PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT, 485BPOS, 1997-04-30

PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
485BPOS, 1997-04-30

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As filed with the Securities and Exchange Commission on April 29, 1997.

Registration No. 333 - 7509
811 - 7689

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No.
---

Post-Effective Amendment No. 1
----
and

REGISTRATION STATEMENT UNDER THE [X]
INVESTMENT COMPANY ACT OF 1940

Amendment No. 2
---

PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
-----------------------------------------------
(Exact Name of Registrant)

PFL LIFE INSURANCE COMPANY
--------------------------
(Name of Depositor)

4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001
(Address of Depositor's Principal Executive Offices)

Depositor's Telephone Number, including Area Code

(319) 297-8468

Frank A. Camp, Esquire
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
(Name and Address of Agent for Service)

Copy to:

Frederick R. Bellamy, Esquire
Sutherland, Asbill and Brennan L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
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DECLARATION PURSUANT TO RULE 24f-2

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite number of Securities under the Securities Act of
1933. The Securities Act registration filing fee of $500 was paid in a previous
filing. The Registrant had not commenced operations as of December 31, 1996.

------------------------

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b) of Rule 485.
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X on May 1, 1997 pursuant to paragraph (b) of Rule 485.
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60 days after filing pursuant to paragraph (a)(i) of Rule 485
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on pursuant to paragraph (a)(i) of Rule 485
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75 days after filing pursuant to paragraph (a)(ii)
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on pursuant to paragraph (a)(ii) of Rule 485
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If appropriate, check the following box:

X This post-effective amendment designates a new effective date
---
for a previously filed post-effective amendment.

<PAGE>

CROSS REFERENCE SHEET
Pursuant to Rule 495

Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
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PART A
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<CAPTION>

Item of Form N-4 Prospectus Caption
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<S> <C>
1. Cover Page................................ Cover Page

2. Definitions............................... Definitions

3. Synopsis.................................. Summary; Historical Performance Data

4. Condensed Financial Information........... Condensed Financial Information;
Financial Statements

5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor............................ PFL Life Insurance Company
(b) Registrant........................... The Retirement Builder Accounts
(c) Portfolio Company.................... The Mutual Fund Account
(d) Fund Prospectus...................... Underlying Funds
(e) Voting Rights........................ Underlying Funds

6. Deductions and Expenses
(a) General.............................. Charges and Deductions
(b) Sales Load %......................... Surrender Charge
(c) Special Purchase Plan................ N/A
(d) Commissions.......................... Distributor of the Policies
(e) Expenses - Registrant................ N/A
(f) Fund Expenses........................ Other Expenses including Investment
Advisory Fees
(g) Organizational Expenses.............. N/A

7. Policies
(a) Persons with Rights.................. The Policy; Election of Payment Option;
Annuity Payments; Annuity Commencement
Date; Voting Rights

(b) (i) Allocation of Premium
Payments....................... Allocation of Premium Payments
(ii) Transfers...................... Transfers
(iii) Exchanges...................... N/A

(c) Changes.............................. The Policy; Annuity Payment Options;
Premium Payments; Possible changes in
taxation; Addition, Deletion, or
Substitution of Investments
</TABLE>
<PAGE>

<TABLE>

<S> <C>
(d) Inquiries............................ Summary

8. Annuity Period............................ Annuity Payment Options;
...................................... Annuity Commencement Date

9. Death Benefit............................. Death Benefit

10. Purchases and Contract Value
(a) Purchases............................ Policy Application and Issuance of
..................................... Policies; Premium Payments
(b) Valuation............................ Policy Value; The Mutual Fund
..................................... Policy Value
(c) Daily Calculation.................... The Mutual Fund Policy Value
(d) Underwriter.......................... Distributor of the Policies

11. Redemptions
(a) By Owners............................ Surrenders
By Annuitant......................... N/A
(b) Texas ORP............................ Restrictions Under the Texas Optional
..................................... Retirement Program
(c) Check Delay.......................... Payment Not Honored by Bank
(d) Lapse................................ N/A
(e) Free Look............................ Summary

12. Taxes..................................... Certain Federal Income Tax Consequences

13. Legal Proceedings......................... Legal Proceedings

14. Table of Contents for the
Statement of Additional Information....... Statement of Additional Information

<CAPTION>
PART B
------
Item of Form N-4 Statement of Additional
- ---------------- Information Caption
-------------------
<S> <C>
15. Cover Page................................ Cover Page

16. Table of Contents......................... Table of Contents

17. General Information and History........... (Prospectus) PFL Life Insurance Company

18. Services
(a) Fees and Expenses of Registrant...... N/A
(b) Management Policies.................. N/A
(c) Custodian............................ Custody of Assets
</TABLE>
<PAGE>

<TABLE>

Independent
Auditors............................. Independent Auditors
(d) Assets of Registrant................. Custody of Assets
(e) Affiliated Person.................... N/A
(f) Principal Underwriter................ Distribution of the Policies

19. Purchase of Securities Being Offered...... Distribution of the Policies
Offering Sales Load....................... N/A

20. Underwriters.............................. Distribution of the Policies;
(Prospectus) Distributor of the
Policies

21. Calculation of Performance Data........... Historical Performance Data

22. Annuity Payments.......................... (Prospectus) Annuity Payment Options

23. Financial Statements...................... Financial Statements

<CAPTION>
PART C -- OTHER INFORMATION
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Item of Form N-4 Part C Caption
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<S> <C>
24. Financial Statements
and Exhibits
(a) Financial Statements................. Financial Statements
(b) Exhibits............................. Exhibits

25. Directors and Officers of
the Depositor............................. Directors and Officers of the Depositor

26. Persons Controlled By or
Under Common Control with the
Depositor or Registrant................... Persons Controlled By or Under Common Control
with the Depositor or Registrant

27. Number of Contractowners.................. Number of Contractowners

28. Indemnification........................... Indemnification

29. Principal Underwriters.................... Principal Underwriters

30. Location of Accounts and Records.......... Location of Accounts and Records

31. Management Services....................... Management Services

32. Undertakings.............................. Undertakings

Signature Page............................ Signature Page
</TABLE>
<PAGE>

PROSPECTUS_____________________________________________________MAY 1, 1997

RETIREMENT INCOME BUILDER VARIABLE ANNUITY

Issued Through

PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT

PFL LIFE INSURANCE COMPANY

The Retirement Income Builder Variable Annuity Policy is a Flexible Premium
Variable Annuity that is offered by PFL Life Insurance Company ("PFL"). You
can use the Policy to accumulate funds for retirement or other long-term
financial planning purposes. You are generally not taxed on any earnings on
amounts you invest until you withdraw them or begin to receive annuity
payments. The Policy is a "variable" annuity because the value of your
investments can go up or down based on the performance of mutual fund
portfolios that you select. It is a flexible premium policy because after you
purchase it you can generally make additional investments of any amount of $50
or more, until the Annuity Commencement Date when PFL begins making annuity
payments to you.

You have fourteen investment options to choose from. They include these
thirteen mutual fund portfolios of the Variable Insurance Products Fund (VIP),
Variable Insurance Products Fund II (VIP II), and the Variable Insurance
Products Fund III (VIP III) which are managed by Fidelity Management &
Research Company (FMR):

VIP VIP II VIP III
<S> <C> <C>
Money Market Investment Grade Bond Balanced

High Income Growth & Income
Asset Manager
Equity-Income Growth Opportunities
Asset Manager: Growth
Growth

Overseas
Index 500

Contrafund

</TABLE>

YOU AS THE OWNER OF THE POLICY, BEAR THE ENTIRE INVESTMENT RISK FOR ALL
AMOUNTS THAT YOU ALLOCATE TO ANY OF THE MUTUAL FUNDS. THIS MEANS THAT YOU
COULD LOSE THE AMOUNT THAT YOU INVEST. But if the mutual fund shares increase
in value, then the value of your Policy will also increase.

The fourteenth investment option is the Fixed Account. If you invest in one
of the alternatives offered in the Fixed Account, then PFL guarantees to
return your investment with interest at rates that PFL will declare from time
to time.

Of course, you can choose any combination of these investment options. You
can also transfer amounts among these options (subject to some restrictions).

LIKE ALL SECURITIES, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PRIBVAP597
<PAGE>

You should only purchase a Policy as a long-term investment. However, you do
have access to all or some of the current cash value of your investments at
any time before the Annuity Commencement Date. But, if you do withdraw cash
from your Policy, there may be a surrender charge. You may also have to pay
income taxes on some or all of the amount you withdraw, and if you are under
age 59 1/2 there may also be a tax penalty. Finally, there may be an interest
penalty if you make a premature withdrawal from the Fixed Account (this is
called an "Excess Interest Adjustment," and it could also result in your
earning extra interest). PFL has the right to postpone withdrawals from the
Fixed Account.

Prospectuses for the mutual fund portfolios are attached to the back of this
prospectus. This prospectus and the mutual fund prospectuses give you vital
information about the Policies and the mutual funds. Please read them
carefully before you invest. Keep them for future reference.

PLEASE NOTE THAT THE POLICIES AND THE MUTUAL FUNDS: ARE NOT BANK DEPOSITS,
ARE NOT FEDERALLY INSURED, ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
AND ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL.

This Prospectus sets forth the information that a prospective purchaser
should consider before purchasing a Policy. A Statement of Additional
Information about the Policy and the Mutual Fund Account which has the same
date as this Prospectus has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of
Additional Information is available at no cost to any person requesting a copy
by writing PFL at the Administrative and Service Office or by calling 1-800-
525-6205. The table of contents of the Statement of Additional Information is
included at the end of this Prospectus.

This Prospectus and the Statement of Additional Information generally
describe only the Policies and the Mutual Fund Account, except when the Fixed
Account is specifically mentioned.

Administrative and Service Office:

Financial Markets Division--Variable Annuity Department

PFL Life Insurance Company

4333 Edgewood Road, N.E.

Cedar Rapids, Iowa 52499-0001

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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS................................................................ 5
SUMMARY.................................................................... 8
CONDENSED FINANCIAL INFORMATION............................................ 19
FINANCIAL STATEMENTS....................................................... 19
HISTORICAL PERFORMANCE DATA................................................ 19
Standardized Performance Data............................................ 19
Other Subaccounts........................................................ 20
Non-Standardized Performance Data........................................ 22
PUBLISHED RATINGS.......................................................... 23
PFL LIFE INSURANCE COMPANY................................................. 23
THE RETIREMENT BUILDER ACCOUNTS............................................ 24
The Mutual Fund Account.................................................. 24
The Fixed Account........................................................ 28
Guaranteed Periods..................................................... 29
Dollar Cost Averaging Fixed Account Option............................. 29
Guaranteed Interest Rates.............................................. 30
Transfers................................................................ 31
Reinstatements........................................................... 31
Telephone Transactions................................................... 32
Dollar Cost Averaging.................................................... 32
Asset Rebalancing........................................................ 33
THE POLICY................................................................. 33
Policy Application and Issuance of Policies--Premium Payments............ 33
Additional Premium Payments............................................ 34
Maximum Total Premium Payments......................................... 34
Allocation of Premium Payments......................................... 34
Payment Not Honored by Bank............................................ 35
Policy Value............................................................. 35
The Mutual Fund Policy Value........................................... 36
Adjusted Policy Value.................................................... 36
Amendments............................................................... 36
Non-participating Policy................................................. 36
DISTRIBUTIONS UNDER THE POLICY............................................. 36
Surrenders............................................................... 36
Nursing Care and Terminal Condition Withdrawal Option.................... 38
Unemployment Waiver...................................................... 38
Excess Interest Adjustments (EIA)........................................ 38
Systematic Payout Option................................................. 39
Annuity Payments......................................................... 40
Annuity Commencement Date.............................................. 40
Election of Payment Option............................................. 40
Premium Tax............................................................ 41
Supplementary Contract................................................. 41
Annuity Payment Options.................................................. 41
Death Benefit............................................................ 44
Death of Annuitant Prior to Annuity Commencement Date.................. 44
Death On or After Annuity Commencement Date............................ 46
Beneficiary............................................................ 46
</TABLE>

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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Death of Owner........................................................... 47
Restrictions Under the Texas Optional Retirement Program................. 47
Restrictions Under Section 403(b) Plans.................................. 47
Restrictions Under Qualified Policies.................................... 47
CHARGES AND DEDUCTIONS..................................................... 47
Surrender Charge......................................................... 48
Mortality and Expense Risk Fee........................................... 48
Administrative Charges................................................... 49
Premium Taxes............................................................ 50
Federal, State and Local Taxes........................................... 50
Transfer Fee............................................................. 50
Other Expenses Including Investment Advisory Fees........................ 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 50
Tax Status of Policy..................................................... 51
Taxation of Annuities.................................................... 51
DISTRIBUTOR OF THE POLICIES................................................ 57
Employee and Agent Purchases............................................. 57
VOTING RIGHTS.............................................................. 57
LEGAL PROCEEDINGS.......................................................... 58
STATEMENT OF ADDITIONAL INFORMATION........................................ 59
Appendix A............................................................... A-1
</TABLE>

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DEFINITIONS

Accumulation Unit--An accounting unit of measure used in calculating the
Policy Value in the Mutual Fund Account before the Annuity Commencement Date.

Adjusted Policy Value--An amount equal to the Policy Value increased or
decreased by any Excess Interest Adjustments applied at the time of surrender
or on the Annuity Commencement Date.

Administrative and Service Office--Financial Markets Division Variable
Annuity Department, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.

Annuitant--The person entitled to receive Annuity Payments after the Annuity
Commencement Date and during whose life any Annuity Payments involving life
contingencies will continue.

Annuity Commencement Date--The date upon which Annuity Payments are to
commence. The Annuity Commencement Date may not be later than the last day of
the policy month starting after the Annuitant attains age 85, except as
expressly allowed by PFL, but in no event later than the last day of the
Policy month following the month in which the Annuitant attains age 95. The
Annuity Commencement Date may be required to be earlier for Qualified
Policies.

Annuity Payment Option or Payment Option--A method of receiving a stream of
Annuity Payments selected by the Owner.

Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent Variable Annuity Payment.

Beneficiary--The person who has the right to the death benefit set forth in
the Policy.

Business Day--A day when the New York Stock Exchange is open for business.

Cash Value--The Adjusted Policy Value, less the Surrender Charge, if any.

Code--The Internal Revenue Code of 1986, as amended.

Cumulative Free Percentage--The percentage (as applied to the Policy Value)
which is available to the Owner free of any Surrender Charge.

Current Interest Rate--The interest rate or rates currently guaranteed to be
credited on amounts allocated to one or more options in the Fixed Account.
This interest rate will always be equal to or greater than 3%.

Dollar Cost Averaging--The process by which the Owner may elect to liquidate
a specified Dollar Cost Averaging Fixed Account Option in order to purchase
Mutual Fund Account Accumulation Units on a systematic basis.

Due Proof of Death--A certified copy of a death certificate, a certified
copy of a decree of a court of competent jurisdiction as to the finding of
death, a written

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<PAGE>

statement by the attending physician, or any other proof satisfactory to PFL,
will constitute Due Proof of Death.

Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders by the Owner from the Fixed Account
Guaranteed Period Options, or to amounts applied to Annuity Payment Options.
The adjustment reflects changes in the interest rates declared by PFL since
the date any payment was received by or an amount was transferred to the
Guaranteed Period Option. The Excess Interest Adjustment (EIA) can either
decrease or increase the amount to be received by the Owner upon full
surrender or commencement of Annuity Payments, depending upon whether there
has been an increase or decrease in interest rates, respectively.

Excess Partial Surrender--The portion of a partial withdrawal (surrender)
that can be subject to a Surrender Charge.

Fixed Account--A group of Investment Options under the Policy, other than
the Mutual Fund Account, that are part of the general assets of PFL that are
not in separate accounts.

Fixed Annuity Payments--Payments made pursuant to an Annuity Payment Option
which do not fluctuate in amount.

Guaranteed Period Options--The various guaranteed interest rate periods of
the Fixed Account which may be offered by PFL and into which Premium Payments
may be paid or amounts transferred.

Investment Options--Any of the Guaranteed Period Options of the Fixed
Account, the Dollar Cost Averaging Fixed Account Option, and any of the
Subaccounts of the Mutual Fund Account.

Mutual Fund Account--The PFL Retirement Builder Variable Annuity Account, a
separate account established and registered as a unit investment trust under
the Investment Company Act of 1940 to which Premium Payments under the
Policies may be allocated.

Nonqualified Policy--A Policy other than a Qualified Policy.

Owner or Owners--The person who may exercise all rights and privileges under
the Policy. The Owner during the lifetime of the Annuitant and prior to the
Annuity Commencement Date is the person designated as the Owner or a Successor
Owner in the application.

Policy Anniversary--Each anniversary of the Policy Date.

Policy Date--The Policy Date as shown on the Policy Data Page attached to
the Policy.

Policy Value--On or before the Annuity Commencement Date, the Policy Value
is equal to the Owner's:

(1) Premium Payments; minus

(2) Partial Withdrawals (including any applicable Excess Interest
Adjustments and/or Surrender Charges on such withdrawals); plus

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(3) interest credited in the Fixed Account; plus or minus

(4) accumulated gains or losses in the Mutual Fund Account; minus

(5) Service Charges, premium taxes and transfer fees, if any.

Policy Year--A Policy Year begins on the Policy Date and on each Policy
Anniversary.

Premium Payment--An amount paid to PFL by the Owner or on the Owner's behalf
as consideration for the benefits provided by the Policy.

Qualified Policy--A Policy issued in connection with retirement plans that
qualify for special Federal income tax treatment under the Code.

Service Charge--There is an annual Service Charge on each Policy Anniversary
(and a charge at the time of surrender during any Policy Year) for Policy
maintenance and related administrative expenses. This annual charge is the
lesser of 2% of the Policy Value or $30.

Subaccount--A subdivision within the Mutual Fund Account, the assets of
which are invested in a specified Portfolio of the Underlying Funds.

Successor Owner--A person appointed by the Owner to succeed to ownership of
the Policy in the event of the death of the Owner who is not the Annuitant
before the Annuity Commencement Date.

Surrender Charge--The applicable contingent deferred sales charge, assessed
on certain full surrenders or partial withdrawals of Premium Payments to cover
expenses relating to the sale of the Policies.

Underlying Funds--The portfolios of the Variable Insurance Products Fund
(VIP), the Variable Insurance Products Fund II (VIP II), and the Variable
Insurance Products Fund III (VIP III), managed by Fidelity Management &
Research Company.

Valuation Period--The period of time from one determination of Accumulation
Unit and Annuity Unit values to the next subsequent determination of values.
Such determinations shall be made on each Business Day.

Variable Annuity Payments--Payments made pursuant to an Annuity Payment
Option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified Subaccounts within the Mutual Fund
Account.

Written Notice or Written Request--Written notice, signed by the Owner, that
gives PFL the information it requires and is received at the Administrative
and Service Office. For some transactions, PFL may accept an electronic notice
such as telephone instructions. Such electronic notice must meet the
requirements PFL establishes for such notices.

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THE RETIREMENT INCOME BUILDER VARIABLE ANNUITY

SUMMARY

The following summary is intended to provide a brief overview of the Policy.
More detailed information can be found in the sections of this Prospectus that
follow, all of which should be read in their entirety.

THE POLICY

The Retirement Income Builder Variable Annuity is a tax-deferred flexible
premium variable annuity policy which can be purchased on a non-tax qualified
basis or with the proceeds from certain plans qualifying for favorable federal
income tax treatment. The Policy provides the Owner with the ability to
accumulate funds on a tax-deferred basis and to receive periodic annuity
payments on a variable basis, a fixed basis, or a combination of both. The
Owner allocates the Premium Payments among the various options available under
the Mutual Fund Account and the Fixed Account. The Policy is intended for
long-term purposes, such as retirement, and for persons who have maximized
their use of other retirement savings methods, such as 401(k) plans and
individual retirement accounts (IRAs).

THE ACCOUNTS

The Mutual Fund Account. The Mutual Fund Account is a separate account of
PFL, which currently is divided into thirteen Subaccounts that invest
exclusively in shares of the thirteen portfolios of the Variable Insurance
Products Fund ("VIP"), the Variable Insurance Products Fund II ("VIP II"), and
the Variable Insurance Products Fund III ("VIP III") (collectively, the
"Underlying Funds"). Fidelity Management & Research Company ("FMR") provides
investment advice and administrative services to the Underlying Funds. VIP
currently offers five Portfolios: Money Market Portfolio; High Income
Portfolio; Equity-Income Portfolio; Growth Portfolio; and Overseas Portfolio.
VIP II currently offers five portfolios: Investment Grade Bond Portfolio;
Asset Manager Portfolio; Index 500 Portfolio; Asset Manager: Growth Portfolio;
and Contrafund Portfolio. VIP III currently offers three Portfolios: Balanced
Portfolio; Growth Opportunities Portfolio; and Growth & Income Portfolio. Each
of the thirteen Subaccounts of the Mutual Fund Account invests solely in a
corresponding Portfolio of the Underlying Funds. Because the Policy Value may
depend on the investment experience of the selected Subaccounts, the Owner
bears the entire investment risk with respect to Premium Payments allocated
to, and amounts transferred to, the Mutual Fund Account. (See "THE RETIREMENT
BUILDER ACCOUNTS--The Mutual Fund Account," p. 24.)

The Fixed Account. PFL guarantees an annual credited rate of at least 3% on:
Premium Payments and transfers to, less partial withdrawals and transfers from
the Fixed Account. Upon Surrender, PFL guarantees return of at least the
Premium Payments made to, less prior Partial Withdrawals and transfers from,
the Fixed Account. PFL will always offer a Current Interest Rate which will be
guaranteed for at least one year from the date of the Premium Payment or
transfer. PFL may, in its

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<PAGE>

sole discretion, declare a higher Current Interest Rate from time-to-time. PFL
may offer optional guaranteed interest rate periods into which Premium
Payments may be made or amounts transferred. PFL may also offer a Dollar Cost
Averaging Fixed Account Option which will have a one-year interest rate
guarantee and which will require automatic periodic transfers to the Mutual
Fund Account. (See "THE RETIREMENT BUILDER ACCOUNTS--The Fixed Account," p.
28.)

PREMIUM PAYMENTS

A Nonqualified or Qualified Policy may be purchased with an initial Premium
Payment of at least $2,000, but there is no minimum initial Premium Payment
required for a Policy purchased and used in connection with a tax deferred
403(b) Annuity. An Owner may make subsequent additional Premium Payments of at
least $50 each at any time before the Annuity Commencement Date. The maximum
total Premium Payments allowed without prior approval of PFL is $1,000,000. At
the time of each Premium Payment no charges or fees are deducted, so the
entire Premium Payment is invested immediately, subject to the restrictions
below regarding the "Right to Cancel" period. (See "CHARGES AND DEDUCTIONS--
Surrender Charge," p. 48 and "CHARGES AND DEDUCTIONS--Premium Taxes," p. 50.)

The Owner must allocate the initial Premium Payment among the Investment
Options (that is, among the options available under the Fixed Account and/or
the Subaccounts of the Mutual Fund Account) according to allocation
percentages in the Policy application or transmittal form. Any allocation must
be in whole percents, and the total allocation must equal 100%. However, any
amounts allocated to Subaccounts of the Mutual Fund Account will be allocated
entirely to the Money Market Subaccount of the Mutual Fund Account for the
first 14 days after the date the Policy is issued or a longer period if the
laws of the state where issued require more than a 10 day "right-to-cancel"
period (See "Right to Cancel Period," below.) At the end of this period, the
amount in the Money Market Subaccount will then be allocated to the
Subaccount(s) of the Mutual Fund Account in accordance with the allocation
percentages specified by the Owner. Allocations specified by the Owner will be
used for Subsequent Additional Premium Payments unless the Owner requests a
change in allocation. Allocations for additional Premium Payments may be
changed by sending Written Notice to PFL's Administrative and Service Office.
(See "THE POLICY--Premium Payments," p. 33.)

RIGHT TO CANCEL PERIOD

When the Owner receives the Policy, it should be reviewed carefully to make
sure it is what the Owner intended to purchase. The Owner may, until the end
of the period of time specified in the Policy (the Right to Cancel period),
examine the Policy and return it for a refund. The applicable period will
depend on the state in which the Policy is issued. In many states the period
is 10 days after the Policy is delivered to the Owner. Some states may allow
for a longer period to return the Policy. The amount of the refund will be the
greater of the Premium Payments made under the Policy or the Policy Value. PFL
will pay the refund within 7 days after it receives written notice of
cancellation and the returned Policy. The Policy will then be deemed void.

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<PAGE>

TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE

An Owner can transfer values from one Subaccount to another within the
Mutual Fund Account or from the Mutual Fund Account to the Fixed Account, or
from the Fixed Account to the Mutual Fund Account within limits established by
PFL. Transfers of Policy Values from any of the Guaranteed Period Options of
the Fixed Account to any of the Subaccounts of the Mutual Fund Account are
allowed only at the end of the applicable Guaranteed Periods, and will not be
subject to an Excess Interest Adjustment at that time. The Owner may, however,
transfer an amount equal to any or all of the interest credited in any of the
Guaranteed Period Options to any Subaccount(s) of the Mutual Fund Account
prior to the end of a specified Guaranteed Period. (See "THE RETIREMENT
BUILDER ACCOUNTS--Transfers.") Any such "interest transfers" from a Guaranteed
Period Option prior to the end of a Guaranteed Period will not be subject to
any Excess Interest Adjustment. (See "DISTRIBUTIONS UNDER THE POLICY--Excess
Interest Adjustments," p. 38.) Transfers from the Dollar Cost Averaging Fixed
Account Option, except through a Dollar Cost Averaging program, are not
allowed. (See "THE RETIREMENT BUILDER ACCOUNTS--Dollar Cost Averaging Fixed
Account Option," p. 24.) Transfers currently may be made either by telephone
or by sending Written Notice to PFL's Administrative and Service Office. (See
"THE RETIREMENT BUILDER ACCOUNTS--Telephone Transactions," p. 32.)

PFL reserves the right to impose a $10 fee for each transfer in excess of 12
transfers per Policy Year. At the present time, PFL does not charge for
transfers. (See "THE RETIREMENT BUILDER ACCOUNTS--Transfers," p. 31.)

SURRENDERS

The Owner may elect to surrender all or withdraw a portion of the Cash Value
($500 minimum) in exchange for a payment from PFL at any time prior to the
earlier of the Annuitant's death or the Annuity Commencement Date. The Cash
Value equals the Policy Value increased or decreased by any Excess Interest
Adjustment, less any applicable Surrender Charge (described below). A
surrender request must be made by Written Request, and a request for a partial
withdrawal must specify the Subaccounts or Guaranteed Period Options from
which the withdrawal is requested. There is currently no limit on the
frequency or timing of Policy withdrawals, although for Qualified Policies the
retirement plan or applicable law may restrict and/or penalize withdrawals.
(See "DISTRIBUTIONS UNDER THE POLICY--Surrenders," p. 36.) In addition to any
applicable Surrender Charge, Service Charge, Excess Interest Adjustment, and
premium tax, surrenders and partial withdrawals may be subject to income taxes
and a 10% Federal penalty tax.

NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION

In some states, if the Owner or Owner's spouse (Annuitant or Annuitant's
spouse if the Owner is not a natural person): (1) has been confined in a
hospital or nursing facility for 30 consecutive days or (2) has been diagnosed
as having a terminal condition as defined in the Policy or endorsement
(generally, a life expectancy of twelve months or less), then the Surrender
Charge and Excess Interest Adjustment (See "DISTRIBUTIONS UNDER THE POLICY--
Death

- 10 -
<PAGE>

Benefit," p. 44.) are not imposed on surrenders or partial withdrawals. (Since
this benefit may not be available in all states, see the Policy or endorsement
for details.) (See DISTRIBUTIONS UNDER THE POLICY--Nursing Care and Terminal
Condition Withdrawal Option," p. 38.)

UNEMPLOYMENT WAIVER

The Owner may withdraw all or a portion of the Policy Value free of
Surrender Charges and free of Excess Interest Adjustments if the Owner or
Owner's spouse (Annuitant or Annuitant's spouse, if the Owner is not a natural
person) becomes unemployed. In order to qualify, the affected individual 1)
must have been employed full time for at least two years prior to becoming
unemployed, 2) must have been employed full time on the Policy Date, 3) must
have been unemployed for at least 60 consecutive days at the time of
withdrawal, and 4) must have a minimum Cash Value at the time of withdrawal of
$5,000. Proof of unemployment will consist of providing PFL with a
determination letter from the applicable State's Department of Labor which
verifies that the individual qualifies for and is receiving unemployment
benefits at the time of withdrawal. The determination letter must be received
by PFL no later than 15 days after the date of the withdrawal request. This
benefit may not be available in all states, see the Policy or endorsement for
details.

CHARGES AND DEDUCTIONS

Surrender Charge. In order to permit investment of the entire Premium
Payment, PFL does not deduct sales or other charges at the time of investment.
However, a Surrender Charge, which is a contingent deferred sales charge, of
up to 6% of the Premium Payment is imposed on certain full surrenders or
partial withdrawals of Premium Payments in order to cover expenses relating to
the distribution of the Policies. The applicable Surrender Charge is based on
the period of time elapsed since payment of the Premium Payment(s) being
withdrawn. There will be no Surrender Charge imposed five or more years after
a Premium Payment was paid. In any event, Surrender Charges will be waived
after the tenth Policy Year. For purposes of determining the applicable
Surrender Charge, Premium Payments are considered to be withdrawn on a "first-
in, first-out" basis. (See "CHARGES AND DEDUCTIONS--Surrender Charge," p. 48.)

In each Policy Year the Owner may request partial withdrawals ($500 minimum)
of up to 10% of the Policy Value free of Surrender Charges. The percentage
that may be taken free of Surrender Charges each Policy Year is cumulative.
This is referred to as the "Cumulative Free Percentage." That is, Cumulative
Free Percentages which are not taken are carried forward and are available to
be taken in the following Policy Year free of Surrender Charges. Cumulative
Free Percentage withdrawals previously taken reduce the Cumulative Free
Percentage that is available. (See "DISTRIBUTIONS UNDER THE POLICY--
Surrenders," p. 36.) Withdrawals in excess of the available Cumulative Free
Percentage will be subject to a Surrender Charge of up to 6% of the Premium
Payment withdrawn.

Excess Interest Adjustment. Full surrenders, partial withdrawals from the
Guaranteed Period Options of the Fixed Account prior to the end of the

- 11 -
<PAGE>

Guaranteed Period, and amounts applied to an Annuity Payment Option (prior to
the end of the Guaranteed Period) and which are in excess of the cumulative
interest credited at the time of, but prior to, the withdrawal, are subject to
an Excess Interest Adjustment. Depending upon market rates of interest, the
effect of an Excess Interest Adjustment could eliminate all interest in excess
of the minimum guaranteed effective annual interest rate of 3%, or it could
result in the crediting of additional interest. (See "DISTRIBUTIONS UNDER THE
POLICY--Excess Interest Adjustments," p. 38.)

Account Charges. PFL deducts a daily charge equal to a percentage of the net
assets in the Mutual Fund Account for the mortality and expense risks assumed
by PFL. For Guaranteed Minimum Death Benefit Option "A" (Return of Premium
Death Benefit), the effective annual rate of this charge is 1.10% of the value
of the Mutual Fund Account's net assets. For Guaranteed Minimum Death Benefit
Options "B" (5% Annually Compounding Death Benefit) and "C" (Annual Step-Up
Death Benefit), the effective annual rate of this charge is 1.25% of the value
of the Mutual Fund Account's net assets. (See "CHARGES AND DEDUCTIONS--
Mortality and Expense Risk Fee," p. 48, and "DISTRIBUTIONS UNDER THE POLICY--
Death Benefit," p. 44.)

PFL also deducts a daily Administrative Charge from the net assets of the
Mutual Fund Account to partially cover expenses incurred by PFL in connection
with the administration of the Account and the Policies. The effective annual
rate of this charge is .15% of the value of the Mutual Fund Account's net
assets. (See "CHARGES AND DEDUCTIONS--Administrative Charges," p. 49.)

PFL guarantees that the account charges for mortality and expense risks and
administrative expenses will not exceed a total of 1.25% for the Return of
Premium Death Benefit, and 1.40% for the 5% Annually Compounding Death Benefit
or the Annual Step Up Benefit Death Benefit.

Service Charge. There is also an annual Service Charge on each Policy
Anniversary (and a charge at the time of surrender during any Policy Year) for
Policy maintenance and related administrative expenses. This annual charge is
the lesser of 2% of the Policy Value or $30 and is deducted from each
Investment Option in proportion to each Investment Option's percentage of the
Policy Value in the Investment Option just prior to such charge. This charge
is waived if either the Policy Value or the sum of all Premium Payments less
the sum of all partial withdrawals equals or exceeds $50,000 on a Policy
Anniversary (or date of surrender). PFL GUARANTEES THAT THIS CHARGE WILL NOT
BE INCREASED IN THE FUTURE. (See "CHARGES AND DEDUCTIONS--Administrative
Charges," p. 49.)

Taxes. PFL may incur premium taxes relating to the Policies. When permitted
by state law, PFL will not deduct any premium taxes related to particular
Policy from the Policy Value until surrender of the Policy, payment of the
death benefit or until the Annuity Commencement Date. Premium taxes currently
range from 0% to 3.50% of Premium Payments. (See "CHARGES AND DEDUCTIONS--
Premium Taxes," p. 50.)

No charges are currently made against any of the Accounts for federal,
state, or local income taxes. Should PFL determine that any such taxes be
imposed with

- 12 -
<PAGE>

respect to any of the Accounts, PFL may deduct such taxes from amounts held in
the relevant Account. (See "CHARGES AND DEDUCTIONS--Federal, State and Local
Taxes," p. 50.)

Charges Against the Underlying Funds. The value of the net assets of the
Subaccounts of the Mutual Fund Account will reflect the investment advisory
fees and other expenses incurred by the Underlying Funds.

Expense Data. The charges and deductions are summarized in the following
tables. This tabular information regarding expenses assumes that the entire
Policy Value is in the Mutual Fund Account.

<TABLE>
<CAPTION>
VIP VIP VIP VIP II VIP II
MONEY HIGH EQUITY- VIP VIP INVESTMENT ASSET
MARKET INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER
------ ------ ------- ------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Policy Owner Transaction
Expenses/1/
Sales Load on Purchase
Payments.............. 0 0 0 0 0 0 0
Maximum Surrender
Charge (as a % of
Premium Payment
Surrendered)/2/....... 6% 6% 6% 6% 6% 6% 6%
Surrender Fees......... 0 0 0 0 0 0 0
-----------------------------------------------------------
Service Charge.......... $30 Per Policy
-----------------------------------------------------------
Transfer Fee Currently no fee
Mutual Fund Account
Annual Expenses
(as a percentage of
account value)
Mortality and Expense
Risk Fees/3/.......... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Charge.. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Mutual Fund
Account Annual
Expenses.............. 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
Underlying Funds Annual
Expenses/4/
(as a percentage of
average net assets,
after waivers and
reimbursements)
Management Fees........ 0.21% 0.59% 0.51% 0.61% 0.76% 0.45% 0.64%
Other Expenses......... 0.09% 0.12% 0.07% 0.08% 0.17% 0.13% 0.10%
Total Underlying Funds
Annual Expenses....... 0.30% 0.71% 0.58%* 0.69%/5/ 0.93%/6/ 0.58% 0.74%/5/
</TABLE>

<TABLE>
<CAPTION>
VIP II
ASSET VIP II VIP III VIP III
VIP II MANAGER: INDEX VIP III GROWTH GROWTH &
CONTRAFUND GROWTH 500 BALANCED OPPORTUNITIES INCOME
---------- -------- ------ -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Policy Owner Transaction
Expenses/1/
Sales Load on Purchase
Payments.............. 0 0 0 0 0 0
Maximum Surrender
Charge (as a % of
Premium Payment
Surrendered)/2/....... 6% 6% 6% 6% 6% 6%
Surrender Fees......... 0 0 0 0 0 0
---------------------------------------------------------------
Service Charge.......... $30 Per Policy
---------------------------------------------------------------
Transfer Fee Currently no fee
Mutual Fund Account
Annual Expenses (as a
percentage of account
value)
Mortality and Expense
Risk Fees/3/.......... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Charge.. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Mutual Fund
Account Annual
Expenses.............. 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
Underlying Funds Annual
Expenses/4/
(as a percentage of
average net assets,
after waivers and
reimbursements)
Management Fees........ 0.61% 0.65% 0.13% 0.48% 0.61% 0.50%
Other Expenses......... 0.13% 0.22% 0.15% 0.24% 0.16% 0.20%
Total Underlying Funds
Annual Expenses....... 0.74% 0.87%/5/ 0.28%/6/ 0.72%/5/ 0.77%/5/ 0.70%
</TABLE>

- 13 -
<PAGE>

- ----------------------------------

/1The/Surrender Charge and Transfer Fee, if any is imposed, apply to each
Policy, regardless of how Policy Value is allocated among the Mutual Fund
Account and the Fixed Account. The Service Charge applies to both the Fixed
Account and the Mutual Fund Account, and is assessed on a prorata basis
relative to each Account's Policy Value as a percentage of the Policy's
total Policy Value. Mutual Fund Account Annual Expenses do not apply to the
Fixed Account (See "CHARGES AND DEDUCTIONS--Other Expenses Including
Investment Advisory Fees," p. 50.)
/2The/Surrender Charge is decreased based on the number of years since the
Premium Payment was made, from 6% in the year in which the Premium Payment
was made to 0% in the sixth year after the Premium Payment was made.

/3Mortality/and Expense Risk Fees (1.25%) shown are for the 5% Annually
Compounding Death Benefit and the Annual Step Up Death Benefit. The
corresponding Fees for the "Return of Premium Death Benefit" is 1.10% for
each Subaccount. (See "DISTRIBUTIONS UNDER THE POLICY--Death Benefit," p.
44.)
/4The/fee table information relating to the Underlying Funds was provided to
PFL by the Underlying Funds, and PFL has not independently verified such
information.

/5A/portion of the brokerage commissions that the funds pay is used to reduce
fund expenses. In addition, Balanced and Growth Opportunities have entered
into arrangements with their custodians whereby interest earned on
uninvested cash balances is used to reduce custodian expense. Including
these reductions, the total operating expenses presented in the table would
have been .56% for Equity-Income Portfolio, .67% for Growth Portfolio, .92%
for Overseas Portfolio, .73% for Asset Manager Portfolio, .71% for
Contrafund Portfolio, .85% for Asset Manager: Growth Portfolio, .76% for
Growth Opportunities Portfolio, and .71% for Balanced Portfolio.

/6FMR/agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the fund's management fee, other
expenses and total expenses would have been .28%, .15% and .43%
respectively.

- 14 -
<PAGE>

EXAMPLES

I. An Owner would pay the following expenses on a $1,000 investment,
assuming Death Benefit Option A, (Return of Premium Death Benefit) a
hypothetical 5% annual return on assets and assuming the entire Policy Value
is in the applicable Subaccount:

1. If the Policy is surrendered at the end of the applicable time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Money Market Subaccount..................... $70 $ 91 $ 96 $192
VIP High Income Subaccount...................... $74 $104 $117 $235
VIP Equity-Income Subaccount.................... $73 $100 $111 $222
VIP Growth Subaccount........................... $74 $103 $116 $233
VIP Overseas Subaccount......................... $77 $111 $129 $258
VIP II Investment Grade Bond Subaccount......... $73 $100 $111 $222
VIP II Asset Manager Subaccount................. $75 $105 $119 $238
VIP II Asset Manager: Growth Subaccount......... $76 $109 $126 $252
VIP II Contrafund Subaccount.................... $75 $105 $119 $238
VIP II Index 500 Subaccount..................... $70 $ 90 $ 95 $190
VIP III Balanced................................ $74 $104 $118 $236
VIP III Growth Opportunities.................... $75 $106 $121 $242
VIP III Growth & Income......................... $77 $113 $132 $265
</TABLE>

2. If the Policy is annuitized at the end of the applicable time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Money Market Subaccount..................... $16 $51 $ 88 $192
VIP High Income Subaccount...................... $21 $64 $109 $235
VIP Equity-Income Subaccount.................... $19 $60 $102 $222
VIP Growth Subaccount........................... $20 $63 $108 $233
VIP Overseas Subaccount......................... $23 $70 $120 $258
VIP II Investment Grade Bond Subaccount......... $19 $60 $102 $222
VIP II Asset Manager Subaccount................. $21 $64 $111 $238
VIP II Asset Manager: Growth Subaccount......... $22 $68 $117 $252
VIP II Contrafund Subaccount.................... $21 $64 $111 $238
VIP II Index 500 Subaccount..................... $16 $50 $ 87 $190
VIP III Balanced................................ $21 $64 $110 $236
VIP III Growth Opportunities.................... $21 $65 $112 $242
VIP III Growth & Income......................... $23 $72 $124 $265
</TABLE>

3. If the Policy is not surrendered or annuitized:

- 15 -
<PAGE>

II. An Owner would pay the following expenses on a $1,000 investment,
assuming Death Benefit Option B, (5% Annually Compounding Death Benefit) or
Death Benefit Option C, (Annual Step-Up Death Benefit) a hypothetical 5%
annual return on assets and assuming the entire Policy Value is in the
applicable Subaccount:

1. If the Policy is surrendered at the end of the applicable time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Money Market Subaccount..................... $72 $ 96 $104 $208
VIP High Income Subaccount...................... $76 $108 $125 $251
VIP Equity-Income Subaccount.................... $75 $104 $119 $237
VIP Growth Subaccount........................... $76 $108 $124 $249
VIP Overseas Subaccount......................... $78 $115 $136 $273
VIP II Investment Grade Bond Subaccount......... $75 $104 $119 $237
VIP II Asset Manager Subaccount................. $76 $109 $127 $254
VIP II Asset Manager: Growth Subaccount......... $78 $113 $133 $267
VIP II Contrafund Subaccount.................... $76 $109 $127 $254
VIP II Index 500 Subaccount..................... $72 $ 95 $103 $206
VIP III Balanced................................ $76 $109 $126 $252
VIP III Growth Opportunities.................... $76 $110 $128 $257
VIP III Growth & Income......................... $79 $117 $140 $280
</TABLE>

2. If the Policy is annuitized at the end of the applicable time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
VIP Money Market Subaccount..................... $18 $56 $ 96 $208
VIP High Income Subaccount...................... $22 $68 $117 $251
VIP Equity-Income Subaccount.................... $21 $64 $110 $237
VIP Growth Subaccount........................... $22 $67 $116 $249
VIP Overseas Subaccount......................... $24 $75 $128 $273
VIP II Investment Grade Bond Subaccount......... $21 $64 $110 $237
VIP II Asset Manager Subaccount................. $22 $69 $118 $254
VIP II Asset Manager: Growth Subaccount......... $24 $73 $125 $267
VIP II Contrafund Subaccount.................... $22 $69 $118 $254
VIP II Index 500 Subaccount..................... $18 $55 $ 95 $206
VIP III Balanced................................ $22 $68 $117 $252
VIP III Growth Opportunities.................... $23 $70 $120 $257
VIP III Growth & Income......................... $25 $77 $131 $280
</TABLE>

3. If the Policy is not surrendered or annuitized:

- 16 -
<PAGE>

The above tables are intended to assist the Owner in understanding the costs
and expenses of the Mutual Fund Account and the Underlying Funds that the
Owner will bear, directly or indirectly. These include the 1996 expenses of
the Underlying Funds. (See "CHARGES AND DEDUCTIONS," p. 47, and the Underlying
Funds' prospectuses.) In addition to the expenses listed above, premium taxes,
currently ranging from 0% to 3.50% of Premium Payments may be applicable.

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED RATE. THE FIGURES AND DATA FOR UNDERLYING FUND ANNUAL
EXPENSES HAVE BEEN PROVIDED BY FMR FOR 1996 AND PFL HAS NOT INDEPENDENTLY
VERIFIED THEIR ACCURACY.

In these examples, the $30 Service Charge is reflected as a charge of .0644%
based on an anticipated average Policy Value of $46,590.

DEATH BENEFIT

In the event that the Annuitant who is not the Owner dies prior to the
Annuity Commencement Date, the Owner will become the Annuitant unless the
Owner specifically requests on the application or in a Written Request that
the death benefit be paid upon the Annuitant's death and PFL agrees to such an
election. If the Annuitant is also the Owner, upon receipt of proof that the
Annuitant has died before the Annuity Commencement Date, the Death Benefit is
calculated and is payable to the Beneficiary when we receive an election of
the method of settlement and return of the Policy.

The amount of the Death Benefit will depend on the state where the Policy is
purchased and may depend on the death benefit option elected by the Owner.
However, the Death Benefit will always be at least equal to the greater of the
Policy Value or the Cash Value on the date due proof of death and election of
the method of settlement are received by PFL.

The Owner has the "one-time" option of choosing a "Return of Premium Death
Benefit," (Death Benefit Option "A"), a "5% Annually Compounding Death
Benefit," (Death Benefit Option "B"), or an "Annual Step-Up Death Benefit,"
(Death Benefit Option "C"). The Return of Premium Death Benefit is the return
of all Premium Payments less any Partial Withdrawals, as of the date of death.
The 5% Annually Compounding Death Benefit is the total Premium Payments less
any Partial Withdrawals, accumulated at 5% until the earlier of the date of
death or the Owner's 81st birthday. The Annual Step-Up Death Benefit is the
largest Policy Value on the issue date or on any Policy Anniversary prior to
the earlier of the date of death or prior to the Owner's 81st birthday, plus
any premiums paid, less any premium withdrawals taken, subsequent to the date
of the largest anniversary Policy Value. If no election is made by the
Policyholder, the Return of Premium Death Benefit will be used upon death of
the Annuitant.

- 17 -
<PAGE>

The Death Benefit provisions may vary depending on the state where the
Policy is issued. The Death Benefit may be paid as either a lump sum cash
benefit or as an annuity as permitted by federal or state law. (See
"DISTRIBUTIONS UNDER THE POLICY--Death Benefit," p. 44.)

The Death Benefit is not paid on the death of an Owner if the Owner is not
the Annuitant. If an Owner who is not the Annuitant dies before the Annuity
Commencement date, the amount payable under the Policy upon surrender will be
the Policy Value increased or decreased by an Excess Interest Adjustment.

VARIATIONS IN POLICY PROVISIONS

Certain provisions of the Policies may vary from the descriptions in this
Prospectus in order to comply with different state laws. See the Policy itself
for variations. Any such state variations will be included in the Policy
itself or in riders or endorsements attached to the Policy.

New Jersey residents: Annuity payments must begin on or before the Policy
Anniversary that is closest to the Annuitant's 70th birthday or the 10th
Policy Anniversary, whichever occurs last. The Owner may not select a
Guaranteed Period Option that would extend beyond that date. The Owner's
options at the Annuity Commencement Date are to elect a lump sum payment, or
elect to receive annuity payments under one of the Fixed Payment Options. New
Jersey residents cannot elect Variable Payment Options. Consult your agent and
the policy form itself for details regarding these and other terms applicable
to policies sold in New Jersey.

FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN THE POLICY

With respect to Owners who are natural persons, there should be no federal
income tax on increases in the Policy Value until a distribution under the
Policy occurs (e.g., a surrender or Annuity Payment) or is deemed to occur
(e.g., a pledge or assignment of a Policy). Generally, a portion of any
distribution or deemed distribution will be taxable as ordinary income. The
taxable portion of certain distributions will be subject to withholding unless
the recipient elects otherwise. In addition, a penalty tax may apply to
certain distributions or deemed distributions under the Policy. (See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES," p. 50.)

Note: The foregoing summary is qualified in its entirety by the detailed
information in the remainder of this Prospectus and in the Statement of
Additional Information and in the prospectuses for the Underlying Funds and in
the Policy, all of which should be referred to for more detailed information.
This Prospectus generally describes only the Policy and the Mutual Fund
Account. Separate prospectuses describe the Underlying Funds. (There is no
prospectus for the Fixed Account since interests in the Fixed Account are
deemed not to be securities. See "THE RETIREMENT BUILDER ACCOUNTS--The Fixed
Account," p. 28.)

- 18 -
<PAGE>

REQUESTS FOR INFORMATION

Any telephone requests and inquiriesmay be made to 1-800-525-6205.

Any Written Notices or Written Requestsmust be sent to the following address:

PFL Life Insurance Company
Administrative and Service Office:

Financial Markets Division-Variable Annuity Dept.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001

CONDENSED FINANCIAL INFORMATION

The Retirement Income Builder Variable Annuity Account did not commence
operations until January 2, 1997, therefore there are no financial statements
for that account for the year ended December 31, 1996.

FINANCIAL STATEMENTS

The financial statements of PFL and the independent auditors' report thereon
are contained in the Statement of Additional Information which is available
free upon request to PFL's Administrative and Service Office.

HISTORICAL PERFORMANCE DATA

STANDARDIZED PERFORMANCE DATA

From time to time, PFL may advertise historical yields and total returns for
the Subaccounts of the Mutual Fund Account. These figures will be calculated
according to standardized methods prescribed by the Securities and Exchange
Commission ("SEC"). They will be based on historical earnings and are not
intended to indicate future performance.

The yield of a Subaccount of the Mutual Fund Account (other than the Money
Market Subaccount) for a Policy refers to the annualized income generated by
an investment under a Policy in the Subaccount over a specified 30-day period.
The yield is calculated by assuming that the income generated by the
investment during that 30-day period is generated each 30-day period over a
12-month period and is shown as a percentage of the investment.

The total return of a Subaccount of the Mutual Fund Account refers to return
quotations assuming an investment under a Policy has been held in the
Subaccount for various periods of time including, but not limited to, a period
measured from the date the Subaccount commenced operations. When a Subaccount
has been in operation for 1, 5, and 10 years, respectively, the total return
for these periods will be provided. The total return quotations for a
Subaccount will represent the average annual compounded rates of return that
equate an initial investment of $1,000 in the Subaccount to the redemption
value of that investment as of the last day of each of the periods for which
total return quotations are provided.

- 19 -
<PAGE>

The yield and total return calculations for a Subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular Policy. The
yield calculations also do not reflect the effect of any Surrender Charge that
may be applicable to a particular Policy. To the extent that any or all of a
premium tax and/or Surrender Charge is applicable to a particular Policy, the
yield and/or total return of that Policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the Statement of Additional
Information, a copy of which may be obtained from PFL's Administrative and
Service Office upon request.

SUBACCOUNTS

None of the Subaccounts had commenced operations until January 2, 1996,
therefore, the following performance data is for hypothetical subaccounts
which would be subject to the same fees, charges and deductions as the
Subaccounts of the Mutual Fund Account, but which are shown as if the
hypothetical subaccounts actually commenced operations on the same date as the
underlying Portfolio. Accordingly, the following hypothetical performance data
is for periods before the Subaccounts actually commenced operations, and is
based on the performance of the Underlying Funds adjusted to reflect the
Mutual Fund Account charges.

The following information is also based on the method of calculation
described in the Statement of Additional Information. The hypothetical average
annual total returns for periods ended December 31, 1996, were as follows:

HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURNS

Return of Premium Death Benefit (Total Mutual Fund Account Annual Expenses:
1.25%)

<TABLE>
<CAPTION>
HYPOTHETICAL
10 YEAR SUBACCOUNT
OR INCEPTION
1 YEAR 5 YEAR INCEPTION DATE
------ ------ --------- ------------
<S> <C> <C> <C> <C>
Money Market*.............................. -1.33% 3.02% 4.59% 03/31/82
High Income................................ 7.78% 13.45% 9.67% 09/11/85
Equity-Income.............................. 8.12% 16.43% 12.24% 10/08/86
Growth..................................... 8.54% 13.65% 13.65% 10/08/86
Overseas................................... 7.06% 7.70% 6.47% 01/27/87
Investment Grade Bond...................... -2.93% 5.24% 6.78% 06/05/89
Asset Manager.............................. 8.44% 9.80% 11.11% 05/29/90
Asset Manager: Growth...................... 13.76% N/A 18.28% 01/03/95
Contrafund................................. 15.12% N/A 27.17% 01/03/95
Index 500.................................. 16.63% N/A 15.38% 08/27/92
Balanced**................................. 3.20% N/A 8.08% 1/03/95
Growth Opportunities**..................... 11.46% N/A 21.53% 1/03/95
Growth & Income**.......................... N/A N/A N/A N/A
</TABLE>

- 20 -
<PAGE>

5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit (Total
Mutual Fund Account Annual Expenses: 1.40%)

<TABLE>
<CAPTION>
HYPOTHETICAL
10 YEAR SUBACCOUNT
OR INCEPTION
1 YEAR 5 YEAR INCEPTION DATE
------ ------ --------- ------------
<S> <C> <C> <C> <C>
Money Market*.............................. -1.49% 2.87% 4.43% 03/31/82
High Income................................ 7.71% 13.28% 9.51% 09/11/85
Equity-Income.............................. 7.95% 16.26% 12.07% 10/08/86
Growth..................................... 8.37% 13.49% 13.48% 10/08/86
Overseas................................... 6.89% 7.54% 6.31% 01/27/87
Investment Grade Bond...................... -3.09% 5.09% 6.62% 06/05/89
Asset Manager.............................. 8.27% 9.64% 10.95% 05/29/90
Asset Manager: Growth...................... 13.58% N/A 18.09% 01/03/95
Contrafund................................. 14.94% N/A 26.98% 01/03/95
Index 500.................................. 16.45% N/A 15.21% 08/27/92
Balanced**................................. 3.05% N/A 7.91% 1/03/95
Growth Opportunities**..................... 11.30% N/A 21.36% 1/03/95
Growth & Income**.......................... N/A N/A N/A N/A
</TABLE>

This performance data is hypothetical for the Retirement Income Builder
Variable Annuity. For purposes of this calculation, the deductions for the
Mortality and Expense Risk Fee and Administrative Charge are made on a monthly
basis, rather than a daily basis. Accumulation Unit values and yields will
fluctuate and there is no guarantee the Owner will receive back the Owner's
original principal. Average Annual Total Returns and Yield include all
insurance contract charges.
- ----------------------------------
* The underlying Money Market Portfolio seeks to maintain a stable $1.00 share
price, however, there is no assurance that it will be able to do so. An
investment in the Portfolio is not insured by the U.S. government.

** The Retirement Income Builder Subaccounts are expected to commence
operations on or after May 1, 1997.

- 21 -
<PAGE>

NON-STANDARDIZED PERFORMANCE DATA

PFL may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a Subaccount of
the Mutual Fund Account. The non-standard performance data may assume that no
Surrender Charge is applicable, and may also make other assumptions such as
the amount invested in a Subaccount, differences in time periods to be shown,
or the effect of partial withdrawals or annuity payments.

The following hypothetical non-standardized average annual total return
figures are based on the assumption that the Policy is not surrendered, and
therefore the following figures assume that the Surrender Charge is not
imposed.

HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURNS
(ASSUMING NO SURRENDER CHARGE)

Return of Premium Death Benefit (Total Mutual Fund Account Annual Expenses:
1.25%)

<TABLE>
<CAPTION>
HYPOTHETICAL
SUBACCOUNT
10 YEAR INCEPTION
1 YEAR 5 YEAR OR INCEPTION DATE
------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Money Market*........................... 4.03% 3.17% 4.59% 03/31/82
High Income............................. 12.51% 13.45% 9.67% 09/11/85
Equity-Income........................... 12.76% 16.43% 12.24% 10/08/86
Growth.................................. 13.17% 13.65% 13.65% 10/08/86
Overseas................................ 11.71% 7.70% 6.47% 01/27/87
Investment Grade Bond................... 1.83% 5.24% 6.78% 06/05/89
Asset Manager........................... 13.07% 9.80% 11.11% 05/29/90
Asset Manager: Growth................... 18.32% N/A 20.08% 01/03/95
Contrafund.............................. 19.67% N/A 28.75% 01/03/95
Index 500............................... 21.16% N/A 15.40% 08/27/92
Balanced**.............................. 8.55% N/A 10.49% 1/03/95
Growth Opportunities**.................. 16.76% N/A 23.61% 1/03/95
Growth & Income**....................... N/A N/A N/A N/A

5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit (Total
Mutual Fund Account Annual Expenses: 1.40%)

<CAPTION>
HYPOTHETICAL
SUBACCOUNT
10 YEAR INCEPTION
1 YEAR 5 YEAR OR INCEPTION DATE
------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Money Market*........................... 3.87% 3.02% 4.43% 03/31/82
High Income............................. 12.34% 13.28% 9.51% 09/11/85
Equity-Income........................... 12.59% 16.26% 12.07% 10/08/86
Growth.................................. 13.00% 13.49% 13.48% 10/08/86
Overseas................................ 11.51% 7.54% 6.31% 01/27/87
Investment Grade Bond................... 1.68% 5.09% 6.62% 06/05/89
Asset Manager........................... 12.90% 9.64% 10.95% 05/29/90
Asset Manager: Growth................... 18.15% N/A 19.90% 01/03/95
Contrafund.............................. 19.49% N/A 28.56% 01/03/95
Index 500............................... 20.98% N/A 15.23% 08/27/92
Balanced**.............................. 8.40% N/A 10.34% 1/03/95
Growth Opportunities**.................. 16.60% N/A 23.44% 1/03/95
Growth & Income**....................... N/A N/A N/A N/A
</TABLE>

- 22 -
<PAGE>

This performance data is hypothetical for the Retirement Income Builder
Variable Annuity. For purposes of this calculation, the deductions for the
Mortality and Expense Risk Fee and Administrative Charge are made on a monthly
basis, rather than a daily basis. Accumulation Unit values and yields will
fluctuate and there is no guarantee the Owner will receive back the Owner's
original principal. Average Annual Total Returns and Yield include all
insurance contract charges.
- ----------------------------------
* The underlying Money Market Portfolio seeks to maintain a stable $1.00
share price, however, there is no assurance that it will be able to do so.
An investment in the Portfolio is not insured by the U.S. government.

** The Retirement Income Builder Subaccounts are expected to commence
operations on or after May 1, 1997.

All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information, a copy of which may be obtained free from PFL's
Administrative and Service office upon request.

PUBLISHED RATINGS

PFL may from time to time publish in advertisements, sales literature and
reports to Owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the Mutual Fund
Account or of the safety or riskiness of an investment in the Mutual Fund
Account. Each year the A.M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of
the life/health insurance industry. In addition, the claims-paying ability of
PFL as measured by Standard & Poor's Insurance Ratings Services, Moody's
Investors Service or Duff & Phelps Credit Rating Co. may be referred to in
advertisements or sales literature or in reports to Owners. These ratings are
opinions of an operating insurance company's financial capacity to meet the
obligations of its insurance policies in accordance with their terms. Claims-
paying ability ratings do not refer to an insurer's ability to meet non-policy
obligations such as debt or commercial paper obligations.

PFL LIFE INSURANCE COMPANY

PFL Life Insurance Company ("PFL"), 4333 Edgewood Road, N.E., Cedar Rapids,
Iowa 52499-0001, is a stock life insurance company. It was incorporated under
the name NN Investors Life Insurance Company, Inc. under the laws of the State
of Iowa on April 19, 1961. It is principally engaged in the sale of life
insurance and annuity policies, and is licensed in the District of Columbia,
Guam, and in all states except New York. As of December 31, 1996, PFL had
assets of approximately

- 23 -
<PAGE>

$7.9 billion. PFL is a wholly-owned indirect subsidiary of AEGON USA, Inc.
which conducts substantially all of its operations through subsidiary
companies engaged in the insurance business or in providing non-insurance
financial services. All of the stock of AEGON USA, Inc., is indirectly owned
by AEGON n.v. of the Netherlands, the securities of which are publicly traded.
AEGON n.v., a holding company, conducts its business through subsidiary
companies engaged primarily in the insurance business.

THE RETIREMENT BUILDER ACCOUNTS

Premium Payments made under a Policy may be allocated to the Mutual Fund
Account, to the Fixed Account, or to a combination of these Accounts.

THE MUTUAL FUND ACCOUNT

The Mutual Fund Account was established as a separate investment account of
PFL under the laws of the State of Iowa on March 29, 1996. The Mutual Fund
Account receives and currently invests the Premium Payments under the Policies
that are allocated to it for investment only in shares of the Variable
Insurance Products Fund, the Variable Insurance Products Fund II, and the
Variable Insurance Products Fund III, managed by Fidelity Management and
Research Company ("FMR").

The Mutual Fund Account currently is divided into thirteen Subaccounts.
Additional Subaccounts may be established in the future at the discretion of
PFL. Each Subaccount invests exclusively in shares of one of the Portfolios of
the Underlying Funds. Under Iowa law, the assets of the Mutual Fund Account
are owned by PFL but they are held separately from the other assets of PFL. To
the extent that these assets are attributable to the Cash Value of the
Policies, these assets are not chargeable with liabilities incurred in any
other business operation of PFL. Income, gains, and losses incurred on the
assets in the Subaccounts of the Mutual Fund Account, whether or not realized,
are credited to or charged against that Subaccount without regard to other
income, gains or losses of any other Account or Subaccount of PFL. Therefore,
the investment performance of any Subaccount should be entirely independent of
the investment performance of PFL's general account assets or any other
Account or Subaccount maintained by PFL.

The Mutual Fund Account is registered with the SEC under the Investment
Company Act of 1940 (the "1940 Act") as a unit investment trust and meets the
definition of a separate account under federal securities laws. However, the
SEC does not supervise the management or the investment practices or policies
of the Mutual Fund Account or PFL

Underlying Funds. The available Subaccounts of the Mutual Fund Account
currently invest exclusively in shares of the Underlying Funds. The Underlying
Funds are diversified, open-end management investment companies organized as
Massachusetts Business Trusts. They are the type of investment company
commonly known as a series mutual fund. The Variable Insurance Product Fund
was established on November 13, 1981, and was formerly known as Fidelity Cash
Reserves II. The Variable Insurance Products Fund II was established on March
21,

- 24 -
<PAGE>

1988. The Variable Insurance Products Fund III was established on July 14,
1994, and prior to December 30, 1996 was known as the Fidelity Advisor Annuity
Fund.

Certain information concerning the Underlying Funds is set forth below. More
detailed information may be found in the Underlying Funds' current
prospectuses, which accompany or precede this Prospectus, and the Underlying
Funds' current Statements of Additional Information. The following description
is qualified in its entirety by reference to each Underlying Fund's prospectus
and Statement of Additional Information.

FMR provides investment advice and administrative services to the Underlying
Funds pursuant to an agreement under which each Portfolio pays FMR a monthly
fee. VIP currently offers five Portfolios: Money Market; High Income; Equity-
Income; Growth; and Overseas. VIP II currently offers five Portfolios that are
available under the Policies: Investment Grade Bond; Asset Manager; Index 500,
Asset Manager: Growth; and Contrafund. VIP III currently offers three
Portfolios: Balanced; Growth Opportunities, and Growth & Income. The thirteen
Portfolios offered by the Underlying Funds provide a range of investment
alternatives that vary according to the different investment objectives
described in the Underlying Funds' prospectuses and summarized below. The
assets of each Portfolio are separate from the others, and each Portfolio has
separate investment objectives and policies. As a result, each Portfolio
operates as a separate investment fund, and the investment performance of one
Portfolio has no effect on the investment performance of any other Portfolio.
Each of the Portfolios may not be available for investment in every state.

VIP MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The
Portfolio will invest only in high-quality short-term U.S. dollar-denominated
money market instruments of domestic and foreign issuers. The Portfolio seeks
to maintain a constant net asset value of $1.00 per share, although no
assurances can be given that such constant net asset value will be maintained.
The Portfolio's shares are neither insured nor guaranteed by the U.S.
Government.

VIP HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower rated, fixed-income securities. In
choosing these securities, growth of capital also will be considered. The fund
can also invest in common stocks, other equity securities, and debt securities
not currently paying interest but which are expected to do so in the future.
The Portfolio may invest without limitation in lower-quality debt securities,
sometimes called "junk bonds" which carry greater risk than other debt
securities. See the Fund's prospectus for a description of these risks.

VIP EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
Portfolio will also consider the potential for capital appreciation. The
Portfolio seeks to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's Composite Index of 500 Stocks.

VIP GROWTH PORTFOLIO seeks to achieve capital appreciation through the
purchase of common stocks, although the Portfolio's investments are not
restricted

- 25 -
<PAGE>

to any one type of security. Capital appreciation may also be found in other
types of securities, including bonds and preferred stocks.

VIP OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. The Portfolio seeks to achieve its
investment objective by investing at least 65% of the Portfolio's assets in
securities of companies from at least three different countries outside of
North America. The Overseas Portfolio expects to invest most of its assets in
securities of companies located in developed countries in these general areas:
The Americas (other than the United States), the Far East and Pacific Basin,
Scandinavia and Western Europe. The Overseas Portfolio expects to invest a
majority of its assets in equity securities, but may also invest in debt
securities of any quality. Generally, the investment in securities of foreign
companies will involve greater risks than are present in domestic investments.

VIP II INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current
income as is consistent with the preservation of capital by investing
primarily in a broad range of fixed-income securities. FMR normally invests at
least 65% of the Portfolio's total assets in investment-grade, fixed income
securities. Its dollar weighted average maturity will be generally five to ten
years.

VIP II ASSET MANAGER PORTFOLIO seeks high total return with reduced risk
over the long-term by allocating its assets among the following classes, or
types of investments: domestic and foreign stocks, bonds, and short-term and
money market instruments. The Portfolio's "neutral" mix is expected to be 50%
stocks, 40% bonds and 10% short-term/money market instruments. FMR may change
the neutral mix from time to time within specified ranges as set forth in the
Fund's prospectus.

VIP II INDEX 500 PORTFOLIO seeks to match the total return of the Standard &
Poor's Composite Index of 500 Stocks, while keeping transaction costs and
other expenses low.

VIP II ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among the following classes, or types, of investments:
domestic and foreign stocks, bonds, and short-term and money market
instruments. The Portfolio's "neutral" mix is expected to be 70% stocks, 25%
bonds and 5% short-term/money market instruments. FMR may change the neutral
mix from time to time within specified ranges as set forth in the Fund's
prospectus.

VIP II CONTRAFUND PORTFOLIO seeks capital appreciation by investing
primarily in equity securities of companies that are considered to be
undervalued or out-of-favor by the Portfolio's adviser.

VIP III BALANCED PORTFOLIO seeks both income and growth of capital by
investing in a broad selection of stocks, bonds, and convertible securities.
When FMR's outlook is neutral, it will invest approximately 60% of the fund's
assets in equity securities, and will always invest at least 25% of the fund's
assets in fixed-income securities.

VIP III GROWTH OPPORTUNITIES PORTFOLIO seeks capital growth by investing in
a wide range of common stocks, convertible and foreign securities and bonds
that may offer long-term growth potential.

- 26 -
<PAGE>

VIP III GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation by investing mainly in
equity securities. The fund may also invest in equity securities that are not
paying current dividends, but offer potential for capital appreciation of
future income.

THERE IS NO ASSURANCE THAT ANY OF THE UNDERLYING FUNDS' PORTFOLIOS WILL
ACHIEVE ITS INVESTMENT OBJECTIVE.

PFL may receive expense reimbursements or other revenues from the Underlying
Funds or their investment advisors.

The Underlying Funds' prospectuses should be read carefully before any
decision is made concerning the allocation of Premium Payments to a particular
Subaccount. The Underlying Funds are not limited to selling their shares to
the Mutual Fund Account and are permitted to accept investments from any
separate account of an insurance company. Since the Portfolios of the
Underlying Funds are available to registered separate accounts offering
variable annuity products of the Company, as well as variable annuity and
variable life products of other insurance companies, there is a possibility
that a material conflict may arise between the interests of the Mutual Fund
Account and one or more of the separate accounts of another participating
insurance company. In the event of a material conflict, the affected insurance
companies, including PFL, agree to take any necessary steps, including
removing their separate accounts from the Underlying Funds, to resolve the
matter. See the Underlying Funds' prospectuses for further details.

An investment in the Mutual Fund Account, or in any Portfolio, including the
Money Market Portfolio is not insured or guaranteed by the U.S. government or
any government agency.

Addition, Deletion, or Substitution of Investments. PFL cannot and does not
guarantee that any of the Subaccounts will always be available for Premium
Payments, allocations, or transfers. PFL retains the right, subject to any
applicable law, to make certain changes in the Mutual Fund Account and its
investments. PFL reserves the right to eliminate the shares of any Portfolio
held by a Subaccount and to substitute shares of another Portfolio of the
Underlying Funds, or of another registered open-end management investment
company for the shares of any Portfolio, if the shares of the Portfolio are no
longer available for investment or if, in PFL's judgment, investment in any
Portfolio would be inappropriate in view of the purposes of the Mutual Fund
Account. To the extent required by the 1940 Act, substitutions of shares
attributable to an Owner's interest in a Subaccount will not be made without
prior notice to the Owner and the prior approval of the SEC. Nothing contained
herein shall prevent the Mutual Fund Account from purchasing other securities
for other series or classes of variable annuity policies, or from effecting an
exchange between series or classes of variable annuity policies on the basis
of requests made by Owners.

New Subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new Subaccounts
may be made available to existing Owners on a basis to be determined by PFL.
Each additional Subaccount will purchase shares in a mutual fund portfolio or
other investment vehicle. PFL may also eliminate one or more Subaccounts if,
in its sole

- 27 -
<PAGE>

discretion, marketing, tax, investment or other conditions warrant such
change. In the event any Subaccount is eliminated, PFL will notify Owners and
request a reallocation of the amounts invested in the eliminated Subaccount.
If no such reallocation is provided by the Owner, PFL will reinvest the
amounts invested in the eliminated Subaccount in the Subaccount that invests
in the Money Market Portfolio (or in a similar portfolio of money market
instruments) or in another Subaccount, if appropriate.

In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the Policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the Policies,
the Mutual Fund Account may be (i) operated as a management company under the
1940 Act or any other form permitted by law, (ii) deregistered under the 1940
Act in the event such registration is no longer required or (iii) combined
with one or more other separate accounts. To the extent permitted by
applicable law, PFL also may (1) transfer the assets of the Mutual Fund
Account associated with the Policies to another account or accounts, (2)
restrict or eliminate any voting rights of Owners or other persons who have
voting rights as to the Mutual Fund Account, (3) create new mutual fund
accounts, (4) add new Subaccounts to or remove existing Subaccounts from the
Mutual Fund Account, or combine Subaccounts, or (5) add new underlying funds,
or substitute a new fund for an existing fund.

THE FIXED ACCOUNT

This Prospectus is generally intended to serve as a disclosure document only
for the Policy and the Mutual Fund Account. For complete details regarding the
Fixed Account, see the Policy itself.

Premium Payments allocated and amounts transferred to the Fixed Account
become part of the general account of PFL, which supports insurance and
annuity obligations. Interests in the general account have not been registered
under the Securities Act of 1933 (the "1933 Act"), nor is the general account
registered as an investment company under the 1940 Act. Accordingly, neither
the general account nor any interests therein are generally subject to the
provisions of the 1933 or 1940 Acts. PFL has been advised that while the staff
of the SEC has not reviewed the disclosures in this Prospectus which relate to
the fixed portion, the disclosures may be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of the statements made in the prospectus.

The Fixed Account is made up of all the general assets of PFL, other than
those in the Mutual Fund Account or in any other segregated asset account. The
Policy Owner may allocate Premium Payments to the Fixed Account at the time of
Premium Payment or by subsequent transfers from the Mutual Fund Account.
Rather than the Policy Owner bearing the investment risk, as is the case for
Policy Value allocated to the Mutual Fund Account, PFL bears the full
investment risk for all Policy Value allocated to the Fixed Account. PFL has
sole discretion to invest the assets of its general account, including the
Fixed Account, subject to applicable law.

Premium Payments applied to, and any amounts transferred to, the Fixed
Account will reflect a fixed interest rate. The interest rates PFL sets will
be credited

- 28 -
<PAGE>

for increments of at least one year measured from each Premium Payment or
transfer date. These rates will never be less than an effective annual
interest rate of 3%.

Upon full surrender, the Owner will always receive at least the Premium
Payments applied to, less prior partial withdrawals and transfers from, the
Fixed Account.

Guaranteed Periods. PFL may offer optional guaranteed interest rate periods
("Guaranteed Period Options") into which Premium Payments may be paid or
amounts transferred. For example, PFL may offer Guaranteed Period Options for
1, 3, 5, or 7 years duration from time to time. The Current Interest Rate PFL
sets for funds placed in each Guaranteed Period Option will be guaranteed
until the end of the applicable Guaranteed Period. At the end of the
Guaranteed Period, the Policy Value for the Guaranteed Period Option will be
rolled into a new Guaranteed Period Option(s) or may be transferred to any
Subaccount(s) within the Mutual Fund Account.

The Owner may choose the Guaranteed Period Option(s) in which to place the
Policy Value by giving PFL notice within 30 days before the end of the
expiring Guaranteed Period. In the absence of such election, the new
Guaranteed Period Option will be the same as the expiring Guaranteed Period
Option unless that Guaranteed Period Option is no longer offered, in which
case, the next shorter Guaranteed Period Option offered will be used. PFL
reserves the right, for new Premium Payments, transfers, or rollovers, to
offer or not to offer any Guaranteed Period Option. PFL will, however, always
offer at least a one-year Guaranteed Period Option.

Surrenders or partial withdrawals from a Guaranteed Period Option prior to
the end of the Guaranteed Period and which are in excess of the cumulative
interest credited at the time of, but prior to, the withdrawal are subject to
an Excess Interest Adjustment on the amount withdrawn. An Excess Interest
Adjustment may result in a loss of interest credited, or again of additional
interest, but the Owner's Fixed Account Policy Values will always be credited
with an effective annual interest rate of at least 3%. Surrender charges, if
any, are applied after the Excess Interest Adjustment. However, upon full
surrender the Owner is guaranteed return of Premium Payments to the Fixed
Account, less partial withdrawals and transfers from the Fixed Account. See
"DISTRIBUTIONS UNDER THE POLICY--Excess Interest Adjustment," p. 38.) No
transfers from any Guaranteed Period Option to any other Investment Option
will be allowed prior to the end of the Guaranteed Period. (See "Transfers,"
below.)

For purposes of crediting interest, the oldest Premium Payment or transfer
into a Guaranteed Period Option within the Fixed Account, plus interest
allocable to that Premium Payment or transfer, is considered to be withdrawn
first; the next oldest Premium Payment or transfer plus interest is considered
to be withdrawn next, and so on (this is a "first-in, first-out" procedure).
The Owner bears the risk that PFL will not credit interest in excess of 3% per
year.

Dollar Cost Averaging Fixed Account Option. PFL may offer a Dollar Cost
Averaging Fixed Account Option separate from the Guaranteed Period Option(s).

- 29 -
<PAGE>

This option will have a one-year interest rate guarantee and will only be
available under a Dollar Cost Averaging (DCA) program.

Prior to the Annuity Commencement Date, no transfers, except through a
Dollar Cost Averaging program, will be allowed from the Dollar Cost Averaging
Fixed Account. Dollar Cost Averaging transfers to Subaccounts of the Mutual
Fund Account must begin within 30 days after the Premium Payment or transfer
to the Dollar Cost Averaging Fixed Account. Transfers must be scheduled for at
least six but not more than 24 months, or for at least four, but not more than
eight calendar quarters. No changes to the amount transferred will be allowed,
but changes can be made to the Subaccounts to which these transfers are
allocated. Transfers under a Dollar Cost Averaging program will not be subject
to an Excess Interest Adjustment. (See "THE RETIREMENT BUILDER ACCOUNTS--
Dollar Cost Averaging," p. 32.)

Dollar cost averaging requires regular investment regardless of fluctuating
prices and does not guarantee profits nor prevent losses in a declining
market. Before electing this option, individuals should consider their
financial ability to continue purchases through periods of both high and low
price levels.

Guaranteed Interest Rates. PFL periodically will establish an applicable
Guaranteed Interest Rate for each of the Guaranteed Period Options within the
Fixed Account, and the Dollar Cost Averaging Fixed Account Option. Current
Guaranteed Interest Rates may be changed by PFL frequently or infrequently
depending on interest rates on investments available to PFL and other factors
as described below, but once established, the rate will be guaranteed for the
entire duration of the Guaranteed Period. However, except for limited
situations, any amount withdrawn or transferred will be subject to an Excess
Interest Adjustment, except those at the end of the Guaranteed Period Option.
(See "Excess Interest Adjustment," p. 30.)

The Guaranteed Interest Rate will not be less than 3% per year regardless of
any application of the Excess Interest Adjustment. PFL has no specific formula
for determining the rate of interest that it will declare as a Guaranteed
Interest Rate, as this rate will be reflective of interest rates available on
the types of debt instruments in which PFL intends to invest amounts allocated
to the Fixed Account. In addition, PFL's management may consider other factors
in determining Guaranteed Interest Rates for a particular Guaranteed Period
including but not limited to: regulatory and tax requirements; sales
commissions and administrative expenses borne by the Company; general economic
trends; and competitive factors. There is no obligation to declare a rate in
excess of 3%; the Policy Owner assumes the risk that declared rates will not
exceed 3%. PFL has complete discretion to declare any rate of at least 3%,
regardless of market interest rates, the amounts earned by PFL on its
investments, or any other factors.

PFL'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE
GUARANTEED INTEREST RATES. PFL CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE
GUARANTEED INTEREST RATES, EXCEPT THAT PFL GUARANTEES THAT FUTURE GUARANTEED
EFFECTIVE INTEREST RATES WILL NOT BE BELOW 3% PER YEAR.

- 30 -
<PAGE>

TRANSFERS

An Owner can transfer Policy Value from one Investment Option to another
within certain limits.

Subject to the limitations and restrictions described below, transfers from
an Investment Option may be made, up to thirty days prior to the Annuity
Commencement Date, by sending Written Notice, signed by the Owner, to the
Administrative and Service Office. The minimum amount which may be transferred
from a Subaccount of the Mutual Fund Account is the lesser of $500 or the
entire Subaccount value. If the Subaccount value remaining after a transfer is
less than $500, PFL reserves the right, at its discretion, to include that
amount as part of the transfer.

Subject to the limitations and restrictions described below, transfers
currently may be made without charge as often as the Owner wishes, subject to
the minimum dollar amounts specified above. PFL reserves the right to limit
these transfers to no more than 12 per Policy Year in the future or to charge
up to $10 per transfer in excess of 12 per Policy Year.

Transfers of Policy Values from any of the Guaranteed Period Option(s) of
the Fixed Account to any Subaccount(s) of the Mutual Fund Account are allowed
only at the end of the Guaranteed Period(s), and will not be subject to an
Excess Interest Adjustment at that time. The Owner must notify PFL within 30
days prior to the end of any expiring Guaranteed Period Option to instruct PFL
regarding any transfers to be performed at that time. The Owner may, however,
transfer amounts equal to the interest credited in any of the Guaranteed
Period Option(s) to any Subaccount(s) of the Mutual Fund Account prior to the
end of the Guaranteed Period. The maximum "interest transfer" permitted from
any Guaranteed Period Option before the end of the Guaranteed Period will be
the cumulative amount of interest credited for the Guaranteed Period Option at
the time of, but prior to, the transfer. No Excess Interest Adjustment will
apply to such "interest transfers." Interest transfers may affect the interest
crediting rates on amounts remaining in the Guaranteed Period Option, since
for purposes of crediting interest, PFL considers the oldest Premium Payment
or transfer into the Guaranteed Period Option, plus interest allocable to that
particular Premium Payment or transfer, to be withdrawn first.

Transfers out of the Dollar Cost Averaging Fixed Account, except through a
Dollar Cost Averaging program, are not allowed. (See "Dollar Cost Averaging,"
p. 29.)

After the Annuity Commencement Date, transfers out of the Fixed Account are
not permitted. (See "DISTRIBUTIONS UNDER THE POLICY--Annuity Payment Options,"
p. 41.)

Transfers may be made by telephone, subject to the provisions described
below under "Telephone Transactions."

REINSTATEMENTS

Requests are occasionally received by PFL to reinstate funds which had been
transferred to another life insurance company pursuant to a Code Section 1035

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exchange or trustee-to-trustee transfer. In this situation PFL will require
the Owner to replace the same total dollar amount of funds in the applicable
Subaccounts and/or Fixed Accounts as was taken from them to effect the
exchange. The total dollar amount of funds reapplied to the Mutual Fund
Account will be used to purchase a number of Accumulation Units available for
each Subaccount based on the Accumulation Unit values at the date of
reinstatement (within two days of the date the funds are received by PFL). It
should be noted that the number of Accumulation Units available on the
Reinstatement date may be more or less than the number surrendered for the
exchange. Amounts reapplied to the Fixed Account will be entitled to receive
the interest rate they would otherwise have received had they not been
withdrawn. However, an adjustment will be made to the amount reapplied to
compensate PFL for the additional interest credited during the period of time
between the withdrawal and the reapplication of the funds. Owners should
consult a qualified personal tax adviser concerning the tax consequences of
any Code Section 1035 exchanges or reinstatements.

TELEPHONE TRANSACTIONS

Owners (or their designated registered representative) may make transfers
and/or change the allocation of subsequent Premium Payments by telephone if
the "Telephone Transfer/Reallocation Authorization" box in the Policy
application has been initialed or telephone transfers have been subsequently
authorized by the Owner by appropriate Written Request. PFL will not be liable
for following instructions communicated by telephone that it reasonably
believes to be genuine. However, PFL will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. If PFL fails
to do so, it may be liable for any losses due to unauthorized or fraudulent
instructions. All telephone requests will be recorded on voice recorder
equipment for the protection of the Owner. The Owner, when making telephone
requests, will be required to provide the Owner's social security number,
and/or other information for identification purposes.

Telephone requests must be received at the Administrative and Service Office
no later than 3:00 p.m. Central time in order to assure same-day pricing of
the transaction.

The telephone transaction privilege may be discontinued at any time as to
some or all Owners and PFL may require written confirmation of a telephone
transaction request at its discretion.

DOLLAR COST AVERAGING (DCA)

Under the Dollar Cost Averaging program, prior to the Annuity Commencement
Date, the Owner can instruct PFL to automatically transfer a dollar amount
specified by the Owner from the DCA Fixed Account Option to any other
Subaccount or Subaccounts of the Mutual Fund Account. The automatic transfers
can occur monthly or quarterly and will occur on the 28th day of the month. If
the DCA request is received prior to the 28th day of any month, the first
transfer will occur on the 28th day of that month. If the DCA request is
received on or after the 28th day of any month, the first transfer will occur
on the 28th day of the following month. The amount transferred each time must
be at least $500. A minimum of six monthly or four quarterly transfers are
required and a maximum of 24 monthly or eight quarterly transfers are allowed
from the DCA Fixed Account.

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<PAGE>

Dollar Cost Averaging results in the purchase of more Accumulation Units
when the Accumulation Unit value is low, and fewer Accumulation Units when the
Accumulation Unit value is high. However, there is no guarantee that the
Dollar Cost Averaging program will result in higher Policy Values or will
otherwise be successful.

The Policy Owner may request Dollar Cost Averaging when purchasing the
Policy or later. The program will terminate when the amount in the DCA Fixed
Account is insufficient for the next transfer, at which time the entire
remaining balance is transferred.

The Owner may discontinue the program after satisfying the required minimum
number of transfers at any time by sending a Written Notice to the
Administrative and Service Office. The required minimum number of transfers
(six monthly or four quarterly) must be satisfied each time the DCA program is
restarted following termination of the program for any reason. There is no
charge for participation in this program.

ASSET REBALANCING

Prior to the Annuity Commencement Date the Owner may instruct PFL to
automatically transfer amounts among the Subaccounts of the Mutual Fund
Account on a regular basis to maintain a desired allocation of the Policy
Value among the various Subaccounts offered. Rebalancing will occur on a
monthly, quarterly, semi-annual, or annual basis based on the Policy Date, and
beginning on a date selected by the Owner. The Owner must select the
percentage of the Policy Value desired in each of the various Subaccounts
offered (totaling 100%). Any amounts in the Fixed Account are ignored for
purposes of asset rebalancing. Rebalancing may be started, stopped, or changed
at any time, except that rebalancing will not be available when:

(1) a Dollar Cost Averaging program is in effect; or

(2) any other transfer is requested.

There is no charge for participation in this program.

THE POLICY

The Retirement Income Builder Variable Annuity Policy is a flexible premium
variable annuity policy. The rights and benefits under the Policy are
summarized below; however, the description of the Policy contained in this
Prospectus is qualified in its entirety by reference to the Policy itself, a
copy of which is available upon request from PFL. The Policy may be purchased
on a non-tax qualified basis ("Nonqualified Policy"). The Policy may also be
purchased and used in connection with retirement plans or individual
retirement accounts that qualify for favorable federal income tax treatment
("Qualified Policy").

POLICY APPLICATION AND ISSUANCE OF POLICIES--PREMIUM PAYMENTS

Before it will issue a Policy, PFL must receive a completed Policy
application or transmittal form and a minimum initial Premium Payment of
$2,000 for a

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Nonqualified or Qualified Policy. There is no minimum initial Premium Payment
required for tax deferred 403(b) annuity purchases; any amount selected by the
Owner in such case, up to the maximum total premium payment allowed by PFL,
may be used to start a Policy. The initial Premium Payment for tax deferred
403(b) purchases must be received within 90 days following the Policy Date,
otherwise the Policy will be canceled. PFL reserves the right to increase or
decrease this amount for a class of Policies issued after some future date.
The initial Premium Payment is the only Premium Payment required to be paid
under a Policy. A Policy ordinarily will be issued only in respect of
Annuitants Age 0 through 80. Acceptance or declination of an application shall
be based on PFL's underwriting standards, and PFL reserves the right to reject
any application or Premium Payment based on those underwriting standards.

If the application or transmittal form can be accepted in the form received,
the initial Premium Payment will be credited to the Policy Value within two
Business Days after the later of receipt of the information needed to issue
the Policy or receipt of the initial Premium Payment. If the initial Premium
Payment cannot be credited because the application or other issuing
requirements are incomplete, the applicant will be contacted within five
Business Days and given an explanation for the delay and the initial Premium
Payment will be returned at that time unless the applicant consents to PFL's
retaining the initial Premium Payment and crediting it as soon as the
necessary requirements are fulfilled.

PFL may, if the application or transmittal form can be accepted in the form
received, credit the initial Premium Payment to the Policy Value within one
Business Day after the later of receipt by PFL's agent of the information
needed or the Premium Payment.

The date on which the initial Premium Payment is credited to the Policy
Value is the Policy Date. The Policy Date is the date used to determine Policy
Years and Policy Anniversaries.

All checks or drafts for Premium Payments should be made payable to PFL Life
Insurance Company and sent to the Administrative and Service Office. The Death
Benefit will not take effect until the check or draft for the Premium Payment
is honored.

Additional Premium Payments. While the Annuitant is living and prior to the
Annuity Commencement Date, the Owner may make Additional Premium Payments at
any time, and in any frequency. The minimum Additional Premium Payment under
both a Nonqualified Policy and a Qualified Policy is $50. Additional Premium
Payments will be credited to the Policy and added to the Policy Value as of
the Business Day when the premium and required information are received.

Maximum Total Premium Payments. The maximum total Premium Payments allowed
without prior approval of PFL is $1,000,000.

Allocation of Premium Payments. An Owner must allocate Premium Payments to
one or more of the Investment Options. THE OWNER MUST SPECIFY THE INITIAL
ALLOCATION IN THE POLICY APPLICATION OR TRANSMITTAL FORM. THIS ALLOCATION WILL
BE USED FOR SUBSEQUENT ADDITIONAL PREMIUM PAYMENTS UNLESS THE OWNER REQUESTS A

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CHANGE OF ALLOCATION. All allocations must be made in whole percentages and
must total 100%. However, the portion of the initial Premium Payment which is
allocated to the Mutual Fund Account will be temporarily allocated entirely to
the Money Market Portfolio of the Mutual Fund Account only for a period of
time equal to the greater of the Policy's Right to Cancel Period, or fourteen
(14) days following the Policy Date. (See "SUMMARY--Right to Cancel Period,"
p. 9.) Based on current state laws, the maximum right to cancel period, and
therefore maximum period of time the funds are expected to be allocated to the
money market account, is 30 days from the date the policy is issued. At the
end of that period, the Policy Value in the Money Market Portfolio will then
be allocated to the Subaccount(s) of the Mutual Fund Account in accordance
with the allocation percentages specified by the Owner. If Premium Payments
are allocated to the Dollar Cost Averaging Fixed Account, directions regarding
the Subaccount(s) to which transfers are to be made must be specified on the
application or other proper Written Request. If the Owner fails to specify how
Premium Payments are to be allocated, the Premium Payment(s) cannot be
accepted.

The Owner may change the allocation instructions for future Subsequent
Additional Premium Payments by sending a Written Notice, signed by the Owner,
to PFL's Administrative and Service Office, or by telephone (subject to the
provisions described under "THE RETIREMENT BUILDER ACCOUNTS--Telephone
Transactions," p. 32). The allocation change will apply to Premium Payments
received after the date the Written Notice or telephone request is received.

Payment Not Honored by Bank. Any payment due under the Policy which is
derived, all or in part, from any amount paid to PFL by check or draft may be
postponed until such time as PFL determines that such instrument has been
honored.

POLICY VALUE

On or before the Annuity Commencement Date, the Policy Value is equal to the
Owner's:

(1) Premium Payments; minus

(2) Partial Withdrawals (including any applicable Excess Interest
Adjustments and/or Surrender Charges on such withdrawals); plus

(3) interest credited in the Fixed Account; plus or minus

(4) accumulated gains or losses in the Mutual Fund Account; minus

(5) Service Charges, premium taxes and transfer fees, if any.

The Policy Value is expected to change from Valuation Period to Valuation
Period, reflecting the investment experience of the selected Subaccount(s), as
well as the deductions for charges. A Valuation Period is the period between
successive Business Days. It begins at the close of business on each Business
Day and ends at the close of business on the next succeeding Business Day. A
Business Day is each day that both the New York Stock Exchange and PFL's
Administrative and Service Office are open for business. Holidays are
generally not Business Days.

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<PAGE>

The Mutual Fund Policy Value. When a Premium Payment is allocated or an
amount is transferred to a Subaccount of the Mutual Fund Account, it is
credited to the Policy Value in the form of Accumulation Units. Each
Subaccount of the Mutual Fund Account has a distinct Accumulation Unit value.
The number of units credited is determined by dividing the Premium Payment or
amount transferred to the Subaccount by the Accumulation Unit value of the
Subaccount as of the end of the Valuation Period during which the allocation
is made. When amounts are transferred out of, or fully surrendered or
partially withdrawn from a Subaccount, Accumulation Units are canceled or
redeemed in a similar manner.

For each Subaccount, the Accumulation Unit Value for a given Business Day is
based on the net asset value of a share of the corresponding Portfolio of the
Underlying Funds less any applicable charges or fees. Therefore, the
Accumulation Unit Values will fluctuate from day to day based on the
investment experience of the corresponding Portfolio. The determination of
Subaccount Accumulation Unit Values is described in detail in the Statement of
Additional Information.

ADJUSTED POLICY VALUE (APV)

The Adjusted Policy Value is the Policy Value increased or decreased by any
Excess Interest Adjustment applied at the time of surrender or on the Annuity
Commencement Date.

The Adjusted Policy Value will be used on the Annuity Commencement Date to
provide the amount of annuity payments under a Policy.

AMENDMENTS

No change in the Policy is valid unless made in writing by PFL and approved
by one of PFL's officers. No registered representative has authority to change
or waive any provision of the Policy.

PFL reserves the right to amend the Policies to meet the requirements of the
Code, regulations or published rulings. An Owner can refuse such a change by
giving Written Notice, but a refusal may result in adverse tax consequences.

NON-PARTICIPATING POLICY

The Policy does not participate or share in the profits or surplus earnings
of PFL. No dividends are payable on the Policy.

DISTRIBUTIONS UNDER THE POLICY

SURRENDERS

Prior to the Annuity Commencement Date, the Owner may surrender all or a
portion of the Cash Value in exchange for a payment from PFL. The Cash Value
is the Adjusted Policy Value, less the Surrender Charge, if any. (See
"DISTRIBUTIONS UNDER THE POLICY--Annuity Payment Options," p. 41.) The Policy
cannot be surrendered after the Annuity Commencement Date. (See "DISTRIBUTIONS
UNDER THE POLICY--Annuity Payments," p. 40.)

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<PAGE>

When requesting a partial surrender ($500 minimum), the Owner must instruct
PFL how the amount withdrawn is to be allocated among various Guaranteed
Period Options of the Fixed Account and/or the Subaccount(s) of the Mutual
Fund Account. If the Owner's request for a partial surrender from a Guaranteed
Period Option of the Fixed Account is greater than the Cash Value of that
Guaranteed Period Option, PFL will pay the Owner the amount of the Cash Value
of that Guaranteed Period Option. If no allocation instructions are given, the
withdrawal will be deducted from each Investment Option in the same proportion
that the Owner's interest in each Investment Option bears to the total Policy
Value. PFL reserves the right to defer payment of the Cash Value from the
Fixed Account for up to six months.

In each Policy Year the Owner may request partial surrenders ($500 minimum)
of up to 10% of the Policy Value free of Surrender Charges. The percentage
that may be taken free of Surrender Charges each Policy Year is cumulative.
This is referred to as the Cumulative Free Percentage. That is, Cumulative
Free Percentages which are not taken are carried forward and are available to
be taken in the following Policy Year free of Surrender Charges. Cumulative
Free percentage withdrawals previously taken reduce the Cumulative Free
Percentage that is available. For example, 10% Cumulative Free Percentage is
available at the beginning of the first policy year. If no partial withdrawals
are taken in the first policy year, the first year unused Cumulative Free
Percentage of 10% is carried forward to the second policy year. The unused 10%
from year one plus 10% additional Cumulative Free Percentage available at the
beginning of policy year two accumulates to a 20% Cumulative Free Percentage
as of the beginning of policy year two. Assume only 5% is used in policy year
two. Thus the Cumulative Free Percentage available as of the beginning of
policy year three would be 25% (that is, 20% -- 5% = 15% unused from policy
year two, plus an additional 10% available at the beginning of policy year
three). Amounts withdrawn in excess of the available Cumulative Free
Percentage will be subject to a Surrender Charge (up to 6%). Neither a
Surrender Charge nor an Excess Interest Adjustment will be assessed if the
withdrawal is necessary to meet the minimum distribution requirements for that
Policy specified by the IRS for tax qualified plans.

Upon full surrender or partial withdrawal, the cumulative interest credited
at the time of, but prior to, the surrender or withdrawal will not be subject
to an Excess Interest Adjustment.

Surrenders or partial withdrawals that are allowed free of Surrender Charges
will reduce the Policy Value by the amount withdrawn. Surrendered or partially
withdrawn amounts in excess of the portion that is free of Surrender Charges
are Excess Partial Withdrawals. Excess Partial Withdrawals will reduce the
Policy Value by an amount equal to (X - Y + Z) where:

X = Excess Partial Withdrawal

Y = Excess Interest Adjustment, which is applicable to the Excess Partial
Withdrawal

Z = Surrender Charge on X minus Y.

For a discussion of the Surrender Charge, see "CHARGES AND DEDUCTIONS--
Surrender Charge," p. 48. For a discussion of the Excess Interest

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Adjustment, see "DISTRIBUTIONS UNDER THE POLICY--Excess Interest Adjustment,"
p. 38 and Appendix "A".

Since the Owner assumes the investment risk with respect to all Premium
Payments allocated to the Mutual Fund Account, and because withdrawals may be
subject to an Excess Interest Adjustment and to a Surrender Charge, and
possibly premium taxes, the total amount paid upon total surrender of the Cash
Value (taking any prior surrenders into account) may be more or less than the
total Premium Payments made. Following a surrender of the total Cash Value, or
at any time the Policy Value is zero, all rights of the Owner and Annuitant
will terminate.

In addition to any applicable Excess Interest Adjustment, Surrender Charge,
and premium tax, surrenders and partial withdrawals may be subject to income
taxes and, if taken prior to age 59 1/2, a ten percent Federal penalty tax.
(See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES," p. 50.)

NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION

In some states, if the Owner or Owner's spouse (Annuitant or Annuitant's
spouse if the Owner is not a natural person)-(1) has been confined in a
hospital or nursing facility for 30 consecutive days or (2) has been diagnosed
as having a terminal condition as defined in the Policy or endorsement
(generally a life expectancy of 12 months or less), then the Surrender Charge
and Excess Interest Adjustment are not imposed on surrenders or partial
withdrawals. (Since this benefit may not be available in all states, see the
Policy or endorsement for details.) (See DISTRIBUTIONS UNDER THE POLICY--
Nursing Care and Terminal Condition Withdrawal Option," p. 38.)

UNEMPLOYMENT WAIVER

The Owner may withdraw all or a portion of the Policy Value free of
Surrender Charges and free of Excess Interest Adjustments if the Owner or
Owner's spouse (Annuitant or Annuitant's spouse, if the Owner is not a natural
person) becomes unemployed. In order to qualify, the affected individual 1)
must have been employed full time for at least two years prior to becoming
unemployed, 2) must have been employed full time on the Policy Date, 3) must
have been unemployed for at least 60 consecutive days at the time of
withdrawal, and 4) must have a minimum Cash Value at the time of withdrawal of
$5,000. Proof of unemployment will consist of providing PFL with a
determination letter from the applicable State's Department of Labor which
verifies that the individual qualifies for and is receiving unemployment
benefits at the time of withdrawal. The determination letter must be received
by PFL no later than fifteen (15) days following the date PFL receives the
withdrawal request. (This benefit may not be available in all states--see the
Policy or endorsement for details.)

EXCESS INTEREST ADJUSTMENT (EIA)

Full surrenders, partial withdrawals, and amounts applied to an Annuity
Payment Option (prior to the end of any Guaranteed Period) from the Fixed
Account Guaranteed Period Options will be subject to an Excess Interest
Adjustment except as provided for under "Surrenders" or "Nursing Care and
Terminal Condition Withdrawal Option" above or "Systematic Payout Option,"
p. 38.

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<PAGE>

The Excess Interest Adjustment partially compensates PFL for the foregoing
early removal of funds from the Guaranteed Period Options where interest rates
declared by PFL have risen since the date of the guarantee. Conversely, the
Excess Interest Adjustment allows PFL to share the benefit of falling interest
rates with the Owner upon such withdrawals.

Generally, if interest rates declared by PFL have risen since the date of
the guarantee, the application of the Excess Interest Adjustment (a negative
Excess Interest Adjustment in this case) will result in a lower Cash Value
upon surrender. Conversely, if interest rates have fallen since the date of
the guarantee, the application of the Excess Interest Adjustment (a positive
Excess Interest Adjustment in this case) will result in a higher Cash Value
upon surrender.

Excess Interest Adjustments will not reduce the Adjusted Policy Value at the
time of full surrender for a Guaranteed Period Option below the amount paid
into, less any prior partial withdrawals and transfers from that Guaranteed
Period Option, plus interest at the Policy's minimum guaranteed effective
annual interest rate of 3%.

The formula for calculating the Excess Interest Adjustment and examples of
the application of the Excess Interest Adjustments are set forth in Appendix A
to this Prospectus.

SYSTEMATIC PAYOUT OPTION

Under the Systematic Payout Option, Owners can instruct PFL to make
automatic payments to them monthly, quarterly, semi-annually or annually from
specified Investment Options (except the DCA account). Monthly and quarterly
payments can only be accomplished by electronic funds transfer directly to a
checking or savings account. The minimum payment is $50. The maximum payment
is 10% of the Policy Value at the time the Systematic Payout is made divided
by the number of payments made per year (for example, 12 for monthly). If this
requested amount is below the minimum distribution requirements for that
Policy specified by the IRS for tax qualified plans, the maximum payment will
be increased to this minimum required distribution amount. Only partial
withdrawal requests which are in excess of the minimum required distribution
will be subject to any applicable Surrender Charge and/or Excess Interest
Adjustment. The "Request for Systematic Payout" form must specify a date for
the first payment, which must be at least 30 days but not more than one year
after the form is submitted (i.e., Systematic Payouts will start at the end of
the payment mode selected, but not earlier than 30 days from the date of
request).

The Surrender Charge and Excess Interest Adjustment will be waived for
Owners under age 59 1/2 on Qualified Policies if they take Systematic Payouts
using one of the payout methods described in I.R.S. Notice 89-25, Q&A-12 (the
Life Expectancy Recalculation Option, Amortization, or Annuity Factor) which
generally requires payments for life or life expectancy. These payments must
be continued until the later of age 59 1/2 or five years from commencement of
the payments. No additional withdrawals may be taken during the time these
payments are made. For Qualified Policies, Owners age 59 1/2 or older, the
Surrender Charge and Excess Interest Adjustment will be waived if payments are
made using the Life Expectancy Recalculation Option.

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<PAGE>

In addition, for either Qualified or Nonqualified Policies, the Surrender
Charge will not be imposed on Systematic Payouts. Only Systematic Payouts in
excess of the cumulative interest credited at the time of, but prior to, the
payout will be subject to an Excess Interest Adjustment.

Qualified Policies are subject to complex rules with respect to restrictions
on and taxation of distributions, including the applicability of penalty
taxes. In addition, the tax treatment of systematic payouts from Nonqualified
Policies has had an unfavorable ruling regarding the ability to avoid the 10%
penalty tax. Therefore, the Owner should consult a qualified tax adviser
before requesting a Systematic Payout. In certain circumstances withdrawn
amounts may be included in the Owner's gross income. (See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES," p. 50.)

ANNUITY PAYMENTS

Annuity Commencement Date. Unless the Annuity Commencement Date is changed,
Annuity Payments under a Policy will begin on the Annuity Commencement Date
which is selected by the Owner at the time the Policy is applied for. The
Annuity Commencement Date may be changed from time to time by the Owner by
Written Notice to PFL, provided that notice of each change is received by PFL
at its Administrative and Service Office at least thirty (30) days prior to
the then current Annuity Commencement Date. Except as otherwise permitted by
PFL, a new Annuity Commencement Date must be a date which is: (1) at least
thirty (30) days after the date notice of the change is received by PFL and
(2) not later than the last day of the Policy month starting after the
Annuitant attains age 85. In no event will an Annuity Commencement Date be
permitted to be later than the last day of the Policy month following the
month in which the Annuitant attains age 95. The Annuity Commencement Date may
also be changed by the Beneficiary's election of the Annuity Option after the
Annuitant's death.

Election of Payment Option. During the lifetime of the Annuitant and prior
to the Annuity Commencement Date, the Owner may choose a Payment Option or
change the election, but Written Notice of any election or change of election
must be received by PFL at its Administrative and Service Office at least
thirty (30) days prior to the Annuity Commencement Date. If no election is
made prior to the Annuity Commencement Date, Annuity Payments will be made
under (i) Option 3, life income with level payments for 10 years certain,
using the existing Adjusted Policy Value of the Fixed Account, or (ii) under
Option 3-V, life income with variable payments for 10 years certain using the
existing Policy Value of the Mutual Fund Account, or (iii) in a combination of
(i) and (ii). If the Adjusted Policy Value on the Annuity Commencement Date is
less than $2,000, PFL reserves the right to pay it in one lump sum in lieu of
applying it under a Payment Option.

Prior to the Annuity Commencement Date, the Beneficiary may elect to receive
the Death Benefit in a lump sum or under one of the Payment Options, to the
extent allowed by law and subject to the terms of any settlement agreement.
(See "Death Benefit," p. 44.) Annuity Payments will be made on either a fixed
basis or a variable basis as selected by the Owner (or the Beneficiary, after
the Annuitant's death).

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<PAGE>

The person who elects a Payment Option can also name one or more successor
payees to receive any unpaid amount PFL has at the death of a payee. Naming
these payees cancels any prior choice of a successor payee.

A payee who did not elect the Payment Option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL
agrees.

Unless the Owner specifies otherwise, the payee shall be the Annuitant, or,
after the Annuitant's death, the Beneficiary. PFL may require written proof of
the age of any person who has an annuity purchased under Option 3, 3-V, 5 or
5-V.

Premium Tax. PFL may be required by state law to pay premium tax on the
amount applied to a payment option or upon withdrawal. If so, PFL will deduct
the premium tax before applying or paying the proceeds.

Supplementary Contract. Once proceeds become payable and a Payment Option
has been selected, the Policy will terminate and PFL will issue a
Supplementary Contract to reflect the terms of the option selected. The
Supplementary Contract will name the payees and will describe the payment
schedule.

ANNUITY PAYMENT OPTIONS

The Policy provides five Payment Options which are described below. Two of
these are offered as either "Fixed Payment Options" or "Variable Payment
Options," and three are only available as Fixed Payment Options. The Owner may
elect a Fixed Payment Option, a Variable Payment Option, or a combination of
both. If the Owner elects a combination, he must specify what part of the
Policy proceeds are to be applied to the Fixed and Variable Payment Options
(and he must also specify which Subaccounts for the Variable Payment Options).

NOTE CAREFULLY: Under Payment Options 3(l) and 5 (including 3-V(l) and 5-V),
it would be possible for only one Annuity Payment to be made if the
Annuitant(s) were to die before the due date of the second Annuity Payment;
only two Annuity Payments if the Annuitant(s) were to die before the due date
of the third Annuity Payment; and so forth.

On the Annuity Commencement Date, the Adjusted Policy Value will be applied
to provide for Annuity Payments under the selected Annuity Option as
specified. The Adjusted Policy Value is the Policy Value for the Valuation
Period which ends immediately preceding the Annuity Commencement Date,
including the effect of any applicable Excess Interest Adjustment.

The effect of choosing a Fixed Payment Option is that the amount of each
payment will be set on the Annuity Commencement Date and will not change. If a
Fixed Payment Option is selected, the Adjusted Policy Value will be
transferred to the general account of PFL, and the Annuity Payments will be
fixed in amount by the fixed annuity provisions selected and the age and sex
(if consideration of sex is allowed) of the Annuitant. For further
information, contact PFL at its Administrative and Service Office.

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Guaranteed Values. There are five Fixed Payment Options. Options 1, 2 and 4
are based on a guaranteed interest rate of 3%. Options 3 and 5 are based on a
guaranteed interest rate of 3% using the "1983 Table a" (male, female, and
unisex if required by law) mortality table improved to the year 2000 with
projection scale G. ("The 1983 Table a" mortality rates are adjusted based on
improvements in mortality since 1983 to more appropriately reflect increased
longevity. This is accomplished using a set of improvement factors referred to
as projection scale G.)

Option 1--Interest Payments. The Adjusted Policy Value may be left with PFL
for any agreed-upon term. PFL will pay the interest in equal payments or it
may be left to accumulate. Withdrawal rights will be agreed upon by the Owner
and PFL when the option is elected.

Option 2--Income for a Specified Period. Level payments of the proceeds with
interest are made for the fixed period elected, at which time the funds are
exhausted.

Option 3--Life Income. An election may be made between:

1. "No Period Certain"--Level payments will be made during the
lifetime of the Annuitant.

2. "10 Years Certain"--Level Payments will be made for the longer of
the Annuitant's lifetime or ten years.

3. "Guaranteed Return of Policy Proceeds"--Level payments will be
made for the longer of the Annuitant's lifetime or until the total
dollar amount of payments made equals the proceeds applied to the
income option.

Option 4--Income of a Specified Amount. Payments are made for any specified
amount until the proceeds with interest are exhausted.

Option 5--Joint and Survivor Annuity. Payments are made during the joint
lifetime of the payee and a joint payee of the Owner's selection. Payments
will be made as long as either person is living.

For Options 2, 3, and 4, in the event of the death of the person receiving
payments prior to the end of the Guaranteed Period, payments will be continued
to that person's beneficiary or their present value may be paid in a single
sum.

Other options may be arranged by agreement with PFL. Certain options may not
be available in some states.

Current immediate annuity rates for the same class of annuities will be used
if higher than the guaranteed rates (guaranteed rates are based upon the
mortality tables and/or guaranteed interest rates specified in the Policy
under the section entitled "Annuity Payments"). Current amounts may be
obtained from PFL.

Variable Payment Options. The dollar amount of the first Variable Annuity
Payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the Policy. The tables are based on
a 5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female,

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<PAGE>

and unisex if required by law) mortality table improved to the year 2000 with
projection Scale G. ("The 1983 Table a" mortality rates are adjusted based on
improvements in mortality since 1983 to more appropriately reflect increased
longevity. This is accomplished using a set of improvement factors referred to
as projection scale G.) The dollar amount of subsequent Variable Annuity
Payments will vary based on the investment performance of the Subaccount(s) of
the Mutual Fund Account selected by the Annuitant or Beneficiary. If the
actual investment performance exactly matched the Assumed Investment Return of
5% at all times, the amount of each Variable Annuity Payment would remain
equal. If actual investment performance exceeds the Assumed Investment Return,
the amount of the Variable Annuity Payments would increase. Conversely, if
actual investment performance is lower than the Assumed Investment Return, the
amount of the Variable Annuity Payments would decrease.

Determination of the First Variable Payment. The amount of the first
variable payment depends upon the sex (if consideration of sex is allowed
under state law) and adjusted age of the Annuitant. The adjusted age is the
Annuitant's actual age nearest birthday, on the Annuity Commencement Date,
adjusted as follows:

<TABLE>
<CAPTION>
ANNUITY COMMENCEMENT DATE ADJUSTED AGE
------------------------- ------------
<S> <C>
Before
2001 Actual Age
2001-
2010 Actual Age minus 1
2011-
2020 Actual Age minus 2
2021-
2030 Actual Age minus 3
2031-
2040 Actual Age minus 4
After
2040 As determined by PFL
</TABLE>

This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.

The following Variable Payment Options generally are available:

Option 3-V--Life Income. An election may be made between:

l. "No Period Certain"--Payments will be made during the lifetime of
the Annuitant.

2. "10 Years Certain"--Payments will be made for the longer of the
Annuitant's lifetime or ten years.

Option 5-V--Joint and Survivor Annuity. Payments are made as long as either
the Annuitant or the joint Annuitant is living.

Certain options may not be available in some states.

Determination of Subsequent Variable Payments. All Variable Annuity Payments
other than the first are calculated using "Annuity Units" which are credited
to the Policy. The number of Annuity Units to be credited in respect of a
particular Subaccount is determined by dividing that portion of the first
Variable Annuity Payment attributable to that Subaccount by the Annuity Unit
Value of that Subaccount on the Annuity Commencement Date. The number of
Annuity Units of each particular Subaccount credited to the Policy then
remains fixed, assuming no transfers to or from that Subaccount occur. The
dollar value of variable Annuity

- 43 -
<PAGE>

Units in the chosen Subaccount will increase or decrease reflecting the
investment experience of the chosen Subaccount. The dollar amount of each
Variable Annuity Payment after the first may increase, decrease or remain
constant, and is equal to the sum of the amounts determined by multiplying the
number of Annuity Units of each particular Subaccount credited to the Policy
by the Annuity Unit value for the particular Subaccount on the date the
payment is made.

Transfers. A Policy Owner may transfer the value of the Annuity Units from
one Subaccount to another within the Mutual Fund Account or to the Fixed
Account. However, after the Annuity Commencement Date no transfers may be made
from the Fixed Account to the Mutual Fund Account. The minimum amount which
may be transferred is the lesser of $10 of monthly income or the entire
monthly income of the variable Annuity Units in the Subaccount from which the
transfer is being made. The remaining Annuity Units in the Subaccount must
provide at least $10 of monthly income. If, after a transfer, the monthly
income of the remaining Annuity Units in a Subaccount would be less than $10,
PFL reserves the right to include those Annuity Units as part of the transfer.
PFL reserves the right to limit transfers between Subaccounts or from the
Mutual Fund Account to the Guaranteed Period Options of the Fixed Account
after the Annuity Commencement Date to once per Policy Year.

Tax Withholding. A portion or the entire amount of the Annuity Payments may
be taxable as ordinary income. If, at the time the Annuity Payments begin, the
Owner has not provided PFL with a written election not to have federal income
taxes withheld, PFL must by law withhold such taxes from the taxable portion
of such annuity payments and remit that amount to the federal government.
Withholding is mandatory for certain qualified Policies. (See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES," p. 50)

Adjustment of Annuity Payments. Payments will be made at 1, 3, 6, or 12
month intervals. If the individual payments provided for would be or become
less than $50, PFL may change, at its discretion, the frequency of payments to
such intervals as will result in payments of at least $50. If the Adjusted
Policy Value on the Annuity Commencement Date is less than $2,000, PFL may pay
such value in one sum in lieu of the payments otherwise provided for.

DEATH BENEFIT

Death of Annuitant Prior to Annuity Commencement Date. A Death Benefit will
be paid to the Beneficiary if the Owner, who is the Annuitant, dies prior to
the Annuity Commencement Date. The amount of the Death Benefit will be the
greatest of a) the Policy Value on the date proof of the Owner's death and an
election of the method of settlement are received by PFL's Administrative and
Service Office, b) the Cash Value on the date PFL receives due proof of death
and an election of a method of settlement, and c) the Guaranteed Minimum Death
Benefit ("GMDB") described below, plus Premium Payments less Partial
Withdrawals, from the date of death to the date the death proceeds are paid.

There are three Guaranteed Minimum Death Benefit options available, (A) the
"Return of Premium Death Benefit", (B) the "5% Annually Compounding Death
Benefit," and (C) the "Annual Step-Up Death Benefit."

- 44 -
<PAGE>

The "Return of Premium Death Benefit" is the total Premium Payments less any
Adjusted Partial Withdrawals (defined below), as of the date of death.

The "5% Annually Compounding Death Benefit" is the total Premium Payments
less any Adjusted Partial Withdrawals (defined below) plus interest at an
effective annual rate of 5% from the payment or withdrawal date up to the
earlier of the date of death or the Owner's 81st birthday. There is an extra
charge for this Death Benefit (See "CHARGES AND DEDUCTIONS--Mortality and
Expense Risk Fee," p. 48.)

The "Annual Step-Up Death Benefit" is the largest Policy Value on the issue
date or on any Policy Anniversary prior to the earlier of the date of death or
the Owner's 81st birthday, plus any premiums paid, less any partial
withdrawals taken, subsequent to the date of the largest anniversary Policy
Value. There is an extra charge for this Death Benefit. (See CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Fee, p. 48.)

Under all three Death Benefit Options, if the surviving spouse elects to
continue the Policy in lieu of receiving the Death Benefit, an amount equal to
the excess, if any, of the Guaranteed Minimum Death Benefit (i.e., the Return
of Premium Death Benefit, the 5% Annually Compounding Death Benefit, or the
Annual Step-Up Death Benefit) over the Policy Value, will then be added to the
Policy Value. This amount will be added only once, at the time of such
election.

If no choice of Guaranteed Minimum Death Benefit is made in the Policy
application, the "Return of Premium Death Benefit" will apply.

After the Policy Date, an election cannot be made and the Death Benefit
option cannot be changed.

Adjusted Partial Withdrawal. To determine the Guaranteed Minimum Death
Benefit for each partial withdrawal, the Adjusted Partial Withdrawal is the
sum of (1) and (2), where

(1) The Surrender-charge-free withdrawal amount taken and,

(2) The amount that an Excess Partial Withdrawal reduces the Policy
Value. (See "DISTRIBUTIONS UNDER THE POLICY--Surrenders," p. 36.)
times [(a) divided by (b)] where:

(a) is the amount of the Death Benefit less any Cumulative Free
Percentage Withdrawals; and

(b) is the Policy Value less any Cumulative Free Percentage
Withdrawals.

If a partial withdrawal is taken when the Guaranteed Minimum Death Benefit
exceeds the Policy Value, then the partial withdrawal amount used to determine
the Guaranteed Minimum Death Benefit will exceed the amount of the partial
withdrawal. In that case, the total proceeds of a partial withdrawal followed
by a Death Benefit could be less than total Premium Payments.

If the Annuitant who is not the Owner dies, the Owner will become the
Annuitant and no Death Benefits are payable unless the Owner specifically
requests

- 45 -
<PAGE>

on the Policy application or in writing that the Death Benefit be paid upon
the Annuitant's death and PFL agrees to such election. See your Policy's
provisions.

Due Proof of Death of the Annuitant is proof that the Annuitant who is the
Owner died prior to the commencement of Annuity Payments. Upon receipt of this
proof and an election of a method of settlement and return of the Policy, the
Death Benefit generally will be paid within seven days, or as soon thereafter
as PFL has sufficient information about the Beneficiary to make the payment.
The Beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the Payment Options described above, unless a settlement
agreement is effective at the death of the Owner preventing such election.

If the Annuitant was the Owner, and the Beneficiary was not the Annuitant's
spouse, the Death Benefit must (1) be distributed within five years of the
date of the deceased Owner's death, or (2) payments under a Payment Option
must begin no later than one year after the deceased Owner's death and must be
made for the Beneficiary's lifetime or for a period certain (so long as any
certain period does not exceed the Beneficiary's life expectancy). Death
Proceeds which are not paid to or for the benefit of a natural person must be
distributed within five years of the date of the deceased Owner's death. If
the sole Beneficiary is the deceased Owner's surviving spouse, such spouse may
elect to continue the Policy as the new Annuitant and Owner instead of
receiving the Death Benefit. (See "Federal Tax Matters" in the Statement of
Additional Information.)

If the Annuitant is not the Owner, and the Owner dies prior to the Annuity
Commencement Date, a Successor Owner may surrender the Policy at any time for
the amount of the Adjusted Policy Value. If the successor owner is not the
deceased Owner's spouse, however, the Adjusted Policy Value must be
distributed: (1) within five years after the date of the deceased Owner's
death, or (2) payments under a Payment Option must begin no later than one
year after the deceased Owner's death and must be made for the successor
Owner's lifetime or for a period certain (so long as any period certain does
not exceed the successor Owner's life expectancy).

Death On or After Annuity Commencement Date. The Death Benefit payable on or
after the Annuity Commencement Date depends on the Payment Option selected. If
any Owner dies on or after the Annuity Commencement Date, but before the
entire interest in the Policy is distributed, the remaining portion of such
interest in the Policy will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death.

Beneficiary. The Beneficiary designation in the application will remain in
effect until changed. The Owner may change the designated Beneficiary by
sending Written Notice to PFL. The Beneficiary's consent to such change is not
required unless the Beneficiary was irrevocably designated or consent is
required by law. (If an irrevocable Beneficiary dies, the Owner may then
designate a new Beneficiary.) The change will take effect as of the date the
Owner signs the Written Notice, whether or not the Owner is living when the
Notice is received by PFL. PFL will not be liable for any payment made before
the Written Notice is received. If more

- 46 -
<PAGE>

than one Beneficiary is designated, and the Owner fails to specify their
interests, they will share equally.

DEATH OF OWNER

Federal tax law requires that if any Owner (including any joint Owner or any
Successor Owner who has become a current Owner) dies before the Annuity
Commencement Date, then the entire value of the Policy must generally be
distributed within five years of the date of death of such Owner. Certain
rules apply where 1) the spouse of the deceased Owner is the sole beneficiary,
2) the Owner is not a natural person and the primary Annuitant dies or is
changed, or 3) any Owner dies after the Annuity Commencement Date. See
"Federal Tax Matters" in the Statement of Additional Information for a
detailed description of these rules. Other rules may apply to Qualified
Policies. (See also "Death Benefit" p. 44.)

RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM

Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw their interest in a
variable annuity Policy issued under the ORP only upon: (1) termination of
employment in the Texas public institutions of higher education; (2)
retirement; or (3) death. Accordingly, a participant in the ORP (or the
participant's estate if the participant has died) will be required to obtain a
certificate of termination from the employer or a certificate of death before
the account can be redeemed.

RESTRICTIONS UNDER SECTION 403(B) PLANS

Section 403(b) of the Internal Revenue Code provides for tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations. In accordance with the requirements of Section 403(b), any
Policy used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death of the
employee, attainment of age 59 1/2, separation from service, disability, or
financial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.

RESTRICTIONS UNDER QUALIFIED POLICIES

Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Policies or under the terms
of the plans in respect of which Qualified Policies are issued.

CHARGES AND DEDUCTIONS

No deductions are made from Premium Payments when made, so that the full
amount of each Premium Payment is invested in one or more of the Accounts. PFL
will make certain charges and deductions in connection with the Policy in
order to compensate it for incurring expenses in distributing the Policy,
bearing mortality and expense risks under the Policy, and administering the
Accounts and the Policies. Charges may also be made for premium taxes,
federal, state or local taxes, or for certain transfers or other transactions.
Charges and expenses are also deducted from the Underlying Funds.

- 47 -
<PAGE>

SURRENDER CHARGE

PFL will incur expenses relating to the sale of Policies, including
commissions to registered representatives and other promotional expenses. PFL
may apply a Surrender Charge, which is a contingent deferred sales charge, to
any amount surrendered (i.e., withdrawn) in connection with a full or partial
Policy surrender in order to cover distribution expenses. A Surrender Charge,
if applicable, will only be applied to withdrawals which exceed the Cumulative
Free Percentage at the time of, but prior to, the withdrawal. (See
"DISTRIBUTIONS UNDER THE POLICY--Surrenders" p. 36.)

The Surrender Charge is not imposed upon exercise of the Nursing Care and
Terminal Condition Withdrawal Option. This feature may not be available in all
states. (See "DISTRIBUTIONS UNDER THE POLICY--Nursing Care and Terminal
Condition Withdrawal Option," p. 38.) The Surrender Charge is also waived upon
certain Systematic Payouts. (See "DISTRIBUTIONS UNDER THE POLICY--Systematic
Payout Option," p. 39.).

The amount of the Surrender Charge is determined by multiplying the amount
of the Premium Payment withdrawn by the applicable Surrender Charge
Percentage. The applicable Surrender Charge Percentage will depend upon the
number of years that have elapsed since the Premium Payment that is being
withdrawn was made. For this purpose, surrenders are allocated to Premium
Payments on a "first-in, first-out" basis, i.e., first to the oldest Premium
Payment, then to the next oldest Premium Payment and so on. Premium Payments
are deemed to be withdrawn before earnings, and after all Premium Payments
have been withdrawn, the remaining Adjusted Policy Value may be withdrawn
without any Surrender Charge. The following is the table of Surrender Charge
Percentages:

<TABLE>
<CAPTION>
APPLICABLE SURRENDER CHARGE
PERCENTAGE
(AS PERCENTAGE OF
NUMBER OF YEARS SINCE PREMIUM PAYMENT PREMIUM PAYMENT WITHDRAWN)
------------------------------------- ---------------------------
<S> <C>
Less than 1................................... 6%
At least 1 and less than 2.................... 6%
At least 2 and less than 3.................... 6%
At least 3 and less than 4.................... 4%
At least 4 and less than 5.................... 2%
5 or more..................................... 0%
</TABLE>

No Surrender Charge will be applied after the tenth Policy Year.

PFL anticipates that the Surrender Charge will not generate sufficient funds
to pay the cost of distributing the Policies. If this charge is insufficient
to cover the distribution expenses, the deficiency will be met from PFL's
general funds, which will include amounts derived from the fee for mortality
and expense risks.

MORTALITY AND EXPENSE RISK FEE

PFL imposes a daily charge as compensation for bearing certain mortality and
expense risks in connection with the Policies. For Guaranteed Minimum Death
Benefit Option A (Return of Premium Death Benefit), this charge is equal to an
effective annual rate of 1.10% of the daily net asset value in the Mutual Fund

- 48 -
<PAGE>

Account for each Subaccount. For Guaranteed Minimum Death Benefit Options B
(5% Annually Compounding Death Benefit), and C (Annual Step-Up Death Benefit),
the corresponding charge is equal to 1.25% of the net assets in the Mutual
Fund Account. The Mortality and Expense Risk Fee is reflected in the
Accumulation or Annuity Unit Values for the Policy for each Subaccount.

Policy Values and Annuity Payments are not affected by changes in actual
mortality experience nor by actual expenses incurred by PFL. The mortality
risks assumed by PFL arise from its contractual obligations to make Annuity
Payments (determined in accordance with the Annuity tables and other
provisions contained in the Policy) and to pay Death Benefits prior to the
Annuity Commencement Date. Thus, Owners are assured that neither an
Annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the periodic Annuity payments that the
Annuitant will receive under the Policy.

PFL also bears substantial risk in connection with the Death Benefit
Guarantee since PFL will pay a Death Benefit equal to the Guaranteed Minimum
Death Benefit (that is, Return of Premium Death Benefit, 5% Annually
Compounding Death Benefit, or Annual Step-Up Death Benefit) if that amount is
higher than the greater of the Policy Value or the Cash Value.

The expense risk assumed by PFL is the risk that PFL's actual expenses in
administering the Policy and the Accounts will exceed the amount recovered
through the Administrative and Service Charges.

If the Mortality and Expense Risk Fee is insufficient to cover PFL's actual
costs, PFL will bear the loss; conversely, if the charge is more than
sufficient to cover costs, the excess will be profit to PFL. PFL expects a
profit from this charge. To the extent that the Surrender Charge is
insufficient to cover the actual cost of Policy distribution, the deficiency
will be met from PFL's general corporate assets, which may include amounts, if
any, derived from the Mortality and Expense Risk Fee. A Mortality and Expense
Risk Fee is assessed during the accumulation phase and during the annuity
phase for all Variable Annuity Options.

ADMINISTRATIVE CHARGES

In order to cover the costs of administering the Policies, PFL deducts a
Service Charge from the Policy Value of each Policy.

The annual Service Charge is deducted from the Policy Value of each Policy
on each Policy Anniversary prior to the Annuity Commencement Date. PFL also
reserves the right to charge up to $30 at the time of surrender during any
Policy Year. After the Annuity Commencement Date, the charge is not deducted.
This annual Service Charge is the lesser of 2% of the Policy Value or $30 and
it will not be increased in the future. This charge is waived if either the
Policy Value or the sum of all Premium Payments less the sum of all partial
surrenders equals or exceeds $50,000 on a Policy Anniversary (or date of
surrender). The Service Charge will be deducted from the Guaranteed Period
Option(s) of the Fixed Account and from the Subaccount(s) in the Mutual Fund
Account, in the same proportion that the Owner's interest in each Guaranteed
Period Option/Subaccount bears to the Owner's total Policy Value.

- 49 -
<PAGE>

PREMIUM TAXES

PFL currently makes no deduction from the Premium Payments for any state
premium taxes PFL pays in connection with Premium Payments under the Policies.
However, PFL will deduct the aggregate premium taxes paid on behalf of a
particular Policy from the Policy Value on (i) the Annuity Commencement Date
(thus reducing the Policy Value), (ii) the total surrender of a Policy, or
(iii) payment of the death proceeds of a Policy. Premium taxes currently range
from 0% to 3.50% of Premium Payments.

FEDERAL, STATE AND LOCAL TAXES

No charges are currently made for federal, state, or local taxes other than
premium taxes. However, PFL reserves the right to deduct charges in the future
for any taxes or other economic burden resulting from the application of any
tax laws that PFL determines to be attributable to the accounts or the
policies.

TRANSFER FEE

There is no charge for the first 12 allowable transfers among Investment
Options in each Policy Year. PFL reserves the right to impose a $10 charge for
the thirteenth and each subsequent transfer request made by the Owner during a
single Policy Year. For the purpose of determining whether a Transfer Fee is
payable, Premium Payment allocations are not considered transfers. All
transfer requests made simultaneously will be treated as a single request. No
Transfer Fee will be imposed for any transfer which is not at the Owner's
request.

OTHER EXPENSES INCLUDING INVESTMENT ADVISORY FEES

Each of the Portfolios of the Underlying Funds is responsible for all of its
expenses. In addition, charges will be made against each of the Portfolios of
the Underlying Funds for investment advisory services provided to the
Portfolio. The net assets of each Portfolio of the Underlying Funds will
reflect deductions in connection with the investment advisory fee and other
expenses.

For more information concerning the investment advisory fee and other
charges against the Portfolios, see the prospectuses for the Underlying Funds,
current copies of which accompany this Prospectus.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a Policy, based on the
Internal Revenue Code of 1986, as amended (the "Code'), proposed and final
Treasury Regulations thereunder, judicial authority, and current
administrative rulings and practice. This summary discusses only certain
federal income tax consequences to "United States Persons,"

- 50 -
<PAGE>

and does not discuss state, local, or foreign tax consequences. United States
Persons means citizens or residents of the United States, domestic
corporations, domestic partnerships and trusts or estates that are subject to
United States federal income tax regardless of the source of their income.

At the time the initial Premium Payment is paid, a prospective purchaser
must specify whether he or she is purchasing a Nonqualified Policy or a
Qualified Policy. If the initial Premium Payment is derived from an exchange
or surrender of another annuity policy, PFL may require that the prospective
purchaser provide information with regard to the federal income tax status of
the previous annuity policy. PFL will require that persons purchase separate
Policies if they desire to invest monies qualifying for different annuity tax
treatment under the Code. Each such separate Policy would require the minimum
initial Premium Payment stated above. Subsequent Additional Premium Payments
under a Policy must qualify for the same federal income tax treatment as the
initial Premium Payment under the Policy; PFL will not accept a Subsequent
Additional Premium Payment under a Policy if the federal income tax treatment
of such Premium Payment would be different from that of the initial Premium
Payment.

The Qualified Policies were designed for use by retirement plans and
individual retirement accounts that qualify for special federal income tax
treatment under Sections 401(a), 403(b), or 408(a), or 457 of the Code and
individuals purchasing individual retirement annuities that qualify for
special federal income tax treatment under Section 408(b) of the Code. Certain
requirements must be satisfied in purchasing a Qualified Policy in order for
the plan, account or annuity to retain its special tax treatment. This summary
is not intended to cover such requirements, and assumes that Qualified
Policies are purchased pursuant to retirement plans or individual retirement
accounts, or are individual retirement annuities, that qualify for such
special tax treatment. This summary was prepared by PFL after consultation
with tax counsel, but no opinion of tax counsel has been obtained.

THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. EACH
POTENTIAL PURCHASER IS URGED TO CONSULT HIS/HER OWN TAX ADVISER AS TO THE
CONSEQUENCES OF INVESTMENT IN A POLICY UNDER FEDERAL AND APPLICABLE STATE,
LOCAL AND FOREIGN TAX LAWS.

TAX STATUS OF THE POLICY

The following discussion is based on the assumption that the Policy
qualifies as an annuity contract for federal income tax purposes. The
Statement of Additional Information discusses the tax requirements for
qualifying as an annuity contract.

TAXATION OF ANNUITIES

The discussion below applies only to those Policies owned by natural
persons, and that qualify as annuity contracts for federal income tax
purposes. With respect to Owners who are natural persons, the Policy should be
treated as an annuity contract for federal income tax purposes.

In General. Except as described below with respect to Owners who are not
natural persons, an Owner who holds a Policy satisfying the diversification
and

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<PAGE>

distribution requirements described in the Statement of Additional Information
should not be taxed on increases in the Policy Value until an amount is
received or deemed received, e.g., upon a partial or full surrender,
assignment, or as Annuity Payments under the Annuity Option selected.
Generally, any amount received or deemed received under a Nonqualified Annuity
Contract prior to the Annuity Commencement Date is deemed to come first from
any "Income on the Contract" and then from the "Investment in the Contract."
The "Investment in the Contract" generally equals total premium payments less
amounts received which were not includable in gross income. To the extent that
the Policy Value (ignoring any surrender charges except on a full surrender)
exceeds the "Investment in the Contract," such excess constitutes the "Income
on the Contract." For these purposes such "Income on the Contract" shall be
computed by reference to the aggregation rules described below, and the amount
includable in gross income will be taxable as ordinary income. If at the time
that any amount is received or deemed received there is no "Income on the
Contract" (e.g., because the gross Policy Value does not exceed the
"Investment in the Contract" and no aggregation rule applies), then such
amount received or deemed received will not be includable in gross income, and
will simply reduce the "Investment in the Contract."

For this purpose, the assignment, pledge or agreement to assign or pledge
any portion of the Policy Value (including assignment of Owner's right to
receive Annuity Payments prior to the Annuity Commencement Date) generally
will be treated as a distribution in the amount of such portion of the Policy
Value. Additionally, if an Owner designates a new Owner prior to the Annuity
Commencement Date without receiving full and adequate consideration, the old
Owner generally will be treated as receiving a distribution under the Policy
in an amount equal to the Policy Value. A transfer of ownership or an
assignment of a Policy, or designation of an Annuitant or Beneficiary who is
not also the Owner, as well as the selection of certain Annuity Commencement
Dates, may result in certain tax consequences to the Owner that are not
discussed herein. An Owner contemplating any such transfer, designation,
selection or assignment of a Policy should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.

Aggregation Rules. Generally all Nonqualified deferred annuity contracts
issued by the same company (or an affiliated company) to the same owner during
any calendar year shall be treated as one annuity contract, and "aggregated"
for purposes of determining the amount includable in gross income. In
addition, for such purposes all individual retirement annuities and accounts
under Section 408 of the Code for an individual are aggregated, and generally
all distributions therefrom during a calendar year are treated as one
distribution made as of the end of such year.

Surrenders or Partial Withdrawals. In the case of a partial withdrawal
(including systematic partial withdrawals) under a Nonqualified Policy, the
amount received generally will be includable in gross income to the extent
that it does not exceed the "Income on the Contract" which is generally equal
to the excess of the Policy Value immediately before the partial withdrawal
over the "Investment in the Contract" at that time. However, for these
purposes the Policy Value immediately before a partial withdrawal may have to
be increased by any positive Excess Interest

- 52 -
<PAGE>

Adjustment which results from such a partial withdrawal or which could result
from a simultaneous full surrender, and may need further adjustments if the
aggregation rules apply. There is, however, no definitive guidance on the
proper tax treatment of Excess Interest Adjustments, and the Owner should
contact a competent tax adviser with respect to the potential tax consequences
of an Excess Interest Adjustment that may apply in the case of a Non-Qualified
Policy or a Qualified Policy. In the case of a partial surrender (including
systematic payouts) under a Qualified Policy (other than one qualified under
Section 457 of the Code), a ratable portion of the amount received is
generally excludable from gross income, based on the ratio of the "Investment
in the Contract" to the individual's total account balance or accrued benefit
under the retirement plan at the time of each such payment. For a Qualified
Policy, the "Investment in the Contract" can be zero, and generally any
distribution would therefore be fully taxable. Special tax rules may be
available for certain distributions from a Qualified Policy. In the case of a
surrender under a Nonqualified Policy or a Qualified Policy, the amount
received generally will be taxable only to the extent it exceeds the
"Investment in the Contract, unless the aggregation rules apply.

Annuity Payments. Although the tax consequences may vary depending on the
Annuity Payment Option elected under the Policy, in general, for Nonqualified
and certain Qualified Policies, only a portion of the Annuity Payments
received after the Annuity Commencement Date will be includable in the gross
income of the recipient.

For Fixed Annuity Payments, in general the excludable portion of each
payment is determined by dividing the "Investment in the Contract" on the
Annuity Commencement Date by the total expected value of the Annuity Payments
for the term of the payments. The remainder of each Annuity Payment is
includable in gross income. Once the "Investment in the Contract" has been
fully recovered, the full amount of any additional Annuity Payments is
includable in gross income.

For Variable Annuity Payments, the includable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is excludable from gross income. This dollar amount is determined
by dividing the "Investment in the Contract" on the Annuity Commencement Date
by the total number of expected periodic payments. The remainder of each
Annuity Payment is includable in gross income. Once the "Investment in the
Contract" has been fully recovered, the full amount of any additional Annuity
Payments is includable in gross income.

Where an Owner allocates a portion of the Adjusted Annuity Purchase Value on
the Annuity Commencement Date to more than one annuity payment option (fixed
or variable), special rules govern the allocation of the Policy's entire
"Investment in the Contract" on such date to each such option, for purposes of
determining the excludable amount of each payment received under that option.
PFL makes no attempt to describe these allocation rules, because they would
prescribe a complex variety of results, depending on how the allocations were
made among the various types of options. Instead, any Owner is advised to
consult a competent tax adviser as to the potential tax effects of allocating
any amount of Adjusted Annuity Purchase Value to any particular annuity
payment option.

- 53 -
<PAGE>

If, after the Annuity Commencement Date, Annuity Payments cease by reason of
the death of the Annuitant, the excess (if any) of the "Investment in the
Contract" as of the Annuity Commencement Date over the aggregate amount of
Annuity Payments received on or after the Annuity Commencement Date that was
excluded from gross income is allowable as a deduction for the last taxable
year of the Annuitant.

Taxation of Death Benefit Proceeds. Amounts may be distributed from the
Policy because of the death of an Owner or the Annuitant. Generally, such
amounts are includable in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
surrender, as described above, or (2) if distributed under an Annuity Payment
Option, they are taxed in the same manner as Annuity Payments, as described
above. For these purposes, the "Investment in the Contract" is not affected by
the Owner's or Annuitant's death. That is, the "Investment in the Contract"
remains generally the total premium payments less amounts received which were
not includable in gross income.

Penalty Taxes. In the case of any amount received or deemed received from
the Policy, e.g., upon a surrender of a Policy (including systematic payouts)
or a deemed distribution under a Policy resulting from a pledge, assignment or
agreement to pledge or assign or an Annuity Payment with respect to a Policy,
there may be imposed on the recipient a federal penalty tax equal to 10% of
the amount includable in gross income. The penalty tax generally will not
apply to any distribution: (i) made on or after the date on which the taxpayer
attains age 59 1/2; (ii) made as a result of the death of the holder
(generally the Owner); (iii) attributable to the disability of the taxpayer,
or (iv) which is part of a series of substantially equal periodic payments
made (not less frequently than annually) for the life (or life expectancy) of
the taxpayer or the joint lives (or joint life expectancies) of such taxpayer
and the taxpayer's beneficiary. Other rules may apply to Qualified Policies.

Withholding. The portion of any distribution under a Policy that is
includable in gross income will be subject to federal income tax withholding
unless the recipient of such distribution elects not to have federal income
tax withheld. Election forms will be provided at the time distributions are
requested or made. For certain Qualified Policies, certain distributions are
subject to mandatory withholding.

Qualified Policies. The Qualified Policy is designed for use with several
types of tax-qualified retirement plans. The tax rules applicable to
participants and beneficiaries in tax-qualified retirement plans vary
according to the type of plan and the terms and conditions of the plan.
Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to
specified commencement and minimum distribution rules; aggregate distributions
in excess of a specified annual amount; and in other specified circumstances.
Some retirement plans are subject to distribution and other requirements that
are not incorporated into PFL's Policy administration procedures. Owners,
participants and beneficiaries are responsible for determining that

- 54 -
<PAGE>

contributions, distributions and other transactions with respect to the
Policies comply with applicable law.

PFL makes no attempt to provide more than general information about use of
the Policy with the various types of retirement plans. Purchasers of Policies
for use with any retirement plan should consult their legal counsel and tax
adviser regarding the suitability of the Policy.

Individual Retirement Annuities. In order to qualify as an individual
retirement annuity under Section 408(b) of the Code, a Policy must contain
certain provisions: (i) the Owner must be the Annuitant; (ii) the Policy
generally is not transferable by the Owner, e.g., the Owner may not designate
a new Owner, designate a Contingent Owner or assign the Policy as collateral
security; (iii) the total Premium Payments for any calendar year on behalf of
any individual may not exceed $2,000, except in the case of a rollover amount
or contribution under Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of
the Code; (iv) Annuity Payments or partial withdrawals must begin no later
than April 1 of the calendar year following the calendar year in which the
Annuitant attains age 70 1/2; (v) an Annuity Payment Option with a Period
Certain that will guarantee Annuity Payments beyond the life expectancy of the
Annuitant and the Beneficiary may not be selected; (vi) certain payments of
Death Benefits must be made in the event the Annuitant dies prior to the
distribution of the Policy Value; and (vii) the entire interest of the Owner
is non-forfeitable. Policies intended to qualify as individual retirement
annuities under Section 408(b) of the Code contain such provisions.

Section 408 of the Code also indicates that no part of the funds for an
individual retirement account or annuity ("IRA") may be invested in a life
insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity policy that provides a death benefit that equals the
greater of the premiums paid or the Cash Value for the contract. The Policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the Policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the Policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the Policy,
comports with IRA qualification requirements.

Section 403(b) Plans. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase
Policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be
subject to FICA (Social Security) taxes. Additionally, in accordance with the
requirements of the Code, Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.

- 55 -
<PAGE>

Corporate Pension and Profit Sharing Plans and H.R 10 Plans. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types
of retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the Policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the Policy
is assigned or transferred to any individual as a means to provide benefit
payments.

Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan (as that term is not used in the Code),
provides for certain deferred compensation plans with respect to service for
state governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Policies can be used with
such plans. Under such plans a participant may specify the form of investment
in which his or her participation will be made. All such investments, however,
are owned by, and are subject to, the claims of the general creditors of the
sponsoring employer. Depending on the terms of the particular plan, the
employer may be entitled to draw on deferred amounts for purposes unrelated to
its Section 457 plan obligations. In general, all amounts received under a
Section 457 plan are taxable and are subject to federal income tax withholding
as wages.

Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity
contract held by a taxpayer other than a natural person generally will not be
treated as an annuity contract under the Code; accordingly, an Owner who is
not a natural person will recognize as ordinary income for a taxable year the
excess of (i) the sum of the Cash Value as of the close of the taxable year
and all previous distributions under the Policy over (ii) the sum of the
Premium Payments paid for the taxable year and any prior taxable year and the
amounts includable in gross income for any prior taxable year with respect to
the Policy. For these purposes, the Policy Value at year end may have to be
increased by any positive Excess Interest Adjustment which could result from a
full surrender at such time. There is, however, no definitive guidance on the
proper tax treatment of Excess Interest Adjustments and the Owner should
contact a competent tax adviser with respect to the potential tax consequences
of an Excess Interest Adjustment. Notwithstanding the preceding sentences in
that paragraph, Section 72(u) of the Code does not apply to (i) a Policy the
nominal Owner of which is not a natural person but the beneficial Owner of
which is a natural person, (ii) a Policy acquired by the estate of a decedent
by reason of such decedent's death, (iii) a Qualified Policy (other than one
qualifying under Section 457) or (iv) a single-payment annuity the
Commencement Date for which is no later than one year from the date of the
single Premium Payment; such Policies are taxed as described above under the
heading "Taxation of Annuities."

Possible Changes in Taxation. In past years, legislation has been proposed
in the U.S. Congress that would have adversely modified federal taxation of
certain annuities. For example, one such proposal would have changed the tax
treatment of Nonqualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity. Although as
of the date of this Prospectus Congress was not actively considering any
legislation regarding the taxation of

- 56 -
<PAGE>

annuities, there is always the possibility that the tax treatment of annuities
could change because of legislation or other means (such as IRS regulations,
revenue rulings, judicial decisions, etc.). Moreover, it is also possible that
any change could be retroactive (that is, effective prior to the date of the
change).

DISTRIBUTOR OF THE POLICIES

AEGON USA Securities, Inc., an affiliate of PFL, located at 4333 Edgewood
Road N.E., Cedar Rapids, Iowa, 52499-0001, is the principal underwriter of the
Policies. AEGON USA Securities, Inc. was incorporated under the laws of the
State of Iowa in 1959 and is registered as a broker/dealer under the
Securities Exchange Act of 1934. It is a member of the National Association of
Securities Dealers, Inc. ("NASD").

Policies are sold by registered representatives of AEGON USA Securities,
Inc. or of broker/dealers who have entered into written sales agreements with
the principal underwriter, who are also licensed through various affiliated or
unaffiliated agencies as insurance agents for PFL. PFL has entered into a
distribution agreement with AEGON USA Securities, Inc. and companion sales
agreements with agencies and/or agents through which agreements the Policies
are sold and the registered representatives are compensated by the agencies
and/or AEGON USA Securities, Inc. Broker/dealers will generally receive sales
commissions of up to 5% of Premium Payments. These commissions are not
deducted from Premium Payments, they are paid by PFL. In addition, certain
production, persistency and managerial bonuses may be paid. Subject to
applicable Federal and State laws and regulations, PFL may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the Policies. The level of such
compensation will not exceed that paid to broker/dealers for their sale of the
Policies. No amounts will be retained by AEGON USA Securities, Inc. for acting
as principal underwriter for the Policies. The offering of Policies will be
made on a continuing basis.

VOTING RIGHTS

To the extent required by law, PFL will vote the Underlying Fund shares held
by the Mutual Fund Account at regular and special shareholder meetings of the
Underlying Funds in accordance with instructions received from persons having
voting interests in the portfolios, (although the Underlying Funds do not hold
regular annual shareholders meetings). If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the Underlying Funds' shares in its own right, it may elect to do so.

Before the Annuity Commencement Date, the Owner holds voting interest in the
selected Portfolios. The number of votes that an Owner has the right to
instruct will be calculated separately for each Subaccount. The number of
votes that an Owner has the right to instruct for a particular Subaccount will
be determined by dividing the Owner's Policy Value in the Subaccount by the
net asset value per share of the corresponding Portfolio in which the
Subaccount invests. Fractional shares will be counted.

- 57 -
<PAGE>

After the Annuity Commencement Date, the person receiving Annuity Payments
has the voting interest, and the number of votes decreases as Annuity Payments
are made and as the reserves for the Policy decrease. The person's number of
votes will be determined by dividing the reserve for the Policy allocated to
the applicable Subaccount by the net asset value per share of the
corresponding Portfolio. Fractional shares will be counted.

The number of votes that the Owner or person receiving income payments has
the right to instruct will be determined as of the date established by the
Underlying Funds for determining shareholders eligible to vote at the meeting
of the Underlying Funds. PFL will solicit voting instructions by sending
Owners or other persons entitled to vote written requests for instructions
prior to that meeting in accordance with procedures established by the
Underlying Funds. Portfolio shares as to which no timely instructions are
received and shares held by PFL in which Owners or other persons entitled to
vote have no beneficial interest will be voted in proportion to the voting
instructions that are received with respect to all Policies participating in
the same Subaccount.

Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.

LEGAL PROCEEDINGS

There are no legal proceedings to which the Mutual Fund Account is a party
or to which the assets of the Account are subject. PFL is not involved in any
litigation that is of material importance in relation to its total assets or
that relate to the Mutual Fund Account.

- 58 -
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus.
The following is the Table of Contents for that Statement:

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Policy--General Provisions............................................. 3
Owner.................................................................... 3
Entire Policy............................................................ 3
Delay of Payment and Transfers........................................... 3
Misstatement of Age or Sex............................................... 4
Reallocation of Policy Values After the Annuity Commencement Date........ 4
Assignment............................................................... 4
Evidence of Survival..................................................... 4
Non Participating........................................................ 5
Federal Tax Matters........................................................ 5
Tax Status of the Policy................................................. 5
Taxation of PFL.......................................................... 6
Investment Experience...................................................... 6
State Regulation of PFL.................................................... 10
Administration............................................................. 10
Records and Reports........................................................ 10
Distribution of the Policies............................................... 10
Custody of Assets.......................................................... 11
Historical Performance Data................................................ 11
Money Market Yields...................................................... 11
Other Subaccount Yields.................................................. 12
Total Returns............................................................ 13
Other Performance Data................................................... 13
Legal Matters.............................................................. 14
Independent Auditors....................................................... 14
Other Information.......................................................... 14
Financial Statements....................................................... 14
</TABLE>

- 59 -
<PAGE>

APPENDIX A

EXCESS INTEREST ADJUSTMENT

The formula which will be used to determine the Excess Interest Adjustment
(EIA)/1/ is:

S*(G - C)* (M/12)

S= Gross amount being withdrawn that is subject to the EIA

G= Guaranteed Interest Rate applicable to S.

C= Current Guaranteed Interest Rate then being offered on new Premium
Payments for the next longer Guaranteed Period than "M". If this policy
form or such a Guaranteed period is no longer offered, "C" will be the
U.S. Treasury rate for the next longer maturity (in whole years) than "M"
on the 25th day of the previous calendar month, plus up to 2%.

M= Number of months remaining in the current Guaranteed Period, rounded up to
the next higher whole number of months.

EXAMPLE 1 (FULL SURRENDER, RATES INCREASE BY 3%):

Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Contract Year 3

Policy Value ("PV") at middle of
Contract Year 3 = 50,000* (1.055) (caret) 2.5 =
57,161.18

Surrender Charge Free Amount at
middle of Policy Year 3 = 57,161.18* .30 = 17,148.35

EIA Free Amount at middle of
Policy Year 3 = 57,161.18 - 50,000 = 7,161.18

Amount Subject to EIA = 57,161.18 - 7,161.18 = 50,000.00
EIA Floor = 50,000* (1.03) (caret) 2.5 =
53,834.80

Excess Interest Adjustment
G = .055
C = .085
M = 30

Excess Interest Adjustment = S* (G - C)* (M/12)
= 50,000.00* (.055 - .085)* (30/12)
= (-3,750.00), but Excess Interest
Adjustment cannot cause the Adjusted
Policy Value to fall below the
floor, so the adjustment is limited
to 53,834.80 - 57,161.18 = (-
3,326.38)
- ----------------------------------

(1) * represents multiplication;

(caret) represents exponentiation.

A-1

<PAGE>

Adjusted Policy Value = PV + EIA = 57,161.18 + (-3,326.38) =
53,834.80

Surrender Charge = (50,000 - 17,148.35)* .06 = 1,971.10

Cash Value at middle of Policy
Year 3 = PV + EIA - Surrender Charge
= 57,161.18 + (-3,326.38) - 1,971.10
= 51,863.70

EXAMPLE 2 (FULL SURRENDER, RATES DECREASE BY 1%):

Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Contract Year 3

Policy Value at middle of Policy
Year 3

Surrender Charge Free Amount at
middle of Policy Year 3 = 50,000* (1.055)(caret) 2.5 =
57,161.18
= 57,161.18* .30 = 17,148.35

EIA Free Amount at middle of
Policy Year 3 = 57,161.18 - 50,000 = 7,161.18

Amount Subject to EIA = 57,161.18 - 7,161.18 = 50,000.00

EIA Floor = 50,000* (1.03) (caret) 2.5 =
53,834.80

Excess Interest Adjustment
G = .055
C = .045
M = 30

Excess Interest Adjustment = S* (G - C)* (M/12)
= 50,000* (.055 - .045)* (30/12)
= 1,250.00

Adjusted Policy Value = PV + EIA
= 57,161.18 + 1,250.00 = 58,411.18

Surrender Charge
= (50,000 - 17,148.35)* .06 = 1,971.10

Cash Value at middle of Policy
Year 3 = PV + EIA - Surrender Charge
= 57,161.18 + (1,250) - 1,971.10
= 56,440. 08

A-2

<PAGE>

On a partial withdrawal, PFL will pay the Owner the full amount of
withdrawal requested (as long as the Policy Value is sufficient). Surrender
Charge--Free withdrawals will reduce the Policy Value by the amount withdrawn.
Amounts withdrawn in excess of the Surrender Charge--Free amount will reduce
the Policy Value by an amount equal to:

X - Y + Z

X= Excess Partial Withdrawal = Requested withdrawal less Surrender Charge--
Free amount
A= Amount of Partial Withdrawal which is subject to Excess Interest
Adjustment = Requested withdrawal - EIA--Free Amount, where EIA--Free
Amount = Cumulative interest credited at time of, but prior to,
withdrawal.
Y= Excess Interest Adjustment = (A)*(G - C)*(M/12) where G, C, and M are
defined above, with "A" substituted for "S" in the definition of G and M.
Z= Surrender Charge on X minus Y.

EXAMPLE 3 (PARTIAL WITHDRAWAL, RATES INCREASE BY 1%):

Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Partial Surrender: $30,000; Middle of Contract Year 3

Policy Value at middle of Policy
Year 3 = 50,000* (1.055)(caret) 2.5 =
57,161.18
Surrender Charge Free Amount at
middle of Policy Year 3 = 57,161.18* .30 = 17,148.35

EIA Free Amount at middle of
Policy Year 3 = 57,161.18 - 50,000 = 7,161.18

Excess Interest Adjustment/Surrender Charge
X =30,000 - 17,148.35 = 12,851.65
A =30,000 - 7,161.18 = 22,838.82
G =.055
C =.065
M =30
Y =22,838.82* (.055 - .065)* (30/12) = -570.97
Z =.06* [12,851.65 - (-570.97)] = 805.36

Reduction to Policy Value due to
Surrender Charge--Free
withdrawal = 17,148.35

Reduction to Policy Value due to
Excess Withdrawal = X -Y + Z
= 12,851.65 - (-570.97) + 805.36
= 14,227.98

A-3

<PAGE>

Policy Value after withdrawal at
middle of Policy Year 3
= 57,161.18 - [17,148.35 + 14,227.98]
= 57,161.18 - [17,148.35 + 12,851.65 -
(-570.97) + 805.36]
= 57,161.18 - [30,000 - (-570.97) +
805.36]
= 57,161.18 - 31,376.33 = 25,784.85

EXAMPLE 4 (PARTIAL WITHDRAWAL, RATES DECREASE BY 1%):

Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Partial Surrender: $30,000; Middle of Contract Year 3

Policy Value at middle of Policy
Year 3 = 50,000* (1.055) (caret) .5 =
57,161.18

Surrender Charge Free Amount at
middle of Policy Year 3 = 57,161.18* .30 = 17,148.35

EIA Free Amount at middle of
Policy Year 3 = 57,161.18 - 50,000 = 7,161.18

Excess Interest Adjustment/Surrender Charge
X =30,000 -17,148.35 = 12,851.65
A =30,000 - 7,161.18 = 22,838.82
G =.055
C =.045
M =30
Y =22,838.82* (.055 - .045)* (30/12) = 570.97
Z =.06* [12,851.65 - (570.97)] = 736.84

Reduction to Policy Value due to
Surrender Charge--Free
Withdrawal = 17,148.35

Reduction to Policy Value due to
Excess Withdrawal = X - Y + Z
= 12,851.65 - (570.97) + 736.84
= 13,017.52

Policy Value after withdrawal at
middle of Policy Year 3 = 57,161.18 - [17,148.35 + 13,017.52]
= 57,161.18 - [17,148.35 + 12,851.65 -
(570.97) + 736.84]
= 57,161.18 - [30,000 - (570.97) +
736.84]
= 57,161.18 - 30,165.87 = 26,995.31

A-4

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

RETIREMENT INCOME BUILDER
VARIABLE ANNUITY
Issued through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT

Offered by
PFL LIFE INSURANCE COMPANY

4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001

This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Retirement Income Builder Variable Annuity (the
"Policy") offered by PFL Life Insurance Company. You may obtain a copy of the
Prospectus dated May 1, 1997, by calling 1-800-525-6205, or by writing to the
Administrative and Service Office, Financial Markets Division-Variable Annuity
Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. The Prospectus
sets forth information that a prospective investor should know before investing
in a Policy. Terms used in the current Prospectus for the Policy are
incorporated in this Statement of Additional Information.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY AND THE PFL
RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT.

Dated: May 1, 1997
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
<S> <C>
The Policy-- General Provisions.......................................... 3
Owner.................................................................. 3
Entire Policy.......................................................... 3
Delay of Payment and Transfers......................................... 3
Misstatement of Age or Sex............................................. 4
Reallocation of Policy Values After the
Annuity Commencement Date............................................. 4
Assignment............................................................. 4
Evidence of Survival................................................... 4
Non Participating...................................................... 5
Federal Tax Matters (50)................................................. 5
Tax Status of the Policy............................................... 5
Taxation of PFL........................................................ 6
Investment Experience.................................................... 6
State Regulation of PFL.................................................. 10
Administration........................................................... 10
Records and Reports...................................................... 10
Distribution of the Policies (36)........................................ 10
Custody of Assets........................................................ 11
Historical Performance Data (19)........................................ 11
Money Market Yields.................................................... 11
Other Subaccount Yields................................................ 12
Total Returns.......................................................... 13
Other Performance Data................................................. 13
Legal Matters............................................................ 14
Independent Auditors..................................................... 14
Other Information........................................................ 14
Financial Statements (19)................................................ 14
</TABLE>

(Numbers in parenthesis indicate corresponding pages of the Prospectus).

2
<PAGE>

In order to supplement the description in the Prospectus, the following
provides additional information about PFL and the Policy which may be of
interest to a prospective purchaser.

THE POLICY-GENERAL PROVISIONS
Owner

The Policy shall belong to the Owner upon issuance of the Policy after
completion of an application and delivery of the initial Premium Payment. While
the Annuitant is living, the Owner may: (1) assign the Policy; (2) surrender the
Policy; (3) amend or modify the Policy with PFL's consent; (4) receive annuity
payments or name a Payee to receive the payments; and (5) exercise, receive and
enjoy every other right and benefit contained in the Policy. The exercise of
these rights may be subject to the consent of any assignee or irrevocable
Beneficiary; and of the Owner's spouse in a community or marital property state.

A Successor Owner can be named in the Policy application or in a Written
Notice. The Successor Owner will become the new Owner upon the Owner's death,
if the Owner predeceases the Annuitant. If no Successor Owner survives the
Owner and the Owner predeceases the Annuitant, the Owner's estate will become
the Owner.

The Owner may change the ownership of the Policy in a Written Notice. When
this change takes effect, all rights of ownership in the Policy will pass to the
new Owner. A change of ownership may have tax consequences.

When there is a change of Owner or Successor Owner, the change will take
effect as of the date the Owner signs the Written Notice, subject to any payment
PFL has made or action PFL has taken before recording the change. Changing the
Owner or naming a new Successor Owner cancels any prior choice of Successor
Owner, but does not change the designation of the Beneficiary or the Annuitant.

If ownership is transferred (except to the Owner's spouse) because the
Owner dies before the Annuitant, the Adjusted Policy Value generally must be
distributed to the Successor Owner within five years of the Owner's death, or if
the first payment begins within one year of the Owner's death, payments must be
made for a period certain which does not exceed that Successor Owner's life
expectancy.

Entire Policy

The Policy and any endorsements thereon and the Policy application constitute
the entire contract between PFL and the Owner. All statements in the
application are representations and not warranties. No statement will cause the
Policy to be void or to be used in defense of a claim unless contained in the
application.

Delay of Payment and Transfers

Payment of any amount due from the Mutual Fund Account in respect of a
surrender, the Death Benefit or the death of the Owner of a Nonqualified Policy
generally will occur within seven business days from the date the Written Notice
(and any other required documentation or information) is received, except that
PFL may be permitted to defer such payment from the Mutual Fund Account if: (1)
the New York Stock Exchange is closed for other than usual weekends or holidays
or trading on the Exchange is otherwise restricted; or (2) an emergency exists
as defined by the SEC or the SEC requires that trading be restricted; or (3) the
SEC permits a delay for the protection of Owners. In addition, transfers of
amounts from the Subaccounts may be deferred under these circumstances.

3
<PAGE>

Certain delays and restrictions apply to transfers of amounts out of the
---------
Fixed Account. See p. 33 of the Policy Prospectus.

Misstatement of Age or Sex

If the age or sex of the Annuitant has been misstated, PFL will change the
annuity benefit payable to that which the Premium Payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by PFL
shall be paid in full with the next payment due such person or the Beneficiary.
The dollar amount of any overpayment made by PFL due to any misstatement shall
be deducted from payments subsequently accruing to such person or Beneficiary.
Any underpayment or overpayment will include interest at 5% per year, from the
date of the wrong payment to the date of the adjustment. The age of the
Annuitant may be established at any time by the submission of proof satisfactory
to PFL.

Reallocation of Policy Values After the Annuity Commencement Date

After the Annuity Commencement Date, the Owner may reallocate the value of
a designated number of Annuity Units of a Subaccount of the Mutual Fund Account
then credited to a Policy into an equal value of Annuity Units of one or more
other Subaccounts of the Mutual Fund Account, or the Fixed Account. The
reallocation shall be based on the relative value of the Annuity Units of the
Account(s) or Subaccount(s) at the end of the Business Day on the next payment
date. The minimum amount which may be reallocated is the lesser of (1) $10 of
monthly income or (2) the entire monthly income of the Annuity Units in the
Account or Subaccount from which the transfer is being made. If the monthly
income of the Annuity Units remaining in an Account or Subaccount after a
reallocation is less than $10, PFL reserves the right to include the value of
those Annuity Units as part of the transfer. The request must be in writing to
PFL's Administrative and Service Office. There is no charge assessed in
connection with such reallocation. PFL reserves the right to limit the number
of times a reallocation of Policy Value may be made in any given Policy Year.

After the Annuity Commencement Date, no transfers may be made from the
Fixed Account to the Mutual Fund Account.

Assignment

During the lifetime of the Annuitant the Owner may assign any rights or
benefits provided by a Nonqualified Policy. An assignment will not be binding
on PFL until a copy has been filed at its Administrative and Service Office.
The rights and benefits of the Owner and Beneficiary are subject to the rights
of the assignee. PFL assumes no responsibility for the validity or effect of
any assignment. Any claim made under an assignment shall be subject to proof of
interest and the extent of the assignment. An assignment may have tax
consequences.

Unless the Owner so directs by filing Written Notice with PFL, no
Beneficiary may assign any payments under the Policy before they are due. To
the extent permitted by law, no payments will be subject to the claims of any
Beneficiary's creditors.

Ownership under Qualified Policies is restricted to comply with the
Internal Revenue Code.

Evidence of Survival

PFL reserves the right to require satisfactory evidence that a person is
alive if a payment is based on that person being alive. No payment will be made
until PFL receives such evidence.

4
<PAGE>

Non-Participating

The Policy will not share in PFL's surplus earnings; no dividends will be
paid.

FEDERAL TAX MATTERS

Tax Status of the Policy

Diversification Requirements. Section 817(h) of the Code provides that in
order for a variable contract which is based on a segregated asset account to
qualify as an annuity contract under the Code, the investments made by such
account must be "adequately diversified" in accordance with Treasury
regulations. The Treasury regulations issued under Section 817(h) (Treas. Reg.
(S) 1.817-5) apply a diversification requirement to each of the Subaccounts of
the Mutual Fund Account. The Mutual Fund Account, through the Underlying Funds
and their Portfolios, intends to comply with the diversification requirements of
the Treasury. PFL has entered into agreements regarding participation in the
Retirement Income Builder that require the Underlying Funds and their Portfolios
to be operated in compliance with the Treasury regulations.

Owner Control. In certain circumstances, owners of variable annuity
contracts may be considered the owners, for Federal income tax purposes, of the
assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable annuity contractowner's gross income. Several years
ago, the IRS state in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contractowner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. More recently, the Treasury Department
announced, in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor, rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular subaccounts
without being treated as owners of underlying assets."

The ownership rights under the contract are similar to, but different in
certain respects from those described by the IRS in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the Owner of a Policy has the choice of one or more Subaccounts in
which to allocate premiums and Policy Values, and may be able to transfer among
these accounts more frequently than in such rulings. These differences could
result in policyowners being treated as the owners of the assets of the Mutual
Fund Account. In addition, PFL does not know what standards will be set forth,
if any, in the regulations or rulings with the Treasury Department has stated it
expects to issue. PFL therefore reserves the right to modify the Policies as
necessary to attempt to prevent the policyowners from being considered the
owners of a pro rata share of the assets of the Mutual Fund Account.

5
<PAGE>

Distribution Requirements. The Code also requires that Nonqualified
Policies contain specific provisions for distribution of Policy proceeds upon
the death of the Owner. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires that such Policies provide that
if any Owner dies on or after the Annuity Commencement Date and before the
entire interest in the Policy has been distributed, the remaining portion must
be distributed at least as rapidly as under the method in effect on such Owners
death. If any Owner dies before the Annuity Commencement Date, the entire
interest in the Policy must generally be distributed within 5 years after such
Owner's date of death or be applied to provide an immediate annuity under which
payments will begin within one year of such Owner's death and will be made for
the life of the Beneficiary or for a period not extending beyond the life
expectancy of the Beneficiary. However, if such Owner's death occurs prior to
the Annuity Commencement Death, and such Owner's surviving spouse is named
beneficiary, then the Policy may be continued with the surviving spouse as the
new Owner. If any Owner is not a natural person, then for purposes of these
distribution requirements, the primary Annuitant shall be treated as the Owner
and any death or change of such primary Annuitant shall be treated as the Death
of the Owner. The Policy contains provisions intended to comply with these
requirements of the Code. No regulations interpreting these requirements of the
Code have yet been issued and thus no assurance can be given that the provisions
contained in the Policies satisfy all such Code requirements. The provisions
contained in the Policies will be reviewed and modified if necessary to maintain
their compliance with the Code requirements when clarified by regulation or
otherwise.

Taxation of PFL

PFL at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Mutual Fund Account is treated as part of PFL
and, accordingly, will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. PFL does not expect to incur any
federal income tax liability with respect to investment income and net capital
gains arising from the activities of the Mutual Fund Account retained as part of
the reserves under the Policy. Based on this expectation, it is anticipated
that no charges will be made against the Mutual Fund Account for federal income
taxes. If, in future years, any federal income taxes are incurred by PFL with
respect to the Mutual Fund Account, PFL may make a charge to the Mutual Fund
Account.

INVESTMENT EXPERIENCE

A "Net Investment Factor" is used to determine the value of Accumulation
Units and Annuity Units, and to determine annuity payment rates.

Accumulation Units

Upon allocation to the selected Subaccount of the Mutual Fund Account,
Premium Payments are converted into Accumulation Units of the Subaccount. The
number of Accumulation Units to be credited is determined by dividing the dollar
amount allocated to each Subaccount by the value of an Accumulation Unit for
that Subaccount as next determined after the Premium Payment is received at the
Administrative and Service Office or, in the case of the initial Premium
Payment, when the Policy application is completed, whichever is later. The
value of an Accumulation Unit was arbitrarily established at $1.000000 at the
inception of each Subaccount. Thereafter, the value of an Accumulation Unit is
determined as of the close of trading on each day the New York Stock Exchange
and PFL's Administrative and Service Office are open for business.

6
<PAGE>

An index (the "Net Investment Factor") which measures the investment
performance of a Subaccount during a Valuation Period, is used to determine the
value of an Accumulation Unit for the next subsequent Valuation Period. The Net
Investment Factor may be greater or less than or equal to one; therefore, the
value of an Accumulation Unit may increase, decrease or remain the same from one
Valuation Period to the next. The Owner bears this investment risk. The net
investment performance of a Subaccount and deduction of certain charges affect
the Accumulation Unit Value.

The Net Investment Factor for any Subaccount for any Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:

(a) is the net result of:
(1) the net asset value per share of the shares held in the Subaccount
determined at the end of the current Valuation Period, plus

(2) the per share amount of any dividend or capital gain distribution
made with respect to the shares held in the Subaccount if the ex-
dividend date occurs during the current Valuation Period, plus or
minus

(3) a per share credit or charge for any taxes determined by
PFL to have resulted from the investment operations of the Subaccount;

(b) the net asset value per share of the shares held in the Subaccount
determined as of the end of the immediately preceding Valuation Period;
and

(c) is the charge for mortality and expense risk during the Valuation Period
(equal on an annual basis to 1.10% for the Return of Premium Death Benefit
and 1.25% for both the 5% Annually Compounding Death Benefit or the Annual
Step-Up Death Benefit) of the daily net asset value of the Subaccount, plus
the .15% administrative charge for all three Death Benefit Options.

Illustration of Accumulation Unit Value Calculations

Formula and Illustration for Determining
the Net Investment Factor

Assume Either the 5% Annually Compounding Death Benefit
or the Annual Step-Up Death Benefit is in effect.

Investment Experience Factor = A + B - C - E
---------
D

Where: A = The Net Asset Value of an Underlying Fund share as of the
end of the current Valuation Period.
Assume.............................. A = $11.57

B = The per share amount of any dividend or capital gains
distribution since the end of the immediately preceding
Valuation Period.
Assume.............................. B = 0

C = The per share charge or credit for any taxes reserved for at the
end of the current Valuation Period.
Assume.............................. C = 0

7
<PAGE>

D = The Net Asset Value of an Underlying Fund share at the end of
the immediately preceding Valuation Period.
Assume.............................. D = $11.40

E = The daily deduction for Mortality and Expense Risk Fee and
Administrative Charges, which totals 1.40% on an annual basis.
On a daily basis..................... = .0000380909

Then, the Investment Experience Factor = 11.57 + 0 - 0 - .0000380909 = Z =
-------------
11.40
1.0148741898

Formula and Illustration for Determining Accumulation Unit Value

Accumulation Unit Value = A x B

Where: A = The Accumulation Unit Value for the immediately preceding
Valuation Period.
Assume................................. = $ X

B = The Net Investment Factor for the current Valuation Period.
Assume................................. = Y

Then, the Accumulation Unit Value = $ X x Y = $ Z

Annuity Unit Value And Annuity Payment Rates

The amount of Variable Annuity Payments will vary with Annuity Unit Values.
Annuity Unit Values rise if the net investment performance of the Subaccount
exceeds the assumed interest rate of 5% annually. Conversely, Annuity Unit
Values fall if the net investment performance of the Subaccount is less than the
assumed rate. The value of a variable Annuity Unit in each Subaccount was
established at $1.00 on the date operations began for that Subaccount. The value
of a variable Annuity Unit on any subsequent Business Day is equal to (a)
multiplied by (b) multiplied by (c), where:

(a) is the variable Annuity Unit Value for that Subaccount on the immediately
preceding Business Day;
(b) is the net investment factor for that Subaccount for the valuation period;
and
(c) is the investment result adjustment factor for the valuation period.

The investment result adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5% effective
annual Assumed Investment Return. The valuation period is the period from the
close of the immediately preceding Business Day to the close of the current
Business Day.

The net investment factor for the Policy used to calculate the value of a
variable Annuity Unit in each Subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:

(i) is the result of:

8
<PAGE>

(1) the net asset value of a fund share held in that Subaccount determined
at the end of the current valuation period; plus

(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Subaccount if the ex-dividend
date occurs during the valuation period; plus or minus

(3) a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
Subaccount.

(ii) is the net asset value of a fund share held in that Subaccount determined
as of the end of the immediately preceding valuation period.

(iii) is a factor representing the Mortality and Expense Risk Fee and
Administrative Charge. This factor is equal, on an annual basis, to 1.25%
(for Death Benefit Option A) or 1.40% (for Death Benefit Options B and C)
of the daily net asset value of a fund share held in that Subaccount.

The dollar amount of subsequent Variable Annuity Payments will depend upon
changes in applicable Annuity Unit Values.

The annuity payment rates vary according to the Annuity Option elected and
the sex and adjusted age of the Annuitant at the Annuity Commencement Date. The
Policy also contains a table for determining the adjusted age of the Annuitant.

Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments

Formula and Illustration for Determining Annuity Unit Value

Annuity Unit Value = A x B x C

Where: A = Annuity Unit Value for the immediately preceding Valuation Period.
Assume............................. = $ X

B = Investment Experience Factor for the Valuation Period for which the
Annuity Unit Value is being calculated.
Assume.............................. = Y

C = A factor to neutralize the assumed interest rate of 5% built into
the Annuity Tables used.
Assume.............................. = Z

Then, the Annuity Unit Value is:
$ X x Y x Z = $ Q

Formula and Illustration for Determining Amount of First Monthly
Variable Annuity Payment

First Monthly Variable Annuity Payment = A x B
------
$1,000

9
<PAGE>

Where: A = The Policy Value as of the Annuity Commencement Date.
Assume.................................. = $ X

B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the Annuitant according to
the tables contained in the Policy.
Assume.................................. = $ Y

Then, the first Monthly Variable Annuity Payment
= $ X x $ Y = $ Z
-----
1,000

Formula and Illustration for Determining the Number of Annuity
Units Represented by Each Monthly Variable Annuity Payment

Number of Annuity Units = A
-
B

Where: A = The dollar amount of the first monthly Variable Annuity Payment.
Assume.................................. = $ X

B = The Annuity Unit Value for the Valuation Date on which the first
monthly payment is due.
Assume.................................. = $ Y

Then, the number of Annuity Units = $ X = Z
---
$ Y

STATE REGULATION OF PFL

PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.

ADMINISTRATION

PFL performs administrative services for the Policies. These services
include issuance of the Policies, maintenance of records concerning the
Policies, and certain valuation services.

RECORDS AND REPORTS

All records and accounts relating to the Mutual Fund Account will be
maintained by PFL. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, PFL will mail to all Policy Owners at
their last known address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable law or
regulation. Policy Owners will also receive confirmation of each financial
transaction and any other reports required by law or regulation.

10
<PAGE>

DISTRIBUTION OF THE POLICIES

The Policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the Policies
is continuous and PFL does not anticipate discontinuing the offering of the
Policies. However, PFL reserves the right to discontinue the offering of the
Policies.

AEGON USA Securities, Inc., an affiliate of PFL, will be the principal
underwriter of the Policies. AEGON USA Securities, Inc. may enter into
agreements with broker-dealers for the distribution of the Policies.

CUSTODY OF ASSETS

The assets of each of the Subaccounts of the Mutual Fund Account are held by
PFL. The assets of each of the Subaccounts of the Mutual Fund Account are
segregated and held separate and apart from the assets of the other Subaccounts
and from PFL's general account assets. PFL maintains records of all purchases
and redemptions of shares of the Underlying Funds held by each of the
Subaccounts. Additional protection for the assets of the Mutual Fund Account is
afforded by PFL's fidelity bond, presently in the amount of $5,000,000, covering
the acts of officers and employees of PFL.

HISTORICAL PERFORMANCE DATA

Money Market Yields

PFL may from time to time disclose the current annualized yield of the
Money Market Subaccount for a 7-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the
portfolio securities. This current annualized yield is computed by determining
----------
the net change (exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation) at the end of the 7-day period in
the value of a hypothetical account having a balance of 1 unit at the beginning
of the 7-day period, dividing such net change in account value by the value of
the account at the beginning of the period to determine the base period return,
and annualizing this quotient on a 365-day basis. The net change in account
value reflects (i) net income from the Portfolio attributable to the
hypothetical account; and (ii) charges and deductions imposed under a Policy
that are attributable to the hypothetical account. The charges and deductions
include the per unit charges for the hypothetical account for (i) the
Administrative Charges; and (ii) the Mortality and Expense Risk Fee. Current
Yield will be calculated according to the following formula:

Current Yield = ((NCS - ES)/UV) x (365/7)
Where:

NCS= The net change in the value of the Portfolio (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) for the 7-day period attributable to a hypothetical account
having a balance of 1 Subaccount unit.

ES= Per unit expenses of the Subaccount for the 7-day period.

UV= The unit value on the first day of the 7-day period.

11
<PAGE>

Because of the charges and deductions imposed under a Policy, the yield
for the Money Market Subaccount will be lower than the yield for the Money
Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes or Surrender Charges that may be applicable to a particular
Policy. Surrender Charges range from 6% to 0% of the amount of Premium Payments
withdrawn based on the number of years since the Premium Payment was made.
However, Surrender Charges will not be assessed after the tenth Policy Year.

PFL may also disclose the effective yield of the Money Market Subaccount
for the same 7-day period, determined on a compounded basis. The effective
yield is calculated by compounding the base period return according to the
following formula:

Effective Yield = (1 + ((NCS - ES) / UV))/365/7/ - 1

Where:

NCS= The net change in the value of the account (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) for the 7-day period attributable to a hypothetical
account having a balance of 1 Subaccount unit.

ES= Per unit expenses of the Subaccount for the 7-day period.

UV = The unit value on the first day of the 7-day period.

The yield on amounts held in the Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Subaccount actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio and its operating expenses.

Other Subaccount Yields

PFL may from time to time advertise or disclose the current annualized
yield of one or more of the Subaccounts of the Mutual Fund Account (except the
Money Market Subaccount) for 30-day periods. The annualized yield of a
Subaccount refers to income generated by the Subaccount over a specific 30-day
period. Because the yield is annualized, the yield generated by a Subaccount
during the 30-day period is assumed to be generated each 30-day period over a
12-month period. The yield is computed by: (i) dividing the net investment
income of the Subaccount less Subaccount expenses for the period, by (ii) the
maximum offering price per unit on the last day of the period times the daily
average number of units outstanding for the period, compounding that yield for a
6-month period, and (iv) multiplying that result by 2. Expenses attributable to
the Subaccount include (i) the Administrative Charge and (ii) the Mortality and
Expense Risk Fee. The 30-day yield is calculated according to the following
formula:

Yield = 2 x ((((NI - ES)/(U x UV)) + 1)/6/ - 1)
Where:

NI= Net investment income of the Subaccount for the 30-day period attributable
to the Subaccount's unit.

ES= Expenses of the Subaccount for the 30-day period.

U= The average number of units outstanding.

UV= The unit value at the close (highest) of the last day in the 30-day
period.

12
<PAGE>

Because of the charges and deductions imposed by the Mutual Fund Account,
the yield for a Subaccount of the Mutual Fund Account will be lower than the
yield for its corresponding Portfolio. The yield calculations do not reflect
the effect of any premium taxes or Surrender Charges that may be applicable to a
particular Policy. Surrender Charges range from 6% to 0% of the amount of
Premium Payments withdrawn based on the number of years since the Premium
Payment was made. However, Surrender Charges will not be assessed after the
tenth Policy Year.

The yield on amounts held in the Subaccounts of the Mutual Fund Account
normally will fluctuate over time. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return. A Subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses.

Total Returns

PFL may from time to time also advertise or disclose total returns for one
or more of the Subaccounts of the Mutual Fund Account for various periods of
time. One of the periods of time will include the period measured from the date
the Subaccount commenced operations. When a Subaccount has been in operation
for 1, 5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of
return that would equate an initial investment of $1,000 to the redemption value
of that investment as of the last day of each of the periods. The ending date
for each period for which total return quotations are provided will be for the
most recent month end practicable, considering the type and media of the
communication and will be stated in the communication.

Total returns will be calculated using Subaccount Unit Values which PFL
calculates on each Business Day based on the performance of the Subaccount's
underlying Portfolio, and the deductions for the Mortality and Expense Risk Fee
and the Administrative Charges. Total return calculations will reflect the
effect of Surrender Charges that may be applicable to a particular period. The
total return will then be calculated according to the following formula:

P(1 + T)/N/ = ERV

Where: T= The average annual total return net of Subaccount recurring charges.

ERV= The ending redeemable value of the hypothetical account at
the end of the period.

P= A hypothetical initial payment of $1,000.

N= The number of years in the period.

Other Performance Data

PFL may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
The non-standard format will be identical to the standard format except that the
Surrender Charge percentage will be assumed to be 0%.

PFL may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the Surrender
Charge percentage will be 0%.

CTR = (ERV/P) - 1

13
<PAGE>

Where:
CTR= The cumulative total return net of Subaccount recurring charges for
the period.

ERV= The ending redeemable value of the hypothetical investment at the
end of the period.

P= A hypothetical initial payment of $1,000.

All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.

Hypothetical Performance Data

From time to time, sales literature or advertisements may quote average
annual total returns for periods prior to the date the Mutual Fund Account
commenced operations. Such performance information for the Subaccounts will be
calculated based on the performance of the various Portfolios and the assumption
that the Subaccounts were in existence for the same periods as those indicated
for the Portfolios, with the level of Policy charges that were in effect at the
inception of the Subaccounts.

LEGAL MATTERS

Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the Policies has been provided to PFL by
Sutherland, Asbill & Brennan L.L.P., of Washington D.C.

INDEPENDENT AUDITORS

The Financial Statements of PFL as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, included in this
Statement of Additional Information have been audited by Ernst & Young LLP,
Independent Auditors, Suite 3400, 801 Grand Avenue, Des Moines, Iowa 50309.

OTHER INFORMATION

A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus or this Statement of Additional
Information. Statements contained in the Prospectus and this Statement of
Additional Information concerning the content of the Policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.

FINANCIAL STATEMENTS

The values of the interest of Owners in the Mutual Fund Account will be
affected solely by the investment results of the selected Subaccount(s). The
Financial Statements of PFL, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of PFL to meet
its obligations under the Policies. They should not be considered as bearing on
the investment performance of the assets held in the Mutual Fund Account.

14
<PAGE>

SEPARATE ACCOUNT
FINANCIAL STATEMENTS

RETIREMENT INCOME BUILDER VARIABLE ANNUITY ACCOUNT

The Retirement Income Builder Variable Annuity Account began operations on
January 2, 1997. Therefore, no separate account financial statements were
prepared for the year ending December 31, 1996.
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
PFL Life Insurance Company

We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1996 and 1995, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.

In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1996 and
1995, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1996.

Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

Ernst & Young L.L.P.

Des Moines, Iowa
February 21, 1997

16
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 204,872 $ 114,704 $ 148,954
Annuity............................... 725,966 921,452 1,067,406
Accident and health................... 227,862 232,738 230,889
Net investment income................... 428,337 392,685 343,880
Amortization of interest maintenance
reserve................................ 2,434 4,341 2,871
Commissions and expense allowances on
reinsurance ceded...................... 73,931 77,071 94,635
---------- ---------- ----------
1,663,402 1,742,991 1,888,635
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health
benefits............................. 147,024 146,346 141,632
Surrender benefits.................... 512,810 498,626 392,064
Other benefits........................ 101,288 88,607 73,306
Increase in aggregate reserves for
policies and contracts:
Life................................ 140,126 50,071 82,062
Annuity............................. 188,002 528,330 569,341
Accident and health................. 26,790 17,694 22,144
Other............................... 19,969 16,017 11,223
---------- ---------- ----------
1,136,009 1,345,691 1,291,772
Insurance expenses:
Commissions........................... 177,466 200,706 215,635
General insurance expenses............ 57,282 57,623 52,166
Taxes, licenses and fees.............. 13,889 15,700 15,368
Transfer to separate account.......... 171,785 42,981 243,806
Other expenses........................ 526 760 1,014
---------- ---------- ----------
420,948 317,770 527,989
---------- ---------- ----------
1,556,957 1,663,461 1,819,761
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital losses on
investments.............................. 106,445 79,530 68,874
Federal income tax expense................ 41,177 33,335 23,858
---------- ---------- ----------
Gain from operations before net realized
capital losses on investments............ 65,268 46,195 45,016
Net realized capital losses on investments
(net of related federal income taxes and
amounts transferred to interest
maintenance reserve)..................... (3,503) (18,096) (3,624)
---------- ---------- ----------
Net income................................ $ 61,765 $ 28,099 $ 41,392
========== ========== ==========
</TABLE>

See accompanying notes.

17
<PAGE>

PFL LIFE INSURANCE COMPANY

BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments........................ $ 50,737 $ 79,852
Bonds.................................................. 4,773,433 4,613,334
Stocks:
Preferred............................................ 3,097 9,336
Common (cost: 1996--$23,212; 1995--$19,061).......... 32,038 24,866
Affiliated entities (cost: 1996--$14,893; 1995--
$14,661)............................................ 6,934 6,794
Mortgage loans on real estate.......................... 911,705 680,414
Real estate, at cost less accumulated depreciation
($11,338 in 1996; $12,493 in 1995):
Home office properties............................... 10,372 20,403
Properties acquired in satisfaction of debt.......... 12,260 2,648
Investment properties................................ 35,922 40,453
Policy loans........................................... 54,214 52,675
Other invested assets.................................. 16,343 13,557
---------- ----------
Total cash and invested assets......................... 5,907,055 5,544,332
Premiums deferred and uncollected........................ 16,345 17,026
Accrued investment income................................ 70,401 68,065
Receivable from affiliates............................... 53,900 79,913
Federal income taxes recoverable......................... 4,018 9,776
Transfers from separate accounts......................... 38,528 --
Other assets............................................. 31,215 32,803
Separate account assets.................................. 1,844,515 1,418,157
---------- ----------
Total admitted assets.................................. $7,965,977 $7,170,072
========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 736,100 $ 596,039
Annuity.............................................. 4,408,419 4,220,274
Accident and health.................................. 139,269 114,884
Policy and contract claim reserves:
Life................................................. 7,369 6,225
Accident and health.................................. 66,988 70,517
Other policyholders' funds............................. 126,672 105,371
Remittances and items not allocated.................... 64,064 123,710
Asset valuation reserve................................ 54,851 43,921
Interest maintenance reserve........................... 23,745 26,376
Other liabilities...................................... 70,663 67,070
Payable to affiliates.................................. 4,975 --
Separate account liabilities........................... 1,844,515 1,418,157
---------- ----------
Total liabilities...................................... 7,547,630 6,792,544
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding................................ 2,660 2,660
Paid-in surplus........................................ 154,129 154,129
Unassigned surplus..................................... 261,558 220,739
---------- ----------
Total capital and surplus.............................. 418,347 377,528
---------- ----------
Total liabilities and capital and surplus.............. $7,965,977 $7,170,072
========== ==========
</TABLE>

See accompanying notes.

18
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.............. $2,660 $ 99,129 $212,982 $314,771
Capital contribution.................. -- 15,000 -- 15,000
Net income for 1994................... -- -- 41,392 41,392
Net unrealized capital losses......... -- -- (25,350) (25,350)
Increase in non-admitted assets....... -- -- (248) (248)
Decrease in asset valuation reserve... -- -- 6,040 6,040
Dividend to stockholder............... -- -- (20,900) (20,900)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 184 184
Amendment of reinsurance agreement.... -- -- 391 391
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 505 505
Prior period adjustment............... -- -- (3,444) (3,444)
------ -------- -------- --------
Balance at December 31, 1994............ 2,660 114,129 211,552 328,341
Capital contribution.................. -- 40,000 -- 40,000
Net income for 1995................... -- -- 28,099 28,099
Net unrealized capital losses......... -- -- (7,574) (7,574)
Decrease in non-admitted assets....... -- -- 50 50
Increase in asset valuation reserve... -- -- (5,946) (5,946)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 35 35
Cancellation of reinsurance
agreement............................ -- -- 585 585
Amendment of reinsurance agreement.... -- -- 419 419
Transfer of subsidiary investment to
stockholder.......................... -- -- (3,250) (3,250)
Change in reserve valuation
methodology.......................... -- -- (501) (501)
Increase in liability for reinsurance
in unauthorized companies............ -- -- (2,730) (2,730)
------ -------- -------- --------
Balance at December 31, 1995............ 2,660 154,129 220,739 377,528
Net income for 1996................... -- -- 61,765 61,765
Net unrealized capital gains.......... -- -- 2,351 2,351
Increase in non-admitted assets....... -- -- (148) (148)
Increase in asset valuation reserve... -- -- (10,930) (10,930)
Dividend to stockholder............... -- -- (20,000) (20,000)
Prior period adjustment............... -- -- 5,025 5,025
Surplus effect of sale of a division.. -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division............................. -- -- 29 29
Amendment of reinsurance agreement.... -- -- 421 421
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 2,690 2,690
------ -------- -------- --------
Balance at December 31, 1996............ $2,660 $154,129 $261,558 $418,347
====== ======== ======== ========
</TABLE>

See accompanying notes.

19
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of
reinsurance.............................. $1,240,748 $1,353,407 $1,548,030
Net investment income..................... 431,456 398,051 339,856
---------- ---------- ----------
1,672,204 1,751,458 1,887,886
Life and accident and health claims....... (147,556) (140,798) (137,602)
Surrender benefits and other fund
withdrawals.............................. (512,810) (498,626) (392,064)
Other benefits to policyholders........... (101,254) (88,519) (73,237)
Commissions, other expenses and other
taxes.................................... (248,321) (278,241) (288,384)
Net transfers to separate accounts........ (210,312) (42,981) (243,806)
Dividends to policyholders................ (844) (940) (1,155)
Federal income taxes, excluding tax on
capital gains and IRS settlements........ (35,551) (32,905) (39,864)
---------- ---------- ----------
Net cash provided by operations........... 415,556 668,448 711,774
Proceeds from investments sold, matured or
repaid:
Bonds and preferred stocks.............. 2,112,831 1,757,229 1,430,339
Common stocks........................... 27,214 20,338 12,941
Mortgage loans on real estate........... 74,351 36,550 43,495
Real estate............................. 18,077 23,203 9,536
Other proceeds.......................... 22,567 381 189
---------- ---------- ----------
Total cash from investments............... 2,255,040 1,837,701 1,496,500
Capital contribution...................... -- 40,000 15,000
Dividend from subsidiary.................. -- -- 10,000
Cash received from ceding commissions
associated with the sale of a division... 45 55 284
Increase in remittances and items not
allocated................................ -- 88,295 16,177
Other sources............................. 19,381 12,758 24,855
---------- ---------- ----------
Total sources of cash..................... 2,690,022 2,647,257 2,274,590
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and preferred stocks.............. $2,270,105 $2,294,195 $2,043,615
Common stocks........................... 29,799 23,284 11,228
Mortgage loans on real estate........... 324,381 192,292 160,068
Net increase in policy loans............ 1,539 877 3,202
Real estate............................. 222 10,188 14,801
Other invested assets................... 5,169 2,670 664
---------- ---------- ----------
Total investments acquired................ 2,631,215 2,523,506 2,233,578
Dividends to stockholder.................. 20,000 -- 20,900
Cash paid associated with the sale of a
division................................. 539 -- --
Repayment of intercompany notes and
receivables, net......................... -- 48,070 365
Cash paid in conjunction with an amendment
of a reinsurance agreement............... 5,812 -- --
Decrease in remittances and items not
allocated................................ 59,646 -- --
Cash paid in conjunction with sales of a
division................................. 123 -- --
Other applications, net................... 1,802 29,887 3,820
---------- ---------- ----------
Total applications of cash................ 2,719,137 2,601,463 2,258,663
---------- ---------- ----------
Net change in cash and short-term
investments.............................. (29,115) 45,790 15,927
Cash and short-term investments at
beginning of year........................ 79,852 34,062 18,135
---------- ---------- ----------
Cash and short-term investments at end of
year..................................... $ 50,737 $ 79,852 $ 34,062
========== ========== ==========
</TABLE>

See accompanying notes.

20
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. Effective June 1, 1995, the
Company transferred the common stock of its wholly-owned subsidiary, Equity
National Life Insurance Company ("Equity National"), to its stockholder, First
AUSA. Equity National was then merged with Life Investors Insurance Company of
America, a subsidiary of First AUSA. The financial statements presented herein
are prepared on the statutory accounting principles basis for the Company
only; as such, the accounts of the Company's subsidiary, Equity National, are
not consolidated with those of the Company.

In connection with the sale of certain affiliated companies, the Company has
assumed various blocks of business from these former affiliates through
mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:

During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale, the
Company transferred $123 in assets, substantially all of which was cash,
and $70 of liabilities. The difference between the assets and liabilities
of $(53) plus a tax credit of $19 was charged directly to unassigned
surplus.

Effective December 31, 1995, the Company canceled a coinsurance agreement
with its parent, First AUSA. As a result of the cancellation, the Company
transferred $825 of assets and $1,712 of liabilities. The difference
between the assets and liabilities, net of a tax effect of $302 was
credited directly to unassigned surplus.

On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to increase the reinsurance ceded by 2 1/2% each year
(primarily group health business). As a result, the Company transferred
$3,881 in assets and $4,080 in liabilities during 1994. The difference
between the assets and liabilities of $199, plus a tax credit of $192, was
credited directly to unassigned surplus. During 1995, the Company
transferred $4,303 in assets and liabilities of $4,467. The difference
between the assets and liabilities of $164, plus a tax credit of $255, was
credited directly to unassigned surplus. During 1996, the Company
transferred $5,991 in assets, including $5,812 of cash and short-term
investments and liabilities of $6,146. The difference between the assets
and liabilities of $155, plus a tax credit of $266 was credited directly to
unassigned surplus.

During 1993, the Company sold the Oakbrook Division (primarily group
health business). The initial transfer of risk occurred through an
indemnity reinsurance agreement. The

21
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

policies will then be assumed by the reinsurer by novation as state
regulatory and policyholder approvals are received. In addition, the
Company will receive from the third party administrator a ceding commission
of one percent of the premiums collected between January 1, 1994 and
December 31, 1996. As a result of the sale, in 1994, the Company received
$284 for ceding commissions; the commissions net of the related tax effect
of $100 was credited directly to unassigned surplus. During 1995, the
Company received $55 for ceding commissions; the commissions net of the
related tax effect of $20 was credited directly to unassigned surplus.
During 1996, the Company received $45 for ceding commissions; the
commissions net of the related tax effect of $(16) was charged directly to
unassigned surplus. During 1996, the Company paid $539 in association with
this sale; the proceeds, net of a tax credit of $189, were charged directly
to unassigned surplus.

Nature of Business

The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through an independent insurance agency of The Insurance Center, the
Company's agents, and financial institutions.

Basis of Presentation

The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, 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 financial
statements.

The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant
of these differences are as follows: (a) bonds are generally reported at
amortized cost rather than segregating the portfolio into held-to-maturity
(reported at amortized cost), available-for-sale (reported at fair value), and
trading (reported at fair value) classifications; (b) acquisition costs of
acquiring new business are charged to current operations as incurred rather
than deferred and amortized over the life of the policies; (c) policy reserves
on traditional life products are based on statutory mortality rates and
interest which may differ from reserves based on reasonable assumptions of
expected mortality, interest, and withdrawals which include a provision for
possible unfavorable deviation from such assumptions; (d) policy reserves on
certain investment products use discounting methodologies utilizing statutory
interest rates rather than full account values; (e) reinsurance amounts are
netted against the corresponding asset or liability rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for
the difference between the financial statement and income tax bases of assets
and liabilities; (g) net realized gains or losses attributed to changes in the
level of interest

22
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

rates in the market are deferred and amortized over the remaining life of the
bond or mortgage loan, rather than recognized as gains or losses in the
statement of operations when the sale is completed; (h) declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company.

The National Association of Insurance Commissioners (NAIC) currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1997, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.

Investments

Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the security. The Company reviews
its prepayment assumptions on mortgage and other asset backed securities at
regular intervals and adjusts amortization rates prospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of affiliated and unaffiliated companies,
which may include shares of mutual funds (money market and other), are carried
at market. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as
required or permitted by Iowa Insurance Laws.

23
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve (IMR), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.

Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1996, 1995 and 1994,
the Company excluded investment income due and accrued of $1,541, $2,272 and
$4,622, respectively, with respect to such practices.

The Company entered into an interest-rate cap agreement on Five Year
Constant Maturities Treasury futures to hedge the exposure of increasing
interest rates. The cash flows from the interest rate cap will help offset
losses that might occur from disintermediation resulting from a rise in
interest rates. The Company paid a one-time premium to receive the difference
between the reference rate and the strike rate after a two-year delay. The
cost is included in interest expense ratably during the life of the agreement.
Income received as a result of the cap agreement will be recognized in
investment income as earned. Unamortized cost of the agreements is included in
other assets.

Aggregate Policy Reserves

Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.

The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.

Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with and without life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 2.50 to 11.25 percent and mortality rates, where
appropriate, from a variety of tables.

24
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.

Policy and Contract Claim Reserves

Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.

Separate Account

Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate account are valued at
market. Income and gains and losses with respect to the assets in the separate
account accrue to the benefit of the policyholders. The Company received
variable contract premiums of $227,864, $133,386 and $308,305 in 1996, 1995
and 1994, respectively. All variable account contracts are subject to
discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.

Reclassifications

Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.

2. FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. SFAS No.
119, Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments, requires additional disclosure about derivatives. 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 comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 and No. 119
exclude certain financial instruments and all nonfinancial instruments from
their disclosure requirements and allow companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.

25
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities other than insurance subsidiaries are
based on quoted market prices. Fair value for the Company's insurance
subsidiary is the statutory net book value of that subsidiary.

Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.

Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.

Interest rate cap: Estimated fair value of the interest rate cap is based
upon the latest quoted market price.

Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.

The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107 and No. 119:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds.......................... $4,773,433 $4,867,770 $4,613,334 $4,824,635
Preferred stocks............... 3,097 7,133 9,336 12,275
Common stocks.................. 32,038 32,038 24,866 24,866
Affiliated common and preferred
stock......................... 6,934 6,934 6,794 6,794
Mortgage loans on real estate.. 911,705 922,010 680,414 714,399
Policy loans................... 54,214 54,214 52,675 52,675
Cash and short-term
investments................... 50,737 50,737 79,852 79,852
Interest rate cap.............. 6,797 6,975 7,971 7,250
Separate account assets........ 1,844,515 1,844,515 1,418,157 1,418,157
LIABILITIES
Investment contract
liabilities................... 4,532,568 4,398,630 4,323,188 4,310,505
Separate account annuities..... 1,803,057 1,803,057 1,417,842 1,417,842
</TABLE>

26
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

3. INVESTMENTS

The carrying value and estimated fair value of investments in debt
securities were as follows:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and
agencies.................... $ 136,450 $ 3,301 $ 180 $ 139,571
State, municipal and other
government.................. 59,644 1,906 177 61,373
Public utilities............. 147,918 5,616 1,020 152,514
Industrial and
miscellaneous............... 1,958,681 64,710 8,105 2,015,286
Mortgage-backed securities... 2,470,740 43,896 15,610 2,499,026
---------- -------- ------- ----------
4,773,433 119,429 25,092 4,867,770
Preferred stocks............... 3,097 4,036 -- 7,133
---------- -------- ------- ----------
$4,776,530 $123,465 $25,092 $4,874,903
========== ======== ======= ==========
DECEMBER 31, 1995
Bonds:
United States Government and
agencies.................... $ 117,054 $ 5,808 $ 135 $ 122,727
State, municipal and other
government.................. 46,236 3,109 2 49,343
Public utilities............. 156,342 9,578 1,092 164,828
Industrial and
miscellaneous............... 1,781,149 112,074 7,146 1,886,077
Mortgage-backed securities... 2,512,553 93,420 4,313 2,601,660
---------- -------- ------- ----------
4,613,334 223,989 12,688 4,824,635
Preferred stocks............... 9,336 3,348 409 12,275
---------- -------- ------- ----------
$4,622,670 $227,337 $13,097 $4,836,910
========== ======== ======= ==========
</TABLE>

The carrying value and estimated fair value of bonds at December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
VALUE VALUE
---------- --------------
<S> <C> <C>
Due in one year or less............................ $ 202,775 $ 204,980
Due after one year through five years.............. 896,912 921,711
Due after five years through ten years............. 954,555 977,421
Due after ten years................................ 248,451 264,632
---------- ----------
2,302,693 2,368,744
Mortgage and other asset-backed securities......... 2,470,740 2,499,026
---------- ----------
$4,773,433 $4,867,770
========== ==========
</TABLE>

27
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

A detail of net investment income is presented below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes...................... $364,356 $342,182 $294,145
Dividends on equity investments.................. 1,436 1,822 12,091
Interest on mortgage loans....................... 69,418 52,702 42,385
Rental income on real estate..................... 9,526 10,443 9,360
Interest on policy loans......................... 3,273 3,112 3,182
Other investment income.......................... 1,799 1,803 282
-------- -------- --------
Gross investment income.......................... 449,808 412,064 361,445
Investment expenses.............................. 21,471 19,379 17,565
-------- -------- --------
Net investment income............................ $428,337 $392,685 $343,880
======== ======== ========
</TABLE>

Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds................................ $2,112,831 $1,757,229 $1,430,339
========== ========== ==========
Gross realized gains.................... $ 19,876 $ 19,721 $ 15,411
Gross realized losses................... (19,634) (34,399) (33,044)
---------- ---------- ----------
Net realized gains (losses)............. $ 242 $ (14,678) $ (17,633)
========== ========== ==========
</TABLE>

At December 31, 1996, investments with an aggregate carrying value of
$5,825,802 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.

Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:

<TABLE>
<CAPTION>
REALIZED
---------------------------
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Debt securities................................ $ 242 $(14,678) $(17,633)
Short-term investments......................... (197) 24 (309)
Equity securities.............................. 1,798 504 1,322
Mortgage loans on real estate.................. (5,530) (1,053) (2,186)
Real estate.................................... 1,210 (1,908) (2,858)
Other invested assets.......................... 12 (970) 14
------- -------- --------
(2,465) (18,081) (21,650)
Tax effect..................................... (1,235) 7,878 7,236
Transfer to interest maintenance reserve....... 197 (7,891) 10,790
------- -------- --------
Net realized losses............................ $(3,503) $(18,096) $ (3,624)
======= ======== ========
</TABLE>

28
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Debt securities............................ $(115,867) $355,560 $(322,346)
Equity securities.......................... 2,929 (16,379) (23,202)
--------- -------- ---------
Change in unrealized appreciation
(depreciation)............................ $(112,938) $339,181 $(345,548)
========= ======== =========
</TABLE>

Gross unrealized gains and gross unrealized losses on equity securities were
as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Unrealized gains.................................. $ 9,590 $ 6,833 $20,244
Unrealized losses................................. (8,723) (8,895) (5,927)
------- ------- -------
Net unrealized gains (losses)..................... $ 867 $(2,062) $14,317
======= ======= =======
</TABLE>

During 1996, the Company issued mortgage loans with interest rates ranging
from 6.83% to 8.75%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 85%. Mortgage loans
with a carrying value of $4,027 were non-income producing for the previous
twelve months. Accrued interest of $852 related to these mortgage loans was
excluded from investment income. The Company requires all mortgage loans to
carry fire insurance equal to the value of the underlying property.

During 1996, 1995 and 1994, mortgage loans of $13,163, $1,644 and $799,
respectively, were foreclosed and transferred to real estate. At December 31,
1996 and 1995, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $5,432 and $6,168, respectively. The mortgage loan
portfolio is diversified by geographic region and specific collateral property
type as follows:

<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
South Atlantic.......... 26% 26%
Mountain................ 10 12
W. South Central........ 12 14
Pacific................. 13 17
E. North Central........ 15 13
E. South Central........ 9 5
W. North Central........ 6 6
Middle Atlantic......... 6 3
New England............. 3 4
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION
- -------------------------------------
DECEMBER 31
------------
1996 1995
----- -----
<S> <C> <C>
Retail.................. 37% 31%
Apartment............... 14 20
Office.................. 34 29
Industrial.............. 3 4
Other................... 12 16
</TABLE>

29
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

At December 31, 1996, the Company had the following investments (excluding
U. S. Government guaranteed or insured issues) which individually represented
more than ten percent of capital and surplus and the asset valuation reserve:

<TABLE>
<CAPTION>
DESCRIPTION OF SECURITY OR ISSUER CARRYING VALUE
--------------------------------- --------------
<S> <C>
Bonds:
Citibank.................................................... 70,661
</TABLE>

4. REINSURANCE

The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.

Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,457,450 $1,591,531 $1,857,446
Reinsurance assumed...................... 1,796 2,356 1,832
Reinsurance ceded........................ (300,546) (324,993) (412,029)
---------- ---------- ----------
Net premiums earned...................... $1,158,700 $1,268,894 $1,447,249
========== ========== ==========
</TABLE>

The Company received reinsurance recoveries in the amount of $168,155,
$167,287 and $148,414 during 1996, 1995 and 1994, respectively. At December
31, 1996 and 1995, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $63,226 and
$65,503, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1996 and
1995 of $2,737,441 and $2,920,034, respectively.

At December 31, 1996, amounts recoverable from unauthorized reinsurers of
$73,434 (1995--$70,516) and reserve credits for reinsurance ceded of $55,035
(1995--$48,992) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $120,477 at December 31, 1996 that can be drawn on
for amounts that remain unpaid for more than 120 days.

5. INCOME TAXES

For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.

30
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital losses for the following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $37,256 $27,835 $24,106
Tax reserve adjustment........................... 2,211 2,405 1,150
Excess tax depreciation.......................... (384) (365) (406)
Deferred acquisition costs--tax basis............ 5,583 4,581 7,378
Prior year over accrual.......................... (499) (306) (644)
Dividend received deduction...................... (454) (56) (3,513)
Charitable contribution.......................... -- -- (3,935)
Other items--net................................. (2,536) (759) (278)
------- ------- -------
Federal income tax expense....................... $41,177 $33,335 $23,858
======= ======= =======
</TABLE>

Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1996). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.

The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984-1986 and related
interest of $1,686, net of a tax effect of $590. An examination is underway
for years 1988 through 1995.

6. POLICY AND CONTRACT ATTRIBUTES

Participating life insurance policies are issued by the Company which
entitle policyholders to a share in the earnings of the participating
policies, provided that a dividend distribution, which is determined annually
based on mortality and persistency experience of the participating policies,
is authorized by the Company. Participating insurance constituted
approximately 1.0% and 1.2% of ordinary life insurance in force at December
31, 1996 and 1995, respectively.

A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics are summarized as
follows:

31
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1996 1995
------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment....... $ 20,800 0% $ 699 --%
Subject to discretionary withdrawal
at book value less surrender
charge............................. 794,881 9 733,796 8%
Subject to discretionary withdrawal
at market value.................... 1,803,057 20 1,390,156 16%
Subject to discretionary withdrawal
at book value (minimal or no
charges or adjustments)............ 6,284,876 69 6,395,719 74%
Not subject to discretionary
withdrawal provision............... 174,416 2 139,330 2%
---------- --- ---------- ---
9,078,030 100 8,659,700 100%
Less reinsurance ceded.............. 2,677,432 2,866,160
---------- ----------
Total policy reserves on annuities
and deposit fund liabilities....... $6,400,598 $5,793,540
========== ==========
</TABLE>

A reconciliation of the amounts transferred to and from the separate
accounts is presented below:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:
Transfers to separate accounts................. $227,864 $133,386 $308,305
Transfers from separate accounts............... 75,172 104,219 76,133
-------- -------- --------
Net transfers to separate accounts............... 152,692 29,167 232,172
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees...................................... 19,093 13,814 11,634
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $171,785 $ 42,981 $243,806
======== ======== ========
</TABLE>

32
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1996 and 1995, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:

<TABLE>
<CAPTION>
GROSS LOADING NET
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31, 1996
Life and annuity:
Ordinary direct first year business............. $ 2,657 $ 1,865 $ 792
Ordinary direct renewal business................ 23,307 7,180 16,127
Group life direct business...................... 1,788 1,195 593
Reinsurance ceded............................... (1,706) (438) (1,268)
------- ------- -------
26,046 9,802 16,244
Accident and health:
Direct.......................................... 104 -- 104
Reinsurance ceded............................... (3) -- (3)
------- ------- -------
Total accident and health......................... 101 -- 101
------- ------- -------
$26,147 $ 9,802 $16,345
======= ======= =======
DECEMBER 31, 1995
Life and annuity:
Ordinary direct first year business............. $ 3,151 $ 2,223 $ 928
Ordinary direct renewal business................ 24,250 7,792 16,458
Group life direct business...................... 1,537 779 758
Reinsurance ceded............................... (1,362) (141) (1,221)
------- ------- -------
27,576 10,653 16,923
Accident and health:
Direct.......................................... 1,296 -- 1,296
Reinsurance ceded............................... (1,193) -- (1,193)
------- ------- -------
Total accident and health......................... 103 -- 103
------- ------- -------
$27,679 $10,653 $17,026
======= ======= =======
</TABLE>

At December 31, 1996 and 1995, the Company had insurance in force
aggregating $69,251 and $87,010, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $1,252 and $1,417 to cover
these deficiencies at December 31, 1996 and 1995, respectively.

In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $501
was made for the year ended December 31, 1995, related to the change in
reserve methodology.

33
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

7. DIVIDEND RESTRICTIONS

Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.

The Company paid dividends to its parent of $20,000 and $20,900 in 1996 and
1994, respectively. No dividends were paid in 1995.

8. RETIREMENT AND COMPENSATION PLANS

The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $1,056, $942 and $966 for the
years ended December 31, 1996, 1995 and 1994, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.

The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $297, $465 and $411 for
the years ended December 31, 1996, 1995 and 1994, respectively.

AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.

In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $184, $164 and $169 for the years ended December 31, 1996,
1995 and 1994, respectively.

34
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

9. RELATED PARTY TRANSACTIONS

The Company shares certain offices, employees and general expenses with
affiliated companies.

The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996,
1995 and 1994, the Company paid $17,028, $14,214 and $11,820, respectively,
for these services, which approximates their costs to the affiliates.

Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.5% at December 31, 1996. During 1996,
1995 and 1994, the Company paid net interest of $174, $71 and $23,
respectively, to affiliates.

During 1995 and 1994, the Company received capital contributions of $40,000
and $15,000, respectively, in cash from its parent and during 1994 received a
dividend of $10,000 from its subsidiary, Equity National, which was included
in net investment income.

During 1995, the Company sold real estate with a book value of approximately
$13,270 to an affiliated entity in exchange for a short-term note receivable.
No gain was recognized on this sale. This note accrued interest at 5.65% and
matured during 1996.

During the year ended December 31, 1995, the Company restructured demand
notes and accrued interest of $13,250 and $745, respectively, related to an
affiliate. The Company received 9,750 shares of preferred stock from the
affiliate for satisfaction of debt. The Company realized a loss of $8,695
related to this transaction. At December 31, 1996 and 1995, the preferred
stock related to this affiliate was deemed to have no value and an unrealized
loss of $4,555 was recognized in 1995.

10. COMMITMENTS AND CONTINGENCIES

The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.

The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations
(NOLHGA). The Company has established a reserve of $21,774 and $21,747 and an
offsetting premium tax benefit of $8,752 and $9,457 at December 31, 1996 and
1995, respectively, for its estimated share of future guaranty fund
assessments related to several major insurer insolvencies. During 1994, $3,444
was charged to surplus as prior period adjustments to provide for this net
reserve plus certain assessments paid that related to several major insurer
insolvencies prior to 1992. The guaranty fund expense was $2,617, $5,859 and
$4,054 for December 31, 1996, 1995 and 1994, respectively.

35
<PAGE>

SCHEDULE I

PFL LIFE INSURANCE COMPANY

SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET (2)
------------------ ---------- ---------- -----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and
government agencies and
authorities......................... $1,533,581 $1,554,339 $1,533,510
States, municipalities and political
subdivisions........................ 4,918 5,360 4,919
Foreign governments.................. 55,633 56,013 54,725
Public utilities..................... 150,346 152,514 147,918
All other corporate bonds............ 3,046,090 3,099,544 3,032,361
Redeemable preferred stock............. 3,097 7,133 3,097
---------- ---------- ----------
Total fixed maturities................. 4,793,665 4,874,903 4,776,530
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance........... 7,120 9,777 9,777
Industrial, miscellaneous and all
other............................... 16,092 22,261 22,261
---------- ---------- ----------
Total equity securities................ 23,212 32,038 32,038
Mortgage loans on real estate.......... 911,705 911,705
Real estate............................ 46,294 46,294
Real estate acquired in satisfaction of
debt.................................. 12,260 12,260
Policy loans........................... 54,214 54,214
Other long-term investments............ 9,546 9,546
Cash and short-term investments........ 50,737 50,737
---------- ----------
Total investments...................... $5,901,633 $5,893,324
========== ==========
</TABLE>
- --------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
(2) Amount differs from cost as certain bonds have been adjusted to reflect
other than temporary decline in value charged to surplus, as prescribed by
the NAIC.

36
<PAGE>

SCHEDULE III

PFL LIFE INSURANCE COMPANY

SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
------------- -------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Individual life.............................. $ 734,350 $ -- $ 7,240
Individual health............................ 39,219 8,680 13,631
Group life and health........................ 78,418 14,702 53,486
Annuity...................................... 4,408,419 -- --
---------- ------- -------
$5,260,406 $23,382 $74,357
========== ======= =======
YEAR ENDED DECEMBER 31, 1995
Individual life.............................. $ 594,274 $ -- $ 6,066
Individual health............................ 24,225 7,768 11,863
Group life and health........................ 67,994 16,662 58,813
Annuity...................................... 4,220,274 -- --
---------- ------- -------
$4,906,767 $24,430 $76,742
========== ======= =======
YEAR ENDED DECEMBER 31, 1994
Individual life.............................. $ 544,087 $ -- $ 7,298
Individual health............................ 16,649 6,487 8,643
Group life and health........................ 60,207 17,680 57,959
Annuity...................................... 3,693,388 -- --
---------- ------- -------
$4,314,331 $24,167 $73,900
========== ======= =======
</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
NET INVESTMENT BENEFITS, CLAIMS LOSSES OTHER OPERATING
PREMIUM REVENUE INCOME* AND SETTLEMENT EXPENSES EXPENSES* PREMIUMS WRITTEN
- --------------- -------------- ----------------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 202,082 $ 66,538 $ 197,526 $ 38,067 --
55,871 5,263 32,903 29,511 $ 55,678
174,781 12,877 105,459 122,953 171,320
725,966 343,659 800,121 230,417 --
- ---------- -------- ---------- --------
$1,158,700 $428,337 $1,136,009 $420,948
========== ======== ========== ========
$111,918 $ 49,929 $ 97,065 $ 37,933 --
47,692 4,091 25,793 26,033 $ 47,690
187,832 11,665 106,065 139,640 184,545
921,452 327,000 1,116,768 114,164 --
- ---------- -------- ---------- --------
$1,268,894 $392,685 $1,345,691 $317,770
========== ======== ========== ========
$146,328 $ 43,025 $ 124,736 $ 42,309 --
38,811 3,983 22,323 22,707 $ 38,797
194,704 10,531 108,400 143,645 192,034
1,067,406 286,341 1,036,313 319,328 --
- ---------- -------- ---------- --------
$1,447,249 $343,880 $1,291,772 $527,989
========== ======== ========== ========
</TABLE>
- --------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.

38
<PAGE>

SCHEDULE IV

PFL LIFE INSURANCE COMPANY

REINSURANCE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Life insurance in force.. $4,863,416 $477,112 $ 30,685 $4,416,989 .7%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- -------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1995
Life insurance in force.. $4,594,434 $468,811 $ 22,936 $4,148,559 .6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 113,934 $ 3,841 $ 1,825 $ 111,918 1.6%
Individual health...... 60,309 12,617 -- 47,692 --
Group life and health.. 408,097 220,265 -- 187,832 --
Annuity................ 1,009,191 88,270 531 921,452 .05%
---------- -------- -------- ---------- ---
$1,591,531 $324,993 $ 2,356 $1,268,894 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1994
Life insurance in force.. $4,713,817 $468,811 $112,054 $4,357,060 2.6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 148,702 $ 3,639 $ 1,265 $ 146,328 .9%
Individual health...... 50,303 11,492 -- 38,811 --
Group life and health.. 412,200 217,496 -- 194,704 --
Annuity................ 1,246,241 179,402 567 1,067,406 .05%
---------- -------- -------- ---------- ---
$1,857,446 $412,029 $ 1,832 $1,447,249 .1%
========== ======== ======== ========== ===
</TABLE>

39
<PAGE>

PART C OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements

All required financial statements are included in Part B of this
Registration Statement.

(b) Exhibits:

(1) (a) Resolution of the Board of Directors of PFL Life Insurance
Company authorizing establishment of the Mutual Fund
Account. Note 1.

(2) Not Applicable.

(3) (a) Principal Distribution Agreement by and between PFL Life
Insurance Company on its own behalf and on the behalf of the
Mutual Fund Account, and AEGON USA Securities, Inc. Note 2.

(b) Form of Broker/Dealer Supervision and Sales Agreement by and
between AEGON USA Securities, Inc. and the Broker/Dealer.
Note 2.

(4) Form of Policy for the Retirement Income Builder Variable
Annuity. Note 2

(5) Form of Application for the Retirement Income Builder
Variable Annuity. Note 3

(6) (a) Articles of Incorporation of PFL Life Insurance Company.
Note 1.

(b) ByLaws of PFL Life Insurance Company. Note 1.

(7) Not Applicable.

(8) (a) Participation Agreement by and between PFL Life Insurance
Company and Fidelity Distributors Corporation and Addendum
thereto. Note 2

(b) Participation Agreement between Variable Insurance Products
Fund III, Fidelity Distributors Corporation (Underwriter),
and PFL Life Insurance Company (Depositor). Note 3.

(9) Opinion and Consent of Counsel. Note 2

<PAGE>

(10) (a) Consent of Independent Auditors. Note 3
(b) Opinion and Consent of Actuary. Note 2

(11) Not applicable.

(12) Not applicable.

(13) Performance Data Calculations. Note 2

(14) Powers of Attorney. Note 1. (Patrick S. Baird, Craig D.
Vermie, William L. Busler, Patrick E. Falconio, Douglas C.
Kolsrud, Robert J. Kontz) Note 2. Brendy K. Clancy.

------------------------

Note 1. Filed with one Initial filing of this Form N-4 Registration
Statement (File No. 333-7509) on July 3, 1996.

Note 2. Filed with Pre-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 333-7509) on December 6,
1996.

Note 3. Filed herewith.
<PAGE>

Item 25. Directors and Officers of the Depositor

Principal Positions
Name and and Offices with
Business Address Depositor
- ---------------- ---------

William L. Busler Director, Chairman of the Board and
4333 Edgewood Road N.E. President
Cedar Rapids, Iowa 52499-0001

Patrick S. Baird Director, Senior Vice President and
4333 Edgewood Road N.E. Chief Financial Officer
Cedar Rapids, Iowa 52499-0001

Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road N.E. Corporate Counsel
Cedar Rapids, Iowa 52499-0001

Douglas C. Kolsrud Director, Vice President and
4333 Edgewood Road N.E. Corporate Actuary
Cedar Rapids, Iowa 52499-0001

Patrick E. Falconio Director, Senior Vice President and
4333 Edgewood Road N.E. Chief Investment Officer
Cedar Rapids, Iowa 52499-0001

Robert J. Kontz Vice President and
4333 Edgewood Road N.E. Controller
Cedar Rapids, Iowa 52499-0001

Brenda K. Clancy Vice President, Treasurer and Chief
4333 Edgewood Road N.E. Financial Officer
Cedar Rapids, Iowa 52499-0001

Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
<PAGE>

<TABLE>

---------------------------
VERENIGING AEGON
NETHERLANDS MEMBERSHIP
ASSOCIATION
---------------------------
+
53.00%
---------------------------
AEGON N.V.
NETHERLANDS CORPORATION
----------------------------
+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + + +
100% 100% 100% 100%
---------------------- ------------------------ ------------------------ -----------------------------
AEGON Netherland N.V. AEGON INTERNATIONAL N.V. AEGON NEWAK HOLDING S.V. GRONINGER FINANCIERINGEN B.V.
Netherlands Corporation Netherlands Corporation Netherlands Corporation Netherlands Corporation
---------------------- ------------------------ ------------------------ -----------------------------
+
DE
-------------------
VOTING TRUST
Trustees: K.J. Storm
Donald J. Sheperd
H.B. Van Wild
Dennis Hersch
-------------------
+
DE 100%
-------------------
AEGON U.S. HOLDING
CORPORATION
-------------------
+ +
++++++++++++++++++++++++++++++++++++ +
+ IA 100%(1)
+ -------------------
+ AEGON USA, INC.
+ -------------------
+ +
+ +++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + +
+ MD 100% MD
+ ----------------- ------------
+ FIRST AUSA LIFE AUSA HOLDING
+ INSURANCE COMPANY COMPANY
+ ----------------- ------------
+ + +
+ + ++++++++++++++++++++++++++++++++++++++++++++++
+ + + ++
+ + MD 100% IA 100% DE
+ + -------------------- ------------- ++ ----------------------
+ + MONUMENTAL GENERAL AUSA FINACIAL +++ DIVERSIFIED INVESTMENT
+ + INSURANCE GROUP, INC ++ MARKETS, INC. ++ ADVISORS, INC.
+ + -------------------- + ------------- ++ ----------------------
NJ 100% + NY + MD 100% + ++
- ----------------- + ------------------- + ----------------- + ++
SHORT HILLS + AUSA LIFE INSURANCE +++ MONUMENTAL LIFE + IA 100% ++ DE 100%
MANAGEMENT COMPANY+ COMPANY, INC + INSURANCE COMPANY++ MD 100% + ----------- ++ ---------------------
- ----------------- + ------------------- + ----------------- + ------------------- + UNIVERSAL ++ DIVERSIFIED INVESTORS
+ + + MONUMENTAL GENERAL + BENEFITS +++++++ SECURITIES CORP.
+ + + ADMINISTRATORS, INC.+ CORPORATION ++ --------------------
+ + MD 100% + ------------------- + ++
NY + ----------------- + ----------------- + + ----------- ++
- ---------------- + LIFE INVESTORS + MONUMENTAL GENERAL+ + + ++ IA 100%
CORPA REINSURANCE + INSURANCE COMPANY + CASUALTY COMPANY + + IA 100% ++ ----------------
COMPANY ++ ++ OF AMERICA ++ ----------------- + MD 100% + ---------- ++++++++ AEGON USA
- ---------------- ++ ----------------- + MD 100% + ----------------- + INVESTORS ++ +++ SECURITIES, INC.
++ + --------------- + EXECUTIVE MANAGE- + WARRANTY ++ + ----------------
IN 100% ++ ------------------- + UNITED FINACIAL + MENT AND CONSULT- + OF AMERICA, ++ +
- ---------------- +++BANKERS UNITED LIFE + SERVICES, INC. +++ ANT SERVICES, INC.+ + INC. ++ +
AEGON MANAGEMENT ++ ASSURANCE COMPANY +++ --------------- + ----------------- + ---------- ++ + MD
COMPANY + ------------------- + + MD 100% + IA 100% ++ + -----------------
- ---------------- + + AZ (*) + ------------------ + ------------- ++ +++ AEGON USA MANAGED
+ ----------------- + ---------------- + MONUMENTAL GENERAL+ + MASSACHUSETTS ++ PORTFOLIOS INC.
DE 100% + PFL LIFE ++++ BANKERS FINACIAL + MASS MARKETING INC. FIDELTY TRUST +++ -----------------
- ----------------- + INSURANCE COMPANY + LIFE INSURANCE +++ ------------------- COMPANY ++
RCC NORTH AMERICA + ----------------- + COMPANY + ------------ ++
INC. ++ AZ 100% VOTING + ---------------- + DE 100% ++ IA 100%
- ----------------- + CHAIRMAN MD 100% + ------------------ ++ ------------------
---------------------+ -------------- + MONEY SERVICES, INC.++++ AMERICAN FORUM FOR
SOUTHWEST EQUITY LIFE+ THE WHITESTONE + ------------------- ++ FISCAL FITNESS, INC.
INSURANCE COMPANY+++ CORPORATION +++++ CA 100% -------------------
---------------------+ -------------- ------------------- ++ IN 100%
AZ 100% Voting Chairman (2) + IA 100% ZAHORIK COMPANY INC+++ --------------
----------------------- + ------------------ --------------------++ SUPPLEMENTAL
IOWA FIDELITY LIFE +++ CADET HOLDING CORP + ++ INSURANCE
INSURANCE COMPANY + ------------------ AL 100% ++ DIVISION INC.
----------------------- + ---------- +++++++ --------------
OH 100% + ZCI, INC. ++ MI 100%
--------------------- --------- +++++++ ------------------
WESTERN RESERVE LIFE + +++++++++++++++++++++++++++++++++++++ CREDITOR RESOURCES
++++ ASSURANCE CO. OF OHIO+++ DE + ++ INC.
+ --------------------- --------------- + ++ ------------------
+ --------------- INTERSECURITIES+++++++++++++ ++ +
++++++++ WRL SERIES FUND ++++++ INC. +++++ + ++ CN 100%
INC. + --------------- + + ++ -------------------
--------------- + + + ++ CRC CREDITOR
MA + CA 100% + + MN 100% RESOURCES CANADIAN
--------- + ---------------- + + ------------------------ ++ DEALER NETWORK, INC.
IDEX FUND++++++ ISI INSURANCE + + AUSA INSTITUTIONAL ++++++++++ -------------------
--------- + AGENCY INC. AND+++++ + MARKETING PARTNERS, INC. ++
+ ITS SUBSIDIARIES + + ------------------------ ++ IA 100%
MA + ---------------- + + MN 100% ++ --------------------
----------- + MN 100% + + ---------------- ++++ AEGON USA INVEST-
IDEX II +++++++ ------------------- + + COLORADO ANNUITY+++++++++++++++ MENT MANAGEMENT, INC.
SERIES FUND + ASSOCIATED MARINER ++ + AGENCY INC. + ---------------------
----------- + FINANCIAL GROUP, INC.+++ + ---------------- + IA 100%(12)
MA + ------------------- + + + -----------------
----------- + MI 100% + +++++ AEGON USA REALTY
IDEX FUND 3 +++++ ----------------- + + ++++ ADVISORS, INC.
----------- + MARINER FINANCIAL+++++ + + -----------------
+ SERVICES, INC. + + + DE 100%
+ ----------------- + + + -----------
+ + + +++++++ QUANTRA
+ MI 100% + + + CORPORATION
+ ------------------ + + + -----------
+ MARINER'S PLANNING + + + +
+ CORPORATION + + + DE 100%
+ ------------------ + + + ----------------
+ + + + QUANTRA SOFTWARE
+ MI 100%(10) + + + CORPORATION
+ ------------------- + + + ----------------
+ ASSOCIATED MARINER + + + IA 100%
+ AGENCY INC. AND ITS++++ + + ---------------
+ SUBSIDIARIES + + ++++LANDAUER REALTY
+ ------------------- + + + ADVISORS, INC.
+ MI 100% + + + ---------------
+ ---------------- + + + DE 100%
+ MARINER MORTGAGE + + + ----------------
+ CORP. ++++++ + ++++++ LANDAUER
+ ---------------- + + ASSOCIATES, INC.
+ + + ----------------
+ FL 100% + + IA 100%
+ -------------- + + ----------------
+ IDEX INVESTOR +++++++++++++ ++++++ AEGON USA REALTY
+++++SERVICES, INC. + + MANAGEMENT, INC
+ -------------- + + ----------------
+ DE 50%(7) + + IA 100%(11)
+ --------------- + + ------------------
+ IDEX MANAGEMENT,+++++++++++ +++++ REALTY INFORMATION
++++ INC. SYSTEMS, INC.
--------------- ------------------
IA (4)
----------------
USP REAL ESTATE++++
INVESTMENT TRUST +
---------------- +
(5) +
----------------- +
CEDAR INCOME FUND+++
LTD.
-----------------
</TABLE>

See Footnotes Page 2
Effective January 1, 1997

<PAGE>

Page 2

Footnotes

(1) 150,000 shares of Class B Non-Voting Common Stock owned by Ennia
Reinsurance Antilles N.V.

(2) Ordinary common stock is allowed 60% of total cumulative vote.
Participating common stock is allowed 40% of total cumulative vote.

(3) Denotes relationships as advisor, administrator, sponsor, underwriter or
general partner.

(4) First AUSA Life Insurance Company owns 12.89%. PFL Life Insurance Company
owns 13.11%. Bankers United Life Assurance Company owns 4.86%.

(5) PFL Life Insurance Company owns 16.73%. Bankers United Life Assurance
Company owns 3.77%. Life Investors Insurance Company of America owns
3.38%. AEGON USA Realty Advisors, Inc. owns 1.97%. First AUSA Life
Insurance Company owns .18%.

(6) Class B Common stock is allocated 75% of total cumulative vote. Class A
Common stock is allocated 25% of total cumulative vote.

(7) 50% of Idex Management, Inc. is owned by Janus Capital Corporation, a
Colorado corporation.

(8) RCC Group: FGH Realty Credit Corp., FGH USA, Inc., RCC North America,
Inc., FGH USA Realty, Inc., FGH Eastern Region, Inc., FGH Appraisal
Services, Inc., FGH Western Region, Inc., ALH Properties, Inc., First FGP,
Inc., Second FGP, Inc., Third FGP, Inc., Fourth FGP, Inc., Fifth FGP, Inc.,
Sixth FGP, Inc., Seventh FGP, Inc., FGP Midwood, Inc., FGP Parsippany,
Inc., ALH Properties Two, Inc., ALH Properties Three, Inc., ALH Properties
Four, Inc., ALH Properties Five, Inc., ALH Properties Six, Inc., ALH
Properties Seven, Inc., ALH Properties Eight, Inc., ALH Properties Nine,
Inc., ALH Properties Ten, Inc., ALH Properties Eleven, Inc., ALH Properties
Twelve, Inc., ALH Properties Thirteen, Inc., ALH Properties Fourteen, Inc.,
ALH Properties Fifteen, Inc., ALH Properties Sixteen, Inc., ALH Properties
Seventeen, Inc., FGP Keene, Inc., FGP Broadway, Inc., FGP West Street,
Inc., FGP West Street Two, Inc., FGP 90 West Street, Inc., FGP Branford,
Inc., FGP Franklin, Inc., FGP Bala, Inc., FGP Twenty-One, Inc., FGP Twenty-
Two, Inc., FGP Twenty-Five, Inc., FGP Schenectady, Inc., FGP Country
Estates, Inc., FGP Eleventh Street, Inc., FGP 109th Street, Inc., FGP
Seventy-Second Street, Inc., FGP Gaithersburg, Inc., FGP West 32nd Street,
Inc., FGP Beekman, Inc., Dutch Hotel Management, Inc., FGP Landmark, Inc.,
FGP Islandia, Inc., FGP Bridgeport, Inc., FGP Varick, Inc., The RCC Group,
Inc., FGP Union Gardens, Inc., FGP Burkewood, Inc., FGP Stamford, Inc., FGP
Meadow Lane, Inc., FGP Main Street, Inc., FGP Property Services, Inc., FGP
Merrick, Inc., FGP West 14th Street, Inc., FGP 106 Fulton, Inc., FGP Bush

<PAGE>

Terminal, Inc., FGP Northern Boulevard, Inc., FGP Seventh Avenue, Inc., FGP
Parsons, Inc., FGP City Hall, Inc., FGP West 88th Street, Inc., FGP
Lincoln, Inc., FGP Emerson, Inc., FGP Brooke, Inc., FGP 86th Street, Inc.,
FGP Edison, Inc., FGP Rider Avenue, Inc., FGP Remsen, Inc., FGP Rockbeach,
Inc., FGP Carter Drive, Inc., FGP Centereach, Inc., FGP Colonial Plaza,
Inc., FGP Coram, Inc., FGP Herald Center, Inc., Eighty Six Yorkville, Inc.

(9) Subsidiaries of ISI Insurance Agency, Inc. are: ISI Insurance Agency of
Ohio, Inc., ISI Insurance Agency of Massachusetts, Inc., and ISI Insurance
Agency of Texas, Inc.

(10) Subsidiaries of Associated Mariner Agency, Inc. are Associated Mariner
Agency of Hawaii, Inc., Associated Mariner Insurance Agency of
Massachusetts, Inc., Associated Mariner Agency Ohio, Inc., Associated
Mariner Agency Texas, Inc., and Associated Mariner Agency New Mexico, Inc.

(11) Owns 50% interest in DJA Partners (a.k.a. "Teleres"), a Delaware general
partnership. Also owns 10% interest in Datalytics, Inc., an Ohio
corporation.

(12) Owns 49% of Quantra Consulting, Inc., a Delaware corporation.

*Includes qualifying shares for Directors.

AEGON USA, Inc. - Holding Company

Life Investors Insurance Company of America - Insurance

International Life Investors Insurance Company - Insurance

Transunion Casualty Company - Insurance

Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts

Supplemental Insurance Division, Inc. - Insurance

Creditor Resources, Inc. - Credit Insurance

AEGON USA Investment Management, Inc. - Investment Advisor

AEGON USA Realty Advisors, Inc. - Provides real estate administrative and real
estate investment services

AEGON USA Realty Management, Inc. - Real Estate Management

AEGON USA Securities, Inc. - Broker-Dealer
<PAGE>

AEGON USA Managed Portfolios, Inc. - Mutual Fund

USP Real Estate Investment Trust - Real Estate Investment Trust

Cedar Income Fund, Ltd. - Real Estate Investment Trust

First AUSA Life Insurance Company - Insurance

Bankers United Life Assurance Company - Insurance

Universal Benefits Corporation - Third party administrator

Massachusetts Fidelity Trust Company - Trust company

Money Services, Inc. - Provides financial counseling for employees and agents of
affiliated companies

Zahorik Company, Inc. - Broker-Dealer

Cadet Holding Corp. - Holding company

ISI Insurance Agency, Inc. - Broker/Dealer

Southwest Equity Life Insurance Company - Insurance

Iowa Fidelity Life Insurance Company - Insurance

The Whitestone Corporation - Insurance agency

Monumental Life Insurance Company - Insurance

United Financial Services, Inc. - General agency

Monumental General Insurance Group, Inc. - Holding company

Monumental General Administrators, Inc. - Provides management services to
unaffiliated third party administrator

Executive Management and Consultant Services, Inc. - Provides actuarial
consulting services

Monumental General Mass Marketing, Inc. - Marketing arm for sale of mass
marketed insurance coverages

Bankers Financial Life Insurance Company - Insurance

Monumental General Casualty Company - Insurance

AUSA Holding Company - Holding company

JLW Financial Management Systems, Inc. - Management and Administrative Services
<PAGE>

ZCI, Inc. - Insurance agency

AUSA Financial Markets, Inc. - Marketing

CRC Creditor Resources Canadian Dealer Network Inc. - Insurance agency

American Forum For Fiscal Fitness, Inc. - Marketing

Western Reserve Life Assurance Co. of Ohio - Insurance

Landauer Realty Advisors, Inc. - Real estate counseling

Landauer Associates, Inc. - Real estate counseling

WRL Series Fund, Inc. - Mutual fund

Intersecurities, Inc. - Broker-dealer

Idex Investor Services, Inc. - Shareholder services

Idex Management, Inc. - Investment advisor

Idex Total Income Trust - Mutual fund

Idex Fund - Mutual fund

Idex II Series Fund - Mutual fund

Idex Fund 3 - Mutual fund

AUSA Life Insurance Company, Inc. - Insurance

Diversified Investment Advisors, Inc. - Registered Investment Advisor

Diversified Investors Securities Corp. - Broker-Dealer

Associated Mariner Financial Group, Inc. - Holding company management services

Mariner Financial Services, Inc. - Broker/Dealer

Mariner/ISI Planning Corporation - Financial planning

Associated Mariner Agency, Inc. - Insurance agency

Mariner Mortgage Corp. - Mortgage origination

AUSA Institutional Marketing Group, Inc. - Insurance agency

Colorado Annuity Agency, Inc. - Insurance agency

Realty Information Systems, Inc. - Information Systems for real estate
investment management
<PAGE>

Melson and Associates, Inc. - Real estate financial management consulting

Item 27. Number of Contract Owners

As of December 31, 1996, there were 0 Owners of the Policies.

Item 28. Indemnification

The Iowa Code (Sections 490.850 et. seq.) provides for permissive
--------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor 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 Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>

Item 29. Principal Underwriters

AEGON USA Securities, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001

The directors and officers of
AEGON USA Securities, Inc.
are as follows:

<TABLE>
<S> <C>
Patrick E. Falconio Lisa Wachendorf
Director Vice President

William L. Busler Linda Gilmer
Director Vice President and Treasurer

Brenda K. Clancy Donna M. Craft
Director Vice President

Robert A. Thelen Frank A. Camp
Senior Vice President Secretary

Lorri E. Mehaffey Shelley Davenport
President Assistant Vice President

Billy J. Berger
Vice President and Assistant Treasurer
</TABLE>

- --------------------

The principal business address of each person listed is AEGON USA Securities,
Inc., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.

Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------

AEGON USA Securities, Inc. and/or the broker-dealers received $0 from the
Registrant during the last fiscal year for its services in distributing the
Policies. No other commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant during the fiscal year.

AEGON USA Securities, Inc. also serves as the principal underwriter for the PFL
Endeavor Variable Annuity Account, the PFL Endeavor Platinum Variable Annuity
Account, and the AUSA Endeavor Variable Annuity Account. These accounts are
separate accounts of PFL Life Insurance Company or AUSA Life Insurance Company,
Inc., life insurance company affiliates of AEGON USA Securities, Inc.

Item 30. Location of Accounts and Records

The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
<PAGE>

Item 31. Management Services.

All management Contracts are discussed in Part A or Part B.

Item 32. Undertakings

(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Policy may be
accepted.

(b) Registrant undertakes that it will include either (i) 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 or
(ii) a space in the Policy application that an applicant can check to
request a Statement of Additional Information.

(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to PFL at the address or phone number
listed in the Prospectus.

(d) PFL Life Insurance Company hereby represents that the fees and charges
deducted under the policies, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life Insurance Company.

Section 403(b) Representations
- ------------------------------

PFL represents that it is relying on a no-action letter dated November 28, 1988,
to the American Council of Life Insurance (Ref. No. IP-6-88), regarding Sections
22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in connection
with redeemability restrictions on Section 403(b) Policies, and that paragraphs
numbered (1) through (4) of that letter will be complied with.

<PAGE>

SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 28th day of
April, 1997.

PFL RETIREMENT BUILDER
VARIABLE ANNUITY ACCOUNT

PFL LIFE INSURANCE COMPANY
Depositor

/s/ William L. Busler
---------------------
William L. Busler
President

As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.

Signatures Title Date
- ---------- ----- ----
<S> <C> <C>

/s/ Patrick S. Baird Director April 28, 1997
- ---------------------------
Patrick S. Baird

/s/ Craig D. Vermie Director April 28, 1997
- ---------------------------
Craig D. Vermie

/s/ William L. Busler Director April 28, 1997
- ---------------------------
William L. Busler (Principal Executive Officer)

/s/ Patrick E. Falconio Director April 28, 1997
- ---------------------------
Patrick E. Falconio

/s/ Douglas C. Kolsrud Director April 28, 1997
- ---------------------------
Douglas C. Kolsrud

/s/ Robert J. Kontz Vice President and April 28, 1997
- --------------------------- Corporate Controller
Robert J. Kontz

/s/ Brenda K. Clancy Treasurer April 28, 1997
- ---------------------------
Brenda K. Clancy
</TABLE>

<PAGE>

EXHIBIT INDEX
-------------

Exhibit No. Description of Exhibit Page No.*
- ----------- ---------------------- --------
<S> <C> <C>

(5) Form of application for the Retirement Income Builder
Variable Annuity.

(8)(b) Participation Agreement between Variable Insurance
Products Fund III, Fidelity Distributors Corporation
(Underwriter), and PFL Life Insurance Company
(Depositor).

(10)(a) Consent of Independent Auditors
</TABLE>

- -------------------------------
* Page numbers included only in manually executed original.
<PAGE>

Registration No.
333-7509

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,D.C. 20549

----------------

EXHIBITS

FORM N-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FOR

PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT

----------------

<PAGE>

EXHIBIT (5)
-----------

FORM OF APPLICATION FOR THE
RETIREMENT INCOME BUILDER VARIABLE ANNUITY.
<PAGE>

RETIREMENT INCOME BUILDER VARIABLE ANNUITY

Issued by: PFL Life Insurance Company ("PFL Life") * 4333 Edgewood Road
N.E., Cedar Rapids, IA 52499-0001 * Policyholder Service: 800-525-6205
Mail the application and check payable to: PFL Life Insurance Company *
4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001, Attn: Variable
Annuity
<TABLE>
<S> <C>
====================================================================================================================================

1. Owner(s) Name __________________________________________ [_] M [_] F Birthdate _____/ _____ / _____
If the owner
is a Trust, Address ______________________________________________________________________________________________
please provide Street City State Zip
verification
of trustees Soc. Sec. No. ________________________________ Phone No. ___________________________________

Name __________________________________________ [_] M [_] F Birthdate _____/ _____ / ____

Address _____________________________________________________________________________________________
Street City State Zip

Soc. Sec. No. ________________________________ Phone No. ___________________________________

....................................................................................................................................

Annuitant Name _________________________________________ [_] M [_] F Birthdate _____ / _____ /_____
Leave this section
blank if Annuitant Address ______________________________________________________________________________________________
is same as sole Street City State Zip
Owner
Soc. Sec. No. ________________________________ Relationship to Owner _______________________
. If you, the policy owner, have named someone other than yourself as the annuitant, please select
one of the following regarding payment of the death proceeds. If neither is selected, the first
option will be deemed in effect:
[_] At the named annuitant's death, I wish to become the annuitant and defer payment of death
proceeds until my death.
[_] At the named annuitant's death, I wish to have the death proceeds paid to the named
beneficiary.

Policy Owner Signature Required (when applicable):____________________________________________________

....................................................................................................................................

Beneficiary(ies) Primary ____________________________________ Relationship to Owner ________________________

Contingent _________________________________ Relationship to Owner ________________________

====================================================================================================================================
<CAPTION>
2. Premium Payment/ Initial Premium $ ____________________ (Min: $2000)
Plan Options Investment Allocation (whole % only, no fractions)
Variable Options: PFL Life Fixed Rate Options: Death Benefit Option
----------------- ---------------------------- --------------------
<S> <C> <C>
[_] VIP II: Asset Manager .0% [_] 1 Year .0% (Select only one):
------ ------
[_] VIP II: Asset Manager - Growth .0% [_] 3 Year .0% Your selection cannot be
------ ------ changed after the policy has
[_] VIP: Growth .0% [_] 5 Year .0% been issued. If no option has
------ ------ been specified, the contract
[_] VIP II: Contrafund .0% [_] 7 Year .0% will be issued with the option
------ ------ for return of premium less
[_] VIP II: Index 500 .0% Total (all) 100% distributions (Option A).
------
[_] VIP: Money Market .0% Note: Initial variable premium [_] Option A - Return of
------ payments will be invested in the premiums paid less
[_] VIP: Overseas .0% VIP Money Market Option for at distributions taken.
------ least 14 days, or longer, based Annual Mortality and
[_] VIP: High Income .0% on your state's "Right to Cancel" Expense (M&E) risk fee
------ period. See your policy for and administrative charge
[_] VIP II: Investment Grade Bond .0% details. is 1.25%.
------ [_] Option B - 5% Annually
[_] VIP III: Growth Opportunities .0% Compounding Death Benefit.
------ Maximum issue age of 80:
[_] VIP III: Growth & Income .0% Annual M&E risk fee and
------ administrative charge is
[_] VIP III: Balanced Portfolio .0% 1.40%
------ [_] Option C - Annual
[_] VIP: Money Market .0% Step-Up Death Benefit:
------ Maximum issue age of 80:
Additional: ______________________ .0% Annual M&E risks fee and
------ administrative charge is
Additional: ______________________ .0% 1.40%.
------

<CAPTION>
....................................................................................................................................
<S> <C>
Special Please initial one: I authorize my Registered Rep. and myself ______ or myself only ______ to make
Instructions telephone transfer requests.
Registered Representative's Name _________________________________
....................................................................................................................................
Replacement Will this annuity replace or change any existing annuity or life insurance? [_] Yes [_] No (If Yes,
Information complete the following.)
Company ____________________________________________________ Policy No. ______________________________
....................................................................................................................................
Tax Qualified Plan [_] Yes [_] No (If Yes, Complete the following.) [_] Other Tax Qualified Plan _________________ (type)

[_] IRA Rollover: $ _______ [_] IRA: $ _______ Yr. of Contribution: ______ [_] IRA Transfer
[_] Qualified Plan Rollover
====================================================================================================================================
3. . I understand that Policy Values, when allocated to any of the variable options above are not
guaranteed as to a fixed dollar amount.
. When funds are allocated to the Fixed Account Guarantee Periods, Policy Values under the policy may
increase or decrease in accordance with the Excess Interest Adjustment prior to the end of the
Guarantee Period.
. I have reviewed my existing insurance coverage and find this policy suitable for my needs.
. AZ, CA, ID, LA, NM, NV, TX, WA and WI: Spousal consent is required when the spouse is not designated a
Policy Owner and/or a Primary Beneficiary and has purchased this annuity in, and/or resides in a
community or marital property state, at the time of sale. By signing below, I (consenting spouse)
understand and hereby give my consent for the Policy Owner to designate someone other than myself as
Primary Beneficiary or Owner of the policy represented by this application. I also understand that
this designation may affect my community or marital rights to the proceeds of this policy.
I [_] was never married. [_] am divorced. [_] My spouse is deceased.
Spouse's Signature _______________________________________________ Date ______ / ______ / ______
. To the best of my knowledge and belief, my answers to the questions on this application are correct
and true, and I agree that this application becomes a part of the annuity policy when issued to me. If
this application is part of an instant issue policy, I acknowledge that I am in receipt of a complete
copy of the policy provisions herewith.
. This application is subject to acceptance by PFL Life. If this application is rejected for any reason,
PFL Life will be liable only for return of premiums paid.
. Send me a copy of the Statement of Additional Information.[_]
. I am in receipt of a current prospectus for this variable annuity.
....................................................................................................................................
-------------------------------------------------------------------------------------------------------
Signature(s) Under penalties of perjury, I hereby certify (1) that the Social Security or Tax ID Number
listed above is correct and (2) that I am currently not subject to backup withholding [cross out (2)
if not correct.](see below). The Internal Revenue Service does not require your consent to any
provision of this application other than the certifications required to avoid backup withholding.
-------------------------------------------------------------------------------------------------------

Signed at _____________________________________________________________ Date ______ / ______ / ______
City State

Owner(s) ________________________________ Annuitant (if not Owner) _________________________________
....................................................................................................................................
Agent Use Do you have reason to believe the annuity applied for will replace or change any existing annuity or
Only life insurance? [_] Yes [_] No
Registered Rep./Licensed Agent (Please print) ________________________ Signed _______________________

Phone No. _____________________ Soc. Sec. No. __________________ PFL Agent # _____________________

Firm Name ___________________________________ Firm Address ___________________________________________
....................................................................................................................................
</TABLE>
<PAGE>

**Purpose of Statement. This statement is for the payor (Insurance Company) of
interest, dividends, and certain other payments so that you will not be subject
to the 31% backup withholding that became effective January 1, 1984.
This statement is used to report and certify your taxpayer
identification number (TIN) to the payor, to certify that you are not subject to
backup withholding because of underreporting interest and dividends on your tax
return, and to claim exemption from backup withholding if you are an exempt
payee.
If you do not certify your TIN, the payor may be required to withhold
31% of payments made to you. What is Backup Withholding. The Interest and
Dividend Tax Compliance Act of 1983 requires payors to withhold and pay to IRS
31% of payments of interest, dividends, and certain other payments under certain
conditions. This is called "backup withholding." If you give your correct TIN,
certify your TIN when required, and report all your taxable interest and
dividends on your tax return, your payments will not be subject to backup
withholding.
Payments you receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the payor, or
(2) IRS notifies the payor that you furnished an incorrect TIN, or
(3) You are notified by IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your
tax return (for interest and dividend accounts only), or
(4) You fail to certify to the payor that you are not subject to backup
withholding under (3) above (for interest and dividend accounts opened
after 1983 only), or
(5) You fail to certify your TIN. This applies only to interest, dividend
broker, or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.

For other payments, you are subject to backup withholding only if (1) or (2)
above applies.

<PAGE>

EXHIBIT (8)(b)
--------------

PARTICIPATION AGREEMENT BETWEEN VARIABLE INSURANCE
PRODUCTS FUND III, FIDELITY DISTRIBUTORS CORPORATION
(UNDERWRITER), AND PFL LIFE INSURANCE COMPANY (DEPOSITOR).
<PAGE>

PARTICIPATION AGREEMENT

Among

VARIABLE INSURANCE PRODUCTS FUND III,

FIDELITY DISTRIBUTORS CORPORATION

and

PFL LIFE INSURANCE COMPANY

THIS AGREEMENT, made and entered into as of the 11th day of April, 1997
by and among PFL LIFE INSURANCE COMPANY, (hereinafter the "Company"), an Iowa
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 19, 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 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
<PAGE>

WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; 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 variable annuity contracts; and

WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; 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 variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as 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 Fund receives notice of such order by 9:30 a.m. Boston time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which 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.

2
<PAGE>

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 variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (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 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.

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

3
<PAGE>

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; 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
under Section 508A.1 of the Iowa 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.

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 Iowa 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 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. 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

4
<PAGE>

majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.

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 Iowa 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 Iowa to the extent required to perform this
Agreement.

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 State of Iowa 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 State of Iowa 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

5
<PAGE>

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 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 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

6
<PAGE>

incorporated herein by this reference, which standards will also be provided to
the other Participating Insurance Companies.

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
fifteen 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 fifteen 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 prospectus for the Contracts, as such
registration statement and prospectus 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 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.

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<PAGE>

4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, 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.

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,
prospectuses, 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.

5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.

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

8
<PAGE>

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.

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

9
<PAGE>

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 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

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<PAGE>

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 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 Registration
Statement or prospectus 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 the Registration Statement or prospectus for the
Contracts or in the Contracts or 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 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 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

11
<PAGE>

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 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 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

12
<PAGE>

(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 Registration Statement, prospectus,
or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the 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.

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<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 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.

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<PAGE>

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 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,

15
<PAGE>

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. Effect of Termination. 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 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

16
<PAGE>

If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
Attention: Financial Markets Division, Law Department
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.

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.

17
<PAGE>

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;

(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.

18
<PAGE>

IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.

Company:

SEAL PFL LIFE INSURANCE COMPANY
By its authorized officer,

By: /s/ William L. Busler
William L. Busler
Title: President
Date: April 11, 1997

Fund:

SEAL VARIABLE INSURANCE PRODUCTS FUND III
By its authorized officer,

By: /s/ J. Gary Burkhead
J. Gary Burkhead
Title: Senior Vice President
Date:

Underwriter:

SEAL FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,

By: /s/ Paul J. Hondros
Paul J. Hondros
Title: President
Date:

19
<PAGE>

Schedule A
----------

Separate Accounts and Associated Contracts
------------------------------------------

Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Accounts
- -------------------------------------- --------------------
<S> <C>
PFL Retirement Builder Variable AV289 101 95 796 - KS
Annuity Account AV319 101 95 796 - MD
(March 29, 1996) AV318 101 95 796 - MA
AV294 101 95 796 - MN
AV317 101 95 796 - NC
AV300 101 95 796 - TX

Fidelity Variable Annuity Account 80-0-009 (580) (V-CR)
(February 29, 1980) and previous versions

</TABLE>

20
<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 contractowner/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.)
<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.

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
<PAGE>

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.
<PAGE>

SCHEDULE C

Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:

Variable Insurance Products Fund
Variable Insurance Products Fund II

<PAGE>

EXHIBIT (10)(a)
---------------

CONSENT OF INDEPENDENT AUDITORS
-------------------------------
<PAGE>

[LETTERHEAD OF ERNST & YOUNG LLP]

Consent of Independent Auditors

We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use of our report dated February 21, 1997 with
respect to the statutory-basis financial statements and schedules of PFL Life
Insurance Company, included in Post-Effective Amendment No. 1 to the
Registration Statement (Form N-4 No. 333-7509) and related Prospectus of the PFL
Retirement Builder Variable Annuity Account.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP

Des Moines, Iowa
April 25, 1997