS Variable Insurance Trust
Seligman Portfolios, Inc.
Templeton Variable Products Series Fund
Variable Investors Series Trust
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
Among
VARIABLE INSURANCE PRODUCTS FUND III,
-------------------------------------
FIDELITY DISTRIBUTORS CORPORATION
---------------------------------
and
FIRST VARIABLE LIFE INSURANCE COMPANY
-------------------------------------
THIS AGREEMENT, made and entered into as of the V day of May, 2000 by
and among FIRST VARIABLE LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Arkansas corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND III, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter 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 Fund to be sold to
and held by variable annuity
1
<PAGE>
and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the variable life insurance and/or variable annuity products
identified on Exhibit A hereto ("Contracts") have been or will be registered by
the Company under the 1933 Act, unless such Contracts are exempt from
registration thereunder; and
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 the aforesaid Contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act, unless such Account is exempt from
registration thereunder; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the " 1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
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 each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE 1. Sale of Fund Shares
----------------------
1. 1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1. 1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the
2
<PAGE>
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. Beginning within three months of the effective date of
this Agreement, the Company agrees that all order for the purchase and
redemption of Fund shares on behalf of the Accounts will be placed by the
Company with the Funds or their transfer agent by electronic transmission.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") 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 is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles 1, 111, V, VII and Section 2.5 of Article 11
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the Contracts shall be invested in the Fund, in such
other Funds advised by the Adviser 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 Fund 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 all the Portfolios of the Fund; or (b) the Company gives the Fund
and the Underwriter 45 days written notice of its
3
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intention to make such other investment company available as a funding vehicle
for the Contracts; or (c) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company, which consent shall not be unreasonably withheld.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE 11. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act or are exempt from registration thereunder;
that the Contracts will be issued and sold in compliance in all material
respects with all applicable Federal and State laws and that the sale of the
Contracts shall comply in all material respects with state insurance suitability
requirements. 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 each Account prior to any issuance
or sale thereof as a segregated asset account pursuant to the Arkansas Insurance
Code and has registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
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2.2. The Fund represents and warrants that Fund 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 State of Massachusetts and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund 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 Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, life insurance or annuity insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently does
not intend to make any payments to finance distribution expenses pursuant to
Rule 12b- I under the 1940 Act or otherwise, although it may make such payments
in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b- I Plan
under which it makes no payments for distribution expenses. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-I to finance
distribution expenses.
(b) With respect to Service Class shares and Service Class 2 shares,
the Fund has adopted Rule 12b- I Plans under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board of
trustees, a majority of whom are not interested persons of the Fund, which has
formulated and approved each of its Rule 12b-I Plans to finance distribution
expenses of the Fund and that any changes to the Fund's Rule 12b- I Plans will
be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Massachusetts and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Massachusetts to the extent required to perform
this Agreement.
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<PAGE>
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the Commonwealth of Massachusetts and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund 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.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall 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
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, and that said
bond is issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. 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 Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements, Voting
-----------------------------------------
3. 1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus, private offering
memorandum or other disclosure document ("Disclosure Document") for the
Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the
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Statement of Additional Information for the Contracts printed together in one
document. Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in the
following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information provided
by the Company to its existing owners of Contracts in order to update disclosure
annually as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Fund. If the Company chooses to receive camera-ready film
in lieu of receiving printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Fund's per unit cost of typesetting and printing the Fund's prospectus. The
same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in a particular separate account in the same proportion as
Fund shares of such portfolio for which instructions have
been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund 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 participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
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<PAGE>
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
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, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within five
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, 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 its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within five Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or Disclosure Document for the Contracts,
as such registration statement or Disclosure Document may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company 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
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<PAGE>
for no-action letters, and all amendments to any of the above, that relate to
the Fund or its shares, contemporaneously with the filing of such document with
the Securities and Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, Disclosure Documents, Statements of Additional
Information, reports, solicitations for voting instructions, 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
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities or, if a Contract and its
associated Account are exempt from registration, at the time such documents are
first published.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: 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 (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, and registration statements,
Disclosure Documents, Statements of Additional Information, shareholder reports,
and proxy materials.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
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<PAGE>
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus and reports to owners of Contracts issued by the Company. The Fund
shall bear the costs of soliciting Fund proxies from Contract owners, including
the costs of mailing proxy materials and tabulating proxy voting instructions,
not to exceed the costs charged by any service provider engaged by the Fund for
this purpose. The Fund and the Underwriter shall not be responsible for the
costs of any proxy solicitations other than proxies sponsored by the Fund.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. 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 Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. 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
any 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.
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7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question 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 Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. 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 Fund's election, to withdraw the affected Account's
investment in the Fund 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 members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs 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 members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action
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<PAGE>
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund 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 by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. 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
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 (a) the Fund 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;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 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
------------------------------
8.1 (a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (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 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, or investment in, the Fund'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 Disclosure
Documents for the Contracts or contained in the Contracts or sales
literature 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 the Company by or on behalf of the Fund for
use in any Disclosure Document relating to the Contracts or in the
Contracts or sales literature (or any amendment or
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supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund 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 a statement or omission was made in
reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) 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
(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,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The 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 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 or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The 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 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
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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.
8.1 (d). 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 Fund Shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Underwriter
----------------------------------
8.2(a). The Underwriter 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 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) 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 are related to the sale or acquisition of, or investment in, the
Fund's shares or the Contracts and:
(i) 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
the Fund (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 the Underwriter or Fund by or on behalf of the
Company for use in the registration statement or prospectus
for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund, Adviser or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund 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
14
<PAGE>
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 and in
conformity with information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any failure by the Fund 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 diversification
requirements specified in Article VI 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 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
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.
8.2(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 fees and 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.
15
<PAGE>
8.2(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.
8.3. Indemnification By the Fund
---------------------------
8.3(a). The Fund 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 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) 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 Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund 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 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 Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund 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 Fund 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 Fund of any
such claim shall not relieve the Fund 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 Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such
16
<PAGE>
party of the Fund'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 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.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund 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
Account, or the sale or acquisition of shares of the Fund.
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
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under
17
<PAGE>
any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified
in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine in their sole judgment
exercised in good faith, that the Company and/or its affiliated
companies 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 Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
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
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; provided,
however any termination under this Section 10.1(h) shall be
effective forty five (45) days after the notice specified in
Section 1.6(b) was given.
10.2. Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall at the option of the 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 shall be permitted to
reallocate investments in the Fund, 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 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.3. The provisions of Articles II (Representations and Warranties),
VIII (Indemnification), IX (Applicable Law) and XII (Miscellaneous) shall
survive termination of this Agreement. In addition, all other applicable
provisions of this Agreement shall survive termination as long as shares of the
Fund are held on behalf of Contract owners in accordance with section 10.2,
except that the Fund and Underwriter shall have no further obligation to make
Fund shares available in Contracts issued after termination.
18
<PAGE>
10.4. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (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 Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund 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 Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. 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 Fund: 82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company: First Variable Life
Insurance Company 2122 York Road,
Suite 300 Oak Brook, Illinois 60523
Attention: President
If to the Underwriter: 82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
-------------
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
19
<PAGE>
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 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.
12.6 Each party hereto 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 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.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the
end of each fiscal year;
20
<PAGE>
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days
after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon
as practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as
practical after the filing thereof,
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
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.
FIRST VARIABLE LIFE INSURANCE COMPANY
By:
Name: John M. Soukup
Title: President
VARIABLE INSURANCE PRODUCTS FUND III
By:
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By:
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
<TABLE>
<CAPTION>
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
- ---------------------------------------- --------------------------------
<S> <C>
First Variable Fund E VA 8860
12/4/79 VA 20230
VA 20224
VA 20045
VA 9000
Separate Account VL VUL 8990
3/6/87 VUL 8980
VL 8960
</TABLE>
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
23
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by
the Insurance Company). Contents of envelope sent to Customers by Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company. The Fund must allow at least a 15-day
solicitation time to the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from (but
not including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
24
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" maybe done orally, but must always be
followed up in writing.
25
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
AIM Variable Insurance Funds, Inc.
American Century Variable Portfolios, Inc.
Deutsche Asset Management VIT Funds
Federated Insurance Series
Lord Abbett Series Fund, Inc.
MFS Variable Insurance Trust
Seligman Portfolios, Inc.
Templeton Variable Products Series Fund
Variable Investors Series Trust
26
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports on the consolidated financial statements of
First Variable Life Insurance Company dated March 10, 2000 and on the financial
statements of the sub-accounts of First Variable Life Insurance Company - First
Variable Annuity Fund E dated March 17, 2000, and to the reference to our firm
under "Experts" in the Statement of Additional Information in the Post-Effective
Amendment No. 5 (Form N-4, No. 333-12197) of Capital Six VA.
KPMG LLP
Chicago, Illinois
April 24, 2000
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the use of our reports dated February 2, 1999 with respect to the
consolidated 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. 5 to the Registration Statement (Form N-4 No. 333-12197 and the related
Prospectus of First Variable Life Insurance Company.
ERNST & YOUNG LLP
Chicago, Illinois
April 24, 2000
<PAGE>
CAP6
4/25/00
Cash Management Direct Fund E Yield Calculations as of 12/31/99
Seven Day Yield
12/31/99 Unit Price 11.439262 (A)
12/23/99 Unit Price 11.435434 (B)
Difference 0.003828 (C)
Base Return (C)/(B) 0.000334749
Annualized Base Return = (C)/(B) * 365/7 = 1.75%
Effective Yield = (1+Base Return)/(365/7)/ -1 = 1.76%
Total Return on Direct Portfolios over respective periods
Formula P*(1+T)/N/ = ERV T = ((ERV/P)/1/N/) -1
<TABLE>
<CAPTION>
<S> <C> <C>
Policy Issue Fee 0
Ann Contract Mnt Chg 30.00
Time Since Start 3.01 12/26/96
Time Since Start 3.01 (Small Cap & Growth & Income Portfolio's)
Time Since Start 0.67 5/1/99
Surrender Charge 1 7
Surrender Charge 2 6
Surrender Charge 3 5
Surrender Charge 4 4
Surrender Charge 5 3
Surrender Charge 6 2
Surrender Charge 7 0
</TABLE>
CASH MANAGEMENT CASH MANAGEMENT
ONE YEAR START OF PORTFOLIO
Unit Price EOP 11.439262 Unit Price EOP 11.439262
Unit Price BOP 11.101153 Unit Price BOP 10.000000
Accum Value EOP 1,030.46 Accum Value EOP 1,143.93
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.05
Surrender Value 959.72 Surrender Value 1,100.88
Effective Yield -4.028% Effective Yield 3.240%
GROWTH GROWTH
ONE YEAR START OF PORTFOLIO
<PAGE>
Unit Price EOP 26.636872 Unit Price EOP 26.636872
Unit Price BOP 20.098484 Unit Price BOP 10
Accum Value EOP 1,325.32 Accum Value EOP 2,663.69
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.05
Surrender Value 1,254.58 Surrender Value 2,620.64
Effective Yield 25.458% Effective Yield 37.669%
MULTIPLE STRATEGIES MULTIPLE STRATEGIES
ONE YEAR START OF PORTFOLIO
Unit Price EOP 22.779522 Unit Price EOP 22.779522
Unit Price BOP 18.065897 Unit Price BOP 10.000000
Accum Value EOP 1,260.91 Accum Value EOP 2,277.95
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.04
Surrender Value 1,190.17 Surrender Value 2,234.91
Effective Yield 19.017% Effective Yield 30.584%
U.S. GOVERNMENT BOND U.S. GOVERNMENT BOND
ONE YEAR START OF PORTFOLIO
Unit Price EOP 11.482468 Unit Price EOP 11.482468
Unit Price BOP 11.881327 Unit Price BOP 10.000000
Accum Value EOP 966.43 Accum Value EOP 1,148.25
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.05
Surrender Value 895.69 Surrender Value 1,105.20
Effective Yield -10.431% Effective Yield 3.375%
HIGH INCOME BOND HIGH INCOME BOND
ONE YEAR START OF PORTFOLIO
Unit Price EOP 13.0358 Unit Price EOP 13.0358
Unit Price BOP 12.995091 Unit Price BOP 10.000000
Accum Value EOP 1,003.13 Accum Value EOP 1,303.58
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.04
Surrender Value 932.39 Surrender Value 1,260.54
Effective Yield -6.761% Effective Yield 7.986%
<PAGE>
MATRIX EQUITY MATRIX EQUITY
ONE YEAR START OF PORTFOLIO
Unit Price EOP 17.65093 Unit Price EOP 17.65093
Unit Price BOP 15.697602 Unit Price BOP 10.000000
Accum Value EOP 1,124.43 Accum Value EOP 1,765.09
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.04
Surrender Value 1,053.69 Surrender Value 1,722.05
Effective Yield 5.369% Effective Yield 19.764%
WORLD EQUITY WORLD EQUITY
ONE YEAR START OF PORTFOLIO
Unit Price EOP 19.471714 Unit Price EOP 19.471714
Unit Price BOP 12.714210 Unit Price BOP 10.000000
Accum Value EOP 1,531.49 Accum Value EOP 1,947.17
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.04
Surrender Value 1,460.75 Surrender Value 1,904.13
Effective Yield 46.075% Effective Yield 23.825%
SMALL CAP SMALL CAP
ONE YEAR START OF PORTFOLIO
Unit Price EOP 21.926242 Unit Price EOP 21.926242
Unit Price BOP 12.319756 Unit Price BOP 10.000000
Accum Value EOP 1,779.76 Accum Value EOP 2,192.62
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.85
Surrender Value 1,709.02 Surrender Value 2,148.77
Effective Yield 70.902% Effective Yield 28.892%
GROWTH & INCOME GROWTH & INCOME
ONE YEAR START OF PORTFOLIO
Unit Price EOP 17.201321 Unit Price EOP 17.201321
Unit Price BOP 16.431215 Unit Price BOP 10.000000
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Accum Value EOP 1,046.87 Accum Value EOP 1,720.13
Surrender Charge 70.00 Surrender Charge 40.00
Ann Contract Charge 0.74 Ann Contract Charge 3.84
Surrender Value 976.13 Surrender Value 1,676.29
Effective Yield -2.387% Effective Yield 18.698%
AIM CAPITAL APPRECIATION
START OF PORTFOLIO
Unit Price EOP 13.92436
Unit Price BOP 10.000000
Accum Value EOP 1,392.44
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 1,321.70
Effective Yield 51.775%
AIM GROWTH
START OF PORTFOLIO
Unit Price EOP 12.524492
Unit Price BOP 10.000000
Accum Value EOP 1,252.45
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 1,181.71
Effective Yield 28.372%
AMERICAN CENTURY VALUE
START OF PORTFOLIO
Unit Price EOP 9.076035
Unit Price BOP 10.000000
Accum Value EOP 907.60
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 836.86
Effective Yield -23.388%
BANKERS TRUST EQUITY INDEX 500
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START OF PORTFOLIO
Unit Price EOP 10.962142
Unit Price BOP 10.000000
Accum Value EOP 1,096.21
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 1,025.47
Effective Yield 3.835%
BANKERS TRUST SMALL CAP INDEX
START OF PORTFOLIO
Unit Price EOP 11.630221
Unit Price BOP 10.000000
Accum Value EOP 1,163.02
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 1,092.28
Effective Yield 14.116%
TEMPLETON INTERNATIONAL
START OF PORTFOLIO
Unit Price EOP 11.183506
Unit Price BOP 10.000000
Accum Value EOP 1,118.35
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 1,047.61
Effective Yield 7.205%
LORD ABBETT GROWTH & INCOME
START OF PORTFOLIO
Unit Price EOP 10.480749
Unit Price BOP 10.000000
Accum Value EOP 1,048.07
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 977.33
<PAGE>
Effective Yield -3.371%
MFS NEW DISCOVERY
START OF PORTFOLIO
Unit Price EOP 16.284788
Unit Price BOP 10.000000
Accum Value EOP 1,628.48
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 1,557.74
Effective Yield 94.068%
MFS GROWTH
START OF PORTFOLIO
Unit Price EOP 13.860637
Unit Price BOP 10.000000
Accum Value EOP 1,386.06
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 1,315.32
Effective Yield 50.682%
MFS GROWTH WITH INCOME
START OF PORTFOLIO
Unit Price EOP 10.17676
Unit Price BOP 10.000000
Accum Value EOP 1,017.68
Surrender Charge 70.00
Ann Contract Charge 0.74
Surrender Value 946.94
Effective Yield -7.832%
<PAGE>
CASH MANAGEMENT
3 YEAR
Unit Price EOP 11.439262
Unit Price BOP 10.387068
3.27%
Accum Value EOP 1,101.30
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 1,049.04
Effective Yield 1.609%
GROWTH
3 YEAR
<PAGE>
Unit Price EOP 26.636872
Unit Price BOP 12.56921
28.45%
Accum Value EOP 2,119.22
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 2,066.96
Effective Yield 27.383%
MULTIPLE STRATEGIES
3 YEAR
Unit Price EOP 22.779522
Unit Price BOP 11.834970
24.39%
Accum Value EOP 1,924.76
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 1,872.50
Effective Yield 23.256%
U.S. GOVERNMENT BOND
3 YEAR
Unit Price EOP 11.482468
Unit Price BOP 10.385001
3.41%
Accum Value EOP 1,105.68
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 1,053.42
Effective Yield 1.750%
HIGH INCOME BOND
3 YEAR
Unit Price EOP 13.0358
Unit Price BOP 11.445993
4.43%
Accum Value EOP 1,138.90
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 1,086.64
Effective Yield 2.808%
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MATRIX EQUITY
3 YEAR
Unit Price EOP 17.65093
Unit Price BOP 10.942377
17.28%
Accum Value EOP 1,613.08
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 1,560.82
Effective Yield 15.998%
WORLD EQUITY
3 YEAR
Unit Price EOP 19.471714
Unit Price BOP 11.333477
19.77%
Accum Value EOP 1,718.07
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 1,665.81
Effective Yield 18.543%
SMALL CAP
3 YEAR
Unit Price EOP 21.926242
Unit Price BOP 13.009160
19.01%
Accum Value EOP 1,685.45
Surrender Charge 50.00
Ann Contract Charge 2.25
Surrender Value 1,633.20
Effective Yield 17.764%
GROWTH & INCOME
3 YEAR
Unit Price EOP 17.201321
Unit Price BOP 11.747186
13.56%
<PAGE>
Accum Value EOP 1,464.29
Surrender Charge 50.00
Ann Contract Charge 2.26
Surrender Value 1,412.03
Effective Yield 12.188%
