<PAGE>
As filed with the Securities and Exchange Commission on November 16, 1999
Registration No. 333 - 78743
811 - 07689
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
The One(R)Income Annuity(SM)
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 1
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and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18
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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
Title of Securities Being Registered:
Flexible Premium Variable Annuity Policies
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) of Rule 485.
- ---
___ on _________________ pursuant to paragraph (b) of Rule 485.
___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485.
___ on _________________ pursuant to paragraph (a)(i) of Rule 485.
___ 75 days after filing pursuant to paragraph (a)(i)
___ on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
This Post-Effective Amendment No. 1 to Form N-4 File No. 333-78743 incorporates
by reference the Supplement, the Prospectus and Part C of Pre-Effective
Amendment No. 2 to Form N-4 File No. 333-78743, which was filed with the
Securities and Exchange Commission on November 2, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ONE 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 One Income Annuity Contract offered by PFL Life
Insurance Company. You may obtain a copy of the prospectus dated November 2,
1999 by calling 1-800-544-3152, 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.
Dated: November 2, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
GLOSSARY OF TERMS.......................................................... 3
THE CONTRACT--GENERAL PROVISIONS........................................... 4
Transfers................................................................ 4
Delay of Transfers....................................................... 4
Entire Contract.......................................................... 4
Assignment............................................................... 5
Beneficiary.............................................................. 5
Change of Beneficiary.................................................... 5
Incontestability......................................................... 5
Misstatement of Sex or Age............................................... 5
Modification of Contract................................................. 5
Nonparticipating......................................................... 5
Owner.................................................................... 5
Proof of Death........................................................... 6
Proof of Survival........................................................ 6
Death Before First Payment Date.......................................... 6
Protection of Proceeds................................................... 6
Optional Annuity Payment Guarantee Rider................................. 6
Asset Allocation Models.................................................. 8
FEDERAL TAX MATTERS........................................................ 9
Tax Status of the Contracts.............................................. 9
Diversification Requirements............................................. 9
Owner Control............................................................ 9
Required Distributions................................................... 9
Taxation of PFL.......................................................... 10
INVESTMENT EXPERIENCE...................................................... 10
Annuity Unit Value and Annuity Payment Rates............................. 10
STATE REGULATION OF PFL.................................................... 12
ADMINISTRATION............................................................. 12
RECORDS AND REPORTS........................................................ 12
DISTRIBUTION OF THE CONTRACTS.............................................. 13
OTHER PRODUCTS............................................................. 13
CUSTODY OF ASSETS.......................................................... 13
HISTORICAL PERFORMANCE DATA................................................ 13
Subaccount Yields........................................................ 13
Total Returns............................................................ 14
Other Performance Data................................................... 14
Adjusted Historical Performance Data..................................... 15
LEGAL MATTERS.............................................................. 15
INDEPENDENT AUDITORS....................................................... 15
OTHER INFORMATION.......................................................... 15
FINANCIAL STATEMENTS....................................................... 15
</TABLE>
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GLOSSARY OF TERMS
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. Annuity payments may be either fixed or variable or a
combination of both.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Assumed Investment Return or 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).
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.
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.
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(s) and/or payee is/are alive on the payment date.
Separate Account--PFL Retirement Builder Variable Annuity Account.
Subaccount--The investment options or divisions of the separate account. 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.
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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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. Words printed in italics in this
Statement of Additional Information are defined in the Glossary of Terms,
found on page 3.
THE CONTRACT--GENERAL PROVISIONS
Transfers
You may transfer amounts within the various subaccounts. You may also transfer
amounts from variable to fixed annuity payments at any time. If you do, then
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 to variable annuity payments are not permitted. We may
charge a fee for excessive transfers (we currently do not charge for
transfers) or decline to accept excessive transfers.
Excessive trading activity can disrupt portfolio management strategy and
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 underlying 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:
. transfer or exchange instructions of any agent acting under a power of
attorney on behalf of more than one contract owner, or
. 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 that doing so will prevent
harm to other contract owners.
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 a 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 (including any application supplement or investment allocation
form). 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.
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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 or
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 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.
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.
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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.
Death Before First Payment Date
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:
. one cash lump sum to be distributed within five years of the deceased
owner's death; or
. annuitize the value of the annuity payments over the lifetime of the
successor owner with payments to begin within one year of the owner's
death; or
. 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
Internal Revenue Code of 1986, as amended (Code), with payments to begin
within one year of the owner's death.
If the deceased owner was also an annuitant, the annuitant's beneficiary is
entitled to the benefit described above. If no person is named as the
successor owner, the owner's estate shall be deemed the successor owner.
Non-natural successor owners may only choose a lump sum distribution. For
qualified contracts, any option chosen must meet the requirements of the Code.
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.
Optional Annuity Payment Guarantee Rider
The stabilized payment is determined once each year. However, with stabilized
payments, on each annuity payment date throughout the contract year, we
calculate the value of the variable annuity units (that is, the supportable
payment) and adjust the number of variable annuity units credited to your
contract. If the supportable payment at any payment date, other than a
contract anniversary, is greater than the current stabilized payment, we will
increase the number of variable annuity units to reflect the difference.
Conversely, if the supportable payment is less than the current stabilized
payment, we will reduce the number of variable annuity units. This means that
during the course of a contract year, instead of reflecting positive
investment performance by increasing the dollar amount of an annuity payment,
we credit that investment performance to your contract by increasing the
number of variable annuity units. Similarly, we reflect negative investment
performance by decreasing the number of variable annuity units credited to
your contract instead of decreasing the dollar amount of an annuity payment.
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Increases or decreases in the number of variable annuity units will be
allocated on a pro rata basis within the selected subaccounts.
Since we only change the stabilized payment once each year, the increase or
decrease in the number of variable annuity units ensures that you receive the
full investment performance, both positive and negative, of the subaccounts
you select. For example, if your monthly stabilized payment is $500, and
positive investment performance results in a supportable payment of $510 at
the end of the first month, your payment is $500 but we increase the number of
variable annuity units credited to your contract to give you credit for the
$10. In the case of an increase in the number of variable annuity units, your
participation in the future investment performance will be increased since
more variable annuity units are credited to your contract. Conversely, in the
case of a reduction of the number of variable annuity units, your
participation in the future investment performance will be decreased since
fewer variable annuity units are credited to your contract.
PFL bears the risk that it must continue to make the guaranteed minimum or
stabilized payments, even if the supportable payments would be lower because
some variable annuity units have been used to maintain the stabilized
payments. In addition, PFL bears the risk that it will need to continue to
make payments even if all variable annuity units have been used in an attempt
to maintain the stabilized payments at the guaranteed payment level (that is,
the number of units has gone down to zero). If all the variable annuity units
have been used, all future payments will equal the guaranteed minimum payment
and the amount of your future variable annuity payment will not increase or
decrease and will not depend upon the performance of any variable investment
option. To compensate PFL for this and other risks, a rider fee will be
deducted.
The following table demonstrates, on a purely hypothetical basis, the changes
in the number of variable annuity units under either of the optional annuity
payment guarantee riders to reflect investment performance during the course
of a single contract year. The change in the number of variable annuity units
reflects not only the dollar amount of the difference between the supportable
payment and the stabilized payment, but also the age and sex of the annuitant
and the annuity payment option. The changes in the variable annuity unit
values reflect the investment performance of the applicable mutual fund
portfolio as well as the separate account charge and rider fee. The
calculations would be done separately for each applicable subaccount.
<TABLE>
<S> <C>
AIR: 3.50%
Life & 10 Years Certain
Male aged 65
Guaranteed Minimum Pay-
ment: $500
</TABLE>
<TABLE>
<CAPTION>
Beginning Unit Monthly Change in Ending
Annuity Annuity Value Stabilized Annuity Annuity
Units Unit Values Total* Payment Units Units
--------- ----------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
At
Issue: 1/1/1999 400.0000 1.250000 $500.00 400.0000
1st
Payment 2/1/1999 400.0000 1.254526 $501.81 $500.00 0.0080 400.0080
3/1/1999 400.0080 1.253122 $501.26 $500.00 0.0056 400.0137
4/1/1999 400.0137 1.247324 $498.95 $500.00 (0.0047) 400.0089
5/1/1999 400.0089 1.247818 $499.14 $500.00 (0.0039) 400.0051
6/1/1999 400.0051 1.244178 $497.68 $500.00 (0.0105) 399.9946
7/1/1999 399.9946 1.250422 $500.16 $500.00 0.0007 399.9953
8/1/1999 399.9953 1.245175 $498.06 $500.00 (0.0088) 399.9865
9/1/1999 399.9865 1.251633 $500.64 $500.00 0.0029 399.9894
10/1/1999 399.9894 1.253114 $501.23 $500.00 0.0056 399.9950
11/1/1999 399.9950 1.261542 $504.61 $500.00 0.0208 400.0158
12/1/1999 400.0158 1.265963 $506.41 $500.00 0.0289 400.0447
1/1/2000 400.0447 1.270547 $508.28 $500.00 0.0373 400.0820
</TABLE>
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* This is the supportable payment.
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Asset Allocation Models
General. Rather than selecting individual portfolios (i.e., being "Self-
Directed") you can select one of four investment allocation models that are
listed on the Investment Allocation Form (which is part of the application).
The amount invested in each subaccount will vary depending on the model's
particular asset allocation percentages. The asset allocation percentages for
each model are shown on the Investment Allocation Form. The four investment
allocation models, listed in descending percentage of equity holdings, are:
. Growth Model
. Growth & Income Model
. Balanced Model
. Conservative Growth Model
The models are general asset mixes. They were developed by Banc One Investment
Advisors Corporation and may or may not be appropriate for you. Banc One
Investment Advisors Corporation serves as an investment advisor to the One
Group Investment Trust Portfolios for which it receives a fee. Banc One
Investment Advisors is not providing investment advice or any other service to
you. There is no guarantee that the models will achieve any desired results or
objectives.
The models should not be considered personal investment advice or serve as the
sole or primary basis for making investment decisions. You should consider
factors such as your age, goals and risk tolerance in selecting a model. You
are solely responsible for determining if a model is right for you.
Before selecting a model, please note:
. only one model can be used at a time;
. you cannot allocate premium to any other subaccount if you select a model;
. each model's allocation percentages may change (which terminates that
model);
. transfers you make between the various subaccounts will terminate your
model; and
. transfers from variable to fixed payments will be pro rata from the
applicable subaccounts.
Rebalancing. Each model will be automatically rebalanced each year on the
contract anniversary date. Rebalancing a model may involve transferring from
subaccounts with higher returns into subaccounts with relatively lower returns
in order to maintain the model's asset allocation percentages. Transfers made
as a result of automatic rebalancing are not counted against your 6 free
transfers (in the event transfer fees are imposed in the future). Automatic
rebalancing ends upon the termination of a model.
Termination. You can stop using (i.e., terminate) a model at any time by
notifying us at our administrative and service office or by transferring
amounts between the various subaccounts.
A model will also terminate if you are notified that it will be replaced with
a "new" model with different asset allocation percentages. Before you can use
the "new" model, you must sign and return to us within 45 days after the date
of the notice, a consent form accepting the new asset allocation percentages.
Absent your timely affirmative consent, you will:
. keep your current asset allocation percentages;
. be considered "Self-Directed"; and
. not receive automatic rebalancing.
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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 subaccounts may be
invested. Although PFL does not have direct control over the underlying 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.
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 subaccounts in which
to allocate the premium, and may be able to transfer among subaccounts more
frequently than in such rulings. In addition, the contract provides for more
subaccounts than did the variable contracts that were the subject of 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 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
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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 variable 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 variable annuity unit
values. Variable annuity unit values rise if the net investment performance of
the subaccount exceeds the assumed investment return. Conversely, variable
annuity unit values fall if the net investment performance of the subaccount
is less than the assumed rate. The value of a variable annuity unit in each
subaccount was established at $1.00 on the date operations began for that
subaccount. The value of a variable annuity unit on any subsequent business
day is equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the 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;
10
<PAGE>
(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 variable annuity unit values.
Illustrations of Calculations for Annuity Unit Value and Variable Annuity
Payments
Formula and Illustration for Determining Annuity Unit Value in each Subaccount
Variable annuity unit value = V = A x B x C
Where: A=variable annuity unit value for the immediately preceding valuation
period.
B=net investment factor for the valuation period for which the variable
annuity unit value is being calculated.
C=a daily factor to neutralize the assumed investment return built into
the annuity tables used.
C=(1/(1 + AIR)) ^ ^(1/365) = 0.999905754 (3.5% AIR) or 0.999866337 (5%
AIR)
For example, if the AIR is 5% and: A=$20 on the day prior to the first payment
B=1.01
C=1/(1.05) ^ (/1///365/) = 0.999866337
Then, the variable annuity unit value is equal to V
=A x B x C
=$20 x 1.01 x .999866337
=20.1973
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 is equal to P =(D x E)/$1,000
=($100,000 x 7.00)/$1,000
=$700
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 variable annuity units = U = P/V
Where: P=the dollar amount of the first monthly variable annuity payment.
V=the variable annuity unit value for the valuation date on which
the first monthly payment is due.
11
<PAGE>
For example if:
P=$700
V=20.1973
Then, the variable annuity units is equal to U=P/V
=$700/20.1973
=34.6581 units
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 variable annuity units
V=the variable annuity unit value for the valuation date on which
the future monthly payment is due.
For example if:
U=34.6581
V=20.6970 (the variable annuity unit value increased since issue)
Then, the amount of the monthly variable annuity payment
=U x V
=34.6581 x 20.6970
=$717.32
If the variable annuity unit value had actually decreased to V = 19.6970, the
resulting monthly variable annuity payment would =U x V
=34.6581 x 19.6970
=$682.66
Illustration 4 assumes that no transfers or surrenders are made between
determining the number of variable annuity units and determining the future
monthly variable annuity payment; therefore, the number of variable annuity
units in Illustrations 3 and 4 are the same.
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 owners at their last
12
<PAGE>
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. 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, an affiliate of PFL, is the principal underwriter
of the contracts and may enter into agreements with broker-dealers for the
distribution of the contracts.
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
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 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.
13
<PAGE>
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 surrender 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 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 surrender charges that may be
applicable to a particular period. The total return will then be calculated
according to the following formula:
P (1 + T)n = ERV
Where:
T = the average annual total return net of subaccount recurring charges.
ERV= the ending redeemable value of the hypothetical account at the end of
the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Other Performance Data
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.
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. The charges reflected in the
cumulative total returns include the actual total annual portfolio expenses of
the applicable fund and the separate account charge of 1.35%.
CTR = (ERV / P) - 1
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.
14
<PAGE>
Adjusted Historical 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
The statutory-basis financial statements and schedules of PFL as of December
31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, 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 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). The statutory-
basis financial statements of PFL, which are included in this Statement of
Additional Information, should be considered only as bearing on PFL's ability
to meet its obligations under the contracts. They should not be considered as
bearing on the investment performance of the assets held in the separate
account.
15
<PAGE>
PFL Retirement Builder Variable Annuity Account
The One/R/ Income Annuity/SM/ Subaccount Financials
The subaccounts of The One/R/ Income Annuity/SM/ commenced operations in 1999,
therefore there are no separate account financials available.
<PAGE>
FINANCIAL STATEMENTS--STATUTORY BASIS
PFL LIFE INSURANCE COMPANY
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
<PAGE>
PFL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS--STATUTORY BASIS
Years ended December 31, 1998, 1997 and 1996
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 2
Statements of Operations--Statutory Basis................................. 3
Statements of Changes in Capital and Surplus--Statutory Basis............. 4
Statements of Cash Flows--Statutory Basis................................. 5
Notes to Financial Statements--Statutory Basis............................ 6
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 24
Supplementary Insurance Information....................................... 25
Reinsurance............................................................... 26
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1998 and 1997, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1998 and
1997, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1998.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 19, 1999
1
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
ADMITTED ASSETS
---------------
<S> <C> <C>
Cash and invested assets:
Cash and short-term investments............................ $ 83,289 $ 23,939
Bonds...................................................... 4,822,442 4,913,144
Stocks:
Preferred................................................ 14,754 2,750
Common (cost: 1998--$34,731; 1997--$33,058).............. 49,448 42,345
Affiliated entities (cost: 1998--$8,060; 1997--$10,798).. 5,613 8,031
Mortgage loans on real estate.............................. 1,012,433 935,207
Real estate, at cost less accumulated depreciation ($9,500
in 1998; $8,655 in 1997):
Home office properties................................... 8,056 8,283
Properties acquired in satisfaction of debt.............. 11,778 11,814
Investment properties.................................... 44,325 36,416
Policy loans............................................... 60,058 57,136
Other invested assets...................................... 76,482 29,864
---------- ----------
Total cash and invested assets......................... 6,188,678 6,068,929
Premiums deferred and uncollected........................... 15,318 16,101
Accrued investment income................................... 65,308 69,662
Receivable from affiliate................................... 643 --
Federal income taxes recoverable............................ 639 --
Transfers from separate accounts............................ 70,866 60,193
Other assets................................................ 29,511 37,624
Separate account assets..................................... 3,348,611 2,517,365
---------- ----------
Total admitted assets.................................. $9,719,574 $8,769,874
========== ==========
<CAPTION>
LIABILITIES AND CAPITAL AND SURPLUS
-----------------------------------
<S> <C> <C>
Liabilities:
Aggregate reserves for policies and contracts:
Life..................................................... $1,357,175 $ 884,018
Annuity.................................................. 3,925,293 4,204,125
Accident and health...................................... 205,736 169,328
Policy and contract claim reserves:
Life..................................................... 9,101 8,635
Accident and health...................................... 48,906 57,713
Other policyholders' funds................................. 162,266 143,831
Remittances and items not allocated........................ 19,690 153,745
Asset valuation reserve.................................... 91,588 69,825
Interest maintenance reserve............................... 50,575 30,287
Federal income taxes payable............................... -- 1,889
Short-term notes payable to affiliates..................... 9,421 16,400
Other liabilities.......................................... 76,766 75,070
Payable for securities..................................... 57,645 --
Payable to affiliates...................................... -- 13,240
Separate account liabilities............................... 3,342,884 2,512,406
---------- ----------
Total liabilities...................................... 9,357,046 8,340,512
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding.................................... 2,660 2,660
Paid-in surplus............................................ 154,282 154,282
Unassigned surplus......................................... 205,586 272,420
---------- ----------
Total capital and surplus.............................. 362,528 429,362
---------- ----------
Total liabilities and capital and surplus.............. $9,719,574 $8,769,874
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 516,111 $ 202,435 $ 204,872
Annuity............................... 667,920 657,695 725,966
Accident and health................... 178,593 207,982 227,862
Net investment income................... 446,984 446,424 428,337
Amortization of interest maintenance re-
serve.................................. 8,656 3,645 2,434
Commissions and expense allowances on
reinsurance ceded...................... 32,781 49,859 73,931
---------- ---------- ----------
1,851,045 1,568,040 1,663,402
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health bene-
fits................................. 135,184 146,583 147,024
Surrender benefits.................... 732,796 658,071 512,810
Other benefits........................ 152,209 126,495 101,288
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................. 473,158 149,575 140,126
Annuity............................... (278,665) (203,139) 188,002
Accident and health................... 36,407 30,059 26,790
Other................................. 17,550 16,998 19,969
---------- ---------- ----------
1,268,639 924,642 1,136,009
Insurance expenses:
Commissions............................. 136,569 157,300 177,466
General insurance expenses.............. 48,018 57,571 57,282
Taxes, licenses and fees................ 19,166 8,715 13,889
Net transfers to separate accounts...... 265,702 297,480 171,785
Other expenses.......................... 1,016 119 526
---------- ---------- ----------
470,471 521,185 420,948
---------- ---------- ----------
1,739,110 1,445,827 1,556,957
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital
gains (losses) on investments............ 111,935 122,213 106,445
Federal income tax expense................ 49,835 43,381 41,177
---------- ---------- ----------
Gain from operations before net realized
capital gains (losses) on investments.... 62,100 78,832 65,268
Net realized capital gains (losses) on
investments (net of related federal
income taxes and amounts transferred to
interest maintenance reserve)............ 3,398 7,159 (3,503)
---------- ---------- ----------
Net income................................ $ 65,498 $ 85,991 $ 61,765
========== ========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996............... $2,660 $154,129 $ 220,739 $ 377,528
Net income............................. -- -- 61,765 61,765
Change in net unrealized capital
gains................................. -- -- 2,351 2,351
Change in non-admitted assets.......... -- -- (148) (148)
Change in asset valuation reserve...... -- -- (10,930) (10,930)
Dividend to stockholder................ -- -- (20,000) (20,000)
Prior period adjustment................ -- -- 5,025 5,025
Surplus effect of sales of divisions... -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 29 29
Amendment of reinsurance agreement..... -- -- 421 421
Change in liability for reinsurance in
unauthorized companies................ -- -- 2,690 2,690
------ -------- --------- ---------
Balance at December 31, 1996............. 2,660 154,129 261,558 418,347
Capital contribution................... -- 153 -- 153
Net income............................. -- -- 85,991 85,991
Change in net unrealized capital
gains................................. -- -- 3,592 3,592
Change in non-admitted assets.......... -- -- (481) (481)
Change in asset valuation reserve...... -- -- (14,974) (14,974)
Dividend to stockholder................ -- -- (62,000) (62,000)
Surplus effect of sale of a division... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division.............................. -- -- 5 5
Amendment of reinsurance agreement..... -- -- 389 389
Surplus effect of reinsurance
agreement............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................ -- -- (1,901) (1,901)
------ -------- --------- ---------
Balance at December 31, 1997............. 2,660 154,282 272,420 429,362
Net income............................. -- -- 65,498 65,498
Change in net unrealized capital
gains................................. -- -- 4,504 4,504
Change in non-admitted assets.......... -- -- (260) (260)
Change in asset valuation reserve...... -- -- (21,763) (21,763)
Dividend to stockholder................ -- -- (120,000) (120,000)
Increase in liability for reinsurance
in unauthorized companies............. -- -- 2,036 2,036
Tax benefit on stock options
exercised............................. -- -- 2,476 2,476
Change in surplus in separate
accounts.............................. -- -- 675 675
------ -------- --------- ---------
Balance at December 31, 1998............. $2,660 $154,282 $ 205,586 $ 362,528
====== ======== ========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Premiums and other considerations, net
of reinsurance......................... $ 1,396,428 $ 1,119,936 $ 1,240,748
Net investment income................... 469,246 452,091 431,456
Life and accident and health claims..... (138,249) (154,383) (147,556)
Surrender benefits and other fund
withdrawals............................ (732,796) (658,071) (512,810)
Other benefits to policyholders......... (152,167) (126,462) (101,254)
Commissions, other expenses and other
taxes.................................. (197,135) (225,042) (248,321)
Net transfers to separate accounts...... (276,375) (319,146) (210,312)
Federal income taxes.................... (72,176) (47,909) (35,551)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- (4,826) (5,812)
Cash received in connection with a
reinsurance agreement.................. -- 1,477 --
Other, net.............................. (93,095) 89,693 (41,677)
Net cash provided by operating
activities............................. 203,681 127,358 368,911
Investing Activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,347,174 3,284,095 2,112,831
Common stocks......................... 34,564 34,004 27,214
Mortgage loans on real estate......... 192,210 138,162 74,351
Real estate........................... 5,624 6,897 18,077
Cash received from ceding commissions
associated with the sale of a
division............................. -- 8 45
Other................................. 7,210 57,683 22,568
----------- ----------- -----------
3,586,782 3,520,849 2,255,086
Cost of investments acquired:
Bonds and preferred stocks............ (3,251,822) (3,411,442) (2,270,105)
Common stocks......................... (36,379) (37,339) (29,799)
Mortgage loans on real estate......... (257,039) (159,577) (324,381)
Real estate........................... (11,458) (2,013) (222)
Policy loans.......................... (2,922) (2,922) (1,539)
Cash paid in association with the sale
of a division........................ -- (591) (662)
Other................................. (44,514) (15,674) (6,404)
----------- ----------- -----------
(3,604,134) (3,629,558) (2,633,112)
----------- ----------- -----------
Net cash used in investing activities... (17,352) (108,709) (378,026)
Financing Activities
Issuance (repayment) of short-term
intercompany notes payable............. $ (6,979) $ 16,400 $ --
Capital contribution.................... -- 153 --
Dividends to stockholder................ (120,000) (62,000) (20,000)
----------- ----------- -----------
Net cash used in financing activities... (126,979) (45,447) (20,000)
----------- ----------- -----------
Increase (decrease) in cash and short-
term investments....................... 59,350 (26,798) (29,115)
Cash and short-term investments at
beginning of year...................... 23,939 50,737 79,852
----------- ----------- -----------
Cash and short-term investments at end
of year................................ $ 83,289 $ 23,939 $ 50,737
=========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(Dollars in thousands)
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
In connection with the sale of certain affiliated business units, the
Company has assumed various blocks of business from these former affiliates
through mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
. During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale,
during 1996 the Company transferred $123 in assets, substantially all of
which was cash, and $70 of liabilities. The difference between the assets
and liabilities of $(53) plus a tax credit of $19 was charged directly to
unassigned surplus. During 1997, the Company transferred $591 in assets,
substantially all of which was cash and $343 of liabilities. The difference
between the assets and liabilities of $(248) net of a tax credit of $87 was
charged directly to unassigned surplus.
. On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to annually increase reinsurance ceded (primarily group
health business) by 2 1/2% through 1997. As a result, during 1996, the
Company transferred $5,991 in assets, including $5,812 of cash and short-
term investments and liabilities of $6,146. The difference between the
assets and liabilities of $155, plus a tax credit of $266 was credited
directly to unassigned surplus. During 1997, the Company transferred $5,045
in assets, including $4,826 of cash and short-term investments, and
liabilities of $5,164. The difference between the assets and liabilities of
$119 plus a tax credit of $270 was credited directly to unassigned surplus.
. During 1993, the Company sold the Oakbrook Division (primarily group health
business). The initial transfer of risk occurred through an indemnity
reinsurance agreement. The policies will then be assumed by the reinsurer
by novation as state regulatory and policyholder approvals are received.
During 1996, the Company paid $539 in association with this sale; the
payment, net of a tax credit of $189, was charged directly to unassigned
surplus. In addition, the Company received from the third party
administrator a ceding commission of one percent of the premiums collected
between January 1, 1994 and December 31, 1996. As a result of the sale, in
1996, the Company received $45 for ceding commissions; the commissions net
of the related tax effect of $(16) were charged directly to unassigned
surplus. Also, during 1996, the Company paid $539 in association with this
sale; this payment, net of a tax credit of $189, was charged directly to
unassigned surplus. In 1997,
6
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the Company received $8 for ceding commissions; the commissions net of the
related tax effect of $3 were credited directly to unassigned surplus.
. During 1997, the Company entered into a reinsurance agreement with a non-
affiliate. As a result of the agreement, the Company received $1,480 of
assets, including $1,477 of cash and short-term securities, and $861 of
liabilities. The difference between the assets and liabilities of $619, net
of a tax effect of $217 was credited directly to unassigned surplus.
Nature of Business
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products are
based on statutory mortality rates and interest which may differ from reserves
based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products
7
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; and (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus. The effects
of these variances have not been determined by the Company but are presumed to
be material.
In 1998, the National Association of Insurance Commissioners ("NAIC")
adopted codified statutory accounting principles ("Codification").
Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is unclear whether the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the investment. The Company reviews
its prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of
specific identification and are recorded net of related federal income taxes.
The Asset Valuation Reserve ("AVR") is established by the Company to provide
for potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under
8
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
a formula prescribed by the NAIC, the Company defers, in the Interest
Maintenance Reserve ("IMR"), the portion of realized gains and losses on sales
of fixed income investments, principally bonds and mortgage loans,
attributable to changes in the general level of interest rates and amortizes
those deferrals over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or on real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1998, 1997 and 1996,
the Company excluded investment income due and accrued of $102, $177 and
$1,541, respectively, with respect to such practices.
The Company uses interest rate swaps and caps as part of its overall
interest rate risk management strategy for certain life insurance and annuity
products. The Company entered into several interest rate swap contracts to
modify the interest rate characteristics of the underlying liabilities. The
net interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreements
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
9
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the policyholders and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the policyholders. The Company received variable contract premiums
of $345,319, $281,095 and $227,864 in 1998, 1997 and 1996, respectively. All
variable account contracts are subject to discretionary withdrawal by the
policyholder at the market value of the underlying assets less the current
surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company, and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates. The tax benefit of this
deduction has been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the
10
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
disclosures when those estimates can only be made at excessive cost.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities, including affiliated mutual funds
and real estate investment trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
11
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1998 1997
--------------------- ---------------------
Carrying Carrying
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted Assets
Cash and short-term investments.... $ 83,289 $ 83,289 $ 23,939 $ 23,939
Bonds.............................. 4,822,442 4,900,516 4,913,144 5,046,527
Preferred stocks................... 14,754 14,738 2,750 8,029
Common stocks...................... 49,448 49,448 42,345 42,345
Affiliated common stock............ 5,613 5,613 8,031 8,031
Mortgage loans on real estate...... 1,012,433 1,089,315 935,207 983,720
Policy loans....................... 60,058 60,058 57,136 57,136
Interest rate cap.................. 4,445 725 5,618 1,513
Interest rate swaps................ 1,916 6,667 -- 2,546
Separate account assets............ 3,348,611 3,348,611 2,517,365 2,517,365
Liabilities
Investment contract liabilities.... 4,084,683 4,017,509 4,345,181 4,283,461
Separate account liabilities....... 3,271,005 3,213,251 2,452,205 2,452,205
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- ------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- ------- ----------
$4,837,196 $132,213 $54,155 $4,915,254
========== ======== ======= ==========
</TABLE>
12
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997
Bonds:
United States Government and
agencies........................ $ 188,241 $ 2,562 $ 21 $ 190,782
State, municipal and other
government...................... 61,532 2,584 1,774 62,342
Public utilities................. 121,582 5,384 2,952 124,014
Industrial and miscellaneous..... 1,955,587 85,233 7,752 2,033,068
Mortgage and other asset-backed
securities...................... 2,586,202 55,382 5,263 2,636,321
---------- -------- ------- ----------
4,913,144 151,145 17,762 5,046,527
Preferred stocks................... 2,750 5,279 -- 8,029
---------- -------- ------- ----------
$4,915,894 $156,424 $17,762 $5,054,556
========== ======== ======= ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1998,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 151,747 $ 148,410
Due after one year through five years................. 1,211,064 1,232,329
Due after five years through ten years................ 753,543 761,787
Due after ten years................................... 304,497 326,258
---------- ----------
2,420,851 2,468,784
Mortgage and other asset-backed securities............ 2,401,591 2,431,732
---------- ----------
$4,822,442 $4,900,516
========== ==========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes......................... $374,478 $373,496 $364,356
Dividends on equity investments..................... 1,357 1,460 1,436
Interest on mortgage loans.......................... 77,960 80,266 69,418
Rental income on real estate........................ 6,553 7,501 9,526
Interest on policy loans............................ 4,080 3,400 3,273
Other investment income............................. 2,576 613 1,799
-------- -------- --------
Gross investment income............................. 467,004 466,736 449,808
Investment expenses................................. 20,020 20,312 21,471
-------- -------- --------
Net investment income............................... $446,984 $446,424 $428,337
======== ======== ========
</TABLE>
13
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,347,174 $3,284,095 $2,112,831
========== ========== ==========
Gross realized gains........................ $ 48,760 $ 30,094 $ 19,876
Gross realized losses....................... (8,072) (17,265) (19,634)
---------- ---------- ----------
Net realized gains.......................... $ 40,688 $ 12,829 $ 242
========== ========== ==========
</TABLE>
At December 31, 1998, investments with an aggregate carrying value of
$5,935,160 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Debt securities................................... $ 40,688 $ 12,829 $ 242
Short-term investments............................ 1,533 (19) (197)
Equity securities................................. (879) 6,972 1,798
Mortgage loans on real estate..................... 12,637 2,252 (5,530)
Real estate....................................... 3,176 4,252 1,210
Other invested assets............................. (2,523) 1,632 12
-------- -------- -------
54,632 27,918 (2,465)
Tax effect........................................ (22,290) (10,572) (1,235)
Transfer to interest maintenance reserve.......... (28,944) (10,187) 197
-------- -------- -------
Net realized gains (losses)....................... $ 3,398 $ 7,159 $(3,503)
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Change in Unrealized
---------------------------
Year Ended December 31
---------------------------
1998 1997 1996
-------- ------- ---------
<S> <C> <C> <C>
Debt securities.................................. $(60,604) $40,289 $(115,867)
Equity securities................................ 5,750 5,653 2,929
-------- ------- ---------
Change in unrealized appreciation
(depreciation).................................. $(54,854) $45,942 $(112,938)
======== ======= =========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were
as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Unrealized gains..................................... $15,980 $10,356 $ 9,590
Unrealized losses.................................... (3,710) (3,836) (8,723)
------- ------- -------
Net unrealized gains................................. $12,270 $ 6,520 $ 867
======= ======= =======
</TABLE>
14
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
During 1998, the Company issued mortgage loans with interest rates ranging
from 5.88% to 7.86%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 90% for commercial
loans and 95% for residential loans. Mortgage loans with a carrying value of
$245 were non-income producing for the previous twelve months. Accrued
interest of $89 related to these mortgage loans was excluded from investment
income. The Company requires all mortgaged properties to carry fire insurance
equal to the value of the underlying property.
At December 31, 1998 and 1997, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $16,104 and $11,985, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
South Atlantic............................ 32% 29%
E. North Central.......................... 16 12
Pacific................................... 15 15
Mountain.................................. 10 10
Middle Atlantic........................... 10 7
W. South Central.......................... 6 9
W. North Central.......................... 5 6
E. South Central.......................... 3 8
New England............................... 3 4
</TABLE>
Property Type Distribution
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
----- -----
<S> <C> <C>
Retail.................................... 35% 35%
Office.................................... 30 31
Industrial................................ 21 6
Apartment................................. 12 14
Other..................................... 2 14
</TABLE>
At December 31, 1998, the Company had no investments (excluding U.S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate exchange agreements (swaps and caps),
options, and commitments to extend credit and all involve elements of credit
and market risks in excess of the amounts recognized in the accompanying
financial statements at a given point in time. The contract or notional
amounts of those instruments reflect the extent of involvement in the various
types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the
15
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
counterparty defaults after the Company has delivered funds or securities
under terms of the contract) that would result in an accounting loss and
replacement cost risk (i.e., the cost to replace the contract at current
market rates should the counterparty default prior to settlement date). Credit
loss exposure resulting from nonperformance by a counterparty for commitments
to extend credit is represented by the contractual amounts of the instruments.
At December 31, 1998 and 1997, the Company's outstanding financial
instruments with on and off-balance sheet risks, shown in notional amounts,
are summarized as follows:
<TABLE>
<CAPTION>
Notional Amount
-----------------
1998 1997
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $100,000 $100,000
Receive floating (uncapped)--pay floating (capped)........ 53,011 67,229
Receive floating (LIBOR)--pay floating (S&P).............. 60,000 --
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums............................. $1,533,822 $1,312,446 $1,457,450
Reinsurance assumed......................... 2,366 2,038 1,796
Reinsurance ceded........................... (173,564) (246,372) (300,546)
---------- ---------- ----------
Net premiums earned......................... $1,362,624 $1,068,112 $1,158,700
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $173,297,
$183,638 and $168,155 during 1998, 1997 and 1996, respectively. At December
31, 1998 and 1997, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $47,956 and
$60,437, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1998 and
1997 of $2,163,905 and $2,434,130, respectively.
At December 31, 1998, amounts recoverable from unauthorized reinsurers of
$55,379 (1997--$73,080) and reserve credits for reinsurance ceded of $49,835
(1997--$78,838) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $106,226 at December 31, 1998 that can be drawn on
for amounts that remain unpaid for more than 120 days.
16
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)......... $39,177 $42,775 $37,256
Tax reserve adjustment............................... 607 2,004 2,211
Excess tax depreciation.............................. (223) (392) (384)
Deferred acquisition costs--tax basis................ 11,827 4,308 5,583
Prior year under (over) accrual...................... 1,750 (1,016) (499)
Dividend received deduction.......................... (1,053) (941) (454)
Charitable contribution.............................. -- (848) --
Other items--net..................................... (2,250) (2,509) (2,536)
------- ------- -------
Federal income tax expense........................... $49,835 $43,381 $41,177
======= ======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1998). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984 through 1986 and
related interest of $1,686, net of a tax effect of $590. An examination is
underway for years 1993 through 1995.
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relates to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon
17
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics, are summarized as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------------------
1998 1997
------------------ ------------------
Percent Percent
of of
Amount Total Amount Total
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................. $ 82,048 1% $ 8,912 0%
Subject to discretionary withdrawal at
book value less surrender charge........ 515,778 5 755,300 8
Subject to discretionary withdrawal at
market value............................ 3,211,896 34 2,454,845 27
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)............................ 5,519,265 58 5,821,049 63
Not subject to discretionary withdrawal
provision............................... 228,030 2 203,522 2
---------- --- ---------- ---
9,557,017 100% 9,243,628 100%
Less reinsurance ceded................... 2,124,769 2,372,495
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities................ $7,432,248 $6,871,134
========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of operations
of the separate accounts statement:
Transfers to separate accounts.................... $345,319 $281,095 $227,864
Transfers from separate accounts.................. 79,808 9,819 75,172
-------- -------- --------
Net transfers to separate accounts.................. 265,511 271,276 152,692
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees......................................... 191 26,204 19,093
-------- -------- --------
Transfers as reported in the summary of operations
of the life, accident and health annual statement.. $265,702 $297,480 $171,785
======== ======== ========
</TABLE>
18
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1998 and 1997, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
December 31, 1997
Life and annuity:
Ordinary direct first year business................ $ 2,316 $1,698 $ 618
Ordinary direct renewal business................... 22,724 6,834 15,890
Group life direct business......................... 1,523 646 877
Reinsurance ceded.................................. (1,464) (81) (1,383)
------- ------ -------
25,099 9,097 16,002
Accident and health:
Direct............................................. 148 -- 148
Reinsurance ceded.................................. (49) -- (49)
------- ------ -------
Total accident and health............................ 99 -- 99
------- ------ -------
$25,198 $9,097 $16,101
======= ====== =======
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force
aggregating $44,233 and $69,271, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $998 and $1,128 to cover
these deficiencies at December 31, 1998 and 1997, respectively.
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations for the
preceding year. Subject to
19
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 1999, without the prior approval of
insurance regulatory authorities, is $62,100.
The Company paid dividends to its parent of $120,000, $62,000 and $20,000 in
1998, 1997 and 1996, respectively.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $380, $422 and $1,056 for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $233, $226 and $297 for
the years ended December 31, 1998, 1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $62, $62 and $184 for the years ended December 31, 1998, 1997
and 1996, respectively.
9. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998,
1997 and 1996, the Company paid $18,706, $18,705 and $17,028, respectively,
for these services, which approximates their costs to the affiliates.
20
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 4.95% at December 31, 1998. During 1998, 1997 and 1996, the Company paid
net interest of $1,491, $1,188 and $174, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash
from its parent.
At December 31, 1998 and 1997, the Company has short-term notes payable to
an affiliate of $9,421 and $16,400, respectively. Interest on these notes
accrues at rates ranging from 5.13% to 5.52% at December 31, 1998 and at 5.60%
at December 31, 1997.
During 1998, the Company issued life insurance policies to certain
affiliated companies, covering the lives of certain employees of those
affiliates. Premiums of $174,000 related to these policies were recognized
during the year, and aggregate reserves for policies and contracts are
$181,720 at December 31, 1998.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $17,901 and $17,700 and an offsetting
premium tax benefit of $7,631 and $7,984 at December 31, 1998 and 1997,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,985, $(975) and $2,617 for December 31, 1998, 1997 and 1996,
respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of
dates and incorrect date calculations that might occur in computer software
and hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations
and decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software
that has date-sensitive coding might recognize a code of 00 as the year 1900
rather than the year 2000.
The Company has developed a Year 2000 Project Plan (the "Plan") to address
the Year 2000 issue as it affects the Company's internal IT ("Information
Technology") and non-IT systems, and to assess Year 2000 issues relating to
third parties with whom the Company has critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected
21
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
systems and equipment; remediation of identified systems and equipment;
internal testing and certification that each internal system is Year 2000
compliant; and a review of existing and revised business resumption and
contingency plans to address potential Year 2000 issues. The Company has
remediated and tested substantially all of its mission-critical internal IT
systems as of December 31, 1998. The Company continues to remediate and test
certain non-critical internal IT systems, internal non-IT systems and will
continue with a revalidation testing program throughout 1999.
The Company's Year 2000 issues are more complex because a number of its
systems interface with other systems not under the Company's control. The
Company's most significant interfaces and uses of third-party vendor systems
are in the bank, financial services and trust areas. The Company utilizes
various banks to handle numerous types of financial and sales transactions.
Several of these banks also provide trustee and custodial services for the
Company's investment holdings and transactions. These services are critical to
a financial services company such as the Company as its business centers
around cash receipts and disbursements to policyholders and the investment of
policyholder funds. The Company has received written confirmation from its
vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. The Company anticipates that a
considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party
business partners and expects to continue working with its business partners
on any interfacing of systems. However, the timing of external system
compliance cannot currently be predicted with accuracy because the
implementation of Year 2000 readiness will vary from one company to another.
The Company does have some exposure to date-sensitive embedded technology
such as micro-controllers, but the Company views this exposure as minimal.
Unlike other industries that may be equipment intensive, like manufacturing,
the Company is a life insurance, and financial services organization providing
insurance annuities and pension products to its customers. As such, the
primary equipment and electronic devices in use are computers and telephone-
related equipment. This type of hardware can have date-sensitive embedded
technology which could have Year 2000 problems. Because of this exposure, the
Company has reviewed its computer hardware and telephone systems, with
assistance from the applicable vendors, and has upgraded, or replaced, or is
in the process of replacing any equipment that will not properly process date-
sensitive data in the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one
or more of the Company's significant policyholder systems being non-compliant.
Such an event could result in a material disruption of the Company's
operations. Specifically, a number of the Company's operations could
experience an interruption in the ability to collect and process premiums or
deposits, process claim payments, accurately maintain policyholder
information, accurately maintain accounting records, and/or perform adequate
customer service. Should the worst case scenario occur, it could, dependent
upon its duration, have a material impact on the Company's business and
financial condition. Simple failures can be repaired and returned to
production within a matter of hours with no material impact. Unanticipated
failures with a longer service disruption period could have a more serious
impact. For this reason, the Company is placing significant emphasis on risk
management and Year 2000 business resumption contingency planning in 1999 by
modifying its existing business resumption and disaster recovery plans to
address potential Year 2000 issues.
The actions taken by management under the Year 2000 Project Plans are
intended to significantly reduce the Company's risk of a material business
interruption based on the Year 2000 issues. It should
22
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(Continued)
be noted that the Year 2000 computer problem, and its resolution, is complex
and multifaceted, and any company's success cannot be conclusively known until
the Year 2000 is reached. In spite of its efforts or results, the Company'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 our knowledge
or control. It is anticipated that there may be problems that will have to be
resolved in the ordinary course of business on and after the Year 2000.
However, the Company does not believe that the problems will have a material
adverse affect on the Company's operations or financial condition.
23
<PAGE>
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1998
(Dollars in thousands)
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- ---------- ---------------
<S> <C> <C> <C>
Fixed Maturities
Bonds:
United States Government and government
agencies and authorities.............. $ 926,370 $ 943,313 $ 926,370
States, municipalities and political
subdivisions.......................... 107,975 114,146 107,975
Foreign governments.................... 54,670 53,950 54,670
Public utilities....................... 139,732 142,230 139,732
All other corporate bonds.............. 3,593,695 3,646,877 3,593,695
Redeemable preferred stock............... 14,754 14,738 14,754
---------- ---------- ----------
Total fixed maturities................... 4,837,196 4,915,254 4,837,196
Equity Securities
Common stocks:
Affiliated entities.................... 8,060 5,613 5,613
Banks, trust and insurance............. 5,935 7,193 7,193
Industrial, miscellaneous and all
other................................. 28,796 42,255 42,255
---------- ---------- ----------
Total equity securities.................. 42,791 55,061 55,061
Mortgage loans on real estate............ 1,012,433 1,012,433
Real estate.............................. 52,381 52,381
Real estate acquired in satisfaction of
debt.................................... 11,778 11,778
Policy loans............................. 60,058 60,058
Other long-term investments.............. 76,482 76,482
Cash and short-term investments.......... 83,289 83,289
---------- ----------
Total investments........................ $6,176,408 $6,188,678
========== ==========
</TABLE>
- -------------------------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
24
<PAGE>
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future Benefits,
Policy Claims
Benefits Policy and Net Losses and Other
and Unearned Contract Premium Investment Settlement Operating Premiums
Expenses Premiums Liabilities Revenue Income* Expenses Expenses* Written
---------- -------- ----------- ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Individual life......... $1,355,283 $ -- $ 8,976 $ 514,194 $ 85,258 $ 545,720 $ 87,455 --
Individual health....... 94,294 9,631 12,123 68,963 8,004 48,144 30,442 $ 68,745
Group life and health... 93,405 10,298 36,908 111,547 11,426 82,690 54,352 108,769
Annuity................. 3,925,293 -- -- 667,920 342,296 592,085 298,222 --
---------- ------- ------- ---------- -------- ---------- --------
$5,468,275 $19,929 $58,007 $1,362,624 $446,984 $1,268,639 $470,471
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1997
Individual life......... $ 882,003 $ -- $ 8,550 $ 200,175 $ 75,914 $ 211,921 $ 36,185 --
Individual health....... 62,033 9,207 12,821 63,548 5,934 37,706 29,216 $ 63,383
Group life and health... 88,211 11,892 44,977 146,694 11,888 103,581 91,568 143,580
Annuity................. 4,204,125 -- -- 657,695 352,688 571,434 364,216 --
---------- ------- ------- ---------- -------- ---------- --------
$5,236,372 $21,099 $66,348 $1,068,112 $446,424 $ 924,642 $521,185
========== ======= ======= ========== ======== ========== ========
Year Ended December 31,
1996
Individual life......... $ 734,350 $ -- $ 7,240 $ 202,082 $ 66,538 $ 197,526 $ 38,067 --
Individual health....... 39,219 8,680 13,631 55,871 5,263 32,903 29,511 $ 55,678
Group life and health... 78,418 14,702 53,486 174,781 12,877 105,459 122,953 171,320
Annuity................. 4,408,419 -- -- 725,966 343,659 800,121 230,417 --
---------- ------- ------- ---------- -------- ---------- --------
$5,260,406 $23,382 $74,357 $1,158,700 $428,337 $1,136,009 $420,948
========== ======= ======= ========== ======== ========== ========
</TABLE>
- -------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
25
<PAGE>
PFL LIFE INSURANCE COMPANY
REINSURANCE
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1998
Life insurance in force.. $6,384,095 $438,590 $39,116 $5,984,621 .6%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health...... 76,438 7,475 -- 68,963 --
Group life and health.. 255,848 144,301 -- 111,547 --
Annuity................ 686,372 18,096 -- 668,276 --
---------- -------- ------- ---------- ---
$1,533,822 $173,564 $ 2,366 $1,362,624 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1997
Life insurance in force.. $5,025,027 $420,519 $35,486 $4,639,994 .8%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health...... 73,593 10,045 -- 63,548 --
Group life and health.. 339,269 192,575 -- 146,694 --
Annuity................ 697,893 40,198 -- 657,695 --
---------- -------- ------- ---------- ---
$1,312,446 $246,372 $ 2,038 $1,068,112 .2%
========== ======== ======= ========== ===
Year Ended December 31,
1996
Life insurance in force.. $4,863,416 $477,112 $30,685 $4,416,989 .7%
========== ======== ======= ========== ===
Premiums:
Individual life........ $ 204,144 $ 3,858 $ 1,796 $ 202,082 .9%
Individual health...... 68,699 12,828 -- 55,871 --
Group life and health.. 390,296 215,515 -- 174,781 --
Annuity................ 794,311 68,345 -- 725,966 --
---------- -------- ------- ---------- ---
$1,457,450 $300,546 $ 1,796 $1,158,700 .2%
========== ======== ======= ========== ===
</TABLE>
26
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 16th day of November,
1999.
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.
<TABLE>
<S> <C> <C>
Signatures Title Date
- ---------- ----- ----
/s/ Patrick S. Baird Director November 16, 1999
- -----------------------
Patrick S. Baird
/s/ Craig D. Vermie Director November 16, 1999
- -----------------------
Craig D. Vermie
/s/ William L. Busler Director November 16, 1999
- ----------------------- (Principal Executive
William L. Busler Officer)
/s/ Larry N. Norman Director November 16, 1999
- -----------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director November 16, 1999
- -----------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and November 16, 1999
- ----------------------- Corporate Controller
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer November 16, 1999
- -----------------------
Brenda K. Clancy
</TABLE>
<PAGE>
Registration No.
333-78743
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
THE ONE INCOME ANNUITY
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EXHIBIT INDEX
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Exhibit No. Description of Exhibit Page No.*
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(8)(a) Participation Agreement by and among One
Group Investment Trust, Nationwide
Advisory Serivces, Nationwide Investors
Services and PFL Life Insurance Company.
(10)(a) Consent of Independent Auditors
(14) Powers of Attorney
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* Page numbers included only in manually excuted original.
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EXHIBIT (8)(a)
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PARTICIPATION AGREEMENT
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FUND PARTICIPATION AGREEMENT
Among
ONE GROUP(R) INVESTMENT TRUST, BANC ONE INVESTMENT ADVISORS CORPORATION
NATIONWIDE ADVISORY SERVICES, INC., NATIONWIDE INVESTORS SERVICES, INC.
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into effective as of the second day of
August 1999, by and among PFL LIFE INSURANCE COMPANY, (hereinafter the
"Company"), an Iowa corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account;" collectively, the "Accounts"), ONE GROUP INVESTMENT TRUST, a business
trust organized under the laws of Massachusetts (hereinafter the "Trust"), BANC
ONE INVESTMENT ADVISORS CORPORATION, an Ohio corporation (hereinafter the
"Adviser"), NATIONWIDE ADVISORY SERVICES, INC., an Ohio corporation (hereinafter
the "Administrator") and NATIONWIDE INVESTORS SERVICES, INC., an Ohio
corporation (hereinafter the "Transfer Agent").
WHEREAS, the Trust engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Trust as an
investment vehicle under their Variable Insurance Products are required to enter
into participation agreements with the Trust and the Administrator (hereinafter
the "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available for Variable Insurance Products of Participating Insurance Companies;
and
WHEREAS, the Trust intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Account(s); and
WHEREAS, the Trust has obtained an order from the Securities and
Exchange Commission, granting the Trust exemptions from the provisions of
Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as
amended (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by Variable Insurance Product separate accounts of both affiliated and
unaffiliated insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act") and its shares
are registered under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, the Adviser is duly registered as an investment adviser under
the federal Investment Advisers Act of 1940 (the "Advisers Act") and any
applicable state securities law; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Trust; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts ("Contracts") under the 1933 Act;
and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
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WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Trust is authorized to sell such shares to unit investment trusts such as
each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust, the Adviser, the Administrator, and the Transfer Agent agree as
follows:
ARTICLE I. Sale of Trust Shares
1.1. The Trust agrees to make available for purchase by the Company
shares of the Portfolio and shall execute orders placed for each Account on a
daily basis at the net asset value next computed after receipt by the Trust or
its designee of such order. For purposes of this Section 1.1, the Company shall
be the designee of the Trust for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Trust; provided that
the Transfer Agent receives notice of such order by 10:00 a.m. Eastern Time on
the next following Business Day ("Trade Date plus 1"). Notwithstanding the
following, the Company shall use its best efforts to provide the Transfer Agent
with notice of such orders by 9:30 a.m. Eastern Time on Trade Date plus 1. The
Administrator shall fax a confirmation of each trade by 1:00 Eastern Time on
Trade Date plus 1. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission, as set
forth in the Trust's prospectus and statement of additional information.
Notwithstanding the foregoing, the Board of Trustees of the Trust (hereinafter
the "Board") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2. The Trust agrees that shares of the Trust will be sold only to
Participating Insurance Companies for their Variable Insurance Products and, in
the Trust's discretion, to qualified pension and retirement plans. No shares of
any Portfolio will be sold to the general public.
1.3. The Trust and the Transfer Agent agree to redeem for cash, on the
Company's request, any full or fractional shares of the Trust held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Trust or its designee of the request for
redemption. For purposes of this Section 1.3, the Company shall be the designee
of the Trust for receipt of requests for redemption from each Account and
receipt by such designee shall constitute receipt by the Trust; provided that
the Trust receives notice of such request for redemption on Trade Date plus 1 in
accordance with the timing rules described in Section 1.1.
1.4. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Trust shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the Contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, shall be invested in the Trust, in such
other Trusts advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, or in the Company's general account, provided that such
amounts may also be invested in an investment company other than the Trust if
(a) such other investment company, or series thereof, has investment objectives
or policies that are substantially different from the investment objectives and
policies of all the Portfolios of the Trust; or (b) the Company gives the Trust
45 days written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts; or (c) such other investment
company was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Trust prior to their signing
this Agreement (a list of such funds appearing on Schedule C to this Agreement);
or (d) the Trust consents to the use of such other investment company.
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1.5. The Company will place orders to purchase or redeem shares
separately for each Portfolio. Each order shall describe the net amount of
shares and dollar amount of each Portfolio to be purchased or redeemed. In the
event of net purchases, the Company shall pay for Portfolio shares on Trade Date
plus 1. Payment shall be in federal funds transmitted by wire which will be sent
or received no later than 2:00 p.m. Eastern Time. For purposes of Section 2.10
and 2.11, upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust. In the event of net redemptions, the Portfolio
shall pay the redemption proceeds in federal funds transmitted by wire on the
next Business Day after an order to redeem Portfolio shares is made in
accordance with the provisions of Section 1.3 hereof. Notwithstanding the
foregoing, if the payment of redemption proceeds on the next Business Day would
require the Portfolio to dispose of Portfolio securities or otherwise incur
substantial additional costs, and if the Portfolio has determined to settle
redemption transactions for all shareholders on a delayed basis, proceeds shall
be wired to the Company within seven (7) days and the Portfolio shall notify in
writing the person designated by the Company as the recipient for such notice of
such delay by 3:00 p.m. Eastern Time on Trade Date plus 1.
1.6. Issuance and transfer of the Trust's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Trust will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.7. The Administrator shall furnish same day notice by 5:00 p.m. in
its local time zone (by wire or telephone, followed by written confirmation) to
the Company of any income, dividends or capital gain distributions payable on
the Trust's shares. Such dividends shall be declared and paid in accordance with
policies established by the Board of Trustees as amended from time to time. The
Administrator shall notify the Company of any amendment to the Trust's dividend
policy within a reasonable time after such amendment. The Company hereby elects
to receive all such income dividends and capital gain distributions as are
payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8. The Administrator shall make the net asset value per share for
each Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Eastern Time) and shall use its best efforts to make such net asset value
per share available by 5:30 p.m. Eastern Time. In the event that the
Administrator is unable to meet the 6:30 Eastern Time stated immediately above,
then the Administrator shall provide the Company with additional time to notify
the Administrator of purchase or redemption orders pursuant to Sections 1.1 and
1.3, respectively, above. Such additional time shall be equal to the additional
time that the Administrator takes to make the net asset values available to the
Company; provided, however, that notification must be made by 11:00 a.m. Eastern
Time on the Business Day such order is to be executed, regardless of when net
asset value is made available.
1.9. If the Administrator provides materially incorrect share net asset
value information through no fault of the Company, the Company shall be entitled
to an adjustment with respect to the Trust shares purchased or redeemed to
reflect the correct net asset value per share as subsequently determined by the
Administrator. The determination of the materiality of any net asset value
pricing error shall be based on the Trust's policy for correction of pricing
errors (the "Pricing Policy"). The Company shall correct such error in its
records and in the records prepared by it for Contract owners in accordance with
information provided by the Administrator. Any material error in the calculation
or reporting of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to the Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 508A.1 of the Iowa Insurance Code and has registered or, prior to
any issuance or sale of the Contracts, will register and will maintain the
registration of each Account as a
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unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts. The Company shall amend
its registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance in accordance with any applicable laws of the state of Massachusetts
and sold in compliance with all applicable federal and state securities laws and
that the Trust is and shall remain registered under the 1940 Act. The Trust
shall amend the Registration Statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
2.3. The Trust, the Administrator and the Adviser represent that each
Portfolio is currently qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and
that each will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that each will notify
the Company immediately upon having a reasonable basis for believing that the
Trust has ceased to so qualify or that the Trust might not so qualify in the
future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Trust immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future. The Company further represents that the Account(s) are
eligible to purchase shares of the Trust.
2.5. The Trust represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Trust
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Trust, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Trust represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply in all
material respects with the 1940 Act.
2.8. The Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the Trust
in compliance in all material respects with any applicable state and federal
securities laws.
2.9. The Administrator and the Transfer Agent each represents and
warrants that each complies with all applicable federal and state laws and
regulations and that each will perform its obligations for the Trust and the
Company in compliance with the laws and regulations of its state of domicile and
any applicable state and federal laws and regulations.
2.10. The Trust represents and warrants that it is and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Trust in an amount no less than the minimal coverage as
required currently by Rule 17g-(1) of the 1940 Act or related provisions as may
be promulgated from time to time. Such bond shall include coverage for larceny
and embezzlement and shall be issued by a relevant bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Trust are covered by a blanket fidelity
bond or similar coverage for the benefit of the Trust, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Trust in the
event that such coverage no longer applies.
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ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Trust shall provide the Company with as many printed copies of
the Trust's current prospectus and Statement of Additional Information as the
Company may reasonably request. If requested by the Company in lieu thereof, the
Trust shall provide camera-ready film containing the Trust's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Trust is amended
during the year) to have the prospectus for the Contracts and the Trust's
prospectus printed together in one document. The Company may print the Trust's
prospectus and/or its Statement of Additional Information in combination with
other fund companies' prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2, all expenses
of printing and distributing Trust prospectuses and Statements of Additional
Information shall be the expense of the Company. For prospectuses and Statements
of Additional Information provided by the Company to its existing owners of
Contracts in order to update disclosure annually as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the Trust. If the
Company chooses to receive camera-ready film in lieu of receiving printed copies
of the Trust's prospectus, the Trust will reimburse the Company in an amount
equal to the product of A and B where A is the number of such prospectuses
distributed to owners of the Contracts, and B is the Trust's per unit cost of
typesetting and printing the Trust's prospectus. The same procedures shall be
followed with respect to the Trust's Statement of Additional Information. The
Trust shall not pay any costs of typesetting, printing and distributing the
Trust's prospectus and/or statement of additional information to prospective
Contract owners.
3.2(b). The Trust, at the Company's expense, shall provide the Company
with copies of Annual and Semi-Annual Reports (the "Reports") in such quantity
as the Company shall reasonably require for distributing to Contract owners. The
Trust, at its expense, shall provide the Contract owners designated by the
Company with copies of its proxy statements and other communications to
shareholders (except for prospectuses and statements of additional information,
and which are covered in Section 3.2(a) above, and Reports). The Trust shall not
pay any costs of distributing Reports and other communications to prospective
Contract owners.
3.2(c). The Company agrees to provide the Trust or its designee with
such information as may be reasonably requested by the Trust to assure that the
Trust's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2(d). The Trust shall pay no fee or other compensation to the Company
under this Agreement, except that if the Trust or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Trust may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Trust in writing.
3.2(e) All expenses, including expenses to be borne by the Trust
pursuant to Section 3.2 hereof, incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Trust, in
accordance with applicable state laws prior to their sale. The Trust shall bear
the expenses for the cost of registration and qualification of the Trust's
shares.
3.3. If and to the extent required by law, the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions
received from Contract owners; and
(iii) vote Trust shares for which no instructions have been
received in a particular Account in the same proportion as Trust shares
of such portfolio for which instructions have been received in that
separate account, so long as and to the extent that the Securities and
Exchange Commission continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. The
Company reserves
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the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
3.4. The Trust will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Trust is not one of the trusts described in Section 16(c) of
that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Trust will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust, the Adviser, the Administrator or their designee, drafts of the Account
prospectuses and statements of additional information and each piece of sales
literature or other promotional material in which the Trust, the Adviser or the
Administrator is described, at least fifteen Business Days prior to its use. No
such material shall be used if the Trust, the Adviser, the Administrator or
their designee reasonably objects to such use within fifteen Business Days after
receipt of such material.
4.2. The Company and its designees shall not give any information or
make any representations or statements on behalf of the Trust or concerning the
Trust in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee, except with the permission of the Trust or its designee
4.3. The Adviser or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its Account(s), is named
at least fifteen Business Days prior to its use. No such material shall be used
if the Company or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
4.4. Neither the Trust, the Administrator, the Transfer Agent nor the
Adviser shall give any information or make any representations on behalf of the
Company or concerning the Company, each Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as such registration statement and prospectus may
be amended or supplemented from time to time, or in published reports for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Trust will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Trust or its shares, promptly
after the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Trust: advertisements (such as material published,
or designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures, or other public media), sales literature (i.e., any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or
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published article), and educational or training materials or other
communications distributed or made generally available to some or all agents or
employees.
ARTICLE V. Diversification
5.1. The Trust will at all times comply with Section 817(h) of the Code
and Treasury Regulation 1.817-5, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts and any amendments
or other modifications to such Section or Regulations. In the event the Trust
ceases to so qualify, it will take all reasonable steps (a) to notify Company of
such event and (b) to adequately diversify the Trust so as to achieve compliance
within the grace period afforded by Regulation 1.817-5.
ARTICLE VI. Potential Conflicts
6.1. The Board will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Trust. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
6.2. The Company will report in writing any potential or existing
material irreconcilable conflict of which it is aware to the Administrator. Upon
receipt of such report, the Administrator shall report the potential or existing
material irreconcilable conflict to the Board. The Administrator shall also
report to the Board on a quarterly basis whether the Company has reported any
potential or existing material irreconcilable conflicts during the previous
calendar quarter. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
6.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Trust or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Trust, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
6.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account (at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
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6.5. For purposes of Sections 6.3 through 6.4 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 6.3 through 6.4 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict.
6.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
6.7. Each of the Company and the Adviser shall at least annually submit
to the Board such reports, materials or data as the Board may reasonably request
so that the Board may fully carry out the obligations imposed upon them by the
provisions hereof and in the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board. Without limiting the generality of the foregoing or the Company's
obligations under Section 6.2, the Company shall provide to the Administrator a
written report to the Board in writing no later than January 15th of each year
indicating whether any material irreconcilable conflicts have arisen during the
prior fiscal year of the Trust. All reports received by the Board of potential
or existing conflicts, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies of a
conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board or other
appropriate records, and such minutes or other records shall be made available
to the Securities and Exchange Commission upon request.
ARTICLE VII. Indemnification
7.1. Indemnification By The Company
------------------------------
7.1 (a). The Company agrees to indemnify and hold harmless the Trust,
the Administrator, the Transfer Agent, the Adviser, and each member of their
respective Boards and officers and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf of
the Trust for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the registration statement, prospectus or sales literature of the Trust
not supplied by the Company, or persons under its control and other
than statements or representations authorized by the Trust) or unlawful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Trust shares; or
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(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Trust or any
amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company; as limited by and in accordance with the provisions of
Section 7.1(b) and 7.1(c) hereof.
7.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
7.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at as own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
Indemnified Party named in the action. After notice from the Company to such
Indemnified Party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company shall not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
7.2. Indemnification by Administrator
--------------------------------
7.2(a). The Administrator agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Administrator) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
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Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust or the Administrator by or on behalf
of the Company, the Adviser, the Transfer Agent, Counsel for the Trust,
the independent public accountant to the Trust, or any person or entity
that is not acting as agent for or controlled by the Administrator for
use in the registration statement or prospectus for the Trust or in
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Administrator; or
(iii) arise as a result of any failure by the Administrator
to provide the services and furnish the materials under the terms of
this Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Administrator in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Administrator; as limited by and in accordance
with the provisions of Section 7.2(b) and 7.2(c) hereof.
7.2(b). The Administrator shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
7.2(c). The Administrator shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Administrator in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Administrator
of any such claim shall not relieve the Administrator from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Administrator will be
entitled to participate, at its own expense, in the defense thereof. The
Administrator also shall be entitled to assume the defense thereof, with counsel
satisfactory to the Indemnified Party named in the action. After notice from the
Administrator to such Indemnified Party of the Administrator's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Administrator will
not be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.2(d). The Company agrees promptly to notify the Administrator of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account in which the Portfolios are made available.
7.3. Indemnification by the Adviser
------------------------------
7.3(a). The Adviser agrees to indemnify and hold harmless the Company
and its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 7.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses) to which the Indemnified
Parties may become
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subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Adviser or the Trust by or on behalf of the Company, the
Administrator, the Transfer Agent, Counsel for the Trust, the
independent public accountant to the Trust, or any person or entity
that is not acting as agent for or controlled by the Adviser for use in
the registration statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Adviser; or
(iii) arise as a result of any failure by the Adviser to
provide the services and furnish the materials under the terms of this
Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Adviser; as limited by and in accordance with the provisions of
Section 7.3(b) and 7.3(c) hereof.
7.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Adviser to such Indemnified Party of
the Adviser's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Adviser will not be liable to such Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other then reasonable costs
of investigation.
7.3(d). The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of each Account, or the
sale or acquisition of shares of the Trust.
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7.4. Indemnification by the Trust
----------------------------
7.4(a). The Trust agrees to indemnify and hold harmless the Company and
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 7.4) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished the
Trust by or on behalf of the Adviser, the Company, the Transfer Agent,
or the Administrator for use in the registration statement or
prospectus for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust; or
(iii) arise as a result of any failure by the Trust to
provide the services and furnish the materials under the terms of this
Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Trust; as limited by and in accordance with the provisions of
Section 7.4(b) and 7.4(c) hereof.
7.4(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.4(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. The Trust also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Trust to such Indemnified Party of
the Trust's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Trust will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other then reasonable costs
of investigation.
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7.4(d). The Company agrees to promptly notify the Trust of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of each Account, or the
sale or acquisition of shares of the Trust.
7.5. Indemnification by Transfer Agent
---------------------------------
7.5(a). The Transfer Agent agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.5)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Transfer Agent) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Trust or the Transfer Agent by or on behalf of the Company, the
Adviser, the Administrator, Counsel for the Trust, the independent
public accountant to the Trust, or any person or entity that is not
acting as agent for or controlled by the Transfer Agent for use in the
registration statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Transfer
Agent; or
(iii) arise as a result of any failure by the Transfer Agent
to provide the services and furnish the materials under the terms of
this Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Transfer Agent in this
Agreement or arise out of or result from any other material breach of
his Agreement by the Transfer Agent; as limited by and in accordance
with the provisions of Section 7.5(b) and 7.5(c) hereof.
7.5(b). The Transfer Agent shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
7.5(c). The Transfer Agent shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Transfer Agent in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Transfer Agent
of any such claim shall not relieve the Transfer Agent from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Transfer Agent will be
entitled to participate, at its own expense, in the defense thereof.
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The Transfer Agent also shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnified Party named in the action. After notice
from the Transfer Agent to such Indemnified Party of the Transfer Agent's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Transfer
Agent will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.5(d). The Company agrees promptly to notify the Transfer Agent of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account in which the Portfolios are made available.
ARTICLE VIII. Applicable Law
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Massachusetts.
8.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE IX. Termination
9.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by ninety (90)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the
Trust, the Adviser, the Transfer Agent and the Administrator with
respect to any Portfolio based upon the Company's determination that
shares of such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the
Trust, the Adviser, the Transfer Agent, and the Administrator with
respect to any Portfolio in the event any of the Portfolio's shares are
not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the
Trust, the Adviser, the Transfer Agent, and the Administrator with
respect to any Portfolio in the event that such Portfolio ceases to
qualify as a Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision, or if the Company
reasonably believes that the Trust may fail to so qualify; or
(e) termination by the Company by written notice to the
Trust, the Adviser, the Transfer Agent, and the Administrator with
respect to any Portfolio in the event that such Portfolio fails to meet
the diversification requirements specified in Article V hereof; or
(f) termination by either the Trust, the Adviser, the
Transfer Agent or the Administrator by written notice to the Company,
if either one or more of the Trust, the Adviser, the Transfer Agent or
the Administrator respectively, shall determine, in their sole judgment
reasonably exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in its
business or financial condition or is the subject of material adverse,
provided that the Trust, the Adviser, the Transfer Agent or the
Administrator will give the Company sixty (60) days' advance written
notice of such determination of its intent to terminate this Agreement,
and provided further that after consideration of the actions taken by
the Company and any other changes in circumstances since the giving of
such notice, the
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determination of the Trust, the Adviser, the Transfer Agent or the
Administrator shall continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the effective date of
termination; or
(g) termination by the Company by written notice to the
Trust, the Adviser, the Transfer Agent or the Administrator if the
Company shall determine, in its sole judgment reasonably exercised in
good faith, that either the Trust, the Adviser, the Transfer Agent or
the Administrator has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse
publicity will have a material adverse impact upon the business and
operations of the Company provided that the Company will give the
Trust, the Adviser, the Transfer Agent and the Administrator sixty (60)
days' advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after consideration
of the actions taken by the Trust, the Adviser, the Transfer Agent or
the Administrator and any other changes in circumstances since the
giving of such notice, the determination of the Company shall continue
to apply on the 60th day since giving of such notice, then such 60th
day shall be the effective date of termination; or
(h) termination by the Trust, the Advisor, the Transfer
Agent, or the Administrator by written notice to the Company, if the
Company gives the Trust and the Underwriter the written notice
specified in Section 1.4(b) hereof and at the time such notice was
given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under
this Section 9.1(h) shall be effective forty five (45) days after the
notice specified in Section 1.4(b) was given.
9.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust shall at the option of the Company, continue to make
available additional shares of the Trust pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Trust shares is proscribed by law, regulation or applicable
regulatory body, or unless the Trust determines that liquidation of the Trust
following termination of this Agreement is in the best interests of the Trust
and its shareholders.. Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 9.2 shall not apply to any terminations under Article VI and
the effect of such Article VI terminations shall be governed by Article VI of
this Agreement.
9.3. The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Adviser the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Adviser) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
One Group Investment Trust
Three Nationwide Plaza
Columbus, Ohio 43215
Attn: James F. Laird, Jr.
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If to the Administrator:
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
Attn: Karen Tackett, Director Strategic Development
If to the Transfer Agent:
Nationwide Investors Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
Attn.: Karen Tackett
If to the Adviser:
Banc One Investment Advisors Corporation
1111 Polaris Parkway, Suite B2
Columbus, Ohio 43271-0211
Attn: Mark A. Beeson
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, N E
Cedar Rapids, Iowa 52499-0001
Attention: Financial Markets Division, Legal Department
ARTICLE XI Miscellaneous
11.1. All persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Trust.
11.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
11.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
11.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
16
<PAGE>
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
11.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
11.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement. The Company shall
promptly notify the Trust and the Adviser of any change in control of the
Company.
11.9. The Company shall furnish, or shall cause to be furnished, to
the Trust or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or policyholders,
as soon as practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as soon as
practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
11.10. The names "One Group(R) Investment Trust" and `Trustees of One
Group(R) Investment Trust" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated June 7, 1993 to which reference is
hereby made and a copy of which is on file at the office of the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of `One
Group Investment Trust' entered into in the name or on behalf thereof by any of
the Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any series of Shares of the Trust must look solely
to the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
PFL LIFE INSURANCE COMPANY
By: /s/ Ronald L. Ziegler
------------------------------------------
Title: Vice President & Actuary
---------------------------------------
ONE GROUP INVESTMENT TRUST
By: /s/ Karen R. Tackett
------------------------------------------
Title: Vice President and Assistant Treasurer
---------------------------------------
BANC ONE INVESTMENT ADVISORS CORPORATION
By: /s/ Mark A. Beeson
------------------------------------------
Title: Sr. Managing Director
---------------------------------------
NATIONWIDE ADVISORY SERVICES, INC.
By: /s/ James F. Laird, Jr.
------------------------------------------
Title: Vice President - General Manager
---------------------------------------
NATIONWIDE INVESTORS SERVICES, INC.
By: /s/ Christopher A. Cray
------------------------------------------
Title: Treasurer
---------------------------------------
18
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
-------------------------------
- --------------------------------------------------------------------------------
Name of Separate Account and Date Form Numbers
Established by Board of Directors Funded by Separate Account
- --------------------------------------------------------------------------------
PFL Retirement Builder Variable Contract Form Nos:
------------------
Annuity Account AV288-101-985-796 (may vary by state)
- --------------------------------------------------------------------------------
March 29, 1996 AVI200 1 998 (may vary by state)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
19
<PAGE>
Schedule B
----------
Portfolios of the Trust
- -----------------------
One Group Investment Trust Bond Portfolio
One Group Investment Trust Government Bond Portfolio
One Group Investment Trust Balanced Portfolio
One Group Investment Trust Large Cap Growth Portfolio
One Group Investment Trust Equity Index Portfolio
One Group Investment Trust Diversified Equity Portfolio
One Group Investment Trust Mid Cap Growth Portfolio
One Group Investment Trust Diversified Mid Cap Portfolio
One Group Investment Trust Mid Cap Value Portfolio
20
<PAGE>
SCHEDULE C
OTHER INVESTMENT COMPANIES AND FUNDS
<TABLE>
<S> <C>
Variable Insurance Products Fund (VIP) Evergreen Variable Trust
VIP Money Market Portfolio Evergreen VA Fund
VIP High Income Portfolio Evergreen VA Foundation Fund
VIP Equity-Income Portfolio Evergreen VA Growth and Income Fund
VIP Growth Portfolio Evergreen VA Global Leaders Fund
VIP Overseas Portfolio Evergreen VA International Growth Fund
VIP High Income Portfolio (Service Class) Federated Insurance Series
Variable Insurance Products Fund II (VIP II) Federated High Income Bond Fund II
VIP II Investment Grade Bond Portfolio Mentor Variable Investment Products
VIP II Asset Manager Portfolio Mentor VIP Capital Growth
VIP II Asset Manager: Growth Portfolio Mentor VIP Growth
VIP II Contrafund Portfolio Mentor VIP High Income
VIP II Index 500 Portfolio Putnam Variable Trust
Variable Insurance Products Fund III (VIP III) Putnam VT Global Growth Fund
VIP III Balanced Portfolio Putnam VT Money Market Fund
VIP III Growth Opportunities Portfolio Putnam VT New Value Fund
VIP III Growth & Income Portfolio Templeton Variable Product Series Fund
VIP III Mid Cap Portfolio Templeton Asset Allocation Fund
VIP III Growth Opportunities Portfolio Templeton International Fund
(Service Class) Franklin Small Cap Investments Fund
AIM Variable Insurance Funds, Inc. One Group(R) Investment Trust
AIM V.I. Capital Appreciation Fund One Group(R) Investment Trust Bond Portfolio
AIM V.I. Government Securities Fund One Group(R) Investment Trust Government
AIM V.I. Growth & Income Fund Bond Portfolio
AIM V.I. International Equity Fund One Group(R) Investment Trust
AIM V.I. Value Fund Balanced Portfolio
Dreyfus Stock Index Fund One Group(R) Investment Trust Large Cap
Dreyfus Variable Investment Fund Growth Portfolio
Dreyfus Money Market Portfolio One Group(R) Investment Trust Equity
Dreyfus Small Company Stock Portfolio Index Portfolio
MFS Variable Insurance Trust One Group(R) Investment Trust Diversified
MFS Emerging Growth Series Equity Portfolio
MFS Foreign & Colonial Emerging One Group(R) Investment Trust Mid Cap
Markets Equity Series Growth Portfolio
MFS Research Series One Group(R) Investment Trust Diversified
MFS Total Return Series Mid Cap Portfolio
MFS Utilities Series One Group(R) Investment Trust Mid Cap
Oppenheimer Variable Account Funds Value Portfolio
Oppenheimer Global Securities Fund
Oppenheimer Growth Fund
Oppenheimer Growth & Income Fund
Oppenheimer High Income fund
Oppenheimer Strategic Bond Fund
Oppenheimer Mutiple Strategies Fund
WRL Series Fund, Inc.
WRL VKAM Emerging Growth
WRL Janus Global
WRL Janus Growth
</TABLE>
21
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EXHIBIT (10)(a)
---------------
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
Exhibit 99.10a
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our report dated
February 19, 1999 with respect to the statutory-basis financial statements and
schedules of PFL Life Insurance Company, included in Post-Effective Amendment
No. 1 to the Registration Statement (Form N-4 No. 333-78743) and related
Prospectus of The One Income Annuity.
Ernst & Young LLP
Des Moines, Iowa
November 15,1999
<PAGE>
EXHIBIT (14)
------------
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Know all men by these presents that Patrick S. Baird, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Retirement Builder Variable Annuity Account, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute, may do or cause to be done by
virtue hereof.
/s/ Patrick S. Baird
------------------------------------
Patrick S. Baird
Senior Vice President
PFL Life Insurance Company
October 11, 1999
- -----------------------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Know all men by these presents that Craig D. Vermie, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Retirement Builder Variable Annuity Account, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute, may do or cause to be done by
virtue hereof.
/s/ Craig D. Vermie
------------------------------------
Craig D. Vermie
Vice President
PFL Life Insurance Company
October 11, 1999
- -----------------------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Know all men by these presents that William L. Busler, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Retirement Builder Variable Annuity Account, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute, may do or cause to be done by
virtue hereof.
/s/ William L. Busler
------------------------------------
William L. Busler
President
PFL Life Insurance Company
October 11, 1999
- -----------------------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Know all men by these presents that Larry N. Norman, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Retirement Builder Variable Annuity Account, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute, may do or cause to be done by
virtue hereof.
/s/ Larry N. Norman
------------------------------------
Larry N. Norman
Executive Vice President
PFL Life Insurance Company
October 11, 1999
- -----------------------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Know all men by these presents that Douglas C. Kolsrud, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Retirement Builder Variable Annuity Account, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute, may do or cause to be done by
virtue hereof.
/s/ Douglas C. Kolsrud
------------------------------------
Douglas C. Kolsrud
Senior Vice President
PFL Life Insurance Company
October 11, 1999
- -----------------------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Know all men by these presents that Robert J. Kontz, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, his attorneys-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Retirement Builder Variable Annuity Account, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute, may do or cause to be done by
virtue hereof.
/s/ Robert J. Kontz
------------------------------------
Robert J. Kontz
Vice President
PFL Life Insurance Company
October 11, 1999
- -----------------------------------------
Date
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
Know all men by these presents that Brenda K. Clancy, whose signature appears
below, constitutes and appoints Craig D. Vermie and Brenda K. Clancy, and each
of them, her attorneys-in-fact, each with the power of substitution, for her in
any and all capacities, to sign any registration statements and amendments
thereto for the PFL Retirement Builder Variable Annuity Account, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or her substitute, may do or cause to be done by
virtue hereof.
/s/ Brenda K. Clancy
------------------------------------
Brenda K. Clancy
Vice President
PFL Life Insurance Company
October 11, 1999
- -----------------------------------------
Date
