<PAGE>
As filed with the Securities and Exchange Commission on August 10, 1998
Registration No. 333-
--------
811-7689
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
Immediate Income Builder
FORM N-4
REGISTRATION STATEMENT UNDER THE [X]
SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ [_]
Post-Effective Amendment No. ___ [_]
and
REGISTRATION STATEMENT UNDER [_]
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 [X]
PFL RETIREMENT BUILDER VARIABLE ANNUITY
ACCOUNT
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
(Name of Depositor)
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (319) 297-8468
Frank A. Camp, Esq.
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esq.
Sutherland, Asbill and Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
- --------------------------------------------
effective date of the Registration statement.
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Title of Securities Being Registered: Single Premium Immediate Variable Annuity
- ------------------------------------
Contracts
<PAGE>
PFL LIFE INSURANCE COMPANY
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
FORM N-4
Cross Reference Sheet
Pursuant to Rule 495(a)
Under the Securities Act of 1933
PART A
Showing Location of Information in Prospectuses
Form N-4
Item No. Prospectus Caption
- -------- ------------------
1. Cover Page..................................Cover Page
2. Definitions.................................Definitions
3. Synopsis....................................Summary of the Contracts
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 Separate Account
(c) Portfolio Company......................The Funds
(d) Fund Prospectus........................The Funds
(e) Voting Rights..........................Voting Rights
6. Deductions and Expenses
(a) General................................Charges Under the Contracts
(b) Sales Load %...........................N/A
(c) Special Purchase Plan..................N/A
(d) Commissions............................Distributor of the Contracts
(e) Expenses - Registrant..................Charges Under the Contracts
(f) Fund Expenses..........................Other Expenses including
Investment Advisory Fees
(g) Organizational Expenses................N/A
7. Contracts
(a) Persons with Rights....................Facts About the Contracts;
Types of Annuity Payment
Options; Fixed, Variable or
Combination Annuity Payments;
Voting Rights
(b) (i) Allocation of Premium............Allocations of Your Premium to
i
<PAGE>
the Separate Account
(ii) Transfers........................Allocations of Your Premium to
the Separate Account
(iii) Exchanges........................N/A
(c) Changes................................Facts About the Contracts;
Types of Annuity Payment
Options; Premium; Addition,
Deletion, or Substitution
of Investments
(d) Inquiries..............................Summary of the Contracts
8. Annuity Period..............................Types of Annuity Payment Options
9. Death Benefit...............................Death Proceeds
10. Purchases and Value
(a) Purchases..............................Purchase of a Contract; Premium
Allocation
(b) Valuation..............................Variable Annuity Units
(c) Daily Calculation......................Variable Annuity Units
(d) Underwriter............................Distribution of the Contracts
11. Redemptions
(a) By Owners..............................Types of Annuity Payment
Options - Period Certain Annuity
By Annuitant...........................N/A
(b) Texas OP...............................
(c) Check Delay............................Payments Under the Contract
(d) Lapse..................................N/A
(e) Free Look..............................Summary of the Contracts; Free
Look Privilege
12. Taxes......................................Tax Considerations
13. Legal Proceedings..........................Legal Proceedings
14. Table of Contents for the Statement
of Additional Information..................Statement of Additional
Information
ii
<PAGE>
PART B
Showing Location of Information in Statement of Additional Information
Caption in Statement of
Form N-4 -----------------------
Item No. Additional Information
- ---------- ----------------------
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
Independent Auditors....................Independent Auditors
(d) Assets of Registrant....................Custody of Assets
(e) Affiliated Person.......................N/A
(f) Principal Underwriter...................Distribution of the Contracts
19. Purchase of Securities Being Offered........Distribution of the Contracts
Offering Sales Load.........................N/A
20. Underwriters................................Distribution of the Contracts;
(Prospectus) Distribution of
the Contracts
21. Calculation of Performance Data.............Historical Performance Data
22. Annuity Payments............................(Prospectus) Types of Annuity
Payment Options
23. Financial Statements........................Financial Statements
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the registration statement.
iii
<PAGE>
PFL IMMEDIATE INCOME BUILDER
FIXED AND VARIABLE SINGLE PREMIUM IMMEDIATE ANNUITY
CONTRACTS
offered by
PFL Life Insurance Company
--------------------------
Financial Markets Division--Variable Annuity Department
4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001
1-800-525-6205
This Prospectus describes a fixed and variable single premium immediate
annuity contract (the "Contract") offered by PFL Life Insurance Company ("PFL,"
"we", "us" or "our"). Under the Contract, we provide annuity payments to the
Payee at regular intervals. You choose the frequency of the annuity payments
and the first annuity payment date, which must generally be within 30 days of
the contract issue date. Annuity payments can be for the annuitant's lifetime,
for the lifetime of the annuitant and joint annuitant or for other periods. You
may also choose a guaranteed minimum number of years of annuity payments.
You purchase a Contract with a single premium (the "Premium"). You may not
pay additional premiums. You may allocate your Premium between fixed and
variable annuity payments. If you allocate all or a portion to a variable
annuity payment option, you also choose one or more of the thirteen Subaccounts
of the PFL Retirement Builder Variable Annuity Account (the "Separate Account"),
which invest in the following mutual fund portfolios (the "Portfolios"):
VARIABLE INSURANCE VARIABLE INSURANCE VARIABLE INSURANCE
PRODUCTS FUND PRODUCTS FUND II PRODUCTS FUND III
- ------------- ---------------- -----------------
VIP Equity-Income VIP II Asset Manager VIP III Balanced
VIP Growth VIP II Asset Manager: Growth VIP III Growth & Income
VIP High Income VIP II Contrafund VIP III Growth Opportunities
VIP Money Market VIP II Index 500
VIP Overseas VIP II Investment Grade Bond
The Variable Insurance Products Fund ("VIP"), Variable Insurance Products Fund
II ("VIP II") and the Variable Insurance Products Fund III ("VIP III")
(collectively, the "Funds") are managed by Fidelity Management & Research
Company ("FMR"). Amounts allocated to the Subaccounts will result in Annuity
Payments that vary in amount according to the investment results of the
Portfolios you select. Additional Portfolios may be offered in the future.
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This prospectus provides information that you should know before purchasing
a Contract. Additional information about the Contract and the Separate Account
has been filed with the Securities and Exchange Commission in a Statement of
Additional Information dated _______________, 1998. The Statement of Additional
Information (the "Statement") is incorporated by reference in this Prospectus
and is available without charge by calling PFL at 1-800-525-6205. The "Table of
Contents" for the Statement appears on page _______. The SEC maintains a
Website (http://www.sec.gov) that contains the statement, material incorporated
by reference and other information regarding the separate account.
Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has approved or disapproved these securities or passed
upon the adequacy or accuracy of this Prospectus. Any representation to the
contrary is a criminal offense.
This Prospectus should be accompanied by the current Prospectuses for the
Variable Insurance Products Fund, The Variable Insurance Products Fund II and
the Variable Insurance Products Fund III. Please read the Prospectuses and keep
them for future reference.
Prospectus Date: ____________, 1998
2
<PAGE>
TABLE OF CONTENTS
DEFINITIONS
SUMMARY
FEE TABLE
PFL, THE SEPARATE ACCOUNT AND THE FUNDS
PFL Life Insurance Company
The Separate Account
The Funds
Addition, Deletion or Substitution of Investments
Resolving Material Conflicts
THE CONTRACTS
Purchase of a Contract
Free Look Privilege
Allocations of Your Premium to the Separate Account
Transfers
Variable Annuity Units
Charges Under the Contracts
Premium Taxes
Separate Account Charge
Expenses of the Funds
Other Taxes
Annuity Payments
Annuity Payment Dates
Payments Under the Contracts
Fixed, Variable or Combination Annuity Payments
Performance of the Portfolio underlying the Subaccounts, net of all
charges,
Assumed Investment Return (AIR)
Types of Annuity Payment Options
Death Proceeds
TAX CONSIDERATIONS
OTHER INFORMATION
Distribution of the Contracts
Voting Rights
Performance
IMSA
Year 2000 Matters
Legal Proceedings
TABLE OF CONTENTS OF THE STATEMENT
APPENDIX - ILLUSTRATIONS OF VALUES
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
STATEMENT (OR ANY SALES LITERATURE APPROVED BY PFL) IN CONNECTION WITH THE OFFER
3
<PAGE>
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE CONTRACTS
ARE NOT AVAILABLE IN ALL STATES AND THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
4
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DEFINITIONS
Allocation Date - The date on which a transfer is made from one Subaccount to
another.
Annuitant and Secondary Annuitant - The person upon whose life the annuity
payments are based. For joint options, annuity payments are based upon the
lives of both the Annuitant and Secondary Annuitant. Either the Annuitant or
the Secondary Annuitant generally must be no older than 80 years of age on the
Contract Issue Date.
Annuity Payments - Payments made by us to the Payee pursuant to the payment
option chosen. Payments may be either fixed or variable or a combination of
both.
Assumed Investment Return (the "AIR") - The annual effective rate shown in the
Contract Specifications Section of the Contract that is used in the calculation
of each variable Annuity Payment.
Beneficiary(ies) - The person(s) who may receive death proceeds or guaranteed
payments under this Contract when there is no longer a living Annuitant (or last
Annuitant for joint options).
Code - The Internal Revenue Code of 1986, as amended.
Contract Issue Date - The date the Contract becomes effective. This will be
stated in the Contract. Generally, the date the initial premium is allocated to
the Separate Account.
Funds - Variable Insurance Products Fund, Variable Insurance Products Fund II,
and Variable Insurance Products Fund III.
Net Investment Factor - A unit of measure used to reflect the change in Variable
Annuity Unit values in a Subaccount from one Valuation Period to the next
Valuation Period.
Non-Qualified Contract - A Contract other than a Qualified Contract. This type
of Contract may be purchased with money from any source.
Owner(s) - "You," "your," and "yours." The person or entity named in the
Contract Specifications Section who may, while any Annuitant is living, exercise
all rights granted by the Contract. The Annuitant must be the Owner, if the
Contract is a Qualified Contract. If there is a Secondary Annuitant, he or she
may also be an Owner (except for a Qualified Contract, where only one Owner is
permitted). The Secondary Annuitant is never required to be an Owner.
Payee - The person or entity to whom Annuity Payments are paid.
Payment Date - The date an Annuity Payment is paid to the Payee. We may require
evidence that any Annuitant and/or Payee is/are alive on the Payment Date.
5
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Qualified Contract - A Contract that qualifies for special tax treatment under
the Code.
Separate Account - PFL Retirement Builder Variable Annuity Account.
Subaccount - The investment options or divisions of the Separate Account.
Currently, there are thirteen Subaccounts. Each Subaccount invests in a
different Portfolio of the Funds. We may make additional Subaccounts available
in the future.
Successor Owner - The person named by the Owner to whom ownership of the
Contract passes upon the Owner's death. If the Owner is also the Annuitant, the
Annuitant's Beneficiary is entitled to the death proceeds of the Contract. If
no person is named, the Owner's estate shall be deemed the Successor Owner.
Valuation Day - Each day the New York Stock Exchange is open for trading and any
other day when the Securities and Exchange Commission requires mutual funds or
unit investment trusts to be valued. The determination of the Variable Annuity
Unit Value is made at the end of each Valuation Day.
Valuation Period - The period of time beginning at the close of business each
Valuation Day and ending at the close of business on the next Valuation Day.
Variable Annuity Unit - Variable Annuity Payments are expressed in terms of
Variable Annuity Units, the value of which fluctuates in relation to the
selected Subaccounts.
Variable Annuity Payment Calculation Date - The date, no more than seven
business days before each Payment Date, when the amount of the variable Annuity
Payment is determined. If the New York Stock Exchange is closed on a Variable
Annuity Payment Calculation Date, we will determine the amount of annuity income
on the next day it is open.
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SUMMARY
General Description
This Prospectus is designed to provide you with sufficient information to
decide whether or not to purchase the contract. This summary provides a brief
description of some of the more important aspects of the contract.
Purchasing a Contract
You purchase this contract with a single premium. No additional premium
payments will be accepted. The minimum premium is $25,000, although smaller
amounts may be accepted with our approval. Generally, you have a ten day free
look period after the contract is issued. During this time you may cancel the
contract and we will return the premium plus any investment gain or loss of the
Portfolios underlying the subaccounts. The free look period and amount refunded
may vary from state to state. After the free look period, the contract may not
------------------------------------------------
be surrendered (for any amount) unless a period certain or Life with Emergency
- ------------------------------------------------------------------------------
Cash(SM) payment option is selected. See page NN for more information.
- -----------------------------------
Allocation of Premium
You must allocate your premium between fixed and variable Annuity Payments.
The amount of your premium allocated to variable Annuity Payments must
additionally be allocated to the various subaccounts. There are currently 13
subaccounts to choose from, all managed by Fidelity Management & Research
Company.
Annuity Payments
Annuity Payments may be either fixed, variable or a combination of fixed
and variable. We guarantee the amount of fixed Annuity Payments, we do not
guarantee the amount of variable Annuity Payments. Variable Annuity Payments are
determined by the investment performance of the subaccounts you select. Annuity
Payments may be scheduled for either monthly or quarterly payments. Semiannual
and annual payments are available only with our approval. Annuity payments may
be partly or fully taxable as ordinary income. See page NN.
Transfers
You may transfer amounts within the various subaccounts. We may charge a
fee for excessive transfers (we currently do not charge for transfers). You may
also transfer amounts from variable Annuity Payments to fixed Annuity Payments
--------------------------------------------------------
at any time. The payment option for the fixed Annuity Payments will be a
- -----------
continuation of the payment option currently applicable to variable Annuity
Payments. Transfers from fixed Annuity Payments to variable Annuity Payments are
not permitted. See page NN.
Withdrawals and Surrenders
You may also withdraw or surrender all or a portion of a contract if either
the period certain or Life with Emergency Cash(SM) Annuity Payment option is
selected. No other payment option allows withdrawals. If you elect a period
------------------------------------------
certain payment option the withdrawals must be at least 25% of the present value
of the remaining payments. If you select the Life with Emergency Cash(SM)
payment option, we will provide you with a
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Life with Emergency Cash(SM) Benefit Schedule that will allow you to determine
how much is available to withdraw or surrender. Withdrawals and surrenders may
have adverse tax consequences. You should consult with your tax advisor before
requesting a withdrawal or surrender. See page NN.
Death Benefits
Certain Annuity Payment options provide a death benefit in the event the
annuitant(s) die(s) after Annuity Payments begin or if the owner or annuitant(s)
die before Annuity Payments begin. A complete description of the payment
options begins on page NN. See page NN for a complete description of the death
benefit.
Portfolio Expenses and Fees
Each Portfolio has investment management and other fees charged directly to
it. In 1997, these ranged from 0.28% to 0.92% annually of average daily net
assets.
Separate Account Charge
If you allocate $50,000 or more to variable Annuity Payments the Separate
Account Charge is 1.15% annually of average daily net assets; if you allocate
less than $50,000 to variable Annuity Payments the Separate Account Charge is
1.35%. This charge will not increase and does not apply to fixed Annuity
Payments.
Premium Tax
When applicable, we also deduct a premium tax before determining your
annuity payments. See pages NN and NN.
* * *
This summary only provides a brief overview of the more significant aspects
of the Contracts. You will find more detailed information in the rest of this
Prospectus, the Statement and in the Contract. Please keep the Contract and its
riders or endorsements, if any, together with the attached application.
Together they are the entire agreement between you and PFL.
EXPENSE TABLE
This information is intended to help you understand the various costs and
expenses that a Contract will bear directly or indirectly. The expense table
assumes that your entire Premium is allocated to the Separate Account;
therefore, it reflects expenses of the Separate Account as well as the
underlying Portfolios. The tables below do not reflect any deductions for
taxes. Any applicable premium taxes are deducted from the premium on the
Contract Issue Date. See "Charges Under the Contracts" on page _____ of this
Prospectus for additional information.
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Contract Expenses
- -----------------
Sales Load charged to premium None
Annual Contract Administration Charge None
Transfer Fee (for first six transfers in any Contract year) None
Separate Account Charge if allocation to Variable Annuity Payments:
is $50,000.00 or greater 1.15%
is less than $50,000.00 1.35%
Surrender Value
There is no express surrender charge or calculable surrender charge under
the Contract. For an explanation of the surrender value, see "Withdrawals
and Surrenders" on page NN.
Portfolio Annual Expenses/1/ (as an annual percentage of Portfolio average net
- -------------------------
assets)
<TABLE>
<CAPTION>
MANAGEMENT
FEES AFTER OTHER EXPENSES TOTAL
EXPENSE AFTER EXPENSE ANNUAL
REIMBURSEMENT REIMBURSEMENT EXPENSES
------------- ------------- --------
<S> <C> <C> <C>
VIP EQUITY-INCOME 0.50% 0.08% 0.58%/2/
VIP GROWTH 0.60% 0.09% 0.69%/2/
VIP HIGH INCOME 0.59% 0.12% 0.71%/2/
VIP MONEY MARKET 0.21% 0.10% 0.31%
VIP OVERSEAS 0.75% 0.17% 0.92%/2/
VIP II ASSET MANAGER 0.55% 0.10% 0.65%/2/
VIP II ASSET MANAGER: GROWTH 0.60% 0.17% 0.77%/2/
VIP II CONTRAFUND 0.60% 0.11% 0.71%/2/
VIP II INDEX 500 0.24% 0.04% 0.28%/3/
VIP II INVESTMENT GRADE BOND 0.44% 0.14% 0.58%
VIP III BALANCED 0.45% 0.16% 0.61%/2/
VIP III GROWTH & INCOME 0.49% 0.21% 0.70%
VIP III GROWTH OPPORTUNITIES 0.60% 0.14% 0.74%/2/
</TABLE>
/(1)/ The fee table information relating to the Portfolios is for 1997 and was
provided to PFL by FMR, and PFL has not independently verified such information.
/(2)/ A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into arrangements
with their custodian whereby credits realized, as a result of uninvested cash
balances, were used to reduce custodian expenses. Including these reductions,
the total operating expenses for 1997 presented in the table would have been as
follows:
0.57% for VIP Equity-Income Portfolio
0.67% for VIP Growth Portfolio
0.71% for VIP High Income Portfolio
0.90% for VIP Overseas Portfolio
0.64% for VIP II Asset Manager Portfolio
0.76% for VIP II Asset Manager: Growth Portfolio
0.68% for VIP II Contrafund Portfolio
0.60% for VIP III Balanced Portfolio
0.73% for VIP III Growth Opportunities Portfolio
/(3)/ FMR agreed to reimburse a portion of VIP II Index 500 Portfolio's
expenses during 1997. Without this reimbursement, the Portfolio's management
fee, other expenses and total expenses would have been 0.27%, 0.13% and 0.40%,
respectively.
The effects of the fees and charges shown above are reflected in the
illustrations of Annuity Payments contained in the Appendix at the end of this
Prospectus. The
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illustrations are intended to assist you in assessing the effects of these fees
and charges, and the effect of investment performance on the amount of your
Annuity Payments.
Examples
- --------
The following examples indicate the expenses you would pay in various
situations, based on actual Portfolio expenses for 1997, and the following
assumptions: (a) a $1,000 investment (and, therefore, a 1.35% Separate Account
Charge); (b) a 5.0% annual return on assets; (c) monthly payments; (d) a 5.5%
Assumed Investment Return; (e) there are no Premium taxes; (f) there are no
transfers; and (g) the entire Premium is allocated to a single Subaccount. (Any
---
different assumption(s) would result in different expenses.)
- ----------------------------------------------------------
1. If a Life Only Annuity Payment option for a 65 year old male is selected
with no Life with Emergency Cash(SM) rider, and, therefore, the contract
cannot be surrendered:
Subaccount
----------
1 Year 3 Years
------ -------
1. VIP Equity-Income $19.00 $53.00
2. VIP Growth $20.00 $56.00
3. VIP High Income $20.00 $56.00
4. VIP Money Market $16.00 $46.00
5. VIP Overseas $22.00 $62.00
6. VIP II Asset Manager $19.00 $55.00
7. VIP II Asset Manager: Growth $20.00 $58.00
8. VIP II Contrafund $20.00 $56.00
9. VIP II Index 500 $16.00 $45.00
10. VIP II Investment Grade Bond $19.00 $53.00
11. VIP III Balanced $19.00 $54.00
12. VIP III Growth & Income $20.00 $56.00
13. VIP III Growth Opportunities $20.00 $57.00
2. If a 20 year Period Certain Annuity Payment option is selected and the
Contract is not surrendered:
Subaccount
----------
1 Year 3 Years
------ -------
1. VIP Equity-Income $19.00 $53.00
2. VIP Growth $20.00 $56.00
3. VIP High Income $20.00 $57.00
4. VIP Money Market $16.00 $46.00
5. VIP Overseas $22.00 $62.00
6. VIP II Asset Manager $19.00 $55.00
7. VIP II Asset Manager: Growth $20.00 $58.00
8. VIP II Contrafund $20.00 $57.00
9. VIP II Index 500 $16.00 $45.00
10. VIP II Investment Grade Bond $19.00 $53.00
11. VIP III Balanced $19.00 $54.00
12. VIP III Growth & Income $20.00 $56.00
13. VIP III Growth Opportunities $20.00 $57.00
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3. If a 20 year Period Certain Annuity Payment option is selected and the
Contract is surrendered:
Subaccount
----------
1 Year 3 Years
------ -------
1. VIP Equity-Income $87.00 $109.00
2. VIP Growth $88.00 $112.00
3. VIP High Income $88.00 $112.00
4. VIP Money Market $84.00 $102.00
5. VIP Overseas $90.00 $117.00
6. VIP II Asset Manager $87.00 $111.00
7. VIP II Asset Manager: Growth $88.00 $114.00
8. VIP II Contrafund $88.00 $112.00
9. VIP II Index 500 $84.00 $101.00
10. VIP II Investment Grade Bond $87.00 $109.00
11. VIP III Balanced $87.00 $110.00
12. VIP III Growth & Income $88.00 $112.00
13. VIP III Growth Opportunities $88.00 $113.00
These examples should not be considered representations of past or future
performance or expenses. The actual expenses paid or performance achieved may
be greater or less than those shown or assumed above.
PFL, THE SEPARATE ACCOUNT, AND THE FUNDS
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, 1997, PFL had
assets of approximately $8.7 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 Separate Account
The Separate Account is registered with the SEC under the Investment Company
Act of 1940 (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 Separate
Account or PFL.
The Separate Account was established as a separate investment account of PFL
under the laws of the State of Iowa on March 29, 1996. If a portion of the
Premium is allocated to the Separate Account, the Separate Account will invest
that portion of the Premium in shares of the Funds managed by FMR.
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The Separate Account currently has thirteen Subaccounts that are available
under the Contract. 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. Shares of the Funds are valued at net
asset value. Any dividends or capital gains distributions of a Portfolio of the
Funds are reinvested in shares of that Portfolio. Under Iowa law, the assets of
the Separate Account are owned by PFL; however, they are held separately from
the other assets of PFL. To the extent that these assets are attributable to
the reserves and other Contract liabilities of the Separate Account, 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
Separate Account, whether or not realized, are credited to or charged to the
Separate Account without regard to other income, gains or losses of any other
Account or Subaccount of PFL. Therefore, the investment performance of the
Subaccounts should be entirely independent of the investment performance of
PFL's general account assets or any other account or Subaccount maintained by
PFL.
The Funds
The available Subaccounts of the Separate Account currently invest exclusively
in shares of the underlying Funds. The underlying Funds are diversified, open-
end management investment companies organized by FMR. They are the type of
investment company commonly known as a series mutual fund.
Certain information concerning the Funds is set forth below. More detailed
information may be found in the Funds' current prospectuses, which accompany or
precede this Prospectus, and the 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. The thirteen Portfolios offered by the Funds provide a range of investment
alternatives that vary according to the different investment objectives
described in the 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.
The following is a description of each Portfolio and a graph showing how your
Annuity Payments can fluctuate based on past investment performance (net of all
charges) of the Portfolios through December 31, 1997. The purpose of the graphs
is to illustrate the possible value of Annuity Payments under a non-qualified
contract based on the adjusted historical performance of the Portfolios. The
graphs plot one point for each contract year. Each point on the graph
represents the average of 12 monthly variable
12
<PAGE>
Annuity Payments made in that contract year based on the adjusted historical
performance of the Portfolios.
Each graph shows the effect that the Portfolio's investment performance would
have had on the value of an annuity unit and, thus, the value of an Annuity
Payment if a Contract with an AIR of 5.5%, providing an initial monthly Annuity
Payment of $500.00, was purchased on the date the Portfolio commenced
operations. Annuity Payments increase for a given month if the performance of
the Portfolio underlying the Subaccounts, net of all charges, for that month is
higher than the AIR, and decreases for a given month if the performance of the
Portfolio underlying the Subaccounts, net of all charges, for that month is
lower than the AIR. The Premium necessary for an initial monthly Annuity
Payment of $500.00 will vary depending on the age and sex of the Annuitant (and
Secondary Annuitant, if any), the Annuity Payment option and the first Annuity
Payment Date. For example, suppose that a 65 year old male who lives in a state
that does not charge a premium tax wishes to purchase $500.00 of an initial
monthly variable Annuity Payment beginning on the Contract Issue Date with a
life only payment option. If there is no Secondary Annuitant, no guarantee
period and he chooses a 5.5% AIR, the Premium needed would be $71,301.00. If
the purchaser were female, the Premium necessary would be $77,903.00. This is
because females have a longer life expectancy than males.
All of the graphs take into account the 1.35% Separate Account Charge and the
actual expenses of the Portfolios.
The average monthly payments depicted in the graphs are not based on actual
contracts. They are based on adjusted historical performance results of the
Portfolios and are not projections or indications of future results. PFL does
not guarantee and does not suggest that any Subaccount or Contract issued by PFL
will generate these or similar average monthly payments for any period of time.
The graphs are for illustration purposes only and do not represent future
variable Annuity Payments or future investment returns. Variable Annuity
Payments under a real Contract may be more or less than those forming the basis
for the average monthly payments shown in these graphs, if the actual returns of
the Portfolios selected by you are different from the adjusted historical
returns of the Portfolios. It is very likely that a Portfolio's investment
performance will fluctuate over time; therefore, you can expect that your
variable Annuity Payments will fluctuate. The total amount of variable Annuity
Payments ultimately received will depend upon the Annuity Payment option
selected by you. See "Types of Annuity Payment Options" on page _____________.
* * *
13
<PAGE>
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's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index. The Portfolio
may be appropriate for investors who are willing to ride out stock market
fluctuations in pursuit of potentially high long-term returns. The Portfolio is
designed for those who want some income from equity and bond investments, but
also want to be invested in the stock market for its long-term growth potential.
The graph below is based on a 5.5% AIR and an initial monthly Annuity Payment of
$500.00.
[Equity Income Graph Appears Here]
The fund inception date is October 1986. Payments are determined at each month
end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 560
1983 $0 1992 $ 612
1984 $0 1993 $ 677
1985 $0 1994 $ 678
1986 $494 1995 $ 856
1987 $455 1996 $ 915
1988 $523 1997 $1,096
1989 $575
1990 $455
- ----------------------------------------------------------------------------
</TABLE>
14
<PAGE>
VIP Growth Portfolio seeks to achieve capital appreciation normally through
the purchase of common stocks (although the Portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks. The
Portfolio may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
Portfolio is designed for those who want to pursue growth wherever it may arise,
and who understand that this strategy often leads to investments in small, less
well-known companies. The Portfolio invests for growth and does not pursue an
income strategy. The graph below is based on a 5.5% AIR and an initial monthly
Annuity Payment of $500.00.
[Growth Graph Appears Here]
The fund inception date is October 1986. Payments are determined at each month
end.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 715
1983 $0 1992 $ 731
1984 $0 1993 $ 816
1985 $0 1994 $ 763
1986 $494 1995 $ 966
1987 $478 1996 $1,036
1988 $518 1997 $1,197
1989 $637
1990 $525
- ------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
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 will also be considered. A fund's
level of risk and potential reward depend on the quality and maturity of its
investments. The Portfolio is for long-term, aggressive investors who
understand the potential risks and rewards of investing in lower-quality debt,
including defaulted securities. Investors must be willing to accept the
Portfolio's greater price movements and credit risks. The graph below is based
on a 5.5% AIR and an initial monthly Annuity Payment of $500.00.
[High Income Graph Appears Here]
The fund inception date is September 1985. Payments are determined at each month
end.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $587
1983 $0 1992 $676
1984 $0 1993 $761
1985 $521 1994 $701
1986 $574 1995 $791
1987 $543 1996 $843
1988 $568 1997 $928
1989 $508
1990 $464
- ----------------------------------------------------------------------------
</TABLE>
16
<PAGE>
VIP Money Market Portfolio seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. It invests
only in high-quality money market instruments. The Portfolio may be appropriate
for investors who would like to earn income at current money market rates while
preserving the value of their investment. The Portfolio is managed to keep its
share price stable at $1.00. The rate of income will vary from day to day,
generally reflecting short-term interest rates. The graph below is based on a
5.5% AIR and an initial monthly Annuity Payment of $500.00.
[Money Market Graph Appears Here]
The fund inception date is March 1982. Payments are determined at each month
end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $519 1991 $566
1983 $530 1992 $550
1984 $548 1993 $531
1985 $554 1994 $518
1986 $553 1995 $512
1987 $550 1996 $505
1988 $553 1997 $498
1989 $564
1990 $570
- --------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
VIP Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States. The Portfolio may be appropriate for
investors who want to pursue their investment goals in markets outside of the
United States. By including international investments in your portfolio, you
can achieve additional diversification and participate in growth opportunities
around the world. However, it is important to note that investments in foreign
securities involve risks in addition to those of U.S. investments. In addition
to general risks, international investing involves different or increased risks.
The performance of international funds depends upon currency values, the
political and regulatory environment, and overall economic factors in the
countries in which the fund invests. The graph below is based on a 5.5% AIR and
an initial monthly Annuity Payment of $500.00.
[Overseas Graph Appears Here]
The fund inception date is January 1987. Payments are determined at each month
end.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $493
1983 $0 1992 $412
1984 $0 1993 $529
1985 $0 1994 $503
1986 $500 1995 $516
1987 $444 1996 $546
1988 $449 1997 $570
1989 $531
1990 $488
- ----------------------------------------------------------------------------
</TABLE>
18
<PAGE>
VIP II Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among stocks, bonds and short-term, fixed
income instruments. The Portfolio may be appropriate for investors who want to
diversify among domestic and foreign stocks, bonds, short-term instruments and
other types of securities, the fund spreads its assets among all three asset
classes moderating both its risk and return potential. Because the Portfolio
owns different types of investments, the performance is affected by a variety of
factors. The value of the fund's investments and the income generated will vary
from day to day, and generally reflect interest rates, market conditions, and
other company, political and economic news. Performance also depends on FMR's
skills in allocating assets. The graph below is based on a 5.5% AIR and an
initial monthly Annuity Payment of $500.00.
[Asset Manager Graph Appears Here]
The fund inception date is May 1990. Payments are determined at each month end.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $576
1983 $0 1992 $603
1984 $0 1993 $682
1985 $0 1994 $599
1986 $0 1995 $656
1987 $0 1996 $703
1988 $0 1997 $793
1989 $0
1990 $503
- ----------------------------------------------------------------------------
</TABLE>
19
<PAGE>
VIP II Asset Manager: Growth Portfolio seeks to maximize total return by
allocating its assets among a mix of domestic and foreign stocks, bonds and
short-term fixed income instruments. The Portfolio may be appropriate for
investors who want to diversify among domestic and foreign stocks, bonds, short-
term instruments and other types of securities, in one fund. The Portfolio,
while spreading its assets among all three asset classes, uses a more aggressive
approach by focusing on stocks for a higher potential return. Because the
Portfolio owns different types of investments, their performance is affected by
a variety of factors. The value of the Portfolio's investments and the income
generated will vary from day to day, and generally reflect interest rates,
market conditions, and other company, political and economic news. Performance
also depends on FMR's skills in allocating assets. The graph below is based on
a 5.5% AIR and an initial monthly Annuity Payment of $500.00.
[Asset Manager Growth Graph Appears Here]
The fund inception date is January 1995. Payments are determined at each month
end.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 0
1983 $0 1992 $ 0
1984 $0 1993 $ 0
1985 $0 1994 $ 0
1986 $0 1995 $577
1987 $0 1996 $647
1988 $0 1997 $757
1989 $0
1990 $0
- -----------------------------------------------------------------------------
</TABLE>
20
<PAGE>
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 Fund's advisor. The Portfolio may be appropriate for investors
who are willing to ride out stock market fluctuations in pursuit of potentially
high long-term returns. The Portfolio is designed for those who are looking for
an investment approach that follows a contrarian philosophy. The graph below is
based on a 5.5% AIR and an initial monthly Annuity Payment of $500.00.
[Contrafund Graph Appears Here]
The fund inception date is January is January 1995. Payments are determined at
each month end.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 0
1983 $0 1992 $ 0
1984 $0 1993 $ 0
1985 $0 1994 $ 0
1986 $0 1995 $655
1987 $0 1996 $743
1988 $0 1997 $863
1989 $0
1990 $0
- -------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
VIP II Index 500 Portfolio seeks to provide investment results that correspond
to the total return (i.e., the combination of capital changes and income) of
common stocks publicly traded in the United States. In seeking this objective,
the Portfolio attempts to duplicate the composition and total return of the
Standard & Poor's Composite Stock Price Index. The Portfolio may be appropriate
for investors who are willing to ride out stock market fluctuations in pursuit
of potentially high long-term returns. The Portfolio is designed for those who
want to pursue growth of capital and current income through a portfolio of
securities that broadly represents the U.S. stock market, as measured by the S&P
500. The Portfolio seeks to keep expenses low as it attempts to match the
return of the S&P 500. Because the Portfolio seeks to track, rather than beat,
the performance of the S&P 500, it is not managed in the same manner as other
mutual funds. The graph below is based on a 5.5% AIR and an initial monthly
Annuity Payment of $500.00.
[Index 500 Graph Appears Here]
The fund inception date is August 1992. Payments are determined at each month
end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 0
1983 $0 1992 $516
1984 $0 1993 $530
1985 $0 1994 $501
1986 $0 1995 $642
1987 $0 1996 $737
1988 $0 1997 $915
1989 $0
1990 $0
- --------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
VIP II Investment Grade Bond Portfolio seeks as high a level of current income
as is consistent with the preservation of capital by investing in a broad range
of investment-grade fixed-income securities. The Portfolio may be appropriate
for investors who want high current income from a portfolio of investment-grade
debt securities. A fund's level of risk and potential reward depend on the
quality and maturity of its investments. With its focus on medium-to-high-
quality investments, the Portfolio has a moderate risk level and yield
potential. The graph below is based on a 5.5% AIR and an initial monthly
Annuity Payment of $500.00.
[Investment Grade Bond Graph Appears Here]
The fund inception date is June 1989. Payments are determined at each month end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $554
1983 $0 1992 $552
1984 $0 1993 $573
1985 $0 1994 $516
1986 $0 1995 $566
1987 $0 1996 $546
1988 $0 1997 $557
1989 $512
1990 $508
- --------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
VIP III Balanced Portfolio seeks both income and growth of capital by
investing in a broad selection of stocks, bonds, and convertible into common
stocks. When FMR's outlook is neutral, it will invest approximately 60% of the
Portfolio's assets in equity securities and will always invest at least 24% of
the Portfolio's assets in fixed income securities. The value of the Portfolio's
investments and, as applicable, the income they generate will vary from day to
day, and generally reflect changes in market conditions, interest rates, and
other company, political, or economic news. In the short-term, stock prices can
fluctuate dramatically in response to these factors. The graph below is based
on a 5.5% AIR and an initial monthly Annuity Payment of $500.00.
[Balanced Graph Appears Here]
The fund inception date is May 1997. Payments are determined at each month end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 0
1983 $0 1992 $ 0
1984 $0 1993 $ 0
1985 $0 1994 $ 0
1986 $0 1995 $ 0
1987 $0 1996 $ 0
1988 $0 1997 $553
1989 $0
1990 $0
- --------------------------------------------------------------------------------
</TABLE>
24
<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 Portfolio may also invest in equity securities that are
not paying dividends, but offer the potential for capital appreciation of future
income. The Portfolio may be appropriate for investors who are willing to ride
out stock market fluctuations in pursuit of potentially high long-term returns.
The Portfolio is designed for those who seek a combination of growth and income
from equity and some bond investment. The graph below is based on a 5.5% AIR
and an initial monthly Annuity Payment of $500.00.
[Growth & Income Graph Appears Here]
The fund inception date is May 1997. Payments are determined at each month end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 0
1983 $0 1992 $ 0
1984 $0 1993 $ 0
1985 $0 1994 $ 0
1986 $0 1995 $ 0
1987 $0 1996 $ 0
1988 $0 1997 $597
1989 $0
1990 $0
- --------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
VIP III Growth Opportunities Portfolio seeks capital growth by investing in a
wide range of common domestic and foreign stocks, and securities convertible
into common stocks. Although the Portfolio invests primarily in common stock,
it has the ability to purchase securities, such as preferred stock and bonds
that may produce capital growth. The value of the Portfolio's investments and,
as applicable, the income they generate will vary from day to day and generally
reflect changes in market conditions, interest rates, and other company,
political or economic news. In the short-term, stock prices can fluctuate
dramatically in response to these factors. The graph below is based on a 5.5%
AIR and an initial monthly Annuity Payment of $500.00.
[Growth Opportunities Graph Appears Here]
The fund inception date is May 1997. Payments are determined at each month end.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PAYMENT AMOUNTS AT END OF YEAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1982 $0 1991 $ 0
1983 $0 1992 $ 0
1984 $0 1993 $ 0
1985 $0 1994 $ 0
1986 $0 1995 $ 0
1987 $0 1996 $ 0
1988 $0 1997 $593
1989 $0
1990 $0
- --------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
FMR is the investment advisor for the Funds. FMR is a registered investment
advisor under the Investment Advisors Act of 1940. FMR is the original Fidelity
company and was founded in 1946. It provides numerous mutual funds and other
clients with investment research and portfolio management services. It maintains
a large staff of experienced investment personnel and a full complement of
related support facilities. As of December 31, 1997, it advised funds having
more than ____ million shareholder accounts with a total value of more than
$_____ billion. FMR charges the Portfolios an investment management fee. These
fees are part of the Portfolios' operating expenses. See the attached
prospectuses for the Funds for discussions of the Funds' expenses.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS
INVESTMENT OBJECTIVE.
PFL may receive expense reimbursements or other revenues from the Funds or
FMR. The amount of these reimbursements or revenues, if any, may be based on the
amount of assets that PFL (or its affiliates) or the Separate Account invests in
the Funds.
The Funds' prospectuses should be read carefully before any decision is made
concerning the allocation of the Premium to a particular Subaccount.
An investment in the Separate Account, or in any Portfolio, including the
Money Market Portfolio, is not insured or guaranteed by the U.S. government or
any government agency.
The investment objectives and policies of certain Portfolios are similar to
the investment objectives and policies of other portfolios that may be managed
by the same investment advisor or manager. The investment results of the
Portfolios, however, may differ from the results of such other portfolios. There
can be no assurance, and no representation is made, that the investment results
of any of the Portfolios will be comparable to the investment results of any
other portfolio, even if the other portfolio has the same investment advisor or
manager.
27
<PAGE>
Addition, Deletion, or Substitution of Investments. We cannot and do not
guarantee that any of the Subaccounts will always be available to receive
Premium allocations or transfers. We retain the right, subject to any applicable
law, to make certain changes in the Separate Account and its investments. We
reserve the right to eliminate the shares of any Portfolio held by a Subaccount
and to substitute shares of another Portfolio of the 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 our judgment, investment in any Portfolio would be inappropriate in
view of the purposes of the Separate 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 Separate Account from purchasing
other securities for other series or classes of variable annuity contracts or
from effecting an exchange between series or classes of variable annuity
contracts on the basis of requests made by Owners.
New Subaccounts may be established when, in our sole discretion, marketing,
tax, investment or other conditions warrant. Any new Subaccounts may be made
available to existing Owners on a basis to be determined by us. Each additional
Subaccount will purchase shares in a mutual fund portfolio or other investment
vehicle. We may also eliminate one or more Subaccounts if, in our sole
discretion, marketing, tax, investment or other conditions warrant such change.
In the event any Subaccount is eliminated, we will notify Owners and request a
reallocation of the amounts invested in the eliminated Subaccount. If no such
reallocation is provided by the Owner, we 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, we may, by appropriate
endorsement, make such changes in the Contracts 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 Contracts, the
Separate 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, we also may
(1) transfer the assets of the Separate Account associated with the Contracts to
another account or accounts, (2) restrict or eliminate any voting rights of
Owners or other persons who have voting rights as to the Separate Account, (3)
create new separate accounts, (4) add new Subaccounts to or remove existing
Subaccounts from the Separate Account or combine Subaccounts, or (5) add new
underlying funds, or substitute a new fund for an existing fund.
Resolving Material Conflicts. The Funds are available to separate accounts
offering variable annuity and variable life products of other participating
insurance companies, as well as to the Separate Account and other separate
accounts we establish. Although we do not anticipate any disadvantages to this,
there is a possibility that a material conflict
28
<PAGE>
may arise between the interest of the Separate Account and one or more of the
other separate accounts participating in a Fund. A conflict may occur due to a
change in law affecting the operations of variable life insurance and variable
annuity separate accounts, differences in the voting instructions we receive and
instructions received by other companies, or some other reason. In the event of
a conflict, it is possible that the Separate Account might be required to
withdraw its investment in the Funds. In the event of any conflict, we will take
any steps necessary to protect Owners, Annuitants, Secondary Annuitants and
Beneficiaries.
THE CONTRACTS
Purchase of a Contract
We offer the Contracts only in states in which it has been approved. You can
purchase a Non-Qualified Contract using money from any source. Qualified
Contracts may also be purchased for use with Individual Retirement Annuities
under Section 408(b) of the Code and by employers to make distributions under
plans established under Section 457 of the Code.
The minimum Premium for a Contract is $25,000. Amounts less than $25,000 may
be accepted with approval from our home office. The Premium may be allocated to
variable, fixed, or to a combination of variable and fixed Annuity Payment
options. The date we credit the Premium and issue the Contract is called the
Contract Issue Date. On the Contract Issue Date, the Premium (net of any premium
tax deduction) will be allocated as you specify in the order form.
For all Contracts, either the Annuitant or the Secondary Annuitant must
generally be no more than 80 years old. Your Premium is applied to the purchase
of a Contract within two business days after receipt at the Administrative and
Service Office, if the Premium is received with a properly completed order form.
Your order form will be considered properly completed as soon as (1) you have
provided all the information requested on the order form (2) we have received
adequate proof of the Annuitant's date of birth (and the date of birth of the
Secondary Annuitant, if any) and (3) the entire amount of your Premium has been
received.
If the order form is incomplete, we will request the necessary information.
If the information is not provided within five days, we will return the Premium
unless we obtain your specific consent to let us keep it until the order form is
completed.
Free Look Privilege
You may cancel and return a Contract for a refund within 10 days (or longer
where required by applicable state insurance law) after you receive it. This is
the "free look period." If you choose to cancel the contract within the free
look period, return it to the Administrative and Service Office with a written
request. We will promptly refund the amount of your Premium plus or minus the
investment performance of the Subaccount(s)
29
<PAGE>
to which your Premium was allocated, if any. This provision may vary by state
where required by applicable state insurance law. We will issue the refund
within seven days after we receive written notice of cancellation and the
returned Contract. The Contract will then be deemed void. ONCE THE FREE LOOK
PERIOD EXPIRES, WITHDRAWALS MAY NOT BE MADE FROM THE CONTRACT, AND IT CANNOT BE
RETURNED OR SURRENDERED, unless a period certain or Life with Emergency Cash(SM)
payment option is chosen.
Allocations of Your Premium to the Separate Account
The portion of your Premium that you allocate to the Subaccounts of the
Separate Account will be invested into the designated Subaccount(s) on the
Contract Issue Date. You must allocate percentages that are whole numbers, not
fractions. The minimum allocation to any Subaccount must not be less than 5% of
the total amount allocated to the Subaccounts.
Variable Annuity Units
Any portion of your Premium allocated to the Subaccounts will be used to
purchase Variable Annuity Units. We will determine the number of Variable
Annuity Units based upon (a) the Premium reduced by any premium taxes, (b) the
Annuitant's age and sex (and the age and sex of the Secondary Annuitant, if
any), (c) the Payment Option you choose, (d) the frequency of payments you
choose, (e) the first Payment Date you choose, (f) the AIR you choose and (g)
the Variable Annuity Unit value of the Subaccounts you initially select on the
Contract Issue Date.
The number of Variable Annuity Units allocated to each Subaccount will not
change unless you transfer among the Subaccounts, transfer from variable Annuity
Payments to fixed Annuity Payments or withdraw cash (if allowed). If you choose
a joint and survivor Annuity Payment option and benefits are reduced due to the
death of one of the Annuitants, the number of Variable Annuity Units will be
reduced at that time.
We calculate the amount of your variable Annuity Payment on the Variable
Annuity Payment Calculation Date by taking the number of Variable Annuity Units
in each Subaccount and multiplying them by the Variable Annuity Unit value of
each Subaccount. This calculation is performed for each Subaccount, and the sum
of the Subaccount calculations will equal the amount of your variable Annuity
Payment.
The Variable Annuity Unit value in a particular Subaccount on any Valuation
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 Valuation Day;
(b) is the Net Investment Factor for that Subaccount for the Valuation
Period; and
30
<PAGE>
(c) is the daily factor for the Valuation Period.
The daily factor for the Valuation Period is a discount factor that reflects the
AIR.
The Net Investment Factor used to calculate the Variable Annuity Unit value for
each Subaccount for the 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 of a Portfolio share held in that Subaccount
determined as of 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 credit or change for any taxes reserved for, which we
determine to have resulted from the investment operation of the
Subaccount.
(b) is the net asset value of a Portfolio share held in that Subaccount
determined as of the end of the immediately preceding Valuation Period;
and
(c) is an amount representing the Separate Account Charge as shown in the
Contract Specifications Section of the Contract.
Charges Under the Contracts
The following are all the charges made under the Contract.
Premium Taxes. Some states charge a "premium tax" based on the amount of your
Premium. State premium taxes currently range from 0% to 3.5%. In addition, some
counties, cities or towns may charge additional premium taxes. If you reside in
a place where premium taxes apply, any amount needed to provide for the
applicable premium taxes is deducted from your Premium. The remainder of your
Premium will be allocated to the Subaccounts and/or applied to the purchase of
fixed Annuity Payments.
Separate Account Charge. A daily charge is deducted from the assets of each
Subaccount for our assumption of mortality and expense risks, and our
administration and distribution expenses. If the amount you allocate to variable
Annuity Payments is $50,000 or greater, the daily Separate Account Charge will
be deducted at an effective annual rate of 1.15%. If the amount you allocated to
variable Annuity Payments is under $50,000, the daily Separate Account Charge
will be deducted at an effective annual rate of 1.35%. We guarantee this charge
will never increase.
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The mortality risk arises from our obligation to provide annuity income for
your life (and the life of the Secondary Annuitant, if any) no matter how long
that might be. The expense risk results from our obligation to cover the cost of
issuing and administering the Contracts, no matter how long we may incur such
cost or how large that cost may be. The administration and distribution expense
is used to cover the costs of administering and distributing the Contracts. We
may earn a profit from the Separate Account Charge (and expect to do so).
Expenses of the Funds. The Portfolios are charged management fees and incur
operating expenses. The effect of these fees and expenses is reflected in the
performance of the Portfolios underlying the Subaccounts. See the attached
prospectuses for a description of the Portfolios' fees and expenses.
Other Taxes. We reserve the right to charge for certain taxes (other than
premium taxes) that may be incurred due to the Contracts or the Separate
Account. Currently, no charges for other taxes are being levied. See "PFL's Tax
Status" on page _____.
Surrender Value. There is no express or calculable surrender charge under the
Contract. For a discussion of surrender value, see "Withdrawals and Surrenders"
on page NN.
Transfers from Variable Annuity Payments to Fixed Annuity Payments
You may transfer all or a part of the value of variable Annuity Payments to
fixed Annuity Payments by providing us with a notice you have signed or an
electronic notice that gives us the facts that we need. If you transfer from
variable Annuity Payments to fixed Annuity Payments, the fixed Annuity Payments
will be a continuation of the Payment Option under which the variable Annuity
Payments were being made, or a continuation of the fixed Annuity Payment option
that may already exist. For example, if you received variable Annuity Payments
for two years under a 10 Year Certain and Life Option and elect to transfer to a
fixed Annuity Payment, your fixed Annuity Payment would be an 8 Year Certain and
Life Option. If your variable Annuity Payment option is Life with Emergency
CashSM, the fixed Annuity Option will be a Life only or a Life with Period
Certain. The Period Certain cannot be greater than the Annuitant's remaining
life expectancy determined at the Contract Issue Date. (Life with Emergency
CashSM is only available with variable Annuity Payments.) Transfers from
variable Annuity Payments to fixed Annuity Payments may have tax consequences.
You should consult a tax advisor before making a transfer from variable Annuity
Payments to fixed Annuity Payments. You may not transfer from fixed Annuity
Payments to variable Annuity Payments.
Transfers Among Subaccounts
You may transfer amounts among Subaccounts by telephoning us or by providing
us with a notice you have signed or an electronic notice that gives us the facts
that we need. We have the right to charge a transfer fee of $15 for each
transfer after the first six transfers made in any Contract year (all transfers
made simultaneously will be treated as a single request). Excessive trading
activity can disrupt Portfolio management strategy and
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increase Portfolio expenses, which are borne by everyone participating in the
Portfolio regardless of their transfer activity.
In some cases, contracts may be sold to individuals who independently utilize
the services of a firm or individual engaged in market timing. Generally, market
timing services obtain authorization from Contract Owner(s) to make transfers
and exchanges among the Subaccounts on the basis of perceived market trends.
Because the large transfers of assets associated with market timing services may
disrupt the management of the portfolios of the Funds, such transactions may
hurt Contract Owners not utilizing the market timing service. Therefore, we may
restrict or eliminate the right to make transfers among Subaccounts if such
rights are executed by a market timing firm or similar third party authorized to
initiate transfers or exchange transactions on behalf of a Contract Owner(s). In
modifying such rights, we may, among other things, decline to accept (1)
transfer or exchange instructions of any agent acting under a power of attorney
on behalf of more than one Contract Owner, or (2) transfer or exchange
instructions of individual Contract Owners who have executed pre-authorized
transfer or exchange forms which are submitted by market timing firms or other
third parties on behalf of more than one Contract Owner at the same time. We
will impose such restrictions only if we believe (or FMR believes) that doing so
will prevent harm to other Contract Owners.
The percent of the allocation in each Subaccount will change over time with
its investment performance. You should periodically review the allocations in
light of market conditions and financial objectives.
Withdrawals and Surrenders
You may withdraw or surrender all or a portion of a contract if either the
period certain or Life with Emergency Cash(SM) Annuity Payment option is
selected. No other payment option allows withdrawals. If you elect a period
------------------------------------------
certain payment option the withdrawals must be at least 25% of the present value
of the remaining payments. If you select the Life with Emergency Cash(SM)
payment option, we will provide you with a Life with Emergency Cash(SM) Benefit
Schedule that will allow you to determine how much is available to withdraw. If
a partial surrender is made, all future payments will be reduced. You should
consult with your tax advisor before requesting a withdrawal.
Surrender Values. There is no express surrender charge under the Contract.
However, in the cases when the Contract can be surrendered (i.e., period certain
or Life with Emergency Cash(SM) options) the determination of a surrender value
may include factors that indirectly reflect our expenses. In some cases the
surrender value depends on specific individual circumstances such as the
annuitant's age and sex, the number of annuitants, the amount of the last
payment prior to the surrender and the number of payments already made. If you
select a period certain payment option with fixed and/or variable Annuity
Payments you may surrender all or a portion of your Contract. For fixed Annuity
Payments we reduce the amount of the surrender value of the period certain
option by 2%. Therefore, using interest rates in effect at the time of the
surrender, you only receive 98% of the present value of the remaining payments.
For variable
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Annuity Payments we increase the interest rate used to determine the surrender
value (which is the present value of the remaining payments of the period
certain option) by 1%. The actual interest rate used for the determination of
the surrender value of a variable period certain payment option is the AIR at
the Contract Issue Date plus 1%. The addition of 1% increases the indirect
charge and decreases the surrender value.
If the Life with Emergency Cash(SM) option is selected, please refer to the
Emergency Cash(SM) Benefit Schedule in your contract for the information you
need to determine your surrender value.
Annuity Payments
Annuity Payment Dates. We provide Annuity Payments to the Payee on each
Payment Date. You select either a monthly or quarterly payment frequency when
you purchase the Contract. Payments will generally be made by electronic funds
transfer. Semi-annual or annual payment frequencies and other disbursement
options may be available, if approved by our home office. The first Payment Date
will generally be 30 days after the Contract Issue Date. All subsequent Payment
Dates will be on the same day of the month as the first Payment Date.
Payments Under the Contract. We generally make payments within seven days of
the Payment Date or receipt of all applicable written notices and/or proofs of
death. However, we may postpone such payments for any of the following reasons:
1. when the New York Stock Exchange ("NYSE") is closed for trading other than
customary holiday or weekend closing or trading on the NYSE is restricted,
as determined by the SEC; or
2. when the SEC by order permits a postponement for the protection of Owners;
or
3. when the SEC determines that an emergency exists that would make the
disposal of securities held in the Separate Account or the determination
of their value not reasonably practicable.
If the postal service or any other delivery service is unable to deliver
checks to the Payee's address of record, no interest will accrue on amounts
represented by uncashed fixed or variable Annuity Payment checks. Amounts
represented by uncashed variable Annuity Payment checks will not participate in
the performance of the Portfolios. It is your responsibility to keep us informed
of the Payee's current address of record.
If a recent check or draft has been submitted as the Premium, we have the
right to defer any payments until the check or draft has been honored.
Fixed, Variable or Combination Annuity Payments. At the time of purchase, you
allocate your Premium between fixed and variable Annuity Payment options. You
may choose all fixed, all variable or a combination of fixed and variable
Annuity Payments.
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Any portion of your Premium allocated to a fixed Annuity Payment option will
always remain allocated to fixed Annuity Payments. However, you may transfer at
any time from variable Annuity Payments to fixed Annuity Payments. See "Transfer
from variable Annuity Payments to fixed Annuity Payments," page ____.
If you choose a combination of fixed and variable Annuity Payments, a portion
of your Annuity Payments will be fixed and a portion will vary according to the
investment experience of the Portfolios underlying the Subaccounts. We will
guarantee the dollar amount of any fixed portion of each Annuity Payment;
however, the amount of the variable Annuity Payments will depend upon the
investment experience of the Portfolios underlying the Subaccounts and is not
guaranteed. Both fixed and variable Annuity Payments decrease upon the death of
the Annuitant or Secondary Annuitant as described for Options 5, 6, 8 and 9
under "Types of Annuity Payment Options" on page ___.
Assumed Investment Return (AIR). You choose the AIR used in the calculation
of each variable Annuity Payment. If the performance of the subaccounts after
all expenses is equal to the AIR, the variable Annuity Payments will remain
constant. If the performance of the subaccounts after all expenses exceeds the
AIR, the variable Annuity Payments will increase. If the performance of the
subaccounts after all expenses is less than the AIR, the variable Annuity
Payments will decrease.
You choose either a 4% AIR or a 5.5% AIR. Choosing a 5.5% AIR instead of a 4%
AIR will result in a higher initial payment; however, payments will increase
less during periods of good investment performance (i.e., when investment
performance exceeds the AIR) and decrease more during periods of poor investment
performance (i.e. when investment performance is below the AIR).
Conversely, choosing a 4% AIR instead of a 5.5% AIR will result in a lower
initial payment; however, payments will increase more during periods of good
investment performance (i.e. when investment performance exceeds the AIR) and
decrease less during periods of poor investment performance (i.e. when
investment performance is below the AIR). See page ___ in the Appendix for an
illustration of the difference in the two AIRs.
Types of Annuity Payment Options
At the time of purchase, you select the Annuity Payment option and the number
of guaranteed years, if any. The Annuity Payment option and guarantee period
cannot be changed once the contract has been issued. The options we currently
offer are described below. Other Annuity Payment options may be made available.
The federal income tax laws may limit your Annuity Payment options where the
Contract is used as a Qualified Contract.
The amount of variable Annuity Payments will depend on the investment
performance of the Portfolio(s) you select. The number of Annuity Payments may
depend on how long the Annuitant or a Secondary Annuitant, if any, lives.
Therefore, the
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total value of Annuity Payments may be less than the Premium (except for option
10 - Life Annuity with Premium Refund Payments).
1. Period Certain Annuity. Under this option, we guarantee to make
payments for a designated number of years. The number of years cannot be less
than 10 nor more than 30. If the Annuitant dies prior to the last guaranteed
Payment Date, we will continue payments as they become due or pay the present
value of the remaining guaranteed payments in a lump sum to the Beneficiary when
we receive due proof of the Annuitant's death. If the payments under this option
are variable, the present value of the remaining guaranteed payments is
calculated as of the date we receive written notice of the Annuitant's death,
using the AIR you chose when the contract was issued. If the payments under this
option are fixed, the present value of the remaining guaranteed payments is
calculated using interest rates (determined by PFL) in effect on the date we
receive due proof of death. No additional payments will be made under this
option after all the guaranteed payments have been made.
If this option is selected, full or partial surrenders may be made from
the Contract prior to the last guaranteed Payment Date. Any surrender must be at
least 25% of the remaining guaranteed payments. If a partial surrender is made,
all future payments will be reduced. For variable Annuity Payments, the
surrender value is equal to the present value of future payments. The present
value of variable Annuity Payments is calculated using the AIR you chose when
the contract was issued plus 1%. For fixed Annuity Payments, the surrender value
is 98% of the present value of remaining payments. The present value of the
fixed Annuity Payments is calculated using interest rates in effect at the time
we receive your surrender request. (See "Surrender Charge," p. NN). Surrenders
may have adverse tax consequences. You should contact a tax advisor before
making surrenders from the Contract.
2. Single Life Annuity. Under this option, we will make Annuity Payments
for the Annuitant's lifetime, no matter how long that may be. The final payment
will be the payment made immediately prior to the death of the Annuitant. No
additional payments will be made after the Annuitant dies. It is possible that
only one Annuity Payment will be made under this option. This would happen if
the Annuitant died before the second annuity Payment Date. Due to this risk,
this option offers you the highest level of Annuity Payments. No withdrawals are
permitted if this option is selected.
3. Single Life Annuity with Period Certain. Under this option, we will
make Annuity Payments for a specified period (5 to 30 years) or for the life of
the Annuitant, whichever is later. The final payment will be the later of either
the last guaranteed Payment Date or the scheduled Payment Date immediately prior
to the Annuitant's death. If the Annuitant dies prior to the last guaranteed
Payment Date, we will make payments to the Beneficiary when we receive due proof
of the Annuitant's death. No additional payments will be made if the Annuitant
dies after all guaranteed payments have been made. No withdrawals are permitted
if this option is selected.
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4. 100% Joint and Survivor Life Annuity. Under this option, we will provide
Annuity Payments for the Annuitant and the Secondary Annuitant's lifetimes.
After the death of either the Annuitant or the Secondary Annuitant, we will
continue to provide the full amount of Annuity Payments to the survivor.
Annuity Payments stop when both the Annuitant and the Secondary Annuitant are no
longer living. As in the case of the single life annuity option described
above, there is the risk that only one Annuity Payment will be made. No
withdrawals are permitted if this option is selected.
5. Joint and Survivor Life Annuity With Reduced Annuity Payments to the
Secondary Annuitant. This option is similar to option 4 above, except that
Annuity Payments are higher while both the Annuitant and the Secondary Annuitant
are living and lower, if the Annuitant dies before the Secondary Annuitant. If
the Annuitant dies before the Secondary Annuitant, the amount of the fixed
Annuity Payments will be reduced to the percent you select: either 50%, 66.67%
or 75%. For variable Annuity Payments, the number of Variable Annuity Units
will be reduced to 50%, 66.67% or 75%. The final Annuity Payment will be the
one made immediately prior to the Secondary Annuitant's death.
If the Secondary Annuitant dies before the Annuitant, we will continue to
make Annuity Payments as they are due, and the amount of the Annuity Payments
will not change. The final Annuity Payment will be the one made immediately
prior to the Annuitant's death. No additional Annuity Payments will be made
after the death of both Annuitants. No withdrawals are permitted if this option
is selected.
6. Joint and Last Survivor Life Annuity. Under this option we will provide
Annuity Payments for the Annuitant's and Secondary Annuitant's lifetimes.
Payments are higher while both Annuitant(s) are living and decrease upon the
death of either the Annuitant OR the Secondary Annuitant. Upon the first death,
the amount of the fixed Annuity Payments will be reduced to a percent you
select: either 50%, 66.67% or 75%. For variable Annuity Payments, the number of
Variable Annuity Units will be reduced to 50%, 66.67% or 75%. The final Annuity
Payment will be the one made immediately prior to the death of the remaining
annuitant. No additional Annuity Payments will be made after the death of both
Annuitants. No withdrawals are permitted if this option is selected.
7. 100% Joint and Survivor Life Annuity With Period Certain. Under this
option, we will provide Annuity Payments for a designated period of years or
life, whichever is greater. The number of years cannot be more than 30. The
final Annuity Payment will be the later of the last guaranteed Payment Date or
the Annuity Payment made immediately prior to the last surviving Annuitant's
death. If both Annuitants die prior to the last guaranteed Payment Date, we
will continue to make guaranteed Annuity Payments to the Beneficiary as they
become due for the remainder of the guaranteed period. No additional payments
will be made if both Annuitants die after all guaranteed Annuity payments have
been made. No withdrawals are permitted if this option is selected.
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8. Joint and Survivor Life Annuity With Period Certain and Reduced Annuity
Payments to the Secondary Annuitant. This option is similar to option 7 above,
except that Annuity Payments are higher while both the Annuitant and the
Secondary Annuitant are living and lower, if the Annuitant dies before the
Secondary Annuitant and after the guaranteed period. If the Annuitant dies
before the end of the guaranteed period, the amount of the Annuity payments
will not change. However, if the Annuitant dies after the guaranteed period,
the amount of the Annuity Payments will be reduced to percent you select: either
50%, 66.67% or 75%. For variable Annuity Payments, the number of Variable
Annuity Units will be reduced to 50%, 66.67% or 75%. The final payment will be
the one made immediately prior to the Secondary Annuitant's death. If the
Secondary Annuitant dies before the Annuitant, we will continue to make Annuity
Payments as they are due, and the amount of the Annuity Payments will not
change. The final Annuity Payment will be the one made immediately prior to the
Annuitant's death. No withdrawals are permitted, if this option is selected.
9. Joint and Last Survivor Life Annuity with Period Certain. Under this option
we will provide Annuity Payments for a designated period of years or for the
Annuitants and Joint Annuitants lifetimes, whichever is later. The number of
guaranteed years cannot be more than 30. Payments are higher while both
Annuitant(s) are living and decrease after the guarantee period upon the death
of either the Annuitant OR the Secondary Annuitant. Upon the first death, the
amount of the fixed Annuity Payments will be reduced to a percent you select:
either 50%, 66.67% or 75%. For variable Annuity Payments, the number of
Variable Annuity Units will be reduced to 50%, 66.67% or 75. The final Annuity
Payment will be the later of the last guaranteed Payment Date or the Annuity
Payment made immediately prior to the last surviving Annuitant's death. No
additional Annuity Payments will be made after the death of both Annuitants. No
withdrawals are permitted if this option is selected.
10. Life Annuity with Premium Refund Payment. Under this option, we will make
Annuity Payments for the Annuitant's lifetime. The final Annuity Payment will
be either the payment made immediately prior to the Annuitant's death or the
Premium Refund benefit. If at the date of the Annuitant's death the sum of all
the Annuity Payments made is less than the Premium, we will pay a Premium Refund
benefit to the Beneficiary. The Premium Refund benefit will be the Premium less
the sum of the previously distributed variable and fixed Annuity Payments. No
withdrawals are permitted if this option is selected.
11. Single Life Annuity with Emergency Cash(SM). Under this option, we will
make variable Annuity Payments for the Annuitant's lifetime. With the Life with
Emergency Cash(SM) feature, the Owner is able to withdraw all or a portion of
the Life with Emergency Cash(SM) Benefit after the Contract Issue Date. Partial
withdrawals must be for no less than 25% of the Life with Emergency Cash(SM)
Benefit. We will provide you with a Life with Emergency Cash(SM) Benefit
Schedule as a rider to the Contract that will assist you in determining the
amount you have available to withdraw. The amount of the Life with Emergency
Cash(SM) Benefit is also a Death Benefit that is paid upon the death of the
Annuitant. The Life with Emergency Cash(SM) Benefit will continue through age
100 of
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the Annuitant. The amount of the Life with Emergency Cash(SM) Benefit depends on
the investment experience of the Portfolios and the Emergency Cash Multiplier as
set forth in the rider attached to your policy. For qualified contracts the
death benefit ceases at the date the annuitant reaches the IRS age limitation
determined at the Contract Issue Date. You should contact a tax advisor before
making withdrawals from the Contract.
12. Joint and Survivor Life Annuity with Emergency Cash(SM). Under this option,
we will provide Annuity Payments to the Annuitant and the Secondary Annuitant
while both are living. After the death of either the Annuitant or the Secondary
Annuitant, we will continue to provide the full amount of Annuity Payments to
the survivor. With the Life with Emergency Cash(SM) feature, the Owner is able
to withdraw all or a portion of the Life with Emergency Cash(SM) Benefit after
the Contract Issue Date. The amount of the Life with Emergency Cash(SM) Benefit
is also a Death Benefit that is paid upon the death of the last annuitant. We
will provide a Life with Emergency Cash(SM) Benefit Schedule as a rider to the
Contract. Partial withdrawals must be for no less than 25% of the Life with
Emergency Cash(SM) Benefit. The Life with Emergency Cash(SM) Benefit will
continue through age 100 of the youngest of the Annuitant and the Secondary
Annuitant. The amount of the Life with Emergency Cash(SM) Benefit depends on the
investment experience of the Portfolios and the Emergency Cash Multiplier as set
forth in the rider attached to your policy. For qualified contracts the death
benefit ceases at the date of the IRS joint age limitation determined at the
Contract Issue Date. You should contact a tax advisor before making withdrawals
from the Contract.
Death Proceeds. If any Owner, who is an Annuitant, dies before the first
Payment Date, the amount of the death proceeds is the premium plus or minus the
investment performance of the subaccounts. If any Owner, who is not an
Annuitant, dies before the first Payment Date, the Successor Owner may direct
the Owner's interest in the Contract to be distributed as follows:
(i) one cash lump sum to be distributed within five years of the deceased
owner's death;
(ii) annuitize the value of the Annuity Payments over the lifetime of the
Successor Owner; or
(iii) annuitize the value of the Annuity Payments over a period that does not
exceed the life expectancy of the Successor Owner, as defined by the
Code.
"Successor Owner" means the person named by the Owner to whom ownership of this
Contract passes upon the Owner's death, unless the deceased Owner was also an
Annuitant, in which case the Annuitant's Beneficiary is entitled to the benefit
described above. If no person is named, the Owner's Estate shall be deemed the
Successor Owner.
Subparagraphs (ii) and (iii) above only apply to individuals, and payments
under those options must start within one year of the date of the deceased
Owner's death. For Qualified Contracts, any option chosen must meet the
requirements of the Code.
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If an Owner, who may or may not also be an Annuitant, dies on or after the
Annuity Starting Date (as defined below), the remaining portion of the Annuity
Payments due under the Contract, if any, will be distributed in the same manner
and frequency (at least as rapidly) as under the method of distribution used
before such Owner's death.
If the deceased Owner's surviving spouse, if any, is the sole Successor Owner,
then on such Owner's death such surviving spouse may elect to become the sole
Owner under the Contract and to continue the Contract as his or her own. If no
such election is made, the rules outlined in the foregoing paragraphs of this
section will apply.
If a non-natural person is named as an Owner, then the primary Annuitant, as
defined in the Code, shall be treated as an Owner solely for the purposes of the
distribution at death rules described in the foregoing paragraphs. The entire
interest in the Contract must be distributed upon the Annuitant's death, if the
Annuitant dies prior to the first Payment Date.
If the deceased Owner was also the Annuitant, then the Annuitant's Beneficiary
is entitled to the proceeds described above in this section (unless the deceased
Owner's surviving spouse is the sole successor Owner). If no person is named as
the Beneficiary, the Owner's estate shall be deemed the Beneficiary.
In all events, distributions upon the death of an Owner will comply with
Section 72(s) of the Code.
FEDERAL TAX CONSIDERATIONS
General
TAX LAW IS COMPLEX AND TAX CONSEQUENCES WILL VARY ACCORDING TO THE ACTUAL
STATUS OF THE CONTRACT OWNER AND, IF APPLICABLE, THE TYPE OF RETIREMENT PROGRAM
FOR WHICH THE CONTRACT IS PURCHASED. THEREFORE, A PERSON, TRUSTEE OR OTHER
ENTITY CONTEMPLATING THE PURCHASE OF A CONTRACT MAY NEED LEGAL AND TAX ADVICE.
This Prospectus does not provide a detailed description of the federal income
tax consequences of purchasing a Contract. Special tax rules may apply to
certain purchase situations not discussed herein. In addition, no attempt is
made here to consider any applicable state or other tax laws. For detailed
information, a prospective purchaser should always consult a qualified tax
advisor. This discussion is based on PFL's understanding of current federal
income tax laws as they are currently interpreted.
Taxation of Purchasers of Non-Qualified Contracts
Corporations, Trusts and other Non-Natural Persons. Under section 72(u) of
the Code, if a non-natural person such as a corporation, trust or partnership
owns an annuity
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contract, annual net increases in the value of the contract are generally
includable in the non-natural person's gross income currently, unless the
annuity is an immediate annuity. For this purpose, an immediate annuity is an
annuity that is purchased with a single premium payment, that has an annuity
starting date commencing no later than one year from the date of purchase, and
that provides for a series of substantially equal periodic payments to be made
no less frequently than annually during the annuity period. Generally, the
Contract should qualify as an immediate annuity, but corporations, trusts,
partnerships and other entities that are not natural persons should consult a
tax advisor if they seek to rely on the exception from section 72(u) for
immediate annuity contracts.
Natural Persons. Section 72 generally provides that a Contract Owner is not
taxed on increases in the value of the Contract until an amount distributed from
the Contract is received (or deemed received) by the Contract Owner, either in
the form of Annuity Payments, as contemplated by the Contract, or in some other
form (i.e., surrender or Death Proceeds). However, this tax deferral generally
applies only if: (1) the investments in the Separate Account are "adequately
diversified" in accordance with Treasury Department regulations, (2) PFL, rather
than the Contract Owner, is considered the owner of such assets for federal
income tax purposes, and (3) the Contract includes certain provisions regarding
distributions that must occur in the event that a Contract Owner dies. These
requirements are discussed further under the caption "Tax Status of the
Contract" below.
Distributions Prior to the Annuity Starting Date. If a Contract is
surrendered prior to the "Annuity Starting Date", in the case of a period
certain or Life with Emergency Cash(SM) option, amounts received by the Contract
Owner are includable in his or her income to the extent that such amounts exceed
the "investment in the contract." For this purpose, the investment in the
contract at any time equals the Premium (to the extent that such Premium was
neither deductible when made nor excludable from income as, for example, in the
case of certain contributions to Qualified Contracts), less any amounts
previously received from the Contract which were not includable in income.
Also, the surrender value may be subject to a penalty tax, described below. In
general, an assignment of the Contract (or other change of ownership) before the
"Annuity Starting Date" without full and adequate consideration will be treated
as a distribution from the Contract and taxed in the same manner as a surrender
before the "Annuity Starting Date" (except where the Contract is transferred
between spouses or incident to a divorce).
The "Annuity Starting Date" is the latter of the day upon which the
obligations under the Contracts become fixed or the first day of the period
which ends on the first Payment Date. In most cases, the Annuity Starting Date
for a Contract will be the Contract Issue Date.
In certain situations, the Contract provides for a death benefit upon the
death of a Contract Owner; Annuitant or Secondary Annuitant. This distribution
is includable in the recipient's income as follows: (1) if distributed in a
lump sum, it is taxed in the same manner as a surrender, (2) if it is
distributed in the form of Annuity Payments, it is taxed in the same manner as
Annuity Payments (see below).
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<PAGE>
Distributions On or After the Annuity Starting Date. A portion of the Annuity
Payments received during each taxable year is generally treated as tax-free
recovery of your investment in the Contract and the remainder of such Annuity
Payments is taxable as ordinary income, until all such investment in the
Contract has been recovered. Once the entire amount of the investment in the
Contract has been recovered, all Annuity Payments are fully taxable as ordinary
income. For these purposes, the investment in the Contract will generally be
your Premium, reduced by any previous distributions other than Annuity Payments
from the Contract to the extent such previous distributions were received tax-
free, with certain adjustments to take into account certain payments projected
to occur after the death of the Annuitant.
The formulas for computing the taxable portion of the Annuity Payments prior
to recovery of the investment in the Contract are quite complex and differ
depending on the extent to which your Premium has been allocated to variable or
fixed Annuity Payment options. To the extent your Premium has been allocated to
fixed Annuity Payment options, an "exclusion ratio" is generally computed based
on the ratio of the investment in the Contract allocable to the fixed Annuity
Payment option to the total amount projected to be paid under the Contract, and
the portion of each fixed Annuity Payment that is excludable from tax is equal
to the exclusion ratio multiplied by the fixed Annuity Payment. To the extent
your Premium has been allocated to variable Annuity Payments, the excludable
amount of the variable Annuity Payments for each taxable year is generally
computed by dividing the investment in the Contract allocable to variable
Annuity Payment options by the number of years over which Annuity payments are
expected to be made.
If Annuity Payments cease by reason of death of Annuitant before the entire
amount of the investment in the Contract has been fully recovered tax-free, a
deduction is allowed for the amount of the unrecovered investment in the
Contract for the last taxable year of the Annuitant.
Partial surrenders or withdrawals from the period certain or the Life with
Emergency Cash(SM) Benefit are fully taxable as ordinary income and may not
result in recomputation of the exclusion ratio applicable to fixed Annuity
Payments or the excludable amount applicable to variable Annuity Payments.
A transfer of all or part of the value of variable Annuity Payments to fixed
Annuity Payments may have tax consequences. A tax advisor should be consulted
before making such a transfer.
A transfer of ownership of the Contract, the designation of an Annuitant or
other Payee who is not an Owner of the Contract or the assignment of the
Contract may result in certain income or gift tax consequences to the Owner that
are beyond the scope of this discussion. A Contract Owner who is considering
any such transfer, designation or assignment should consult a tax advisor.
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<PAGE>
Penalty Tax on Certain Distributions. Distributions received (or deemed
received) from an annuity contract (before or after the annuity starting date)
may be subject to a penalty tax equal to 10% of the amount treated as taxable
income. There is an exception for distributions from immediate annuities, and
Annuity Payments under the Contract should therefore generally not be subject to
the 10% penalty tax. However, it is unclear whether Life with Emergency Cash(SM)
Benefit and period certain surrenders or withdrawals will be subject to the 10%
penalty tax if such withdrawals are made before the taxpayer reaches age 59 or
are not attributable to the taxpayer's becoming disabled. In addition, the 10%
penalty tax does not apply to distributions from a Contract made on or after the
death of the Contract Owner and, under certain circumstances, to distributions
made under a Contract issued in connection with a structured settlement
agreement. A tax advisor should be consulted if there is a question as to
whether a distribution will be subject to the 10% penalty tax.
Aggregation of Two or More Contracts. The Treasury Department has specific
authority to issue regulations that prevent the avoidance of Section 72(e) of
the Code through the serial purchase of annuity contracts or otherwise. There
may be situations in which the Treasury Department may conclude that it would be
appropriate to aggregate two or more deferred or immediate annuity contracts
purchased by the same owner. Accordingly, a Contract Owner should consult a
competent tax advisor before purchasing more than one annuity contract in a
calendar year.
Contracts Obtained through an Exchange. Section 1035 of the Code generally
provides that no gain or loss shall be recognized on the exchange of one annuity
contract for another. A number of special rules and procedures, however, apply
to Section 1035 transactions. Prospective Contract Owners wishing to take
advantage of Section 1035 should therefore consult their tax advisor.
Taxation of Purchasers of Qualified Contracts
The Contracts are designed for use as Individual Retirement Annuities ("IRA")
or in connection with Deferred Compensation Plans established and maintained by
state or local governments or tax-exempt organizations. Important differences
exist between the tax rules which are applicable to IRAs and Deferred
Compensation Plans. These rules are complex and may vary depending on
individual circumstances. Adverse tax consequences may result from
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to applicable commencement and minimum distribution rules;
and in other circumstances. Therefore, no attempt is made to provide more than
general information about the use of Contracts as IRAs or when owned by eligible
employers in connection with Deferred Compensation Plans. Contract Owners,
Annuitants, and Beneficiaries are cautioned that the rights of the plan itself,
regardless of the terms and conditions of the Contract, but that PFL is not
bound by the terms and conditions of such plans to the extent such terms
conflict with the Contract, unless PFL specifically consents to be bound. A
brief description of some of the federal income tax rules which apply to IRAs
and Deferred Compensation Plans is set forth
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<PAGE>
below. PFL may amend the Contract as necessary to conform it to requirements
of applicable law.
Individual Retirement Annuities. The Contract is designed for the use as an
IRA purchased through a tax-deferred rollover contribution from another IRA, a
retirement plan qualified under Section 401 or Section 403(a) of the Code or tax
sheltered annuity contract under Section 403(b) of the Code. Amounts held under
a Deferred Compensation Plan under Section 457 of the Code cannot be rolled over
or transferred to an IRA.
Distributions From an IRA. In general, payments from an IRA which are not
rolled over must be included in gross income as ordinary taxable income in the
year in which they are received. Required minimum distributions must begin by
April 1 of the calendar year following the calendar year in which the IRA owner
attains the age of 70 1/2. Certain other mandatory distribution rules apply
upon the death of the IRA owner.
Ten Percent Penalty Tax on Early Distributions. Distributions received (or
deemed received) from an IRA may be subject to a penalty tax equal to ten
percent (10%) of the amount treated as taxable income. In general, however,
there is no such penalty tax on distributions:
1. made on or after the date on which the taxpayer reaches age 59 1/2,
2. made to a beneficiary (or to the estate of the taxpayer) on or after the
death of the taxpayer,
3. attributable to the taxpayer's becoming disabled,
4. which are part of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer and
his or her designated beneficiary,
5. made to the taxpayer to the extent such distributions do not exceed the
amount allowable as a deduction for federal income tax purposes allowed to the
taxpayer for amounts paid during the taxable year for medical care,
6. if certain conditions are met, made to an unemployed taxpayer after
separation from employment, for health insurance premiums,
7. made for qualified first time homebuyer expenses for the taxpayer or
certain of the taxpayer's family members, or
8. made for qualifying higher education expenses for the taxpayer or for
certain of the taxpayer's family members (including tuition, fees, books,
supplies, and
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<PAGE>
equipment required for enrollment, attendance, and room and board at a post-
secondary educational institution).
Code Section 457 Deferred Compensation Plans. The Contract may be purchased
by a state or local government or tax-exempt organization that is an employer
sponsoring a Deferred Compensation Plan under Section 457 of the Code in order
to effect distribution of plan benefits to participants under the plan. In
general, distributions from a Deferred Compensation Plan are prohibited unless
made after the participant attains the age specified in the plan, separates from
service, dies, or suffers an unforeseeable financial emergency. Distributions
under plans that meet the requirements of Section 457 of the Code are taxable as
ordinary income in the year paid or made available to the participant or
beneficiary.
Generally, required minimum distributions must begin by April 1 of the
calendar year following the calendar year in which the participating employee
attains the age of 70 1/2. Certain other mandatory distribution rules apply
upon the death of the participating employee.
Amounts held under a Deferred Compensation Plan under Section 457 of the Code
cannot be rolled over or transferred to an IRA.
Life with Emergency Cash(SM) Benefit. The Internal Revenue Service has not
addressed in a ruling of general applicability whether a distribution feature
such as the Life with Emergency Cash(SM) feature comports with the Code's
distribution requirements for IRAs and Deferred Compensation Plans.
Federal Income Tax Withholding
The portion of a distribution from a Contract that is taxable income to the
recipient is generally subject to withholding for the recipient's federal income
tax liability at rates that vary according to the type of distribution and the
recipient's tax status. Section 3405 of the Code governs withholding and is
summarized below:
Non-Periodic Distributions. The portion of a non-periodic distribution which
constitutes taxable income will be subject to federal income tax withholding
unless the recipient elects not to have taxes withheld. If an election not to
have taxes withheld is not provided, 10% of the taxable distribution will be
withheld as federal income tax. Election forms will be provided at the time
distributions are requested. If the necessary election forms are not submitted
to PFL, PFL will automatically withhold 10% of the taxable distribution.
Periodic Distributions (distributions payable over a period greater than one
year). The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding as if the recipient were
married claiming three exemptions. A recipient may elect not to have income
taxes withheld or have income
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<PAGE>
taxes withheld at a different rate by providing a completed election form.
Election forms will be provided at the time distributions are requested.
Deferred Compensation Plans. Distributions from a non-qualified deferred
compensation plan meeting the requirements of Section 457 of the Code are
generally subject to regular wage withholding rules.
Certain states also require withholding of state income tax whenever federal
income tax is withheld.
Contract Owners That Are Nonresident Aliens or Foreign Corporations
The discussion above provides general information regarding U.S. federal
income tax consequences to Contract Owners that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies and any required tax forms are submitted to
PFL. In addition, purchasers may be subject to state premium tax, other state
and/or municipal taxes, and taxes that may be imposed by the purchaser's country
of citizenship or residence. Prospective purchasers are advised to consult with
a qualified tax advisor regarding U.S., state, and foreign taxation with respect
to the purchase of a Contract.
Possible Changes in Taxation
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely change the federal
taxation of the Contracts. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax advisor
should be consulted with respect to legislative developments and their effect on
the Contract.
Other Tax Consequences
As noted above, the foregoing comments about the federal tax consequences
under these Contacts are not exhaustive, and special rules may apply to other
tax situations not discussed in this Prospectus. Further, the federal income
tax consequences discussed herein reflect PFL's understanding of current law and
the law may change. Federal estate and state and local estate, inheritance and
other tax consequences of ownership or receipt of distributions under a Contract
depend on the individual circumstances of each Contract Owner or recipient of
the distribution. In particular, gift and/or estate tax consequences may result
in situations where a Contract Owner is not also the Annuitant, Payee, and
Beneficiary. A competent tax advisor should be consulted for further
information.
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<PAGE>
OTHER INFORMATION
Distribution of the Contracts
AFSG Securities Corporation (AFSG), an affiliate of PFL, located at 4333
Edgewood Road N.E., Cedar Rapids, IA 52499-0001, is the principal underwriter of
the Contracts. AFSG 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. (the "NASD").
Contracts are sold by registered representatives of AFSG or of broker/dealers
who have entered into written sales agreements with AFSG, the principal
underwriter, and who are also licensed through various affiliated or
unaffiliated agencies as insurance agents for PFL. PFL has entered into a
distribution agreement with AFSG and companion sales agreements with agencies
and/or agents through which agreements the Contracts are sold and the registered
representatives are compensated by the agencies and/or AFSG. Broker/dealers
will generally receive sales commissions of up to _____% of Premium. These
commissions are not deducted from Premiums; 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 Contracts. The level of such compensation will
not exceed that paid to broker/dealers for their sale of the Contracts. No
amounts will be retained by AFSG for acting as principal underwriter for the
Contracts. The offering of Contracts will be made on a continuing basis.
Voting Rights
To the extent required by law, we will vote the Fund shares held by the
Separate Account at regular and special shareholder meetings of the Funds in
accordance with instructions received from persons having voting interests in
the Portfolios (although the 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
we determine that it is permitted to vote the Funds' shares in our own right, we
may elect to do so.
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
Contract decrease. The person's number of votes will be determined by dividing
the reserve for the Contract 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 Funds for
determining shareholders eligible to vote at the meeting of the Funds. We 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
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<PAGE>
Funds. Portfolio shares as to which no timely instructions are received and
shares held by us 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 Contracts participating in the same Subaccount.
Each person having a voting interest in an Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.
Performance
Performance information for the Subaccounts may appear in reports and
advertising to current and prospective Owners, Annuitants, Secondary Annuitants
and Beneficiaries. The performance information is based on adjusted historical
investment experience of the Subaccounts and the Funds and does not indicate or
represent future performance.
Total returns of the Subaccounts may be advertised. Total returns are based
on the overall dollar or percentage change in value of a hypothetical
investment. Total return quotations reflect changes in Portfolio share price,
the automatic reinvestment by the separate account of all distributions and the
deduction of applicable annuity charges.
A cumulative total return reflects performance over a stated period of time.
An average annual total return reflects the hypothetical annually compounded
return that would have produced the same cumulative total return if the
performance had been constant over the entire period. Because average annual
total returns tend to smooth out variations in an Subaccount's returns, you
should recognize that they are not the same as actual year-by-year results.
Some Subaccounts may also advertise yield. These measures reflect the income
generated by an investment in the Subaccount over a specified period of time.
This income is annualized and shown as a percentage. Yields do not take into
account capital gains or losses.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the Subaccount
over a 7 day period. Effective yield is calculated in a similar manner except
that income earned is assumed to be reinvested. The VIP II Investment Grade
Bond and the VIP High Income Subaccounts may advertise a 30 day yield which
reflects the income generated by an investment in the Subaccount over a 30 day
period.
IMSA
PFL is a member of the Insurance Marketplace Standards Association ("IMSA")
and as such may include the IMSA logo and information about IMSA membership in
its advertisements. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and services for individually
sold life insurance and annuity products.
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<PAGE>
Year 2000 Matters
PFL adopted and presently has in place a Year 2000 Assessment and Planning
Project (the "Plan") to review and analyze existing hardware and software
systems as well as voice and data communications systems to determine if they
are Year 2000 compatible. The Plan provides for a management process, which
ensures that when a particular system or software application is determined to
be "non-compliant" the proper steps are in place to either remedy the "non-
compliance" or cease using the particular system or software. The Plan also
provides that the Chief Information Officer report to the Board of Directors as
to the status of the efforts under the Plan on a regular and routine basis. PFL
has engaged the services of a third-party provider that is specialized in Year
2000 issues to work on the project.
The Plan has four specific objectives: (1) develop an inventory of all
applications; (2) evaluate all applications in the inventory to determine the
most prudent manner to move them to Year 2000 compliance, if required; (3)
estimate budgets, resources and schedules for the migration of the "affected"
applications to Year 2000 compliance; and (4) define testing and deployment
requirements to successfully manage validation and re-deployment of any changed
code. It is anticipated that all compliance issues will be resolved by December
1998.
As of the date of this Prospectus, PFL has identified and made available what
it believes are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that the
systems or equipment addresses Year 2000 data prior to the Year 2000). Even
with appropriate and diligent pursuit of a well-conceived response plan,
including testing procedures, there is no certainty that any company will
achieve complete success. Further, notwithstanding its efforts or results,
PFL's ability to function unaffected to and through the Year 2000 may be
adversely affected by actions (or failure to act) of third parties beyond its
knowledge or control.
Legal Proceedings
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. PFL, like other life
insurance companies, is a defendant in lawsuits. In some class action and other
lawsuits involving other insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PFL believes that at the present
time there are no pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the Separate Account or PFL.
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<PAGE>
The Statement is available (at no cost) which contains more details concerning
the subjects discussed in this Prospectus. The following is the Table of
Contents for the Statement:
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
THE CONTRACT--GENERAL PROVISIONS
Delay of Transfers
Entire Contract
Assignment
Beneficiary
Change of Beneficiary
Incontestability
Misstatement of Age or Sex
Modification of Contract
Nonparticipating
Owner
Proof of Death
Proof of Survival
Protection of Proceeds
FEDERAL TAX MATTERS
Tax Status of the Contract
Diversification Requirements
Owner Control
Required Distributions
Taxation of PFL
INVESTMENT EXPERIENCE
STATE REGULATION OF PFL
ADMINISTRATION
RECORDS AND REPORTS
DISTRIBUTION OF THE CONTRACTS
OTHER PRODUCTS
CUSTODY OF ASSETS
HISTORICAL PERFORMANCE DATA
Money Market Yields
Other Subaccount Yields
Total Returns
Other Performance Data
Hypothetical Performance Data
LEGAL MATTERS
INDEPENDENT AUDITORS
OTHER INFORMATION
FINANCIAL STATEMENTS
(Numbers in parenthesis indicate corresponding pages of the Prospectus).
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Appendix
Illustrations of Values
The following graphs have been prepared to show how investment performance
affects your variable Annuity Payments over time. The graphs incorporate
hypothetical rates of return and, of course, PFL does not guarantee that you
will earn these returns for any one year or any sustained period of time. The
graphs are for illustrative purposes only and do not represent past or future
investment returns.
Your variable Annuity Payment may be more or less than the income shown if the
actual returns of the Subaccounts are different than those illustrated. Since
it is very likely that your investment returns will fluctuate over time, you can
expect that the amount of your Annuity Payment will also fluctuate. The total
amount of Annuity Payments ultimately received will, in addition to the
investment performance of the subaccounts, also depend on how long you live and
whether you choose a guarantee period option.
Another factor which determines the amount of your variable Annuity Payment is
the Assumed Investment Return (the "AIR"). Annuity Payments will increase from
one Variable Annuity Payment Calculation Date to the next if the Performance of
the Portfolio underlying the Subaccounts, net of all charges, is greater than
the AIR and will decrease if the Performance of the Portfolio underlying the
Subaccounts, net of all charges, is less than the AIR.
The "Hypothetical Illustration" graph illustrates differences in variable
Annuity Payments assuming different net returns. The graph assumes a single
premium of $40,000; the entire premium was allocated to variable Annuity
Payments; the AIR is 5.5%; the payment option is Single Life Annuity; and a 65
year old male. The graph illustrates net returns (after expense) of 0.00%,
5.50%, and 10.00%.
["Hypothetical Illustration" Graph Appears Here]
MONTHLY PAYMENTS ASSUMING DIFFERENT NET PORTFOLIO RETURNS
(Beginning Monthly Payment = $280.50)
<TABLE>
<CAPTION>
NET PORTFOLIO RETURNS
----------------------------------------------------------
END OF YEAR 0.0% 5.5% 10.0%
- ------------------- -------------- -------------- ------------
<S> <C> <C> <C>
1 $279 $281 $ 281
2 $265 $281 $ 293
3 $251 $281 $ 306
4 $238 $281 $ 319
5 $225 $281 $ 333
6 $214 $281 $ 347
7 $203 $281 $ 362
8 $192 $281 $ 377
9 $182 $281 $ 393
10 $172 $281 $ 410
11 $163 $281 $ 427
12 $155 $281 $ 446
13 $147 $281 $ 465
14 $139 $281 $ 484
15 $132 $281 $ 505
16 $125 $281 $ 527
17 $119 $281 $ 549
18 $112 $281 $ 573
19 $107 $281 $ 597
20 $101 $281 $ 622
- -------------------------------------------------------------------------------
</TABLE>
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<PAGE>
The "Monthly Payment Amounts with Different AIRs" graph illustrates the
differences in variable Annuity Payments between selecting the 4% and 5.5% AIR.
The graph assumes a single Premium of $40,000; the entire premium was allocated
to variable Annuity Payments; the Payment Option is a single Life Annuity; 65
year old male; and an annual return of the portfolios, after all expenses of
10%. Monthly variable Annuity Payments are shown with the 4% AIR and the 5.5%
AIR.
["Monthly Payment Amounts with Different AIRs" Graph Appears Here]
<TABLE>
<CAPTION>
MONTHLY PAYMENTS ASSUMING DIFFERENT AIRS
(Net Portfolio Return = 10%)
AIR
----------------------------
4.0% 5.5%
----------- -------------
<S> <C> <C> <C>
Beginning Monthly Payment $243 $281
End of Years 1 $244 $281
2 $259 $293
3 $274 $306
4 $289 $319
5 $306 $333
6 $324 $347
7 $342 $362
8 $362 $377
9 $383 $393
10 $405 $410
11 $428 $427
12 $453 $446
13 $479 $465
14 $507 $484
15 $536 $505
16 $567 $527
17 $600 $549
18 $634 $573
19 $671 $597
20 $710 $622
- -------------------------------------------------------------------------
</TABLE>
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<PAGE>
The Annuity Payment amounts shown reflect the deduction of all fees and
expenses. Actual fees and expenses under the Contract may be higher or lower,
will vary from year to year, and will depend on how you allocate among the
Portfolios. The Separate Account charge is assumed to be at an annual rate of
1.35% of the average daily net assets.
Upon request, we will furnish a customized illustration based on your
individual circumstances and choice of annuity options.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
PFL IMMEDIATE INCOME 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 PFL Immediate Income Annuity (the "Contract")
offered by PFL Life Insurance Company. You may obtain a copy of the Prospectus
dated _________, 1998, 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 Contract. Terms used in the current Prospectus for the Contract 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 CONTRACT AND THE PFL
RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT (THE "SEPARATE ACCOUNT").
Dated: ____________, 1998
<PAGE>
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
THE CONTRACT--GENERAL PROVISIONS
Delay of Transfers
Entire Contract
Assignment
Beneficiary
Change of Beneficiary
Incontestability
Misstatement of Age or Sex
Modification of Contract
Nonparticipating
Owner
Proof of Death
Proof of Survival
Protection of Proceeds
FEDERAL TAX MATTERS (XX)
Tax Status of the Contract
Diversification Requirements
Owner Control
Required Distributions
Taxation of PFL
INVESTMENT EXPERIENCE (XX)
STATE REGULATION OF PFL
ADMINISTRATION
RECORDS AND REPORTS
DISTRIBUTION OF THE CONTRACTS (XX)
OTHER PRODUCTS
CUSTODY OF ASSETS
HISTORICAL PERFORMANCE DATA (XX)
Money Market Yields
Other Subaccount Yields
Total Returns
Other Performance Data
Hypothetical Performance Data
LEGAL MATTERS
INDEPENDENT AUDITORS
OTHER INFORMATION
FINANCIAL STATEMENTS (XX)
(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 Contract which may be of
interest to a prospective purchaser.
THE CONTRACT--GENERAL PROVISIONS
Delay of Transfers
When you transfer amounts among the Subaccounts, we will redeem shares of
the appropriate Portfolios at their prices as of the end of the current
Valuation Period. Generally any Subaccount you transfer to is credited at the
same time. However, we may wait to credit the amount to a new Subaccount until a
Subaccount you transfer from becomes liquid. This will happen only if (1) the
Subaccount you transfer to invests in a Portfolio that accrues dividends on a
daily basis and requires federal funds before accepting a purchase order, and
(2) the Subaccount you transfer from is investing in an equity Portfolio in an
illiquid position due to substantial redemptions or transfers that require it to
sell Portfolio securities in order to make funds available. The Subaccount you
transfer from will be liquid when it receives proceeds from sales of Portfolio
securities, the purchase of new Contracts, or otherwise. During any period that
we wait to credit an Subaccount for this reason, the amount you transfer will be
uninvested. After seven days the transfer will be made even if the Subaccount
you transfer from is not liquid.
Entire Contract
The entire Contract is made up of the Contract, and any riders,
endorsements, or application. No change in or waiver of any provision of the
Contract is valid unless the change or waiver is signed by the President or
Secretary of PFL.
Assignment
The option to assign is only available for non-tax qualified annuities.
Only you may make an assignment of this contract. You must notify us in writing
to assign this contract. No change will apply to any action taken by us before
the Written Notice was received. We are not responsible for the validity of the
effect of an assignment.
Beneficiary
The Beneficiary is named in the Contract Specifications Section of the
Contract or in a subsequent endorsement. More than one beneficiary may be named.
The rights of any Beneficiary will be subject to all the provisions of the
Contract. You may impose other limitations with our consent.
If any primary or contingent Beneficiary dies before the Annuitant, that
Beneficiary's interest in this Contract ends with that Beneficiary's death. Only
those Beneficiaries
3
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living at the time of the Annuitant's death will be eligible to receive their
share of the death benefits. In the event no contingent Beneficiaries have been
named and all primary Beneficiaries have died before the death benefits become
payable, the Owner(s) will become the Beneficiary(ies) unless elected otherwise.
If both primary and contingent Beneficiaries have been named, payment will be
made to the named primary Beneficiaries living at the time the death proceeds
become payable. If there is more than one Beneficiary and you failed to specify
their interest, they will share equally. Payment will be made to the named
contingent Beneficiary(ies) only if all primary Beneficiaries have died before
the death benefits become payable. If any primary Beneficiary is alive at the
time the death benefits become payable, but dies before receiving their payment,
their share will be paid to their estate.
Change of Beneficiary
You may change the Beneficiary while the Annuitant is living, unless an
irrevocable one has been named. Change is made by written notice. The change
takes effect on the date the written notice was signed, and the written notice
must have been postmarked on or before the date of the Annuitant's death. No
change will apply to any Annuity Payment made before the written notice was
received. We may require return of the Contract for endorsement before making a
change.
Incontestability
The Contract is incontestable from the Contract Issue Date.
Misstatement of Sex or Age
If the age or sex of any Annuitant has been misstated, the Annuity Payments
will be those which the premium paid would have purchased for the correct age
and sex. Any underpayment made by us will be paid with the next Annuity Payment.
Any overpayment made by us will be deducted from future Annuity Payments. Any
underpayment or overpayment will include interest at 5% per year, from the date
of the incorrect payment to the date of the adjustment.
Modification of Contract
No change in the Contract is valid unless made in writing
Nonparticipating
Your Contract is nonparticipating. This means we do not pay dividends on
it. Your Contract will not share in our profits or surplus earnings.
4
<PAGE>
Owner
You, the owner, are named in the Contract Specifications Section. You may,
while any Annuitant is living, exercise all rights granted by the Contract.
These rights are subject to the rights of any assignee or living irrevocable
Beneficiary. "Irrevocable" means that you have given up your right to change the
Beneficiary named.
Unless we have been notified of a community or marital property interest in
the Contract, we will rely on our good faith belief that no such interest exists
and will assume no responsibility for inquiry.
Proof of Death
Any Beneficiary claiming an interest in the Contract must provide us in
writing with due proof of death of the Payee/Annuitant and/or Secondary
Annuitant (if any). We will not be responsible for Annuity Payments made before
we receive due proof of death at the Administrative and Service Office.
Proof of Survival
If Annuity Payments under the Contract depend on a person being alive on a
given date, proof of survival may be required by us prior to making Annuity
Payments.
Protection of Proceeds
Unless you so direct by filing Written Notice with us, no beneficiary may
assign payments under the Contract before the same are due. To the extent
permitted by law, no payments under the Contract will be subject to the claims
of creditors of any beneficiary.
FEDERAL TAX MATTERS
Tax Status of the Contracts
The discussion in the prospectus assumes that the Contracts qualify as
"annuity contracts" for federal income tax purposes under the Code.
Diversification Requirements. Section 817(h) of the Code provides that
separate account investments underlying a contract must be "adequately
diversified" in accordance with Treasury Department regulations in order for the
contract to qualify as an annuity contract under Section 72 of the Code. The
Separate Account, through each underlying Fund, intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various Sub-Accounts may be
invested. Although PFL does not have direct control over the Funds in which the
Separate Account invests, PFL believes that each Fund will meet the
diversification requirements, and therefore, the Contract will be treated as an
annuity contract under the Code.
5
<PAGE>
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 contract owner's gross income. The IRS has
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possessed incidents
of ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also 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 (i.e., the contract owner), 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 policy-holders may direct their investments to particular Sub-
Accounts without being treated as owners of the underlying assets."
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the Contract Owner has the choice of several Sub-Accounts in which to
allocate the Premium, and may be able to transfer among Sub-Accounts more
frequently than in such rulings. In addition, the Contract provides for more
Sub-Accounts than did the variable contracts that were the subject of the such
rulings. These differences could result in a Contract Owner being treated as the
owner of the assets of the Separate Account. In addition, PFL does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue. PFL therefore reserves the
right to modify the Contract as necessary to attempt to prevent the Contract
Owner from being considered the owner of the Separate Account's assets.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires any Non-
Qualified Contract to provide that: (a) if any Contract Owner dies on or after
the Annuity Starting Date (as defined in the Prospectus) but prior to the time
the entire interest in the Contract has been distributed, the remaining portion
of such interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that Contract Owner's death; and (b)
if any Contract Owner dies prior to the Annuity Staring Date, the entire
interest in the Contract will be distributed within five years after the date of
the Contract Owner's death. These requirements will be considered satisfied as
to any portion of the Contract Owner's interest that is payable to or for the
benefit of a "designated beneficiary," and that is distributed over the life of
such designated beneficiary or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of that Contract Owner's death. The "designated beneficiary" for these
purposes is the person who becomes the new owner of the Contract upon a Contract
Owner's death and must be a natural person. However, if the Contract Owner's
sole designated beneficiary is the surviving spouse of the Contract Owner, the
Contract may
6
<PAGE>
be continued with the surviving spouse as the new Contract Owner. The Code
further provides that if the Contract Owner is not an individual, the primary
Annuitant shall be treated as the Contract Owner for purposes of making
distributions that are required to be made upon the death of the Contract Owner.
(The Primary Annuitant is the individual the events in the life of whom are of
primary importance in effecting the timing and amount of the payout under the
Contract. If there is a change in the primary Annuitant, such change shall be
treated as the death of the Contract Owner. The Contract does not permit a
change of the Annuitants, however.
Non-Qualified Contracts contain provisions that are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. PFL will review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
Qualified Contracts are subject to similar provisions.
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Separate 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. We do not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the Separate Account retained as part of the reserves under
the Contract. Based on this expectation, it is anticipated that no charges will
be made against the Separate Account for federal income taxes. If, in future
years, any federal income taxes are incurred by PFL with respect to the Separate
Account, we may make a charge to the Separate Account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of Annuity Units
and to determine the amount of annuity payments as follows:
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. 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
7
<PAGE>
(C) is the daily factor for the Valuation Period.
The daily factor for the valuation period is a discount factor that
reflects the 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 Contract used to calculate the value of a
variable Annuity Unit in each Subaccount for the 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 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
we determine to have resulted from the investment operations of
the Subaccount;
(b) is the net asset value of a fund share held in that Subaccount
determined as of the end of the immediately preceding valuation
period; and
(c) is an amount representing the Separate Account Charge as shown in the
specifications section of the Contract.
The dollar amount of subsequent Variable Annuity Payments will depend upon
changes in applicable Annuity Unit Values.
Illustrations of Calculations for Annuity Unit Value and Variable Annuity
Payments
1. Formula and Illustration for Determining Annuity Unit Value in each
Subaccount
Annuity Unit Value = V = A x B x C
Where: A = Annuity Unit Value for the immediately preceding Valuation Period.
B = Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated.
8
<PAGE>
C = A daily factor to neutralize the assumed interest rate
(example assumes AIR = 5.5%) built into the Annuity Tables used.
For example if: A = $20 on the day prior to the first payment
B = 1.01
C = 1/(1.055) *\(1/365)\ = .999853
Then, the Annuity Unit Value is equal to V = A x B x C
= $20 x 1.01 x .999853
= 20.1970
2. Formula and Illustration for Determining Amount of First Monthly Variable
Annuity Payment
First Monthly Variable Annuity Payment = P = (D x E)/$1,000
Where: D = The Contract Value as of the Contract Issue Date.
E = 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 Contract.
For example if: D = $100,000
E = 7.00
Then, the first Monthly Variable Annuity Payment = P = (D x E)/$1,000
= ($100,000 x 7.00)/$1,000
= $700
3. Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment (assuming investment
in only one Subaccount)
Number of Annuity Units = U = P/V
Where: P = The dollar amount of the first Monthly Variable Annuity
Payment.
V = The Annuity Unit Value for the Valuation Date on which
the first monthly payment is due.
For example if: P = $700
V = 20.1970
9
<PAGE>
Then, the number of Annuity Units = U = P/V
= $700/20.1970
= 34.6586 units
4. Formula and Illustration for Determining a Future Monthly Variable Annuity
Payment (assuming investment in only one Subaccount)
Monthly Variable Annuity Payment = P = U x V
Where: U = The Number of Annuity Units
V = The Annuity Unit Value for the Valuation Date on which the
future monthly payment is due.
For example if: U = 34.6586
V = 20.6970 (the Annuity Unit Value increased since issue)
Then, the Amount of the Monthly Variable Annuity Payment = U x V
= 34.6589 x 20.6970
= $717.34
If the Annuity Unit Value had actually decreased to V = 19.6970, the resulting
Monthly Variable Annuity Payment would = U x V
= 34.6589 x 19.6970
= $682.68
Illustration 4 assumes that no transfers or withdrawals are made between
determining the Number of Annuity Units and determining the future Monthly
Variable Annuity Payment; therefore, the Number of Annuity Units in
Illustrations 3 and 4 are the same.
10
<PAGE>
STATE REGULATION OF PFL
We are 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 our
operation 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 our contract liabilities and reserves so that the Division may
determine the items are correct. Our 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, we are subject to regulation under the insurance
laws of other jurisdictions in which we may operate.
ADMINISTRATION
We perform administrative services for the Contracts. These services include
issuance of the Contracts, maintenance of records concerning the Contracts, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by us. As presently required by the Investment Company Act of 1940 and
regulations promulgated thereunder, we will mail to all Contract 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. Contract Owners will also receive confirmation of each financial
transaction and any other reports required by law or regulation.
DISTRIBUTION OF THE CONTRACTS
The Contracts are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the Contracts
is continuous and we do not anticipate discontinuing the offering of the
Contracts. However, we reserve the right to discontinue the offering of the
Contracts.
AFSG Securities Corporation, our affiliate, is the principal underwriter of
the Contracts and may enter into agreements with broker-dealers for the
distribution of the Contracts. Prior to April 30, 1998, AEGON USA Securities,
Inc. (also our affiliate) was the principal underwriter for other contracts
issued through the Separate Account. During 1997 the amount paid to AEGON USA
Securities, Inc. and/or the broker-dealers for their services was $2,337,939.76.
No fees had been paid to AEGON USA Securities, Inc. and/or the broker/dealers
for their services to the Separate Account during 1996 or prior years.
11
<PAGE>
OTHER PRODUCTS
We make other variable annuity contracts available that may also be funded
through the Separate Account. These variable annuity contracts may have
different features, such as different investment options or charges.
CUSTODY OF ASSETS
The assets of each of the Subaccounts of the Separate Account are held by us.
The assets of each of the Subaccounts of the Separate Account are segregated and
held separate and apart from the assets of the other Subaccounts and from our
general account assets. We maintain 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 Separate Account is afforded by our fidelity
bond, presently in the amount of $5,000,000, covering the acts of our officers
and employees.
HISTORICAL PERFORMANCE DATA
Money Market Yields
We 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 and income other than investment
income) 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 Contract that are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for the Separate Account Charge. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS x 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 and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
Subaccount unit.
12
<PAGE>
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.
Because of the charges and deductions imposed under a Contract, 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 withdrawal charges that may be applicable to a particular Contract.
We 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 and income other than investment income) 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.
13
<PAGE>
Other Subaccount Yields
We may from time to time advertise or disclose the current annualized yield of
one or more of the Subaccounts of the Separate 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 the Separate Account Charge. 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.
Because of the charges imposed by the Separate Account, the yield for a
Subaccount of the Separate Account will be lower than the yield for its
corresponding Portfolio. The yield calculations do not reflect the effect of any
premium taxes or withdrawal charges that may be applicable to a particular
Contract.
The yield on amounts held in the Subaccounts of the Separate 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
We may from time to time also advertise or disclose total returns for one or
more of the Subaccounts of the Separate Account for various periods of time. One
of the periods of time will include the period measured from the date the
Subaccount commenced
14
<PAGE>
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 we
calculate on each Business Day based on the performance of the Subaccount's
underlying Portfolio, and the deduction for the Separate Account Charge. Total
return calculations will reflect the effect of withdrawal 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
We 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 no
withdrawal charge will be reflected.
We 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 there is no withdrawal
charge.
CTR = (ERV / P) - 1
15
<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 Separate 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 Contract 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 Contracts has been provided to us by
Sutherland, Asbill & Brennan LLP, of Washington D.C.
INDEPENDENT AUDITORS
Our Financial Statements as of December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, and the Financial Statements
of the PFL Retirement Builder Variable Annuity Account at December 31, 1997,
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
Contracts 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
16
<PAGE>
Contracts 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 Separate Account will be
affected solely by the investment results of the selected Subaccount(s). Our
Financial Statements, which are included in this Statement of Additional
Information, should be considered only as bearing on our ability to meet our
obligations under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
17
<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 Separate Account.
/1/
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between PFL Life
Insurance Company, on its own behalf and on behalf of the
Separate Account, and AFSG Securities Corporation./4/
(b) Form of Broker/Dealer Supervision and Sales Agreement by
and between AFSG Securities Corporation and the
Broker/Dealer./4/
(4) (a) Form of Contract for the PFL Immediate Income Annuity./7/
(5) (a) Form of Application for the PFL Immediate Income Annuity.
/7/
(6) (a) Articles of Incorporation of PFL Life Insurance Company./1/
(b) ByLaws of PFL Life Insurance Company./1/
(7) Not Applicable.
(8) (a) Participation Agreement by and between Variable Insurance
Product Funds and Variable Insurance Products Fund II,
Fidelity Distributors Corporation, and PFL Life Insurance
Company, and Addendums thereto./2/
(b) Participation Agreement between Variable Insurance Products
Fund III, Fidelity Distributors Corporation, and PFL Life
Insurance Company./3/
(c) Amended Schedule A to Participation Agreement by and
between Variable Insurance Product Funds and Variable
Insurance Products Fund II, Fidelity Distributors
Corporation, and PFL Life Insurance Company./7/
<PAGE>
(d) Amended Schedule A to Participation Agreement between
Variable Insurance Products Fund III, Fidelity Distributors
Corporation, and PFL Life Insurance Company./7/
(9) Opinion and Consent of Counsel./6/
(10) (a) Consent of Independent Auditors./7/
(10) (b) Opinion and Consent of Actuary./7/
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calculations./7/
(14) Powers of Attorney. (Patrick S. Baird, Craig D. Vermie,
William L. Busler, Douglas C. Kolsrud, Robert J. Kontz)/1/
(Brenda K. Clancy)/2/ (Larry N. Norman)/5/
/1/ Incorporated herein by reference to the Initial filing of Registrants
Form N-4 Registration Statement (File No. 333-7509) on July 3, 1996.
/2/ Incorporated herein by reference to the Registrants filing of Pre-
Effective Amendment No. 1 to Form N-4 Registration Statement (File No.
333-7509) on December 6, 1996.
/3/ Incorporated herein by reference to the Registrant's filing of Post-
Effective Amendment No. 1 to Form N-4 Registration Statement (File No.
333-7509) on April 29, 1997.
/4/ Incorporated herein by reference to the Registrant's filing of Post-
Effective Amendment No. 4 to Form N-4 Registration Statement (File No.
333-7509) on April 30, 1998.
/5/ Incorporated herein by reference to the Registrant's filing of Post-
Effective Amendment No. 5 to Form N-4 Registration Statement (File No.
333-7509) on July 16, 1998.
/6/ Filed herewith.
/7/ To be filed by amendment.
<PAGE>
Item 25. Directors and Officers of the Depositor (PFL Life Insurance Company)
<TABLE>
<CAPTION>
Name and Business Address Principal Positions and Offices with
- ------------------------- ------------------------------------
Depositor
---------
<S> <C>
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 Chief
4333 Edgewood Road, N.E. Operating Officer
Cedar Rapids, Iowa 52499-0001
Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road, N.E. General Counsel
Cedar Rapids, Iowa 52499-0001
Douglas C. Kolsrud Director, Senior Vice President, Chief
4333 Edgewood Road, N.E. Investment Officer and Corporate Actuary
Cedar Rapids, Iowa 52499-0001
Larry N. Norman Director and Executive Vice President
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Robert J. Kontz Vice President and Corporate Controller
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief Financial
4333 Edgewood Road, N.E. Officer
Cedar Rapids, Iowa 52499-0001
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ----------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Kansas 100% Monumental General Sale/admin. of travel
Agency, Inc. Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management
Administrators, Inc. Insurance Group, Inc. srvcs. to unaffiliated
third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial
Consultant Services, Inc. Administrators, Inc. consulting services
Monumental General Mass Maryland 100% Monumental General Marketing arm for
Marketing, Inc. Insurance Group, Inc. sale of mass marketed
insurance coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment
advisor
Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Diversified Investors Delaware 100% Diversified Broker-Dealer
Securities Corp. Investment Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Tennessee 100% AUSA Holding Co. Insurance
Division, Inc.
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Insurance agency
Canadian Dealer Network Inc. Resources, Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and
sales
Quantra Software Delaware 100% Quantra Corporation Manufacture and sell
Corporation mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Iowa 100% AEGON USA Realty Information Systems for
Systems, Inc. Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Iowa 21.89% First AUSA Real estate investment
Life Ins. Co. trust
Trust 13.11% PFL Life Ins. Co.
4.86% Bankers United
Life Assurance Co.
Cedar Income Fund, Ltd. Iowa 16.73% PFL Life Ins. Co. Real estate investment
3.77% Bankers United trust
Life Assurance Company
3.38% Life Investors Co.
of America
1.97% AEGON USA Realty
Advisors, Inc.
.18% First AUSA Life
Ins. Co.
RCC Properties Limited Iowa AEGON USA Realty Limited Partnership
Partnership Advisors Inc. is General
Partner and 5% owner.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial
counseling for employees
and agents of affiliated
companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company,Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment
advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% Intersecurities,Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding
company
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Insurance
Company of America Ins. Co.
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Insurance
Ins. Co.
AEGON Financial Services Minnesota 100% PFL Life Insurance Marketing
Group, Inc. Co.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
Services Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Insurance
Co. of Ohio Ins. Co.
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment
advisor
Management, Inc. Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Ohio 100% ISI Insurance Insurance agency
of Ohio, Inc. Agency Inc.
ISI Insurance Agency Texas 100% ISI Insurance Insurance agency
of Texas, Inc. Agency Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Insurance Agency
of Massachusetts, Inc. Agency Inc.
Monumental Life Insurance Maryland 100% First AUSA Life Insurance
Co. Ins. Co.
AEGON Special Markets Maryland 100% Monumental Life Marketing
Group, Inc. Ins. Co.
Monumental General Maryland 100% First AUSA Life Insurance
Casualty Co. Ins. Co.
United Financial Services, Maryland 100% First AUSA Life General agency
Inc. Ins. Co.
Bankers Financial Life Arizona 100% First AUSA Life Insurance
Ins. Co. Ins. Co.
The Whitestone Corporation Maryland 100% First AUSA Life Insurance agency
Ins. Co.
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Ins. Co.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Kentucky 100% CGC Provider of srvcs. to ins.
Inc. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security
Life Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, General agent
Inc.
Commonwealth General Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Providian Financial Pennsylvania 100% CGC Financial services
Services, Inc.
AFSG Securities Pennsylvania 100% CGC Broker-Dealer
Corporation
PB Investment Advisors, Delaware 100% CGC Registered investment
Inc. advisor
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Diversified Financial Delaware 100% CGC Provider of investment,
Products Inc. marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Real estate and mortgage
Services, Inc. Financial holding company
Products Inc.
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Capital General Development Delaware 100% CGC Holding company
Corporation
Commonwealth Life Kentucky 100% Capital General Insurance company
Insurance Company Development Corporation
Agency Holding I, Inc. Delaware 100% Commonwealth Life Investment subsidiary
Insurance Company
Agency Investments I, Inc. Delaware 100% Agency Holding I, Investment subsidiary
Inc.
Peoples Security Life North Carolina 100% Capital General Insurance company
Insurance Company Development Corporation
Ammest Realty Corporation Texas 100% Peoples Security Special purpose
Life Insurance Company subsidiary
Agency Holding II, Inc. Delaware 100% Peoples Security Investment subsidiary
Life Insurance Company
Agency Investments II, Inc. Delaware 100% Agency Holding II, Investment subsidiary
Inc.
Agency Holding III, Inc. Delaware 100% Peoples Security Investment subsidiary
Life Insurance Company
Agency Investments III, Delaware 100% Agency Holding Investment subsidiary
Inc. III, Inc.
JMH Operating Company, Inc. Mississippi 100% Peoples Security Real estate holdings
Life Insurance Company
Capital Security Life Ins. North Carolina 100% Capital General Insurance company
Co. Development Corporation
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Delaware 100% CGC Real estate holdings
Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital Broadway Kentucky 100% CGC Real estate holdings
Corporation
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Pennsylvania 100% CGC Provider of management
Inc. (EIN 23-1720755) support services
National Home Life Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Association Consultants, Illinois 100% Ampac Insurance TPA license-holder
Inc. Agency, Inc.
Valley Forge Associates, Pennsylvania 100% Ampac Insurance Furniture & equipment
Inc. Agency, Inc. lessor
Veterans Benefits Plans, Pennsylvania 100% Ampac Insurance Administrator of group
Inc. Agency, Inc. insurance programs
Veterans Insurance Delaware 100% Ampac Insurance Special-purpose subsidiary
Services, Inc. Agency, Inc.
Financial Planning Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Services, Inc. Agency, Inc.
Providian Auto and Home Missouri 100% CGC Insurance company
Insurance Company
Academy Insurance Group, Delaware 100% CGC Holding company
Inc.
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Kansas 100% Academy Insurance Special-purpose subsidiary
Inc. Group, Inc.
Ammest Insurance Agency, California 100% Academy Insurance General agent
Inc. Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Inc. (EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Massachusetts 100% Force Fin. Group, Special-purpose subsidiary
Inc. Inc.
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100% Unicom Provider of admin. services
Services, GmbH Administrative Services,
Inc.
Providian Property and Kentucky 100% Providian Auto and Insurance company
Casualty Insurance Company Home Insurance Company
Providian Fire Insurance Kentucky 100% Providian Property Insurance company
Co. and Casualty Insurance
Co.
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security
Life Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Providian Life and Health Missouri 3.7% CGC Insurance company
Insurance Company 15.3% Peoples Security
Life Insurance Company
20% Capital Liberty, L.P.
61% Commonwealth Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Providian Life and Insurance company
Health Insurance
Company
Peoples Benefit Services, Pennsylvania 100% Veterans Life Ins. Special-purpose subsidiary
Inc. Co.
First Providian Life and New York 100% Veterans Life Ins. Insurance Company
Health Insurance Company Co.
</TABLE>
Item 27. Number of Contract Owners
As of July 31, 1998, there were no Contract owners.
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 producers for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the Securities Act of
933 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.
Item 29. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
<PAGE>
The directors and officers of AFSG Securities Corporation are as follows:
Larry N. Norman Sarah J. Stange
Director and President Director and Vice President
Harvey E. Willis Brenda K. Clancy
Vice President and Secretary Vice President
Lisa Wachendorf Michael G. Ayers
Compliance Officer Treasurer/Controller
Debra C. Cubero Colleen S. Lyons
Vice President Assistant Secretary
Gregory J. Garvin John F. Reesor
Vice President Assistant Secretary
Michael F. Lane Anne Spaes
Vice President Vice President
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
Prior to May 1, 1998, AEGON USA Securities, Inc. served as the principal
underwriter for the PFL Endeavor VA Separate Account, the PFL Retirement Builder
Variable Annuity Account, the PFL Life Variable Annuity Account A, the PFL
Wright 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. During 1997, the amount paid to AEGON USA Securities, Inc.
and/or broker-dealers for their services was $2,337,939.76. No fees were paid
to AEGON USA Securities, Inc. and/or broker-dealers for services during 1996 or
prior years.
As of May 1, 1998, AFSG Securities Corporation will serve as the principal
underwriter for the above named separate accounts. AFSG Securities Corporation
also serves as principal underwriter for the Separate Account I, Separate
Account II, and Separate Account V of Providian Life and Health Insurance
Company, and for Separate Account C of First Providian Life and Health Insurance
Company.
<PAGE>
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.
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 Contract 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 contracts, 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.
<PAGE>
SIGNATURE
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 5th day of
August, 1998.
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/ Patrick S. Baird Director August 5, 1998
- -------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director August 5, 1998
- -------------------------
Craig D. Vermie
/s/ William L. Busler Director August 5, 1998
- ------------------------- (Principal Executive Officer)
William L. Busler
/s/ Larry N. Norman Director August 5, 1998
- -------------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director August 5, 1998
- -------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and August 5, 1998
- ------------------------- Corporate Controller
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer August 5, 1998
- -------------------------
Brenda K. Clancy
<PAGE>
Registration No.
333- __________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL IMMEDIATE INCOME ANNUITY
---------------
<PAGE>
EXHIBIT INDEX
-------------
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<CAPTION>
Exhibit No. Description of Exhibit Page No.*
- ----------- ---------------------- ---------
<S> <C> <C>
(9) Opinion and Consent of Counsel.
</TABLE>
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* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (9)
-----------
OPINION AND CONSENT OF COUNSEL
<PAGE>
[LETTERHEAD OF PFL LIFE INSURANCE COMPANY APPEARS HERE]
July 24, 1998
PFL Life Insurance Company
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-0001
Dear Sir/Madam:
With reference to the Registration Statement on Form N-4 by PFL Life Insurance
Company and PFL Retirement Builder Variable Annuity Account with the Securities
and Exchange Commission covering immediate variable annuity contracts, I have
examined such documents and such law as I considered necessary and appropriate,
and on the basis of such examination, it is my opinion that:
1. PFL Life Insurance Company is duly organized and validly existing under the
laws of the State of Iowa and has been duly authorized to issue immediate
variable annuity contracts by the Department of Insurance of the State of
Iowa.
2. PFL Retirement Builder Variable Annuity Account is a duly authorized and
existing separate account established pursuant to the provisions of Section
508A.1 of the Iowa Insurance Code.
3. The Immediate Variable Annuity Contracts, when issued as contemplated by
said Form N-4 Registration Statement, will constitute legal, validly issued
and binding obligations of PFL Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to said N-4
Registration Statement.
Very truly yours,
PFL LIFE INSURANCE COMPANY
/s/ Frank A. Camp
Frank A. Camp
Division General Counsel
Financial Markets Division
[LOGO OF AEGON APPEARS HERE]
