<PAGE>
As filed with the Securities and Exchange Commission on January 22, 1999
Registration No. 333 - 7509
811 - 7689
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -------------------------------------------------------------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
---
Post-Effective Amendment No. 6
---
and
REGISTRATION STATEMENT UNDER THE [X]
INVESTMENT COMPANY ACT OF 1940
Amendment No. 7
---
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
-----------------------------------------------
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
--------------------------
(Name of Depositor)
4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code
(319) 297-8468
Frank A. Camp, Esquire
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill and Brennan L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
<PAGE>
Title of Securities Being Registered:
Flexible Premium Variable Annuity Policies
------------------------
------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485.
- -----
- ----- on May 1, 1998 pursuant to paragraph (b)(1)(iii) of Rule 485.
60 days after filing pursuant to paragraph (a)(i) of Rule 485
- -----
X on May 1, 1999 pursuant to paragraph (a)(i) of Rule 485
- -----
If appropriate, check the following box:
X This post-effective amendment designates a new effective date
---
for a previously filed post-effective amendment.
<PAGE>
The filing incorporates by reference the Prospectus, Statement of Additional
Information and Part C of the Post-Effective Amendment No. 5 filed on July 16,
1998.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
-------------------------------------------------------------
PART A
------
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C>
1. Cover Page................................ Cover Page
2. Definitions............................... Definitions
3. Synopsis.................................. Summary; Historical Performance Data
4. Condensed Financial Information........... Condensed Financial Information;
Financial Statements
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor............................ PFL Life Insurance Company
(b) Registrant........................... The Retirement Builder Accounts
(c) Portfolio Company.................... The Mutual Fund Account
(d) Fund Prospectus...................... Underlying Funds
(e) Voting Rights........................ Underlying Funds
6. Deductions and Expenses
(a) General.............................. Charges and Deductions
(b) Sales Load %......................... Surrender Charge
(c) Special Purchase Plan................ N/A
(d) Commissions.......................... Distributor of the Policies
(e) Expenses - Registrant................ N/A
(f) Fund Expenses........................ Other Expenses including Investment
Advisory Fees
(g) Organizational Expenses.............. N/A
7. Policies
(a) Persons with Rights.................. The Policy; Election of Payment Option;
Annuity Payments; Annuity Commencement
Date; Voting Rights
(b) (i) Allocation of Premium
Payments....................... Allocation of Premium Payments
(ii) Transfers...................... Transfers
(iii) Exchanges...................... N/A
(c) Changes.............................. The Policy; Annuity Payment Options;
Premium Payments; Possible changes in
taxation; Addition, Deletion, or
Substitution of Investments
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(d) Inquiries............................ Summary
8. Annuity Period............................ Annuity Payment Options;
...................................... Annuity Commencement Date
9. Death Benefit............................. Death Benefit
10. Purchases and Contract Value
(a) Purchases............................ Policy Application and Issuance of
..................................... Policies; Premium Payments
(b) Valuation............................ Policy Value; The Mutual Fund
..................................... Policy Value
(c) Daily Calculation.................... The Mutual Fund Policy Value
(d) Underwriter.......................... Distributor of the Policies
11. Redemptions
(a) By Owners............................ Surrenders
By Annuitant......................... N/A
(b) Texas ORP............................ Restrictions Under the Texas Optional
..................................... Retirement Program
(c) Check Delay.......................... Payment Not Honored by Bank
(d) Lapse................................ N/A
(e) Free Look............................ Summary
12. Taxes..................................... Certain Federal Income Tax Consequences
13. Legal Proceedings......................... Legal Proceedings
14. Table of Contents for the
Statement of Additional Information....... Statement of Additional Information
<CAPTION>
PART B
------
Item of Form N-4 Statement of Additional
- ---------------- Information Caption
-------------------
<S> <C>
15. Cover Page................................ Cover Page
16. Table of Contents......................... Table of Contents
17. General Information and History........... (Prospectus) PFL Life Insurance Company
18. Services
(a) Fees and Expenses of Registrant...... N/A
(b) Management Policies.................. N/A
(c) Custodian............................ Custody of Assets
</TABLE>
<PAGE>
<TABLE>
Independent
Auditors............................. Independent Auditors
(d) Assets of Registrant................. Custody of Assets
(e) Affiliated Person.................... N/A
(f) Principal Underwriter................ Distribution of the Policies
19. Purchase of Securities Being Offered...... Distribution of the Policies
Offering Sales Load....................... N/A
20. Underwriters.............................. Distribution of the Policies;
(Prospectus) Distributor of the
Policies
21. Calculation of Performance Data........... Historical Performance Data
22. Annuity Payments.......................... (Prospectus) Annuity Payment Options
23. Financial Statements...................... Financial Statements
<CAPTION>
PART C -- OTHER INFORMATION
---------------------------
Item of Form N-4 Part C Caption
- ---------------- --------------
<S> <C>
24. Financial Statements
and Exhibits
(a) Financial Statements................. Financial Statements
(b) Exhibits............................. Exhibits
25. Directors and Officers of
the Depositor............................. Directors and Officers of the Depositor
26. Persons Controlled By or
Under Common Control with the
Depositor or Registrant................... Persons Controlled By or Under Common Control
with the Depositor or Registrant
27. Number of Contractowners.................. Number of Contractowners
28. Indemnification........................... Indemnification
29. Principal Underwriters.................... Principal Underwriters
30. Location of Accounts and Records.......... Location of Accounts and Records
31. Management Services....................... Management Services
32. Undertakings.............................. Undertakings
Signature Page............................ Signature Page
</TABLE>
<PAGE>
RETIREMENT
INCOME BUILDER
VARIABLE ANNUITY
Issued Through
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
PROSPECTUS
MAY 1, 1999
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the Retirement Income Builder Variable
Annuity Policy, you can obtain a free copy of the Statement of Additional
Information (SAI) dated May 1, 1999. Please call us at (800) 525-6205 or write
us at: PFL Life Insurance Company, Financial Markets Division, Variable Annuity
Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A
registration statement, including the SAI, has been filed with the Securities
and Exchange Commission (SEC) and is incorporated herein by reference. The SEC
maintains a web site (http://www.sec.gov) that contains the prospectus, the SAI,
material incorporated by reference, and other information. The table of contents
of the SAI is included at the end of this prospectus.
PLEASE NOTE THAT THE POLICIES AND THE MUTUAL FUNDS:
. ARE NOT BANK DEPOSITS
. ARE NOT FEDERALLY INSURED
. ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
. ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL
. ARE SUBJECT TO RISKS, INCLUDING LOSS OF PREMIUM
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT OFFERED BY THE UNDERLYING FUNDS
LISTED ABOVE. YOU CAN CHOOSE ANY APPROVED OR DISAPPROVED THESE SECURITIES, OR
PASSED COMBINATION OF THESE INVESTMENT CHOICES. UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY:
VARIABLE INSURANCE PRODUCTS FUND (VIP):
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
VARIABLE INSURANCE PRODUCTS FUND III (VIP III):
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
The flexible premium annuity policy has several investment choices. There is a
fixed account, which offers an interest rate that is guaranteed by PFL, and
thirteen mutual fund portfolios offered by the underlying funds listed above.
You can choose any combination of these investment choices.
<PAGE>
TABLE OF CONTENTS Page
SUMMARY...................................................
ANNUITY POLICY FEE TABLE..................................
EXAMPLES..................................................
1. THE ANNUITY CONTRACT.................................
2. ANNUITY PAYMENTS
(THE INCOME PHASE)...................................
Annuity Payment Options..............................
3. PURCHASE.............................................
Policy Issue Requirements............................
Premium Payments.....................................
Initial Premium Requirements.........................
Additional Premium Payments..........................
Maximum Total Premium Payments.......................
Allocation of Premium Payments.......................
Policy Value.........................................
4. INVESTMENT CHOICES...................................
The Separate Account.................................
The Fixed Account....................................
Transfers............................................
Family Income Protector..............................
Dollar Cost Averaging Program........................
Asset Rebalancing....................................
Telephone Transactions...............................
5. EXPENSES.............................................
Surrender Charges....................................
Mortality and Expense Risk Fee.......................
Administrative Charges...............................
Premium Taxes........................................
Federal, State and Local Taxes.......................
Transfer Fee.........................................
Family Income Protector..............................
Portfolio Management Fees............................
6. TAXES................................................
Annuity Policies in General..........................
Qualified and Nonqualified Policies..................
Withdrawals - Nonqualified Policies..................
Withdrawals - Qualified Policies.....................
Withdrawals - 403(b) Policies........................
Diversification and Distribution Requirements........
Taxation of Death Benefit Proceeds...................
Annuity Payments.....................................
7. ACCESS TO YOUR MONEY.................................
Surrenders...........................................
Delay of Payment and Transfers.......................
Excess Interest Adjustment...........................
Policy Loans for 403(b) Policies.....................
Systematic Payout Option.............................
Nursing Care and Terminal Condition .................
Withdrawal Option................................
Unemployment Waiver..................................
8. PERFORMANCE..........................................
9. DEATH BENEFIT........................................
When We Pay A Death Benefit..........................
When We Do Not Pay A Death Benefit...................
Amount of Death Benefit..............................
Guaranteed Minimum Death Benefit.....................
Adjusted Partial Withdrawal..........................
10. OTHER INFORMATION....................................
Ownership............................................
Assignment...........................................
PFL Life Insurance Company...........................
The Separate Account.................................
Mixed and Shared Funding.............................
Reinstatements.......................................
Voting Rights........................................
Distributor of the Policies..........................
Non-participating Policy.............................
Variations in Policy Provisions......................
Year 2000 Matters....................................
IMSA.................................................
Legal Proceedings....................................
Financial Statements.................................
TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION.................................
APPENDIX A
Condensed Financial Information...........................
APPENDIX B
Historical Performance Data...............................
APPENDIX C
Glossary of Special Terms.................................
2
<PAGE>
SUMMARY
THE SECTIONS IN THIS SUMMARY CORRESPOND TO SECTIONS IN THIS PROSPECTUS, WHICH
DISCUSS THE TOPICS IN MORE DETAIL. WORDS PRINTED IN ITALICS IN THIS PROSPECTUS
ARE DEFINED IN THE GLOSSARY, FOUND AT APPENDIX C.
1. THE ANNUITY CONTRACT
The Flexible Premium Variable Annuity Policy offered by PFL Life Insurance
Company (PFL, we, us or our) is a contract between you, as the owner, and PFL,
an insurance company. The policy provides a way to invest on a tax-deferred
basis in the following investment choices: subaccounts of the separate account,
and a fixed account of PFL. The policy is intended to accumulate money for
retirement or other long-term investment purposes.
This policy offers thirteen subaccounts that are listed in Section 4. Each
subaccount invests exclusively in shares of one of the portfolios of the
underlying funds. The policy value may depend on the investment experience of
the selected subaccounts. Therefore, you bear the entire investment risk with
respect to all policy value in any subaccount. You could lose the amount that
you invest.
The fixed account offers an interest rate that is guaranteed by PFL. We
guarantee to return your investment with interest credited for all amounts
allocated to the fixed account.
You can transfer money between any of the investment choices. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per policy
year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
take them out of the policy. The income phase occurs when you begin receiving
regular payments from your policy. The money you can accumulate during the
accumulation phase will determine the income payments you receive during the
income phase.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options, or
a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
3. PURCHASE
You can buy this policy with $2,000 or more under most circumstances. You can
add as little as $50 at any time during the accumulation phase.
4. INVESTMENT CHOICES
You can allocate your premium payments to one or more of the following
portfolios described in the fund prospectuses:
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
VIP Money Market
VIP Equity-Income
VIP Growth
VIP High Income
VIP Overseas
VIP II Asset Manager
VIP II Investment Grade Bond
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
Depending upon their investment performance, you can make or lose money in any
of these subaccounts.
You can also allocate your premium payment to the fixed account.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of the
investment choices.
We may deduct a surrender charge of up to 6.0% of premium payments withdrawn
within five years after the premium is paid. However, after the tenth policy
year, no surrender charges apply, regardless of when you made your last premium
payment. To calculate surrender charges, the first premium paid is considered to
come out first.
3
<PAGE>
Full surrenders and partial withdrawals from a guaranteed period option of the
fixed account may also be subject to an excess interest adjustment, which may
increase or decrease the amount you receive. This adjustment may also apply to
amounts applied to an annuity payment option from a guaranteed period option of
the fixed account.
We deduct daily mortality and expense risk fees and administrative charges of
1.25% to 1.40% per year of the net assets in each subaccount.
During the accumulation phase, we deduct an annual service charge of no more
than $30 from the policy value on each policy anniversary and at the time of
surrender. The charge is waived if either the policy value or the sum of all
premium payments, minus all partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%, upon
total surrender or payment of a death benefit.
If you elect the "family income protector" rider, there is an annual fee during
the accumulation phase of 0.30% of the minimum annuitization value. If you
annuitize under this rider, then there is a stabilized payment fee at an annual
rate of 1.25% of the daily net asset value in the separate account.
6. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first and are taxed as
income for federal tax purposes. If you are younger than 59 1/2 when you take
money out, you may be charged a 10% federal penalty tax on the earnings.
Payments during the income phase may be considered partly a return of your
original investment so that part of each payment would not be taxable as income.
7. ACCESS TO YOUR MONEY
You can take money out anytime during the accumulation phase. You may take out
up to 10% of the policy value free of surrender charges each year. The
percentage that may be taken free of surrender charges is referred to as the
cumulative free percentage. Any cumulative free percentage that is not taken in
one year is carried forward and is available to be taken in the following policy
year free of surrender charges. Amounts withdrawn in excess of the cumulative
free percentage may be subject to a surrender charge. You may also have to pay
income tax and a tax penalty on any money you take out.
8. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the subaccounts you choose. We provide performance information in
Appendix B and in the Statement of Additional Information. This data is not
intended to indicate future performance.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants and beneficiaries, and consult your agent if you have
questions.
You may choose one of the following guaranteed minimum death benefits:
. 5% Annually Compounding
. Annual Step-Up
. Return of Premium
10. OTHER INFORMATION
RIGHT TO CANCEL PERIOD. You may return your policy for a refund within 10 days
after you receive it. The amount of the refund will generally be the policy
value. We will pay the refund within 7 days after we receive written notice of
cancellation and the returned policy. The policy will then be deemed void. In
some states you may have more than 10 days, or receive a refund of more (or
less) than the policy value.
NO PROBATE. Usually when you die, the person you choose as your beneficiary will
receive the death benefit under this policy without going through probate. State
laws vary on how the amount that may be paid is treated for estate tax purposes.
WHO SHOULD PURCHASE THE POLICY? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts. The tax-deferred feature is
4
<PAGE>
most attractive to people in high federal and state tax brackets. You should not
buy this policy if you are looking for a short-term investment or if you cannot
take the risk of getting back less money than you put in.
FINANCIAL INFORMATION. Condensed financial information for the subaccounts is
in Appendix A to this prospectus. Financial Statements for PFL and the
subaccounts are in the Statement of Additional Information.
ADDITIONAL FEATURES. This policy has additional features that might interest
you. These include the following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually, or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can arrange to have a certain amount of money automatically invested,
either monthly or quarterly, in your choice of subaccounts. This feature is
called "dollar cost averaging."
. If yours is a "403(b) policy," then you may elect an endorsement allowing
you to receive policy loans during the accumulation phase, subject to
certain restrictions. This feature is called "policy loans for 403(b)
policies."
. You can elect an optional rider that guarantees you a minimum annuitization
value. This feature is called the "family income protector."
. We will, upon your request, automatically transfer amounts among the
subaccounts on a regular basis to maintain a desired allocation of the
policy value among the various subaccounts. This feature is called "asset
rebalancing."
. Under certain medically related circumstances, we will allow you to
surrender or partially withdraw your policy value without a surrender
charge and excess interest adjustment. This feature is called the "nursing
care and terminal condition withdrawal option."
. Under certain unemployment circumstances, you may withdraw all or a portion
of the policy value free of surrender charges and excess interest
adjustments. This feature is called the "unemployment waiver."
. You may make transfers and/or change the allocation of additional premium
payments by telephone.
These features are not available in all states and may not be suitable for your
particular situation.
INQUIRIES
If you need more information, please contact us at:
Administrative and Service Office
Financial Markets Division
Variable Annuity Department
PFL Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
5
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
ANNUITY POLICY FEE TABLE
====================================================================================================================================
====================================================================================================================================
SEPARATE ACCOUNT ANNUAL EXPENSES
POLICY OWNER TRANSACTION EXPENSES (AS A PERCENTAGE OF ACCOUNT VALUE)
<S> <C>
====================================================================================================================================
Sales Load On Purchase Payments............................. 0 Mortality and Expense Risk Fees/(4)/.................... 1.25%
Maximum Surrender Charge Administrative Charge................................... 0.15%
-----
(as a % of Premium Payments Surrendered)/(1)(2)/....... 6%
Surrender Fees.............................................. 0 TOTAL SEPARATE ACCOUNT
Service Charge/(2)/........................... $30 Per Policy ANNUAL EXPENSES......................................... 1.40%
Transfer Fee/(2)/........................... Currently No Fee
Family Income Protector (optional)/(3)/
Rider Fee............................................. 0.30%
====================================================================================================================================
====================================================================================================================================
PORTFOLIO ANNUAL EXPENSES/(5)/
(AS A PERCENTAGE OF AVERAGE NET ASSETS AND AFTER EXPENSE REIMBURSEMENTS)
====================================================================================================================================
RULE TOTAL PORTFOLIO
MANAGEMENT FEES OTHER EXPENSES 12B-1 FEES ANNUAL EXPENSES
====================================================================================================================================
VIP Money Market............................. -
VIP High Income/(6)/......................... -
VIP Equity-Income............................ -
VIP Growth/(6)/.............................. -
VIP Overseas/(6)/............................ -
VIP II Investment Grade Bond................. -
VIP II Asset Manager/(6)/.................... -
VIP II Contrafund/(6)/....................... -
VIP II Asset Manager: Growth/(6)/............ -
VIP II Index 500/(7)/........................ -
VIP III Balanced/(6)/........................ -
VIP III Growth Opportunities/(6)/............ -
VIP III Growth & Income...................... -
====================================================================================================================================
</TABLE>
6
<PAGE>
/(1)/ The surrender charge is decreased based on the number of years since the
premium payment was made, from 6% in the year in which the premium payment was
made to 0% in the sixth year after the premium payment was made. However, after
the tenth policy year, no surrender charges apply, regardless of when you made
your last premium payment. If applicable, a surrender charge will only be
applied to withdrawals that exceed the amount available under certain listed
exceptions.
/(2)/ The surrender charge and transfer fee, if any is imposed, apply to each
policy, regardless of how policy value is allocated among the separate account
and the fixed account. The service charge is the lesser of $30 or 2% of the
policy value. It applies to both the fixed account and the separate account, and
is assessed on a prorata basis relative to each account's policy value as a
percentage of the policy's total policy value. There is no fee for the first 12
transfers per year. For additional transfers, PFL may charge a fee of $10 per
transfer, but currently does not charge for any transfers. Separate account
annual expenses do not apply to the fixed account.
/(3)/ The annual rider fee is currently equal to 0.30% of the minimum
annuitization value on the previous policy anniversary; PFL may at its
discretion change the rate in the future, but the rate will never be greater
than 0.50% per year. The stabilized payment fee is only charged if you annuitize
under the family income protector rider, and then only after annuitization. This
fee is reflected in the amount of the variable payments. The stabilized payment
fee is currently equal to an effective annual rate of 1.25% of the daily net
asset value in the variable investment options; PFL may at its discretion change
the rate in the future, but the rate will never be greater than 2.25% per year.
Once the family income protector rider is added to your policy, neither the
rider fee nor the stabilized payment fee that is in effect at that time will
change during the life of that family income protector rider.
/(4)/ Mortality and expense risk fees shown (1.25%) are for the "5% Annually
Compounding Death Benefit" and the "Annual Step-Up Death Benefit." The
corresponding fees for the "Return of Premium Death Benefit" are 1.10% for each
subaccount.
/(5)/ The fee table information relating to the underlying funds is for 1998 and
was provided to PFL by the underlying funds, and PFL has not independently
verified such information.
/(6)/ A portion of the brokerage commissions that certain funds pay is used to
reduce fund expenses. In addition, certain funds have entered into arrangements
with their custodian whereby credits realized, as a result of uninvested cash
balances were used to reduce custodian expenses. Including these reductions, the
total operating expenses for 1998 presented in the table would have been: 0.__%
for VIP Equity-Income Portfolio, 0.__% for VIP Growth Portfolio, 0.__% for VIP
Overseas Portfolio, 0.__% for VIP II Asset Manager Portfolio, 0.__% for VIP II
Contrafund Portfolio, 0.__% for VIP II Asset Manager: Growth Portfolio, 0.__%
for VIP III Growth Opportunities Portfolio, 0.__% for VIP III Balanced
Portfolio, and 0.__% for VIP High Income Portfolio.
/(7)/ Fidelity Management & Research Company agreed to reimburse a portion of
Index 500 Portfolio's expenses during 1998. Without this reimbursement, the
Portfolio's management fee, other expenses and total expenses would have been
0.__%, 0. __% and 0.__%.
7
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, assuming the entire policy value is in
the applicable subaccount, and assuming the family income protector rider has
been selected:
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Return of Premium Death Benefit (1.10% charge)
B = 5 % Annually Compounding Death Benefit
or the Annual Step-Up Death Benefit (1.25% charge)
<TABLE>
<CAPTION>
====================================================================================================================================
IF THE POLICY IS ANNUITIZED AT
IF THE POLICY IS SURRENDERED THE END OF THE APPLICABLE TIME PERIOD OR
AT THE END OF THE APPLICABLE IF THE POLICY IS NOT SURRENDERED OR
TIME PERIOD. ANNUITIZED.
======================================================================================
SUBACCOUNTS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
VIP Money Market A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP High Income A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP Equity-Income A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP Growth A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP Overseas A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Contrafund A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Index 500 A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP III Balanced A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income A
--------------------------------------------------------------------------------------------
B
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above table will assist you in understanding the costs and expenses of the
policy and the underlying funds that you will bear, directly or indirectly.
These include the 1998 expenses of the underlying funds. In addition to the
expenses listed above, premium taxes, currently ranging from 0% to 3.50% of
premium payments may be applicable.
The examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or lesser than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed rate.
In these examples, the $30 service charge is reflected as a charge of _____%
based on an average policy value of $_______.
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1. THE ANNUITY CONTRACT
This prospectus describes the Retirement Income Builder Variable Annuity Policy
offered by PFL Life Insurance Company.
An annuity is a contract between you, the owner, and an insurance company (in
this case PFL), where the insurance company promises to pay you an income in the
form of annuity payments. These payments begin on a designated date, referred to
as the annuity commencement date. Until the annuity commencement date, your
annuity is in the accumulation phase and the earnings are tax deferred. Tax
deferral means you generally are not taxed on your annuity until you take money
out of your annuity. After the annuity commencement date, your annuity switches
to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
It is a "flexible premium" policy because after you purchase it, you can
generally make additional investments of any amount of $50 or more, until the
annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you select
the variable annuity portion of the policy, the amount of money you are able to
accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your policy
also depends upon the investment performance of your investment choices for the
income phase.
The policy also contains a fixed account. The fixed account offers an interest
rate that is guaranteed by PFL and which will not change during the selected
guaranteed period. There may be different interest rates for each different
guaranteed period selected.
2. ANNUITY PAYMENTS (THE INCOME PHASE)
You choose the date when annuity payments under the policy start. This is the
annuity commencement date. You can change this date by giving us 30 days written
notice before the current annuity commencement date. The new annuity
commencement date must be at least 30 days after we receive the change. The
latest annuity commencement date cannot be after the policy month following the
month in which the annuitant attains age 95.
Election of Annuity Payment Option. Before the annuity commencement date, if the
- ----------------------------------
annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one of
the annuity payment options.
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Supplemental Policy. Once you annuitize and select an annuity payment option,
- -------------------
your policy will be supplemented with who will receive the annuity payments and
when the annuity payments will be made.
ANNUITY PAYMENT OPTIONS
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your "adjusted
policy value" to provide these annuity payments. The adjusted policy value is
the policy value increased or decreased by any applicable excess interest
adjustment. If the adjusted policy value on the annuity commencement date is
less than $2,000, PFL reserves the right to pay it in one lump sum in lieu of
applying it under an annuity payment option. You can receive payments monthly,
quarterly, semi-annually, or annually.
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments under
payment options 3 and 5. The dollar amount of the first variable payment will be
determined in accordance with the annuity payment rates set forth in the
9
<PAGE>
applicable table contained in the policy. The dollar amount of additional
variable payments will vary based on the investment performance of the
subaccount(s) that you select. The dollar amount of each variable payment after
the first may increase, decrease or remain constant. If the actual investment
performance exactly matched the assumed investment return of 5% at all times,
the amount of each variable annuity payment would remain equal. If actual
investment performance exceeds the assumed investment return, the amount of the
variable annuity payments would increase. Conversely, if actual investment
performance is lower than the assumed investment return, the amount of the
variable annuity payments would decrease.
A charge for premium taxes and an excess interest adjustment may be made when
annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
- -----------------------------------
use to provide annuity payments in equal payments or this amount may be left to
accumulate for a period of time you and PFL agree to. You and PFL will agree on
withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
- -----------------------------------------------
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
- -----------------------------
Fixed Payments
. No Period Certain--We will make level payments only during the
annuitant's lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of
the annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
- ----------------------------------------------
specified amount until the amount applied to this option, with interest, are
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
- --------------------------------------------
Fixed Payments
. Payments are made during the joint lifetime of the payee and a joint
payee of your selection. Payments will be made as long as either person
is living.
Variable Payments
. Payments are made as long as either the payee or the joint payee is
living.
Other annuity payment options may be arranged by agreement with PFL. Certain
annuity payment options may not be available in all states.
NOTE CAREFULLY:
- --------------
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second
annuity payment;
THEN:
. we may make only one annuity payment.
IF:
. you choose Income for a Specified Period, Life Income with 10 years
Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income
of a Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their value (determined at the date of death) may be paid
in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The payee is responsible to keep PFL informed of
the payee's current address of record.
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<PAGE>
3. PURCHASE
POLICY ISSUE REQUIREMENTS
PFL will issue a policy IF:
. PFL receives all information needed to issue the policy;
. PFL receives a minimum initial premium payment; and
. You (annuitant and any joint owner) are age 80 or younger.
PREMIUM PAYMENTS
You should make checks or drafts for premium payments payable only to PFL Life
Insurance Company and send them to the Administrative and Service Office. Your
check or draft must be honored in order for PFL to pay any associated payments
and benefits due under the policy.
INITIAL PREMIUM REQUIREMENTS
The initial premium payment for most policies must be at least $2,000. There is
no minimum initial premium payment for policies issued under section 403(b) of
the Internal Revenue Code; however, your premium must be received within 90 days
of the policy date or your policy will be canceled. We will credit your initial
premium payment to your policy within two business days after the day we receive
it and your complete policy information. If we are unable to credit your initial
premium payment, we will contact you within five business days and explain why.
We will also return your initial premium payment at that time unless you tell us
to keep it and credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
ADDITIONAL PREMIUM PAYMENTS
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of the
annuitant and during the accumulation phase. Additional premium payments must be
at least $50. We will credit additional premium payments to your policy as of
the business day we receive your premium and required information.
MAXIMUM TOTAL PREMIUM PAYMENTS
We allow premium payments up to a total of $1,000,000 without prior approval.
ALLOCATION OF PREMIUM PAYMENTS
When you purchase a policy, we will allocate your premium payment to the
investment choices you select. Your allocation must be in whole percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate premium payment to the dollar cost averaging fixed account, you
must give us directions regarding the subaccount(s) to which transfers are to be
made or we cannot accept your premium payment.
You may change allocations for future additional premium payments by sending us
written instructions or by telephone, subject to the limitations described below
under "Telephone Transactions." The allocation change will apply to premium
payments received after the date we receive the change request.
POLICY VALUE
You should expect your policy value to change from valuation period to valuation
period. A valuation period begins at the close of business on each business day
and ends at the close of business on the next succeeding business day. A
business day is each day that the New York Stock Exchange is open. Holidays are
generally not business days.
4. INVESTMENT CHOICES
THE SEPARATE ACCOUNT
The Retirement Income Builder Variable Annuity separate account currently
consists of thirteen subaccounts.
The Underlying Funds. The subaccounts invest in shares of the underlying funds.
- --------------------
Fidelity Management & Research Company provides investment advice and
administrative services for all of the underlying funds offered through this
policy. The following subaccounts are currently offered:
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<PAGE>
VARIABLE INSURANCE PRODUCTS FUND (VIP):
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
VARIABLE INSURANCE PRODUCTS FUND III (VIP III):
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
The general public may not purchase these underlying funds. The investment
objectives and policies may be similar to other portfolios and mutual funds
managed by the same investment adviser or manager that are sold directly to the
public. You should not expect that the investment results of the other
portfolios and mutual funds will be comparable to those of the underlying funds.
More detailed information, including an explanation of the portfolios'
investment objectives, may be found in the underlying funds' current
prospectuses, which are attached to this prospectus. You should read the
prospectuses for each of the underlying funds carefully before you invest.
We may receive expense reimbursements or other revenues from the underlying
funds or their investment advisors. The amount of these reimbursements or
revenues, if any, may be based on the amount of assets that PFL or the separate
account invests in the underlying funds.
THE FIXED ACCOUNT
PREMIUM PAYMENTS ALLOCATED AND AMOUNTS TRANSFERRED TO THE FIXED ACCOUNT BECOME
PART OF THE GENERAL ACCOUNT OF PFL. INTERESTS IN THE GENERAL ACCOUNT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), NOR IS THE
GENERAL ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY
ACT OF 1940 (THE "1940 ACT"). ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY
INTERESTS THEREIN ARE GENERALLY SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940
ACTS. PFL HAS BEEN ADVISED THAT THE STAFF OF THE SEC HAS NOT REVIEWED THE
DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO THE FIXED ACCOUNT.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period, the value in that
guaranteed period option will automatically be transferred into a new guaranteed
period option period of the same length (or the next shorter period if the same
period is no longer offered) at the current interest rate for that period. You
can transfer to another investment choice by giving us notice within 30 days
before the end of the expiring guaranteed period.
Surrenders or partial withdrawals from a guaranteed period option of the fixed
account are subject to an excess interest adjustment. This adjustment may
increase or decrease the amount of interest credited to your policy. The excess
interest adjustment will not decrease the interest credited to your policy below
3% per year, however. You bear the risk that we will not credit interest greater
than 3% per year. We determine credited rates, which are guaranteed for at least
one year, in our sole discretion.
If you select the fixed account, your money will be placed with the other
general assets of PFL. The amount of money you are able to accumulate in the
fixed account during the accumulation phase depends upon the total interest
credited. The amount of annuity payments you receive during the income phase
from the fixed portion of your policy will remain level for the entire income
phase.
TRANSFERS
During the accumulation phase, you may make transfers from any subaccount as
often as you wish. However, transfers from a guaranteed period option of the
fixed account are allowed only under the following circumstances:
. At the end of a guaranteed period: You must notify us within 30 days prior
to the end of the guaranteed period that you wish to transfer this amount
to another investment choice.
. Transfers of amounts equal to interest credited on a monthly, quarterly,
semi-annual or annual basis. This may affect your overall
interest-crediting rate, because transfers are deemed to come from the
oldest premium payment first.
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<PAGE>
There are no transfers permitted out of the dollar cost averaging fixed account
except through the dollar cost averaging program.
Each transfer must be at least $500 (or the entire subaccount value), except for
transfers of a guaranteed period option of the fixed account amounts equal to
interest credited for which there is a minimum transfer amount of $50. If the
subaccount value remaining after the transfer is less than $500, we reserve the
right to include that amount as part of the transfer.
During the income phase of your policy, you may transfer values out of any
subaccount up to four times per policy year. However, you cannot transfer values
out of the fixed account in this phase. The minimum amount that can be
transferred during this phase is the lesser of $10 of monthly income, or the
entire monthly income of the annuity units in the subaccount from which the
transfer is being made.
Transfers may be made by telephone, subject to the limitations described below
under "Telephone Transactions."
Currently, there is no charge for transfers. However, the number of transfers
permitted may be limited in the future and charges per transfer may apply in the
future.
FAMILY INCOME PROTECTOR
The family income protector assures you of a minimum level of income in the
future by guaranteeing a minimum annuitization value (discussed below) after 10
years. You may elect to purchase this benefit, which guarantees the total amount
you will have to apply to a family income protector payment option and which
guarantees the amounts of those payments once you begin to receive them. By
electing this benefit, you can participate in the gains of the underlying
variable investment options you select while knowing that you are guaranteed a
minimum level of income in the future, regardless of the performance of the
underlying variable investment options.
Minimum Annuitization Value. The minimum annuitization value is:
- ---------------------------
. the policy value on the date the rider is issued,
. plus any additional premium payments,
. minus an adjustment for any withdrawals made after the date the rider is
issued,
. accumulated at the annual growth rate written on page one of the rider,
. minus any premium taxes.
The annual growth rate is currently 6% per year; PFL may, at its discretion,
change the rate in the future, but the rate will never be less than 3% per year,
and once the rider is added to your policy, the annual growth rate will not vary
during the life of that rider. Withdrawals may reduce the minimum annuitization
value on a basis greater than dollar-for-dollar. See the Statement of Additional
Information for more information.
The minimum annuitization value may only be used to annuitize using the family
income protector payment options and may not be used with any of the annuity
payment options listed in section 2. The family income protector payment options
are:
. Life Income - An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the annuitant prior to the end of
the chosen period certain, the remaining period certain payments will be
continued to the beneficiary.
. Joint and Full Survivor - An election may be made for "No Period Certain"
or "10 Years Certain". Payments will be made as long as either the
annuitant or joint annuitant is living. In the event of the death of both
the annuitant and joint annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
The minimum annuitization value is used to calculate the family income protector
payment and does not establish or guarantee a policy value or guarantee
performance of any investment option.
Other benefits and fees under the rider (the rider fee, the fee waiver
threshold, the stabilized payment fee, and the waiting period before the family
income protector can be exercised, as well as the annual growth rate) are also
guaranteed not to change after the rider is added. However, all of these benefit
specifications may change if you elect to upgrade the minimum annuitization
value.
Minimum Annuitization Value Upgrade. You can upgrade your minimum annuitization
- -----------------------------------
value to the policy value within
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<PAGE>
30 days after any policy anniversary before your 85th birthday (earlier if
required by state law). For your convenience, we will put the last date to
upgrade on page one of the rider.
If you upgrade, the current rider will terminate and a new one will be issued
with its own specified guaranteed benefits and fees. Please note that the
benefits and fees under the new rider may differ from your benefits and fees
prior to upgrading.
Conditions of Exercise of the Guaranteed Minimum Income Option. You can only
- --------------------------------------------------------------
annuitize using the family income protector within the 30 days after the tenth
or later policy anniversary after the family income protector is elected or, in
the case of an upgrade of the minimum annuitization value, the tenth or later
policy anniversary following the upgrade; PFL may, at its discretion, change the
waiting period before the family income protector can be exercised in the
future. You cannot, however, annuitize using the family income protector after
the policy anniversary after your 94th birthday (earlier if required by state
law). For your convenience, we will put the first and last date to annuitize
using the family income protector on page one of the rider.
Note Carefully -- If you annuitize at any time other than indicated above, you
cannot use the family income protector.
Guaranteed Minimum Stabilized Payments. Annuity payments under the family income
- --------------------------------------
protector are guaranteed to never be less than the initial payment. See the
Statement of Additional Information for information concerning the calculation
of the initial payment. The payments will also be "stabilized" or held constant
during each policy year.
Under the family income protector, each annuity payment will be the greater of
the stabilized payment or the payment calculated without regard to the
stabilized payments. During the first policy year after annuitizing using the
family income protector, each stabilized payment will equal the initial payment.
On each policy anniversary thereafter, the stabilized payment will increase or
decrease depending on the performance of the investment options you selected,
and then be held constant at that amount for that policy year. The stabilized
payment on each policy anniversary will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected investment
options. See the Statement of Additional Information for additional information
concerning stabilized payments.
Family Income Protector Rider Fee. A rider fee, currently 0.30% of the minimum
- ---------------------------------
annuitization value on the prior policy anniversary, is charged annually prior
to annuitization. PFL may change the rider fee percentage in the future, but it
will never be greater than 0.50%. The rider fee is deducted from each variable
investment option in proportion to the amount of policy value in each
subaccount.
The rider fee on any given policy anniversary will be waived if the policy value
exceeds the fee waiver threshold. The fee waiver threshold currently is two
times the minimum annuitization value; PFL may, at its discretion, change the
fee waiver threshold in the future, but it will never be greater than two and
one-half times the minimum annuitization value.
Stabilized Payment Fee. A stabilized payment fee, currently equal to an
- ----------------------
effective annual rate of 1.25% of the daily net asset value in the variable
investment options, is reflected in the amount of the variable payments you
receive if you annuitize under the family income protector rider. PFL may change
the stabilized payment fee in the future, but it will never be greater than
2.25%. The stabilized payment fee is included on page one of the rider.
Termination. The family income protector is irrevocable. You have the option
- -----------
not to use the benefit but you will not receive a refund any fees you have paid.
The family income protector will terminate upon the earliest of the following:
. annuitization (you will still get guaranteed minimum stabilized payments if
you annuitize using the minimum annuitization value under the family income
protector),
. upgrade of the minimum annuitization value (although a new rider will be
issued),
. termination of your policy, or
. 30 days after the policy anniversary after your 94/th/ birthday (earlier if
required by state law).
THE FAMILY INCOME PROTECTOR DOES NOT ESTABLISH OR GUARANTEE POLICY VALUE OR
GUARANTEE PERFORMANCE OF ANY INVESTMENT OPTION. BECAUSE THIS
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<PAGE>
benefit is based on conservative actuarial factors, the level of lifetime income
that it guarantees may be less than the level that would be provided by
application of the policy value at otherwise applicable annuity factors.
Therefore, the family income protector should be regarded as a safety net.
The family income protector may not be available in all states.
DOLLAR COST AVERAGING PROGRAM
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account into one or more variable
subaccounts. You may specify the dollar amount to be transferred either monthly
or quarterly; however each transfer must be at least $500. A minimum of 6
monthly or 4 quarterly transfers are required and a maximum of 24 months or 8
quarterly transfers are allowed. Transfers must begin within 30 days. We will
make the transfers on the 28th day of the applicable month. There is no charge
for this program.
Dollar cost averaging buys more accumulation units when prices are low and fewer
accumulation units when prices are high. It does not guarantee profits or assure
that you will not experience a loss.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account may be adjusted downward, but not below the minimum
guaranteed effective annual interest rate of 3%.
ASSET REBALANCING
During the accumulation phase you can instruct us to automatically rebalance the
amounts in your subaccounts to maintain your desired asset allocation. This
feature is called asset rebalancing and can be started and stopped at any time
free of charge. However, we will not rebalance if you are in the dollar cost
averaging program or if any other transfer is requested. Asset rebalancing
ignores amounts in the fixed account. You can choose to rebalance monthly,
quarterly, semi-annually, or annually.
TELEPHONE TRANSACTIONS
You may make transfers and change the allocation of additional premium payments
by telephone IF:
. you initial the "Telephone Transfer/Reallocation Authorization" box in the
policy application or enrollment form; or
. you later make this request in writing.
You will be required to provide certain information for identification purposes
when requesting a transaction by telephone. We may also require written
confirmation of your request. We will not be liable for following telephone
requests that we believe are genuine.
Telephone requests must be received before 3:00 p.m. central time to assure
same-day pricing of the transaction. We may discontinue this option at any time.
5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
SURRENDER CHARGES
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value increased or decreased by any excess interest
adjustment and decreased by an applicable surrender charge. You can withdraw up
to 10% of your policy value each year free of surrender charges. This free
amount is cumulative and is referred to as the cumulative free percentage. If
you withdraw money in excess of the cumulative free percentage, you might have
to pay a surrender charge on the excess amount. The following schedule shows the
surrender charges that apply during the five years following each premium
payment:
- --------------------------------------------------------------
NUMBER OF YEARS SINCE PREMIUM PERCENTAGE OF
PAYMENT DATE PREMIUM WITHDRAWN
- --------------------------------------------------------------
0 - 1 6%
- --------------------------------------------------------------
1 - 2 6%
- --------------------------------------------------------------
2 - 3 6%
- --------------------------------------------------------------
3 - 4 4%
- --------------------------------------------------------------
4 - 5 2%
- --------------------------------------------------------------
5 or more 0%
- --------------------------------------------------------------
15
<PAGE>
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your cumulative
free percentage of 20% that is available at that time, you would pay a surrender
charge of $600 on the remaining $10,000 (6% of $30,000 - $20,000).
For surrender charge purposes, the oldest premium is considered to be withdrawn
first. After the tenth policy year, no surrender charges apply, regardless of
when you made your last premium payment.
Keep in mind that withdrawals may be taxable, and if made before age 59 1/2, may
be subject to a 10% federal penalty tax. For tax purposes, withdrawals are
considered to come from earnings first.
Surrender charges are waived if you withdraw money under the nursing care and
terminal condition withdrawal option or unemployment waiver.
MORTALITY AND EXPENSE RISK FEE
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the current
charges will be insufficient in the future to cover costs of administering the
policy. For the Return of Premium Death Benefit the mortality and expense risk
fee is at an annual rate of 1.10% of assets. For the 5% Annually Compounding
Death Benefit and the Annual Step-Up Death Benefit, the mortality and expense
risk fee is at an annual rate of 1.25% of assets. This annual fee is assessed
daily based on the net asset value of each subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We expect to profit from this charge. We may use our surplus for any proper
purpose, including distribution expenses.
ADMINISTRATIVE CHARGES
We deduct an annual administrative charge to cover the costs of administering
the policies. This charge is equal to 0.15% per year of the daily net asset
value of the separate account.
In addition, an annual service charge of $30 (but not more than 2% of the policy
value) is charged on each policy anniversary and at surrender. The service
charge is waived if your policy value or the sum of your premium, less all
partial withdrawals, is at least $50,000.
PREMIUM TAXES
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
FEDERAL, STATE AND LOCAL TAXES
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
TRANSFER FEE
You are allowed to make 12 free transfers per year. If you make more than 12
transfers per year, we reserve the right to charge $10 for each transfer.
Premium payments, asset rebalancing and dollar cost averaging transfers are not
considered transfers. All transfer requests made at the same time are treated as
a single request.
FAMILY INCOME PROTECTOR
If you elect the family income protector, there is an annual rider fee during
the accumulation phase of 0.30% of the minimum annuitization value, and a
stabilized payment fee of 1.25% of the daily net asset value if you annuitize
under the rider.
PORTFOLIO MANAGEMENT FEES
The value of the assets in each subaccount will reflect the fees and expenses
paid by the underlying fund. A description of these expenses is found in the
"Fee Table"
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section of this prospectus and in the underlying fund's prospectus.
6. TAXES
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in the
Statement of Additional Information.
ANNUITY POLICIES IN GENERAL
Deferred annuity policies are a way of setting aside money for future needs like
retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy - qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs - either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will generally
not be treated as an annuity for tax purposes.
QUALIFIED AND NONQUALIFIED POLICIES
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy. Examples of qualified plans are: Individual Retirement Annuities (IRAs),
403(b) plans (sometimes referred to as tax-sheltered annuities), certain
deferred compensation plans known as "457 plans", and pension and profit sharing
plans (which include 401(k) plans).
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
WITHDRAWALS - NONQUALIFIED POLICIES
If you make a withdrawal from your policy, the Internal Revenue Code treats that
withdrawal as first coming from earnings and then from your premium payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. (The excess interest adjustment resulting from the withdrawal may
affect the amount on which you are taxed.) Different rules apply for annuity
payments. A portion of each annuity payment is treated as a partial return of
your premium payments and will not be taxed. The remaining portion of the
annuity payment will be treated as ordinary income. How the annuity payment is
divided between taxable and non-taxable portions depends upon the period over
which the annuity payments are expected to be made. Annuity payments received
after you have received all of your premium payments are fully includable in
income.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
WITHDRAWALS - QUALIFIED POLICIES
The above information describing the taxation of nonqualified policies does not
apply to qualified policies. There are special rules that govern with respect to
qualified policies. We have provided more information in the Statement of
Additional Information.
17
<PAGE>
WITHDRAWALS - 403(B) POLICIES
The Internal Revenue Code limits the withdrawal of premium payments from certain
403(b) policies. Withdrawals can only be made when an owner:
. reaches age 591/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. in the case of hardship. However, in the case of hardship, the owner can only
withdraw the premium payments and not any earnings.
DIVERSIFICATION AND DISTRIBUTION REQUIREMENTS
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity policy. The policy must also meet certain distribution
requirements in order to be treated as an annuity policy. These diversification
and distribution requirements are discussed in the Statement of Additional
Information. PFL may modify the policy to attempt to maintain favorable tax
treatment.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner
as a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received, which were not
includable in gross income.
ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments - by dividing the "investment in the contract" on the annuity
commencement date by the total expected value of the annuity payments for the
term of the payments. This is the percentage of each annuity payment that is
excludable.
. Variable payments - by dividing the "investment in the contract" on the
annuity commencement date by the total number of expected periodic
payments. This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern the
allocation of the policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received under that option. We advise you to consult a competent tax adviser as
to the potential tax effects of allocating amounts to any particular annuity
payment option.
If, after the annuity commencement date, annuity payments stop because you died,
the excess (if any) of the "investment in the contract" as of the annuity
commencement date over the aggregate amount of annuity payments received that
was excluded from gross income is generally allowable as a deduction for your
last taxable year.
7. ACCESS TO YOUR MONEY
SURRENDERS
You can have access to the money in your policy in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking annuity payments.
If you want to make a complete withdrawal, you will receive the value of your
policy including an excess interest adjustment, minus:
. surrender charges;
18
<PAGE>
. premium taxes; and
. service charges.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of the
investment choices in proportion to the policy value.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 9, Death Benefit, for more
details.
Income taxes, federal tax penalties and certain restrictions may apply to any
withdrawals you make.
DELAY OF PAYMENT AND TRANSFERS
Payment of any amount due from the separate account for a surrender, a death
benefit, or the death of the owner of a nonqualified policy, will generally
occur within seven business days from the date all required information is
received by PFL. PFL may be permitted to defer such payment from the separate
account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted; or
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the subaccounts may be deferred under
these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months.
EXCESS INTEREST ADJUSTMENT
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in a guaranteed period option of the fixed account) may be
subject to an excess interest adjustment. At the time you request a withdrawal,
if interest rates set by PFL have risen since the date of the initial guarantee,
the excess interest adjustment will result in a lower cash value on surrender.
However, if interest rates have fallen since the date of the initial guarantee,
the excess interest adjustment will result in a higher cash value on surrender.
There will be no excess interest adjustment on any of the following:
. lump sum withdrawals of the cumulative free percentage available;
. nursing care and terminal condition withdrawals;
. unemployment withdrawals;
. periodic withdrawals of cumulative interest credited;
. withdrawals to satisfy any minimum distribution requirements; and
. systematic payout option payments, which do not exceed the cumulative
interest credited.
Certain conditions must be satisfied. See the Statement of Additional
Information for more details.
POLICY LOANS FOR 403(B) POLICIES
You may elect an endorsement allowing you to receive policy loans during the
accumulation phase when:
. the policy is used in connection with a Tax Sheltered Annuity Plan under
Section 403(b) of the Code; and
. the policy has been in force for at least 30 days.
The amount you may borrow against the policy is:
. 75% of the policy value when all policy loans and unpaid accrued interest is
less than or equal to $10,000;
. or 50% of the policy value when all policy loans and unpaid accrued interest
is greater than $10,000, but less than or equal to $50,000.
The minimum loan amount is $2,000 (unless otherwise required by state law). You
are responsible for requesting and repaying loans so that they comply with
applicable tax requirements. Accordingly, you should consult a competent tax
advisor before requesting a policy loan.
The loan amount will be withdrawn from your investment choices and transferred
to the loan reserve. The loan reserve is part of the fixed account and used as
collateral for all policy loans. We reserve the right to postpone distributing
the loan amount from the fixed account for up to six months, if required.
On each policy anniversary we will compare the amount of the policy loan to the
amount in the loan reserve. If all
19
<PAGE>
policy loans and unpaid accrued interest exceed the amount in the loan reserve,
we will withdraw the difference from the separate account and transfer it to the
loan reserve. If the amount of the loan reserve exceeds the amount of the
outstanding policy loan, we will withdraw the difference from the loan reserve
and transfer it in accordance with your current premium payment allocation. We
reserve the right to transfer the difference to the fixed account if the amount
to establish the policy loan was transferred from the fixed account.
If all policy loans and unpaid accrued interest exceeds the policy value, we
will mail notices to your last known address and to any assignee of record. If
that amount is not paid within 20 days after we mail the notices, the policy
will terminate without value.
Interest on the loan is 7% in arrears. Amounts in the loan reserve will earn
interest at a minimum guaranteed effective annual interest rate of 5%. Principal
and interest must be repaid:
. in level quarterly or monthly payments over a 5-year period; or
. over a 10, 15 or 20-year period, if the loan is used to buy your principal
residence.
An extended repayment period cannot go beyond your estimated retirement age.
IF:
. a repayment is not received within 20 days from the original due date;
THEN:
. a distribution of all policy loans and unpaid accrued interest, and any
applicable charges, including any surrender charge, will take place.
This distribution will be reported as taxable to the Internal Revenue Service,
may be subject to income and penalty tax, and may cause the policy to not
qualify under Section 403(b) of the Code.
You can repay any policy loan in full:
. while the policy is in force; and
. before the annuity commencement date.
Note carefully that if you do not repay your policy loan, this will reduce:
. the amount of any death proceeds;
. the amount payable upon partial withdrawal or full surrender;
. and the amount applied on the annuity commencement date to provide annuity
payments.
The loan date is the date we process the loan request. A $50 fee will be charged
for each loan request, unless otherwise required by state law. You may only make
one policy loan each year.
A payment received while a loan is outstanding will be treated as a premium
payment unless you specify otherwise.
Policy loans may not be available in all states.
SYSTEMATIC PAYOUT OPTION
You can receive regular payments from your policy by using the systematic payout
option. Under this option, you can receive up to 10% (annually) of your policy's
value free of surrender charges. Payments can be made monthly, quarterly,
semi-annually, or annually.
NURSING CARE AND TERMINAL CONDITION WITHDRAWAL OPTION
No surrender charges or excess interest adjustment will apply if you or your
spouse has been:
. confined in a hospital or nursing facility for 30 days in a row; or
. diagnosed with a terminal condition (usually a life expectancy of 12 months
or less).
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
This benefit may not be available in all states. See the policy or endorsement
for details and conditions.
UNEMPLOYMENT WAIVER
No surrender charges or excess interest adjustment will apply to withdrawals if
you or your spouse is unemployed. In order to qualify, you must have been:
. employed full time for at least two years prior to becoming unemployed;
and
. employed full time on the policy date; and
. unemployed for at least 60 days in a row at the time of withdrawal; and
20
<PAGE>
. must have a minimum cash value at the time of withdrawal of $5,000.
This benefit is also available to the annuitant or annuitant's spouse if the
owner is not a natural person.
You must provide written proof from your State's Department of Labor, which
verifies that you qualify for and are receiving unemployment benefits at the
time of withdrawal. This benefit may not be available in all states.
8. PERFORMANCE
PFL periodically advertises performance of the various investment portfolios. We
may disclose at least four different kinds of performance. First, we may
calculate performance by determining the percentage change in the value of an
accumulation unit by dividing the increase (decrease) for that unit by the value
of the accumulation unit at the beginning of the period. This performance number
reflects the deduction of the mortality and expense risk fees and administrative
charges. It does not reflect the deduction of any applicable premium taxes or
surrender charges. The deduction of any applicable premium taxes or surrender
charges would reduce the percentage increase or make greater any percentage
decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges and
surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the separate account.
Fourth, in addition, for certain investment portfolios, performance may be shown
for the period commencing from the inception date of the investment portfolio.
These figures should not be interpreted to reflect actual historical performance
of the separate account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include, comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix B contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
9. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if
the annuitant dies during the accumulation phase and the annuitant was also the
owner. (If the annuitant was not the owner, a death benefit may or may not be
paid. See below). The beneficiary may choose an annuity payment option, or may
choose to receive a lump sum.
WHEN WE PAY A DEATH BENEFIT
Before the Annuity Commencement Date
- ------------------------------------
We will pay a death benefit to your beneficiary IF:
. you are both the annuitant and the owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit.
We will also pay a death benefit to your beneficiary IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
If the new owner is not your spouse, then distribution requirements apply to the
policy value. These requirements are detailed in the Statement of Additional
Information.
After the Annuity Commencement Date
- -----------------------------------
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
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<PAGE>
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
WHEN WE DO NOT PAY A DEATH BENEFIT
No death benefit is paid in the following cases:
- -----------------------------------------------
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner may surrender the policy for the policy value increased or
decreased by an excess interest adjustment.
Note carefully. If the owner does not name a contingent owner, the owner's
- --------------
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and PFL has not received written notice of the trust
as a successor owner signed prior to the owner's death, then that trust may not
exercise ownership rights to the policy. It may be necessary to open a probate
estate in order to exercise ownership rights to the policy if no contingent
owner is named in a written notice received by PFL.
AMOUNT OF DEATH BENEFIT
Death benefit provisions may differ from state to state. The death benefit may
be paid as a lump sum or as annuity payments. The amount of the death benefit
depends on the guaranteed minimum death benefit option you chose when you bought
the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information; or
. guaranteed minimum death benefit (discussed below), plus premium payments,
less partial withdrawals from the date of death to the date the death benefit
is paid.
GUARANTEED MINIMUM DEATH BENEFIT
On the policy application, you may choose one of the three guaranteed minimum
death benefit options listed below.
The Return of Premium Death Benefit will be in effect if you do not choose one
of the other options on the policy application. After the policy is issued, you
cannot make an election and the death benefit cannot be changed.
Return of Premium Death Benefit
- -------------------------------
Total premium payments, less any adjusted partial withdrawals (discussed below)
as of the date of death.
5% Annually Compounding Death Benefit
- -------------------------------------
Total premium payments, less any adjusted partial withdrawals, plus interest at
an effective annual rate of 5% from the premium payment date or withdrawal date
to the date of death (but not later than your 81st birthday). There is an extra
charge for this death benefit.
Annual Step-Up Death Benefit
- ----------------------------
On each policy anniversary before your 81st birthday, a new "stepped-up" death
benefit is determined and becomes the guaranteed minimum death benefit for that
policy year. The death benefit is equal to:
. the largest policy value on the policy date or on any policy anniversary
before you reach age 81; plus
. any premium payments you have made since then; minus
. any adjusted partial withdrawals we have paid to you since then.
There is an extra charge for this death benefit.
IF, under all three death benefit options:
. the surviving spouse elects to continue the policy instead of receiving
the death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
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<PAGE>
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
ADJUSTED PARTIAL WITHDRAWAL
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the adjusted partial withdrawal. Under
certain circumstances, the adjusted partial withdrawal may be more than the
amount of your withdrawal request. It is also possible that if a death benefit
is paid after you have made a partial withdrawal, then the total amount paid
could be less than the total premium payments. We have included a detailed
explanation of this adjustment in the Statement of Additional Information.
10. OTHER INFORMATION
OWNERSHIP
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change may
be a taxable event.
ASSIGNMENT
You can also assign the policy any time during your lifetime. PFL will not be
bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. An assignment may be a
taxable event. If the policy is issued pursuant to a qualified plan, there may
be limitations on your ability to assign the contract.
PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company was incorporated under the laws of the State of Iowa
on April 19, 1961 as NN Investors Life Insurance Company, Inc. It is engaged in
the sale of life and health insurance and annuity policies. PFL is a
wholly-owned indirect subsidiary of AEGON USA, Inc. which conducts most of its
operations through subsidiary companies engaged in the insurance business or in
providing non-insurance financial services. All of the stock of AEGON USA, Inc.,
is indirectly owned by AEGON n.v. of the Netherlands, the securities of which
are publicly traded. AEGON n.v., a holding company, conducts its business
through subsidiary companies engaged primarily in the insurance business. PFL is
licensed in the District of Columbia, Guam, and in all states except New York.
THE SEPARATE ACCOUNT
PFL established a separate account, called the PFL Retirement Builder Variable
Annuity Account, under the laws of the State of Iowa on March 29, 1996. The
Retirement Income Builder Variable Annuity divisions of the separate account
receive and currently invest the premium payments that are allocated to it for
investment in shares of the underlying mutual fund portfolios.
The separate account is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. However, the SEC does not supervise the
management, the investment practices, or the policies of the separate account or
PFL.
The assets of the separate account are held in PFL's name on behalf of the
separate account and belong to PFL. However, those assets that underlie the
policies are not chargeable with liabilities arising out of any other business
PFL may conduct. The separate account includes other subaccounts that are not
available under these policies.
Information about the separate account can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. You may obtain information about the
operation of the public reference room by calling the Commission at
1-800-SEC-0330. In addition, the SEC maintains a web site (http://www.sec.gov)
that contains other information regarding the separate account.
MIXED AND SHARED FUNDING
Before making a decision concerning the allocation of premium payments to a
particular subaccount, please read the underlying funds' prospectuses. The
underlying funds are not limited to selling their shares to this separate
account and are permitted to accept investments from any separate account of an
insurance company. Since the portfolios of the underlying funds are available to
registered separate accounts offering variable annuity products of PFL, as well
as variable annuity and variable life products of other insurance companies,
there is a possibility that a material
23
<PAGE>
conflict may arise between the interests of this separate account and one or
more of the separate accounts of another participating insurance company. In the
event of a material conflict, the affected insurance companies, including PFL,
agree to take any necessary steps to resolve the matter. This includes removing
their separate accounts from the underlying funds. See the underlying funds'
prospectuses for more details.
REINSTATEMENTS
You may surrender your policy and transfer your money directly to another life
insurance company (sometimes referred to as a 1035 Exchange or a
trustee-to-trustee transfer). You may also request us to reinstate your policy
after such a transfer by returning the same total dollar amount of funds to the
applicable investment choices. The dollar amount will be used to purchase new
accumulation units at the then current price. Because of changes in market
value, your new accumulation units may be worth more or less than the units you
previously owned. We recommend that you consult a tax professional to explain
the possible tax consequences of exchanges and/or reinstatements.
VOTING RIGHTS
PFL will vote all shares of the underlying funds in accordance with instructions
we receive from you and other owners that have voting interests in the
portfolios. We will send you and other owners written requests for instructions
on how to vote those shares. When we receive those instructions, we will vote
all of the shares in proportion to those instructions. If, however, we determine
that we are permitted to vote the shares in our own right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
DISTRIBUTOR OF THE POLICIES
AFSG Securities Corporation is the principal underwriter of the policies. Like
PFL, it is an indirect wholly-owned subsidiary of AEGON USA, Inc. It is located
at 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001. AFSG Securities
Corporation is registered as a broker/dealer under the Securities Exchange Act
of 1934. It is a member of the National Association of Securities Dealers, Inc.
("NASD"). It was incorporated in Pennsylvania on March 12, 1986.
Commissions of up to 5% of premium payments will be paid to broker/dealers who
sell the policies under agreements with AFSG Securities Corporation. These
commissions are not deducted from premium payments. In addition, certain
production, persistency and managerial bonuses may be paid. PFL may also pay
compensation to banks and other financial institutions for their services in
connection with the sale and servicing of the policies.
NON-PARTICIPATING POLICY
The policy does not participate or share in the profits or surplus earnings of
PFL. No dividends are payable on the policy.
VARIATIONS IN POLICY PROVISIONS
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy for
variations since any such state variations will be included in your policy or in
riders or endorsements attached to your policy.
New Jersey residents: Annuity payments must begin on or before the later of: (1)
the policy anniversary that is closest to the annuitant's 70th birthday or (2)
the 10th policy anniversary. You may not select a guaranteed period option that
would extend beyond that date. Your options at the annuity commencement date are
to elect a lump sum payment, or elect to receive annuity payments under one of
the fixed payment options. New Jersey residents cannot elect variable payment
options. Consult your agent and the policy form itself for details regarding
these and other terms applicable to policies sold in New Jersey.
YEAR 2000 MATTERS
In October, 1996, PFL adopted and presently has in place a Year 2000 Assessment
and Planning Project (the "Plan") to review and analyze existing hardware and
software systems, as well as voice and data communications systems, to determine
if they are Year 2000 compatible. The Plan provides for a management process,
which ensures that when a particular system, or software application, is
determined to be "non-compliant" the proper steps are in place to either remedy
the "non-compliance" or cease using
24
<PAGE>
the particular system or software. The Plan also provides that the Chief
Information Officer report to the Board of Directors as to the status of the
efforts under the Plan on a regular and routine basis. PFL has engaged the
services of a third-party provider that specializes in Year 2000 issues to work
on the project.
The Plan has four specific objectives: (1) develop an inventory of all
applications; (2) evaluate all applications to determine the most prudent manner
to move them to Year 2000 compliance, if required; (3) estimate budgets,
resources and schedules for the migration of the "affected" applications to Year
2000 compliance; and (4) define testing and deployment requirements to
successfully manage validation and re-deployment of any changed code. It is
believed that all mission critical systems are Year 2000 compliant as of
December 31, 1998, with validation testing to continue through and including
June 1999. As of the date of this prospectus, PFL has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and multifaceted,
and the success of a response plan cannot be conclusively known until the Year
2000 is reached (or an earlier date to the extent that the systems or equipment
addresses Year 2000 data prior to the Year 2000). Even with appropriate and
diligent pursuit of a well-conceived response plan, including testing
procedures, there is no certainty that any company will achieve complete
success. Further, notwithstanding its efforts or results, PFL's ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond its knowledge or control.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
members subscribe to a set of ethical standards involving the sales and service
of individually sold life insurance and annuities. As a member, we may use the
IMSA logo and language in advertisements.
LEGAL PROCEEDINGS
There are no legal proceedings to which the separate account is a party or to
which the assets of the account are subject. PFL, like other life insurance
companies, is involved in lawsuits. In some class action and other lawsuits
involving other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, PFL believes that at the present time there
are no pending or threatened lawsuits that are reasonably likely to have a
material adverse impact on the separate account or PFL.
FINANCIAL STATEMENTS
The financial statements of PFL and the separate account are included in the
Statement of Additional Information.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Historical Performance Data
Published Ratings
State Regulation of PFL
Administration
Records and Reports
Distribution of the Policies
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
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<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The accumulation unit values and the number of accumulation units outstanding
for each subaccount from the date of inception are shown in the following
tables.
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
<TABLE>
<CAPTION>
==========================================================================================================================
ACCUMULATION UNIT VALUE ACCUMULATION UNIT VALUE NUMBER OF ACCUMULATION
AT BEGINNING OF YEAR AT END OF YEAR UNITS AT END OF YEAR
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIP Money Market Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.040117 1,504,396.531
- --------------------------------------------------------------------------------------------------------------------------
VIP High Income Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.163294 713,496.095
- --------------------------------------------------------------------------------------------------------------------------
VIP Equity-Income Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.272579 2,325,232.286
- --------------------------------------------------------------------------------------------------------------------------
VIP Growth Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.230106 1,450,130.335
- --------------------------------------------------------------------------------------------------------------------------
VIP Overseas Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.111441 702,293.009
- --------------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.080052 1,020,909.375
- --------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.193482 1,048,640.321
- --------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.237304 937,197.160
- --------------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.315713 3,420,336.530
- --------------------------------------------------------------------------------------------------------------------------
VIP II Contrafund Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.237079 1,948,498.226
- --------------------------------------------------------------------------------------------------------------------------
VIP III Balanced Subaccount
1998..................................
1997/(2)/............................. $ 1.000000 $ 1.145544 280,038.882
- --------------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Subaccount
1998..................................
1997/(2)/............................. $ 1.000000 $ 1.236456 479,129.254
- --------------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities Subaccount
1998..................................
1997/(2)/............................. $ 1.000000 $ 1.227778 791,157.687
==========================================================================================================================
</TABLE>
26
<PAGE>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
<TABLE>
<CAPTION>
=========================================================================================================================
ACCUMULATION UNIT VALUE ACCUMULATION UNIT VALUE NUMBER OF ACCUMULATION
AT BEGINNING OF YEAR AT END OF YEAR UNITS AT END OF YEAR
==========================================================================================================================
<S> <C> <C> <C>
VIP Money Market Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.041652 1,538,095.590
- --------------------------------------------------------------------------------------------------------------------------
VIP High Income Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.165012 790,218.659
- --------------------------------------------------------------------------------------------------------------------------
VIP Equity-Income Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.274458 1,955,419.658
- --------------------------------------------------------------------------------------------------------------------------
VIP Growth Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.231921 1,653,392.152
- --------------------------------------------------------------------------------------------------------------------------
VIP Overseas Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.113081 560,955.405
- --------------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.081642 894,679.948
- --------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.195229 713,379.802
- --------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager: Growth Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.239118 465,131.055
- --------------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Subaccount
1998.................................
1997/(1)/............................. $ 1.000000 $ 1.317652 2,083,207.545
- --------------------------------------------------------------------------------------------------------------------------
VIP II Contrafund Subaccount
1998..................................
1997/(1)/............................. $ 1.000000 $ 1.238907 1,157,189.672
- --------------------------------------------------------------------------------------------------------------------------
VIP III Balanced Subaccount
1998..................................
1997/(2)/............................. $ 1.000000 $ 1.146670 184,894.892
- --------------------------------------------------------------------------------------------------------------------------
VIP III Growth & Income Subaccount
1998..................................
1997/(2)/............................. $ 1.000000 $ 1.237676 295,288.778
- --------------------------------------------------------------------------------------------------------------------------
VIP III Growth Opportunities Subaccount
1998..................................
1997/(2)/............................. $ 1.000000 $ 1.228996 856,473.567
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Period from January 2, 1997 through December 31, 1997.
(2) Period from May 1, 1997 through December 31, 1997.
27
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
STANDARDIZED PERFORMANCE DATA
PFL may advertise historical yields and total returns for the subaccounts of the
separate account. These figures are based on historical earnings and are
calculated according to guidelines from the SEC. They do not indicate future
performance.
VIP Money Market Subaccount. The yield of the VIP Money Market Subaccount for a
policy refers to the annualized income generated by an investment under a policy
in the subaccount over a specified seven-day period. The yield is calculated by
assuming that the income generated for that seven-day period is generated each
seven-day period over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but, when annualized,
the income earned by an investment under a policy in the subaccount is assumed
to be reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. For the seven
days ended December 31, 1998, the yield of the VIP Money Market Subaccount was
____%, and the effective yield was ____% for the Return of Premium Death
Benefit. For the seven days ended December 31, 1998, the yield of the VIP Money
Market Subaccount was _____%, and the effective yield was _____% for the 5%
Annually Compounding Death Benefit or Annual Step-Up Death Benefit.
Other Subaccounts. The yield of a subaccount of the separate account (other than
the VIP Money Market Subaccount) for a policy refers to the annualized income
generated by an investment under a policy in the subaccount over a specified
30-day period. The yield is calculated by assuming that the income generated by
the investment during that 30-day period is generated each 30-day period over a
12-month period and is shown as a percentage of the investment.
The total return of a subaccount of the separate account refers to return
quotations assuming an investment under a policy has been held in the subaccount
for various periods of time including a period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5, and 10 years, respectively, the total return for these periods will be
provided. The total return quotations for a subaccount will represent the
average annual compounded rates of return that equate an initial investment of
$1,000 in the subaccount to the redemption value of that investment as of the
last day of each of the periods for which total return quotations are provided.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy, and
they do not reflect the rider charge for the optional family income protector.
The yield calculations also do not reflect the effect of any surrender charge
that may be applicable to a particular policy. To the extent that any or all of
a premium tax and/or surrender charge is applicable to a particular policy, the
yield and/or total return of that policy will be reduced. For additional
information regarding yields and total returns calculated using the standard
formats briefly summarized above, please refer to the Statement of Additional
Information.
Based on the method of calculation described in the Statement of Additional
Information, the average annual total returns for periods from inception of the
subaccounts to December 31, 1998, and for the one and five year periods ended
December 31, 1998 are shown in Table 1 below. Total returns shown reflect
deductions for the mortality and expense risk fee and the administrative
charges. Performance figures may reflect the 1.25% mortality and expense risk
fee for the 5% Annually Compounding and Annual Step-Up Death Benefits, or the
1.10% mortality and expense risk fee for the Return of Premium Death Benefit.
Standard total return calculations will reflect the effect of surrender charges
that may be applicable to a particular period.
28
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
TABLE 1
STANDARD AVERAGE ANNUAL TOTAL RETURNS
==========================================================================================================================
5% ANNUALLY COMPOUNDING DEATH BENEFIT OR ANNUAL STEP-UP DEATH BENEFIT
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.40%)
- --------------------------------------------------------------------------------------------------------------------------
1 YEAR 5 YEAR INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT INCEPTION
SUBACCOUNT 12/31/98 12/31/98 TO 12/31/98 DATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
==========================================================================================================================
RETURN OF PREMIUM DEATH BENEFIT
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.25%)
- --------------------------------------------------------------------------------------------------------------------------
1 YEAR 5 YEAR INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT INCEPTION
SUBACCOUNT 12/31/98 12/31/98 TO 12/31/98 DATE
- --------------------------------------------------------------------------------------------------------------------------
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
==========================================================================================================================
</TABLE>
NON-STARDARDIZED PERFORMANCE DATA
In addition to the standard data discussed above, similar performance data for
other periods may also be shown.
PFL may also advertise or disclose average annual total return or other
performance data in non-standard formats for a subaccount of the separate
account. The non-standard performance data may assume that no surrender charge
is applicable, and may also make other assumptions such as the amount invested
in a subaccount, differences in time periods to be shown, or the effect of
partial withdrawals or annuity payments.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
The non-standardized average annual total return figures shown in Table 2 are
based on the assumption that the policy is not surrendered, and therefore the
surrender charge is not imposed. Also, Table 2 does not reflect the rider charge
for the optional guaranteed minimum income option.
29
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
TABLE 2
NON-STANDARD AVERAGE ANNUAL TOTAL RETURNS
(ASSUMING NO SURRENDER CHARGE)
=========================================================================================================================
5% ANNUALLY COMPOUNDING DEATH BENEFIT OR ANNUAL STEP-UP DEATH BENEFIT
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.40%)
- -------------------------------------------------------------------------------------------------------------------------
1 YEAR 5 YEAR INCEPTION OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT INCEPTION
SUBACCOUNT 12/31/98 12/31/98 TO 12/31/98 DATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
==========================================================================================================================
RETURN OF PREMIUM DEATH BENEFIT
(TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES: 1.25%)
- --------------------------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- --------------------------------------------------------------------------------------------------------------------------
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
=================================================================================================================================
</TABLE>
Adjusted Historical Performance Data. The following performance data is historic
performance data for the underlying portfolios since their inception reduced by
some or all of the fees and charges under the policy. Such adjusted historic
performance includes data that precedes the inception dates of the subaccounts.
This data is designed to show the performance that would have resulted if the
policy had been in existence during that time, based on the performance of the
applicable portfolio and the assumption that the applicable subaccount was in
existence for the same period as the portfolio with a level of charges equal to
those currently assessed under the policies. This data is not intended to
indicate future performance.
For instance, as shown in Table 3, Table 3A, Table 4, and Table 4A below, PFL
may disclose average annual total returns for the portfolios reduced by all fees
and charges under the policy, as if the policy had been in existence since the
inception of the portfolio. Such fees and charges include the mortality and
expense risk fee, administrative charge and surrender charges. Table 3 and Table
3A assumes a complete surrender of the policy at the end of the period, and
therefore the surrender charge is deducted. Table 4 and Table 4A assumes that
the policy is not surrendered, and therefore the surrender charge is not
deducted.
The following information is also based on the method of calculation described
in the Statement of Additional Information. The adjusted historical average
annual total returns for periods ended December 31, 1998, were as follows:
30
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
TABLE 3 (without the Family Income Protector)
Adjusted Historical Average Annual Total Returns *
====================================================================================================================
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
- --------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
====================================================================================================================
+ Ten Year Date
====================================================================================================================
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
TABLE 3A (with the Family Income Protector)
Adjusted Historical Average Annual Total Returns *
====================================================================================================================
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
- --------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
====================================================================================================================
+ Ten Year Date
====================================================================================================================
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
TABLE 4 (without the Family Income Protector)
Adjusted Historical Average Annual Total Returns *
(Assuming No Surrender Charge)
====================================================================================================================
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
- --------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
====================================================================================================================
+ Ten Year Date
====================================================================================================================
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
TABLE 4 (with the Family Income Protector)
Adjusted Historical Average Annual Total Returns *
(Assuming No Surrender Charge)
====================================================================================================================
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
- --------------------------------------------------------------------------------------------------------------------
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.25%)
- --------------------------------------------------------------------------------------------------------------------
Corresponding
10 Year Portfolio
Subaccount 1 Year 5 Year or Inception Inception Date
- --------------------------------------------------------------------------------------------------------------------
VIP High Income..............................
VIP Equity-Income............................
VIP Growth...................................
VIP Overseas.................................
VIP II Investment Grade Bond.................
VIP II Asset Manager.........................
VIP II Asset Manager: Growth.................
VIP II Contrafund............................
VIP II Index 500.............................
VIP III Balanced.............................
VIP III Growth Opportunities.................
VIP III Growth & Income......................
====================================================================================================================
+ Ten Year Date
====================================================================================================================
</TABLE>
* The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the inception of the
portfolio.
34
<PAGE>
APPENDIX C
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Annuitant--The person entitled to receive annuity payments after the annuity
commencement date and during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
The annuity commencement date may not be later than the last day of the policy
month starting after the annuitant attains age 85, except as expressly allowed
by PFL, but in no event later than the last day of the policy month following
the month in which the annuitant attains age 95. The annuity commencement date
may be required to be earlier for qualified policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the surrender charge, if any.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Excess Interest Adjustment--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The adjustment
reflects changes in the interest rates declared by PFL since the date any
payment was received by or an amount was transferred to the guaranteed period
option. The excess interest adjustment can either decrease or increase the
amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and are not in the separate account.
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which may be offered by PFL and into which premium payments may be
paid or amounts transferred.
Owner or Owners--The person who may exercise all rights and privileges under the
policy. The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the application.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
(1) premium payments; minus
(2) partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
(3) interest credited in the fixed account; plus
(4) accumulated gains or losses in the separate account; minus
(5) service charges, premium taxes and transfer fees, if any.
Separate Account--The Retirement Income Builder Variable Annuity division of the
PFL Retirement Builder Variable Annuity Account. The PFL Retirement Income
Builder Variable Annuity Account is a separate account established and
registered as a unit investment trust under the Investment Company Act of 1940,
(the "1940 Act"), as amended, to which premium payments under the policies may
be allocated.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
(NOTE: THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS A
MORE EXTENSIVE GLOSSARY.)
35
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RETIREMENT INCOME BUILDER
VARIABLE ANNUITY
Issued through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the Retirement Income Builder Variable Annuity offered by
PFL Life Insurance Company. You may obtain a copy of the prospectus dated May 1,
1999, by calling 1-800-525-6205, or by writing to the Administrative and Service
Office, Financial Markets Division-Variable Annuity Dept., 4333 Edgewood Road,
N.E., Cedar Rapids, Iowa 52499-0001. The prospectus sets forth information that
a prospective investor should know before investing in a policy. Terms used in
the current prospectus for the policy are incorporated in this Statement of
Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY AND THE PFL RETIREMENT
BUILDER VARIABLE ANNUITY ACCOUNT.
Dated: MAY 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS.............................................................................................
THE POLICY--GENERAL PROVISIONS................................................................................
Owner....................................................................................................
Entire Policy............................................................................................
Misstatement of Age or Sex...............................................................................
Addition, Deletion, or Substitution of Investments.......................................................
Excess Interest Adjustment...............................................................................
Reallocation of Policy Values After the Annuity Commencement Date........................................
Annuity Payment Options..................................................................................
Death Benefit............................................................................................
Death of Owner...........................................................................................
Assignment...............................................................................................
Evidence of Survival.....................................................................................
Non Participating........................................................................................
Employee and Agent Purchases.............................................................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................................................
Tax Status of the Policy.................................................................................
Taxation of PFL..........................................................................................
INVESTMENT EXPERIENCE.........................................................................................
Accumulation Units.......................................................................................
Annuity Unit Value and Annuity Payment Rates.............................................................
FAMILY INCOME PROTECTOR OPTION - HYPOTHETICAL ILLUSTRATION....................................................
HISTORICAL PERFORMANCE DATA...................................................................................
Money Market Yields......................................................................................
Other Subaccount Yields..................................................................................
Total Returns............................................................................................
Other Performance Data...................................................................................
Adjusted Historical Performance Data.....................................................................
PUBLISHED RATINGS.............................................................................................
STATE REGULATION OF PFL.......................................................................................
ADMINISTRATION................................................................................................
RECORDS AND REPORTS...........................................................................................
DISTRIBUTION OF THE POLICIES..................................................................................
OTHER PRODUCTS................................................................................................
CUSTODY OF ASSETS.............................................................................................
LEGAL MATTERS.................................................................................................
INDEPENDENT AUDITORS..........................................................................................
OTHER INFORMATION.............................................................................................
FINANCIAL STATEMENTS..........................................................................................
</TABLE>
-2-
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the separate account before the annuity commencement date.
Adjusted Policy Value--An amount equal to the policy value increased or
decreased by any excess interest adjustments applied at the time of surrender or
on the annuity commencement date.
Administrative and Service Office--Financial Markets Division Variable Annuity
Department, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Annuitant--The person entitled to receive annuity payments after the annuity
commencement date and during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
The annuity commencement date may not be later than the last day of the policy
month starting after the annuitant attains age 85, except as expressly allowed
by PFL, but in no event later than the last day of the policy month following
the month in which the annuitant attains age 95. The annuity commencement date
may be required to be earlier for qualified policies.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent variable annuity payment.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value increased or decreased by an excess interest
adjustment, less the surrender charge, if any.
Code--The Internal Revenue Code of 1986, as amended.
Cumulative Free Percentage--The percentage (as applied to the policy value)
which is available free of any surrender charge.
Due Proof of Death--A certified copy of a death certificate, a certified copy of
a decree of a court of competent jurisdiction as to the finding of death, a
written statement by the attending physician, or any other proof satisfactory to
PFL, will constitute due proof of death.
Excess Interest Adjustment ("EIA")--A positive or negative adjustment to amounts
withdrawn upon partial or full surrenders from the fixed account guaranteed
period options, or to amounts applied to annuity payment options. The adjustment
reflects changes in the interest rates declared by PFL since the date any
payment was received by or an amount was transferred to the guaranteed period
option. The excess interest adjustment can either decrease or increase the
amount to be received by the owner upon full surrender or commencement of
annuity payments, depending upon whether there has been an increase or decrease
in interest rates, respectively.
Excess Partial Withdrawal (EPW)--The portion of a partial withdrawal (surrender)
that can be subject to a surrender charge.
Fixed Account--One or more investment choices under the policy that are part of
the general assets of PFL and are not in the separate accounts.
-3-
<PAGE>
Guaranteed Period Options--The various guaranteed interest rate periods of the
fixed account which may be offered by PFL and into which premium payments may be
paid or amounts transferred.
Investment Choices--Any of the guaranteed period options of the fixed account,
the dollar cost averaging fixed account option, and any of the subaccounts of
the separate account.
Nonqualified Policy--A policy other than a qualified policy.
Owner or Owners--The person who may exercise all rights and privileges under the
policy. The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the application.
Policy Value--On or before the annuity commencement date, the policy value is
equal to the owner's:
(1) premium payments; minus
(2) partial withdrawals (including any applicable excess interest adjustments
and/or surrender charges on such withdrawals); plus
(3) interest credited in the fixed account; plus
(4) accumulated gains or losses in the separate account; minus
(5) service charges, premium taxes and transfer fees, if any.
Policy Year--A policy year begins on the policy date and on each policy
anniversary.
Premium Payment--An amount paid to PFL by the owner or on the owner's behalf as
consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment under the code.
Separate Account--The Retirement Income Builder Variable Annuity division of the
PFL Retirement Builder Variable Annuity Account. The PFL Retirement Builder
Variable Annuity Account is a separate account established and registered as a
unit investment trust under the Investment Company Act of 1940, (the "1940
Act"), as amended, to which premium payments under the policies may be
allocated.
Service Charge--There is an annual service charge on each policy anniversary
(and a charge at the time of surrender during any policy year) for policy
maintenance and related administrative expenses. This annual charge is $30, but
in no event will this charge be more than 2% of the policy value.
Subaccount--A subdivision within the separate account, the assets of which are
invested in a specified portfolio of the underlying funds.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--The applicable contingent deferred sales charge, assessed on
certain full surrenders or partial withdrawals of premium payments to cover
expenses relating to the sale of the policies.
Underlying Funds--The designated portfolios of: (1) the Variable Insurance
Products Fund ("VIP"); (2) the Variable Insurance Products Fund II ("VIP II");
and (3) the Variable Insurance Products Fund III ("VIP III"), managed by
Fidelity Management & Research Company.
-4-
<PAGE>
Valuation Period--The period of time from one determination of accumulation unit
and annuity unit values to the next subsequent determination of values. Such
determinations shall be made on each business day.
Variable Annuity Payment(s)--Payment(s) made pursuant to an annuity payment
option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate
account.
Written Notice--Written notice, signed by the owner, that gives PFL the
information it requires and is received at the administrative and service
office. For some transactions, PFL may accept an electronic notice such as
telephone instructions. Such electronic notice must meet the requirements PFL
establishes for such notices.
-5-
<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about PFL and the policy, which may be of interest to a
prospective purchaser. WORDS PRINTED IN ITALICS IN THIS STATEMENT OF ADDITIONAL
INFORMATION ARE DEFINED IN THE GLOSSARY OF TERMS, FOUND ON PAGE 3.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender the
policy; (3) amend or modify the policy with PFL's consent; (4) receive annuity
payments or name a payee to receive the payments; and (5) exercise, receive and
enjoy every other right and benefit contained in the policy. The exercise of
these rights may be subject to the consent of any assignee or irrevocable
beneficiary; and of the owner's spouse in a community or marital property
state.
A successor owner can be named in the policy application or in a written notice.
The successor owner will become the new owner upon the owner's death, if the
owner predeceases the annuitant. If no successor owner survives the owner and
the owner predeceases the annuitant, the owner's estate will become the
owner.
Note Carefully. If the owner does not name a successor owner, the owner's
- --------------
estate will become the new owner if the owner predeceases the annuitant. If no
probate estate is opened because the owner has precluded the opening of a
probate estate by means of a trust or other instrument, unless PFL has received
written notice of the trust as a successor owner signed prior to the owner's
death, that trust may not exercise ownership rights to the policy. It may be
necessary to open a probate estate in order to exercise ownership rights to the
policy if no successor owner is named in a written notice received by PFL.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have tax consequences.
When there is a change of owner or successor owner, the change will take effect
as of the date the owner signs the written notice, subject to any payment PFL
has made or action PFL has taken before recording the change. Changing the owner
or naming a new successor owner cancels any prior choice of successor owner, but
does not change the designation of the beneficiary or the annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the adjusted policy value generally must be
distributed to the successor owner within five years of the owner's death, or if
the first payment begins within one year of the owner's death, payments must be
made for a period certain which does not exceed that successor owner's life
expectancy.
ENTIRE POLICY
The policy and any endorsements thereon and the policy application constitute
the entire contract between PFL and the owner. All statements in the application
are representations and not warranties. No statement will cause the policy to be
void or to be used in defense of a claim unless contained in the
application.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the annuitant has been misstated, PFL will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by PFL
shall be paid in full with the next payment due such person or the beneficiary.
The dollar amount of any overpayment made by PFL due to any misstatement shall
be deducted from payments subsequently accruing to such person or beneficiary.
Any underpayment or overpayment will include interest at 5% per year, from the
date of the
-6-
<PAGE>
wrong payment to the date of the adjustment. The age of the annuitant may be
established at any time by the submission of proof satisfactory to PFL.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
PFL cannot and does not guarantee that any of the subaccounts or portfolios will
always be available for premium payments, allocations, or transfers. PFL retains
the right, subject to any applicable law, to make certain changes in the
separate account and its investments. PFL reserves the right to eliminate the
shares of any portfolio held by a subaccount and/or to substitute shares of
another portfolio of the underlying funds, or of another registered open-end
management investment company for the shares of any portfolio, if the shares of
the portfolio are no longer available for investment or if, in PFL's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the separate account. To the extent required by the 1940 Act, substitutions of
shares attributable to an owner's interest in a subaccount will not be made
without prior notice to the owner and the prior approval of the SEC. Nothing
contained herein shall prevent the separate account from purchasing other
securities for other series or classes of variable annuity policies, or from
effecting an exchange between series or classes of variable annuity policies on
the basis of requests made by owners.
New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a mutual fund portfolio or other
investment vehicle. PFL may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, PFL will notify owners and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by the owner, PFL will reinvest the amounts
invested in the eliminated subaccount in the subaccount that invests in the
Money Market portfolio (or in a similar portfolio of money market instruments)
or in another subaccount, if appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to be
in the best interests of persons having voting rights under the policies, the
separate account may be (i) operated as a management company under the 1940 Act
or any other form permitted by law, (ii) deregistered under the 1940 Act in the
event such registration is no longer required or (iii) combined with one or more
other separate accounts. To the extent permitted by applicable law, PFL also may
(1) transfer the assets of the separate account associated with the policies to
another account or accounts, (2) restrict or eliminate any voting rights of
owners or other persons who have voting rights as to the separate account, (3)
create new separate accounts, (4) add new subaccounts to or remove existing
subaccounts from the separate account, or combine subaccounts, or (5) add new
underlying funds, or substitute a new fund for an existing fund.
EXCESS INTEREST ADJUSTMENT
Money that you withdraw from a guaranteed period option of the fixed account
before the end of its guaranteed period (the number of years you specified the
money would remain in the guaranteed period option) may be subject to an excess
interest adjustment. At the time you request a withdrawal, if interest rates set
by PFL have risen since the date of the initial guarantee, the excess interest
adjustment will result in a lower cash value. However, if interest rates have
fallen since the date of the initial guarantee, the excess interest adjustment
will result in a higher cash value.
The formula which will be used to determine the excess interest adjustment
is:
S*(G - C)* (M/12)
S = Gross amount being withdrawn that is subject to the excess interest
adjustment
G = Guaranteed Interest Rate applicable to S.
-7-
<PAGE>
C = Current Guaranteed Interest Rate then being offered on new premium payments
for the next longer guaranteed period than "M". If this policy form or such
a guaranteed period is no longer offered, "C" will be the U.S. Treasury rate
for the next longer maturity (in whole years) than "M" on the 25th day of
the previous calendar month, plus up to 2%.
M = Number of months remaining in the current guaranteed period, rounded up to
the next higher whole number of months.
* = multiplication
/\ = exponentiation
EXAMPLE 1 (FULL SURRENDER, RATES INCREASE BY 3%):
-------------------------------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Single Premium: $50,000
- ---------------------------------------------------------------------------------------------------------------------------
Guarantee Period: 5 Years
- ---------------------------------------------------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- ---------------------------------------------------------------------------------------------------------------------------
Full Surrender: Middle of Contract Year 3
- ---------------------------------------------------------------------------------------------------------------------------
Policy Value ("PV") at middle of Contract Year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18
- ---------------------------------------------------------------------------------------------------------------------------
Surrender Charge Free Amount at middle of Policy
Year 3 = 57,161.18* .30 = 17,148.35
- ---------------------------------------------------------------------------------------------------------------------------
EIA Free Amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
- ---------------------------------------------------------------------------------------------------------------------------
Amount Subject to EIA = 57,161.18 - 7,161.18 = 50,000.00
- ---------------------------------------------------------------------------------------------------------------------------
EIA Floor = 50,000* (1.03) /\ 2.5 = 53,834.80
- ---------------------------------------------------------------------------------------------------------------------------
Excess Interest Adjustment
G = .055
C = .085
M = 30
- ---------------------------------------------------------------------------------------------------------------------------
Excess Interest Adjustment = S* (G - C)* (M/12)
- ---------------------------------------------------------------------------------------------------------------------------
= 50,000.00* (.055 - .085)* (30/12)
- ---------------------------------------------------------------------------------------------------------------------------
= -3,750.00, but excess interest adjustment cannot cause
the adjusted policy value to fall below the floor, so
the adjustment is limited to 53,834.80 - 57,161.18 =
-3,326.38
- ---------------------------------------------------------------------------------------------------------------------------
Adjusted Policy Value = PV + EIA = 57,161.18 - 3,326.38 = 53,834.80
- ---------------------------------------------------------------------------------------------------------------------------
Surrender Charge = (50,000- 17,148.35)* .06 = 1,971.10
- ---------------------------------------------------------------------------------------------------------------------------
Cash Value at middle of policy year 3 = PV + EIA- Surrender Charge
- ---------------------------------------------------------------------------------------------------------------------------
= 57,161.18 - 3,326.38 - 1,971.10
- ---------------------------------------------------------------------------------------------------------------------------
= 51,863.70
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
EXAMPLE 2 (FULL SURRENDER, RATES DECREASE BY 1%):
-------------------------------------------------
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
Single Premium: $50,000
- ----------------------------------------------------------------------------------------------------------------
Guarantee Period: 5 Years
- ----------------------------------------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- ----------------------------------------------------------------------------------------------------------------
Full Surrender: Middle of Contract Year 3
- ----------------------------------------------------------------------------------------------------------------
Policy Value at middle of policy year 3 = 50,000 * (1.055) /\ 2.5 = 57,161.18
- ----------------------------------------------------------------------------------------------------------------
Surrender Charge Free Amount at middle of policy
year 3 = 57,161.18* .30 = 17,148.35
- ----------------------------------------------------------------------------------------------------------------
EIA Free Amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
- ----------------------------------------------------------------------------------------------------------------
Amount Subject to EIA = 57,161.18 - 7,161.18 = 50,000.00
- ----------------------------------------------------------------------------------------------------------------
EIA Floor = 50,000* (1.03) /\ 2.5 = 53,834.80
- ----------------------------------------------------------------------------------------------------------------
Excess Interest Adjustment
G = .055
C = .045
M = 30
- ----------------------------------------------------------------------------------------------------------------
Excess Interest Adjustment = S* (G - C)* (M/12)
- ----------------------------------------------------------------------------------------------------------------
= 50,000* (.055 - .045)* (30/12)
- ----------------------------------------------------------------------------------------------------------------
= 1,250.00
- ----------------------------------------------------------------------------------------------------------------
Adjusted Policy Value = PV + EIA
- ----------------------------------------------------------------------------------------------------------------
= 57,161.18 + 1,250.00 = 58,411.18
- ----------------------------------------------------------------------------------------------------------------
Surrender Charge = (50,000 - 17,148.35)* .06 = 1,971.10
- ----------------------------------------------------------------------------------------------------------------
Cash Value at middle of policy year 3 = PV + EIA- Surrender Charge
- ----------------------------------------------------------------------------------------------------------------
= 57,161.18 + 1,250 - 1,971.10
- ----------------------------------------------------------------------------------------------------------------
= 56,440.08
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
On a partial withdrawal, PFL will pay the owner the full amount of withdrawal
requested (as long as the policy value is sufficient). Surrender charge--Free
withdrawals will reduce the policy value by the amount withdrawn. Amounts
withdrawn in excess of the surrender charge--Free amount will reduce the policy
value by an amount equal to:
X - Y + Z
X = excess partial withdrawal = requested withdrawal less surrender charge--
free amount
A = amount of partial withdrawal which is subject to excess interest
adjustment = requested withdrawal- excess interest adjustment--free
amount, where excess interest adjustment--free amount = cumulative
interest credited at time of, but prior to, withdrawal.
Y = excess interest adjustment = (A)*(G-C)*(M/12) where G, C, and M are
defined above, with "A" substituted for "S" in the definition of G and
M.
Z = surrender charge on X minus Y.
-9-
<PAGE>
EXAMPLE 3 (PARTIAL WITHDRAWAL, RATES INCREASE BY 1%):
-----------------------------------------------------
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
Single Premium: $50,000
- -----------------------------------------------------------------------------------------------------------------
Guarantee Period: 5 Years
- -----------------------------------------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- -----------------------------------------------------------------------------------------------------------------
Partial Surrender: $30,000; Middle of Contract Year 3
- -----------------------------------------------------------------------------------------------------------------
Policy Value at middle of policy year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------------------------------------
Surrender Charge Free Amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
- -----------------------------------------------------------------------------------------------------------------
EIA Free Amount at middle of policy year 3 = 57,161.18-50,000 = 7,161.18
- -----------------------------------------------------------------------------------------------------------------
Excess Interest Adjustment/Surrender Charge
X = 30,000-17,148.35 = 12,851.65
A = 30,000-7,161.18 = 22,838.82
G = .055
C = .065
M = .30
Y = 22,838.82* (.055-.065)* (30/12) = -570.97
Z = .06* [12,851.65- (-570.97)] = 805.36
- -----------------------------------------------------------------------------------------------------------------
Reduction to policy value due to = 17,148.35
Surrender Charge--Free withdrawal
- -----------------------------------------------------------------------------------------------------------------
Reduction to policy value due to Excess Withdrawal = X-Y + Z
- -----------------------------------------------------------------------------------------------------------------
= 12,851.65 - (-570.97) + 805.36
- -----------------------------------------------------------------------------------------------------------------
= 14,227.98
- -----------------------------------------------------------------------------------------------------------------
Policy Value after withdrawal at middle of policy year 3 = 57,161.18 - [17,148.35 + 14,227.98]
- -----------------------------------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 - ( - 570.97)
+ 805.36]
- -----------------------------------------------------------------------------------------------------------------
= 57,161.18 - [30,000 - ( - 570.97) + 805.36]
- -----------------------------------------------------------------------------------------------------------------
= 57,161.18 - 31,376.33 = 25,784.85
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
EXAMPLE 4 (PARTIAL WITHDRAWAL, RATES DECREASE BY 1%):
-----------------------------------------------------
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
Single Premium: $50,000
- -----------------------------------------------------------------------------------------------------------------
Guarantee Period: 5 Years
- -----------------------------------------------------------------------------------------------------------------
Guarantee Rate: 5.50% per annum
- -----------------------------------------------------------------------------------------------------------------
Partial Surrender: $30,000; Middle of Contract Year 3
- -----------------------------------------------------------------------------------------------------------------
Policy Value at middle of policy year 3 = 50,000* (1.055) /\ 2.5 = 57,161.18
- -----------------------------------------------------------------------------------------------------------------
Surrender Charge Free Amount at middle of policy year 3 = 57,161.18* .30 = 17,148.35
- -----------------------------------------------------------------------------------------------------------------
EIA Free Amount at middle of policy year 3 = 57,161.18 - 50,000 = 7,161.18
- -----------------------------------------------------------------------------------------------------------------
Excess Interest Adjustment/Surrender Charge
X = 30,000 - 17,148.35 = 12,851.65
A = 30,000 - 7,161.18 = 22,838.82
G = .055
C = .045
M = 30
Y = 22,838.82* (.055 - .045)* (30/12) = 570.97
Z = .06* [12,851.65 - (570.97)] = 736.84
- -----------------------------------------------------------------------------------------------------------------
Reduction to policy value due to
Surrender Charge--Free Withdrawal = 17,148.35
- -----------------------------------------------------------------------------------------------------------------
Reduction to policy value due to Excess Withdrawal = X - Y + Z
- -----------------------------------------------------------------------------------------------------------------
= 12,851.65 - 570.97 + 736.84
- -----------------------------------------------------------------------------------------------------------------
= 13,017.52
- -----------------------------------------------------------------------------------------------------------------
Policy Value after withdrawal at middle of policy year 3 = 57,161.18 - [17,148.35 + 13,017.52]
- -----------------------------------------------------------------------------------------------------------------
= 57,161.18 - [17,148.35 + 12,851.65 - 570.97
+ 736.84]
- -----------------------------------------------------------------------------------------------------------------
= 57,161.18 - [30,000 - (570.97) + 736.84]
- -----------------------------------------------------------------------------------------------------------------
= 57,161.18 - 30,165.87 = 26,995.31
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
REALLOCATION OF POLICY VALUES AFTER THE ANNUITY COMMENCEMENT DATE
After the annuity commencement date, the owner may reallocate the value of a
designated number of annuity units of a subaccount of the separate account then
credited to a policy into an equal value of annuity units of one or more other
subaccounts of the separate account, or the fixed account. An annuity unit is an
accounting unit used in the calculation of the amount of the second and each
subsequent variable annuity payment. The reallocation shall be based on the
relative value of the annuity units of the account(s) or subaccount(s) at the
end of the business day on the next payment date. The minimum amount which may
be reallocated is the lesser of (1) $10 of monthly income or (2) the entire
monthly income of the annuity units in the account or subaccount from which the
transfer is being made. If the monthly income of the annuity units remaining in
an account or subaccount after a reallocation is less than $10, PFL reserves the
right to include the value of those annuity units as part of the transfer. The
request must be in writing to PFL's administrative and service office. There is
no charge assessed in connection with such reallocation. PFL reserves the right
to limit the number of times a reallocation of policy value may be made in any
given policy year.
After the annuity commencement date, no transfers may be made from the fixed
account to the separate account.
-11-
<PAGE>
ANNUITY PAYMENT OPTIONS
During the lifetime of the annuitant and prior to the annuity commencement date,
the owner may choose an annuity payment option or change the election, but
written notice of any election or change of election must be received by PFL at
its administrative and service office at least thirty (30) days prior to the
annuity commencement date. If no election is made prior to the annuity
commencement date, annuity payments will be made under (i) Payment Option 3,
life income with fixed (level) payments for 10 years certain, using the existing
adjusted policy value of the fixed account, or (ii) under Payment Option 3, life
income with variable payments for 10 years certain using the existing policy
value of the separate account, or (iii) in a combination of (i) and (ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount PFL has at the death of a payee.
Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells PFL in writing and PFL
agrees.
Variable Payment Options. The dollar amount of the first variable annuity
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on a
5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table improved to the year 2000
with projection Scale G. ("The 1983 Table a" mortality rates are adjusted based
on improvements in mortality since 1983 to more appropriately reflect increased
longevity. This is accomplished using a set of improvement factors referred to
as projection scale G.) The dollar amount of additional variable annuity
payments will vary based on the investment performance of the subaccount(s) of
the separate account selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
Annuity Commencement Date ADJUSTED AGE
------------------------- ------------
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
This adjustment assumes an increase in life expectancy, and therefore it results
in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units which are credited to
the policy. The number of annuity units to be credited in respect of a
particular subaccount is determined by dividing that portion of the first
variable annuity payment attributable to that subaccount by the annuity unit
value of that subaccount on the annuity commencement date. The number of annuity
units of each particular subaccount credited to the policy then remains fixed,
assuming no transfers to or from that subaccount occur. The dollar value of
variable annuity units in the chosen subaccount will increase or decrease
reflecting the investment experience of the chosen subaccount. The dollar amount
of each variable annuity payment after the first may increase, decrease or
remain constant, and is equal to the sum of the amounts determined by
multiplying the number of annuity units of each particular subaccount credited
to the policy by the annuity unit value for the particular subaccount on the
date the payment is made.
-12-
<PAGE>
DEATH BENEFIT
Adjusted Partial Withdrawal. The amount of your Guaranteed Minimum Death Benefit
is reduced due to a partial withdrawal called the adjusted partial withdrawal.
The reduction amount depends on the relationship between your Guaranteed Minimum
Death Benefit and policy value. The adjusted partial withdrawal is the sum of
(1) and (2), where:
(1) The surrender charge-free withdrawal amount taken; and
(2) The amount that an excess partial withdrawal (the portion of a withdrawal
that can be subject to a surrender charge) reduces the policy value times
[(a) divided by (b)] where:
(a) is the amount of the death benefit prior to the excess partial
withdrawal; and
(b) is the policy value prior to the excess partial withdrawal.
The following examples describe the effect of a withdrawal on the Guaranteed
Minimum Death Benefit and policy value.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
EXAMPLE 1
(Assumed Facts for Example)
- --------------------------------------------------------------------------------------------
<S> <C>
$75,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- --------------------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- --------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and GMDB)
- --------------------------------------------------------------------------------------------
6% current surrender charge percentage
- --------------------------------------------------------------------------------------------
$15,000 requested withdrawal
- --------------------------------------------------------------------------------------------
$10,000 surrender charge-free amount (assumes 20% cumulative free percentage is available)
- --------------------------------------------------------------------------------------------
$ 5,000 excess partial withdrawal (EPW) (amount subject to surrender charge)
- --------------------------------------------------------------------------------------------
$ 100 excess interest adjustment -
(assumes interest rates have decreased since initial guarantee)
- --------------------------------------------------------------------------------------------
$ 294 surrender charge on (EPW less EIA)=0.06*(5000-100)
- --------------------------------------------------------------------------------------------
$ 5,194 reduction in policy value due to excess partial withdrawal = 5000-100+294
- --------------------------------------------------------------------------------------------
$17,791 adjusted partial withdrawal = $10,000+ [$5,194 * (75,000/50,000)]
- --------------------------------------------------------------------------------------------
$57,209 New GMDB (after withdrawal) = 75,000- 17,791
- --------------------------------------------------------------------------------------------
$34,806 New policy value (after withdrawal)=50,000-10,000-5,194
- --------------------------------------------------------------------------------------------
</TABLE>
Summary:
- -------
Reduction in Guaranteed Minimum Death Benefit = $17,791
Reduction in policy value = $15,194
Note, Guaranteed Minimum Death Benefit is reduced more than the policy value
since the Guaranteed Minimum Death Benefit was greater than the policy value
just prior to the withdrawal.
-13-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
EXAMPLE 2
(Assumed Facts for Example)
- --------------------------------------------------------------------------------------------
<S> <C>
$50,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- --------------------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- --------------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and GMDB)
- --------------------------------------------------------------------------------------------
6% current surrender charge percentage
- --------------------------------------------------------------------------------------------
$15,000 requested withdrawal
- --------------------------------------------------------------------------------------------
$11,250 surrender charge-free amount (assumes 15% cumulative free percentage is available)
- --------------------------------------------------------------------------------------------
$ 3,750 excess partial withdrawal (EPW) (amount subject to surrender charge)
- --------------------------------------------------------------------------------------------
$ -100 excess interest adjustment -
(assumes interest rates have increased since initial guarantee)
- --------------------------------------------------------------------------------------------
$ 231 surrender charge on (EPW less EIA)=0.06*[(3750-(-100))]
- --------------------------------------------------------------------------------------------
$ 4,081 reduction in policy value due to EPW= 3750-(-100) +231 =3750 + 100 +231
- --------------------------------------------------------------------------------------------
$15,331 Adjusted Partial Withdrawal = $11,250+ [$4,081 * (75,000/75,000)]
- --------------------------------------------------------------------------------------------
$34,669 New GMDB (after withdrawal) = 50,000- 15,331
- --------------------------------------------------------------------------------------------
$59,669 New policy value (after withdrawal)=75,000-11,250-4,081
- --------------------------------------------------------------------------------------------
</TABLE>
Summary:
- -------
Reduction in GMDB = $15,331
Reduction in policy value = $15,331
Note, GMDB and policy value are reduced by the same amount since the policy
value was higher than the GMDB just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the owner
died prior to the commencement of annuity payments. Upon receipt of this proof
and an election of a method of settlement and return of the policy, the death
benefit generally will be paid within seven days, or as soon thereafter as PFL
has sufficient information about the beneficiary to make the payment. The
beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the annuity payment options described above, unless a settlement
agreement is effective at the death of the owner preventing such election.
Distribution Requirements. If the annuitant was the owner, and the beneficiary
was not the annuitant's spouse, the death benefit must (1) be distributed within
five years of the date of the deceased owner's death, or (2) payments under an
annuity payment option must begin no later than one year after the deceased
owner's death and must be made for the beneficiary's lifetime or for a period
certain (so long as any certain period does not exceed the beneficiary's life
expectancy). Death proceeds which are not paid to or for the benefit of a
natural person must be distributed within five years of the date of the deceased
owner's death. If the sole beneficiary is the deceased owner's surviving spouse,
such spouse may elect to continue the policy as the new annuitant and owner
instead of receiving the death benefit. (See "Certain Federal Income Tax
Consequences")
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the adjusted policy value. If the successor owner is not the
deceased owner's spouse, however, the adjusted policy value must be distributed:
(1) within five years after the date of the deceased owner's death, or (2)
payments under an annuity payment option must begin no later than one year
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after the deceased owner's death and must be made for the successor owner's
lifetime or for a period certain (so long as any period certain does not exceed
the successor owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary by sending
written notice to PFL. The beneficiary's consent to such change is not required
unless the beneficiary was irrevocably designated or law requires consent. (If
an irrevocable beneficiary dies, the owner may then designate a new
beneficiary.) The change will take effect as of the date the owner signs the
written notice, whether or not the owner is living when the Notice is received
by PFL. PFL will not be liable for any payment made before the written notice is
received. If more than one beneficiary is designated, and the owner fails to
specify their interests, they will share equally.
DEATH OF OWNER
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where (1) the spouse of the deceased owner is the sole beneficiary; (2)
the owner is not a natural person and the primary annuitant dies or is changed;
or (3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" below for a detailed description of these rules. Other
rules may apply to qualified policies.
ASSIGNMENT
During the lifetime of the annuitant the owner may assign any rights or benefits
provided by a nonqualified policy. An assignment will not be binding on PFL
until a copy has been filed at its administrative and service office. The rights
and benefits of the owner and beneficiary are subject to the rights of the
assignee. PFL assumes no responsibility for the validity or effect of any
assignment. Any claim made under an assignment shall be subject to proof of
interest and the extent of the assignment. An assignment may have tax
consequences.
Unless the owner so directs by filing written notice with PFL, no beneficiary
may assign any payments under the policy before they are due. To the extent
permitted by law, no payments will be subject to the claims of any beneficiary's
creditors.
Ownership under qualified policies is restricted to comply with the Internal
Revenue Code.
EVIDENCE OF SURVIVAL
PFL reserves the right to require satisfactory evidence that a person is alive
if a payment is based on that person being alive. No payment will be made until
PFL receives such evidence.
NON-PARTICIPATING
The policy will not share in PFL's surplus earnings; no dividends will be paid.
EMPLOYEE AND AGENT PURCHASES
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of PFL or
its affiliated companies or their spouse or minor children. In such a case, PFL
may credit an amount equal to a percentage of each premium payment to the policy
due to lower acquisition costs PFL experiences on those purchases. The credit
will be reported to the Internal Revenue Service as taxable income to the
employee or registered representative. PFL may offer certain employer sponsored
savings plans, in its discretion reduced fees and charges including, but not
limited to, the surrender charges, the mortality and expense risk fee and the
administrative charge for certain sales under circumstances which may result in
savings of certain costs and expenses. In addition, there may be other
circumstances of which PFL is not presently aware which could result in
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reduced sales or distribution expenses. Credits to the policy or reductions in
these fees and charges will not be unfairly discriminatory against any
owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general discussion
of certain of the expected federal income tax consequences of investment in and
distributions with respect to a POLICY, BASED ON THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, PROPOSED AND FINAL TREASURY REGULATIONS THEREUNDER, JUDICIAL
AUTHORITY, AND CURRENT ADMINISTRATIVE RULINGS AND PRACTICE. THIS SUMMARY
DISCUSSES ONLY CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO "UNITED STATES
PERSONS," AND DOES NOT DISCUSS STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES. UNITED
STATES PERSONS MEANS CITIZENS OR RESIDENTS OF THE UNITED STATES, DOMESTIC
CORPORATIONS, DOMESTIC PARTNERSHIPS AND TRUSTS OR ESTATES THAT ARE SUBJECT TO
UNITED STATES FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF THEIR INCOME.
TAX STATUS OF THE POLICY
The following discussion is based on the assumption that the policy qualifies as
an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the code, the investments made by such account must
be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. ((S)) 1.817-5)
apply a diversification requirement to each of the subaccounts of the separate
account. The separate account, through the underlying funds and their
portfolios, intends to comply with the diversification requirements of the
Treasury. PFL has entered into agreements regarding participation in the
Retirement Income Builder that require the underlying funds and their portfolios
to be operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contractowner's gross income. Several years ago, the Internal
Revenue Service stated in published rulings that a variable contractowner will
be considered the owner of separate account assets if the contractowner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. More recently, the Treasury
Department announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations or
rulings on the "extent to which policyholders may direct their investments to
particular subaccounts without being treated as owners of underlying assets."
The ownership rights under the contract are similar to, but different in certain
respects from those described by the IRS in rulings in which it was determined
that contractowners were not owners of separate account assets. For example, the
owner of a policy has the choice of one or more subaccounts in which to allocate
premiums and policy values, and may be able to transfer among these accounts
more frequently than in such rulings. These differences could result in
policyowners being treated as the owners of the assets of the 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 policies as necessary to
attempt to prevent the policyowners from being considered the owners of a pro
rata share of the assets of the separate account.
Distribution Requirements. The code also requires that nonqualified policies
contain specific provisions for distribution of policy proceeds upon the death
of the owner. In order to be treated as an annuity contract for federal income
tax purposes, the code requires that such policies provide that if any owner
dies on or after the annuity commencement date and before the entire interest in
the policy has been distributed, the remaining portion must be
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distributed at least as rapidly as under the method in effect on such owner's
death. If any owner dies before the annuity commencement date, the entire
interest in the policy must generally be distributed within five years after
such owner's date of death or be applied to provide an immediate annuity under
which payments will begin within one year of such owner's death and will be made
for the life of the beneficiary or for a period not extending beyond the life
expectancy of the beneficiary. However, if such owner's death occurs prior to
the annuity commencement date, and such owner's surviving spouse is named
beneficiary, then the policy may be continued with the surviving spouse as the
new owner. If any owner is not a natural person, then for purposes of these
distribution requirements, the primary annuitant shall be treated as the owner
and any death or change of such primary annuitant shall be treated as the death
of the owner. The policy contains provisions intended to comply with these
requirements of the code. No regulations interpreting these requirements of the
code have yet been issued and thus no assurance can be given that the provisions
contained in the policies satisfy all such code requirements. The provisions
contained in the policies will be reviewed and modified if necessary to maintain
their compliance with the code requirements when clarified by regulation or
otherwise.
Withholding. The portion of any distribution under a policy that is includable
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or made.
For certain qualified policies, certain distributions are subject to mandatory
withholding. The withholding rate varies according to the type of distribution
and the owner's tax status. For qualified policies, "eligible rollover
distributions" from Section 401(a) plans and Section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions such as distributions required by the
code or distributions in a specified annuity form. The 20% withholding does not
apply, however, if the owner chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to specified commencement and minimum distribution rules;
and in other specified circumstances. Some retirement plans are subject to
distribution and other requirements that are not incorporated into PFL's policy
administration procedures. Owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the policies comply with applicable law.
For qualified plans under Section 401(a), 403(a), 403(b), and 457, the code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the code), or if the policy is a traditional individual retirement
annuity, then distributions generally must begin no later than April 1 of the
calendar year in which the owner (or plan participant) reaches age 70 1/2. Each
owner is responsible for requesting distributions under the policy that satisfy
applicable tax rules.
PFL makes no attempt to provide more than general information about use of the
policy with the various types of retirement plans. Purchasers of policies for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional individual
retirement annuity under Section 408(b) of the code, a policy must contain
certain provisions: (i) the owner must be the annuitant; (ii) the policy
generally is not transferable by the owner, e.g., the owner may not designate a
new owner, designate a successor owner or assign the policy as collateral
security; (iii) the total premium payments for any calendar year on behalf of
any individual may not exceed $2,000, except in the case of a rollover amount or
contribution under Sections 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the
code; (iv) annuity payments or partial withdrawals must begin no later than
April 1 of the calendar year following the calendar year in which the annuitant
attains age 70 1/2 (v) an
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annuity payment option with a Period Certain that will guarantee annuity
payments beyond the life expectancy of the annuitant and the beneficiary may not
be selected; (vi) certain payments of death benefits must be made in the event
the annuitant dies prior to the distribution of the policy value; and (vii) the
entire interest of the owner is non-forfeitable. Policies intended to qualify as
traditional individual retirement annuities under Section 408(b) of the code
contain such provisions. Amounts in the IRA (other than nondeductible
contributions) are taxed when distributed from the IRA. Distributions prior to
age 59 1/2 (unless certain exceptions apply) are subject to a 10% penalty
tax.
Section 408 of the code also indicates that no part of the funds for an
individual retirement account or annuity ("IRA") may be invested in a life
insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity policy that provides a death benefit that equals the
greater of the premiums paid or the cash value for the contract. The policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the policy under Section 408 of the code. The
Internal Revenue Service has not reviewed the policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the policy, comports
with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not deductible
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made from assets which have been held in the account for 5 tax years and
are made after attaining age 59 1/2, to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000) or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the
same.
Section 403(b) Plans. Under Section 403(b) of the code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject to
certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under Section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Sections 401(a)
and 403(a) of the code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit sharing
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plan. Because the death benefit may exceed this limitation, employers using the
policy in connection with such plans should consult their tax adviser.
Deferred Compensation Plans. Section 457 of the code, while not actually
providing for a qualified plan (as that term is not used in the code), provides
for certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The policies can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her participation
will be made. For not governmental 457 plans, all such investments, however, are
owned by, and are subject to, the claims of the general creditors of the
sponsoring employer. Depending on the terms of the particular plan, a non-
governmental employer may be entitled to draw on deferred amounts for purposes
unrelated to its Section 457 plan obligations. In general, all amounts received
under a Section 457 plan are taxable and are subject to federal income tax
withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the code, an annuity contract
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year the excess of (i)
the sum of the cash value as of the close of the taxable year and all previous
distributions under the policy over (ii) the sum of the premium payments paid
for the taxable year and any prior taxable year and the amounts includable in
gross income for any prior taxable year with respect to the policy. For these
purposes, the policy value at year-end may have to be increased by any positive
excess interest adjustment which could result from a full surrender at such
time. There is, however, no definitive guidance on the proper tax treatment of
excess interest adjustments and the owner should contact a competent tax adviser
with respect to the potential tax consequences of an excess interest adjustment.
Notwithstanding the preceding sentences in that paragraph, Section 72(u) of the
code does not apply to (i) a policy the nominal owner of which is not a natural
person but the beneficial owner of which is a natural person, (ii) a policy
acquired by the estate of a decedent by reason of such decedent's death, (iii) a
qualified policy (other than one qualifying under Section 457) or (iv) a single-
payment annuity the commencement date for which is no later than one year from
the date of the single premium payment; such policies are taxed as described in
the prospectus.
Possible Changes in Taxation. Although the likelihood of legislative change in
uncertain, there is always the possibility that the tax treatment of the
policies could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the policies. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax adviser should be consulted with respect to legislative
developments and their effect on the policy.
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. PFL does not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the policy. Based on this expectation, it is anticipated that no charges will be
made against the separate account for federal income taxes. If, in future years,
any federal income taxes are incurred by PFL with respect to the separate
account, PFL may make a charge to the separate account.
INVESTMENT EXPERIENCE
A "Net Investment Factor" is used to determine the value of accumulation units
and annuity units, and to determine annuity payment rates.
ACCUMULATION UNITS
Allocations of a premium payment directed to a subaccount are credited in the
form of accumulation units. Each subaccount has a distinct accumulation unit
value. The number of units credited is determined by dividing the
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premium payment or amount transferred to the subaccount by the accumulation unit
value of the subaccount as of the end of the valuation period during which the
allocation is made. For each subaccount, the accumulation unit value for a given
business day is based on the net asset value of a share of the corresponding
portfolio of the underlying funds less any applicable charges or fees.
Upon allocation to the selected subaccount of the separate account, premium
payments are converted into accumulation units of the subaccount. The number of
accumulation units to be credited is determined by dividing the dollar amount
allocated to each subaccount by the value of an accumulation unit for that
subaccount as next determined after the premium payment is received at the
administrative and service office or, in the case of the initial premium
payment, when the policy application is completed, whichever is later. The value
of an accumulation unit was arbitrarily established at $1.000000 at the
inception of each subaccount. Thereafter, the value of an accumulation unit is
determined as of the close of trading on each day the New York Stock Exchange
and PFL's administrative and service office are open for business.
An index (the "Net Investment Factor") which measures the investment performance
of a subaccount during a valuation period, is used to determine the value of an
accumulation unit for the next subsequent valuation period. The Net Investment
Factor may be greater or less than or equal to one; therefore, the value of an
accumulation unit may increase, decrease or remain the same from one valuation
period to the next. The owner bears this investment risk. The net investment
performance of a subaccount and deduction of certain charges affect the
accumulation unit value.
The Net Investment Factor for any subaccount for any valuation period is
determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the subaccount
determined at the end of the current valuation period, plus
(2) the per share amount of any dividend or capital gain distribution made
with respect to the shares held in the subaccount if the ex-dividend date
occurs during the current valuation period, plus or minus
(3) a per share credit or charge for any taxes determined by PFL to have
resulted from the investment operations of the subaccount;
(b) the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period; and
(c) is the charge for mortality and expense risk during the valuation period
(equal on an annual basis to 1.10% for the Return of Premium Death Benefit and
1.25% for both the 5% Annually Compounding Death Benefit or the Annual Step-Up
Death Benefit) of the daily net asset value of the subaccount, plus the .15%
administrative charge for all three Death Benefit Options.
ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS
FORMULA AND ILLUSTRATION FOR DETERMINING THE NET INVESTMENT FACTOR
(Assume Either the 5% Annually Compounding Death Benefit or
the Annual Step-Up Death Benefit is in effect.)
Investment Experience Factor = (A + B - C) - E
----------
D
Where: A = The Net Asset Value of an underlying fund share as of the end of the
current valuation period.
Assume....................................... A = $11.57
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B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding valuation period.
Assume............................................. B = 0
C = The per share charge or credit for any taxes reserved for at the end
of the current valuation period.
Assume.............................................. C = 0
D = The Net Asset Value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume...................................... D = $11.40
E = The daily deduction for mortality and expense risk fee and
administrative charges, which totals 1.40% on an annual basis.
On a daily basis............................ = .0000380909
Then, the Investment Experience Factor = (11.57 + 0 - 0) - .0000380909 = Z =
-------------
1.0148741898
11.40
FORMULA AND ILLUSTRATION FOR DETERMINING ACCUMULATION UNIT VALUE
Accumulation Unit Value = A * B
Where: A = The accumulation unit value for the immediately preceding valuation
period.
Assume........................................... = $ X
B = The Net Investment Factor for the current valuation period.
Assume............................................. = Y
Then, the accumulation unit value = $ X * Y = $ Z
ANNUITY UNIT VALUE AND ANNUITY PAYMENT RATES
The amount of variable annuity payments will vary with annuity unit values.
Annuity unit values rise if the net investment performance of the subaccount
exceeds the assumed interest rate of 5% annually. Conversely, annuity unit
values fall if the net investment performance of the subaccount is less than the
assumed rate. The value of a variable annuity unit in each subaccount was
established at $1.00 on the date operations began for that subaccount. The value
of a variable annuity unit on any subsequent business day is equal to (a)
multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
Assumed Investment Return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business
day.
The net investment factor for the policy used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
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(1) the net asset value of a fund share held in that subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that subaccount if the ex-dividend
date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which PFL
determines to have resulted from the investment operations of the
subaccount.
(ii) is the net asset value of a fund share held in that subaccount
determined as of the end of the immediately preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.25%
(for Death Benefit Option A) or 1.40% (for Death Benefit Options B and C) of
the daily net asset value of a fund share held in that subaccount.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the annuity option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the
annuitant.
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity unit value = A * B * C
Where: A = Annuity unit value for the immediately preceding valuation
period.
Assume.......................................... = $ X
B = Investment Experience Factor for the valuation period for which the
annuity unit value is being calculated.
Assume............................................ = Y
C = A factor to neutralize the assumed interest rate of 5% built into
the annuity tables used.
Assume............................................ = Z
Then, the annuity unit value is:
$ X * Y * Z = $ Q
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF FIRST MONTHLY VARIABLE
ANNUITY PAYMENT
First monthly variable annuity payment = A * B
-----
$1,000
Where: A = The policy value as of the annuity commencement date.
Assume.......................................... = $ X
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B = The Annuity purchase rate per $1,000 based upon the option selected,
the sex and adjusted age of the annuitant according to the tables
contained in the policy.
Assume............................................ = $ Y
Then, the first monthly variable annuity payment = $X * $Y = $Z
-------
1,000
FORMULA AND ILLUSTRATION FOR DETERMINING THE NUMBER OF ANNUITY UNITS
REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
Number of annuity units = A
-
B
Where: A = The dollar amount of the first monthly variable annuity
payment.
Assume................................................. = $ X
B = The annuity unit value for the Valuation Date on which the first
monthly payment is due.
Assume................................................. = $ Y
Then, the number of annuity units = $ X = Z
---
$ Y
FAMILY INCOME PROTECTOR - HYPOTHETICAL ILLUSTRATION
The amounts shown below are hypothetical guaranteed minimum monthly payment
amounts under the "family income protector" for a $100,000 premium when annuity
payments do not begin until the rider anniversary indicated in the left-hand
column. These figures assume that there were no subsequent premium payments, or
withdrawals, that there were no premium taxes and that the $100,000 premium is
subject to the family income protector. Six different annuity payment options
are illustrated: a male annuitant, a female annuitant and a joint and survivor
annuity, each on a Life Only and a Life with 10 Year Certain basis. These
hypothetical illustrations assume that the annuitant is (or both annuitants are)
60 years old when the rider is issued, that the annual growth rate is 6.0% (once
established an annual growth rate will not change during the life of the family
income protector rider), and that there was no upgrade of the minimum
annuitization value. The figures below, which are the amount of the first
monthly payment, are based on an assumed investment return of 3%. Subsequent
payments will never be less than the amount of the first payment (although
subsequent payments are calculated using a 5% assumed investment return).
Illustrations of guaranteed minimum payments based on other assumptions will be
provided upon request.
<TABLE>
<CAPTION>
Life Only = Life Annuity with No Period Certain Life 10 = Life Annuity with 10 Years Certain
==========================================================================================================================
Rider Anniversary at Male Female Joint & Survivor
- -------------------- ---- ------ ----------------
Exercise Date
- --------------------------------------------------------------------------------------------------------------------------
Life Only Life 10 Life Only Life 10 Life Only Life 10
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 (age 70) $ 1,135 $ 1,067 $ 976 $ 949 $ 854 $ 852
- --------------------------------------------------------------------------------------------------------------------------
15 1,833 1,634 1,562 1,469 1,332 1,318
- --------------------------------------------------------------------------------------------------------------------------
20 (age 80) 3,049 2,479 2,597 2,286 2,145 2,078
==========================================================================================================================
</TABLE>
This hypothetical illustration should not be deemed representative of past or
future performance of any underlying variable investment option.
Withdrawals will affect the minimum annuitization value as follows: Each policy
year, withdrawals up to the limit of the total free amount (the minimum
annuitization value on the last policy anniversary multiplied by the annual
-23-
<PAGE>
growth rate) reduce the minimum annuitization value on a dollar-for-dollar
basis. Withdrawals over this free amount will reduce the minimum annuitization
value on a pro rata basis by an amount equal to the minimum annuitization value
immediately prior to the excess withdrawal multiplied by the percentage
reduction in the policy value resulting from the excess withdrawal. The free
amount will always be a relatively small fraction of the minimum annuitization
value.
The amount of the first payment provided by the family income protector will be
determined by multiplying each $1,000 of minimum annuitization value by the
applicable annuity factor shown on Schedule I of the family income protector
rider. The applicable annuity factor depends upon the annuitant's (and joint
annuitant's, if any) sex (or without regard to gender if required by law), age,
and the family income protector payment option selected and is based on a
guaranteed interest rate of 3% and the "1983 Table a" mortality table improved
to the year 2000 with projection Scale G. Subsequent payments will be
calculated as described in the family income protector rider using a 5% assumed
investment return. Subsequent payments may fluctuate annually in accordance
with the investment performance of the annuity subaccounts. However, subsequent
payments are guaranteed to never be less than the initial payment.
The stabilized payment on each subsequent policy anniversary after annuitization
using the family income protector will equal the greater of the initial payment
or the payment supportable by the annuity units in the selected subaccounts.
The supportable payment is equal to the number of variable annuity units in the
selected subaccounts multiplied by the variable annuity unit values in those
subaccounts on the date the payment is made. The variable annuity unit values
used to calculate the supportable payment will assume a 5% assumed investment
return. If the supportable payment at any payment date during a policy year is
greater than the stabilized payment for that policy year, the excess will be
used to purchase additional annuity units. Conversely, if the supportable
payment at any payment date during a policy year is less than the stabilized
payment for that policy year, there will be a reduction in the number of annuity
units credited to the policy to fund the deficiency. In the case of a
reduction, you will not participate as fully in the future investment
performance of the subaccounts you selected since fewer annuity units are
credited to your policy. Purchases and reductions will be allocated to each
subaccount on a proportionate basis.
PFL bears the risk that it will need to make payments if all annuity units have
been used in an attempt to maintain the stabilized payment at the initial
payment level. In such an event, PFL will make all future payments equal to the
initial payment. Once all the annuity units have been used, the amount of your
payment will not increase or decrease and will not depend upon the performance
of any subaccounts. To compensate PFL for this risk, a stabilized payment fee
will be deducted.
HISTORICAL PERFORMANCE DATA
MONEY MARKET YIELDS
PFL may from time to time disclose the current annualized yield of the Money
Market Subaccount for a 7-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation and income other than investment
income) at the end of the 7-day period in the value of a hypothetical account
having a balance of 1 unit at the beginning of the 7-day period, dividing such
net change in account value by the value of the account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365-day basis. The net change in account value reflects (i) net income from the
portfolio attributable to the hypothetical account; and (ii) charges and
deductions imposed under a policy that are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for (i) the administrative charges; and (ii) the mortality
and expense risk fee. Current Yield will be calculated according to the
following formula:
Current Yield = ((NCS * ES)/UV) * (365/7)
-24-
<PAGE>
Where:
NCS = The net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized appreciation
and depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Money Market Subaccount will be lower than the yield for the Money Market
Portfolio. The yield calculations do not reflect the effect of any premium taxes
or surrender charges that may be applicable to a particular policy. Surrender
charges range from 6% to 0% of the amount of premium payments withdrawn based on
the number of years since the premium payment was made. However, surrender
charges will not be assessed after the tenth policy year.
PFL may also disclose the effective yield of the Money Market Subaccount for the
same 7-day period, determined on a compounded basis. The effective yield is
calculated by compounding the base period return according to the following
formula:
Effective Yield = (1 + ((NCS - ES)/UV))/365/7/ - 1
Where:
NCS = The net change in the value of the account (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation and income other than investment income) for the 7-day
period attributable to a hypothetical account having a balance of 1
subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the Money Market Subaccount normally will fluctuate
on a daily basis. Therefore, the disclosed yield for any given past period is
not an indication or representation of future yields or rates of return. The
Money Market Subaccount actual yield is affected by changes in interest rates on
money market securities, average portfolio maturity of the Money Market
Portfolio, the types and quality of portfolio securities held by the Money
Market Portfolio and its operating expenses. For the seven days ended December
31, 1998, the yield of the VIP Money Market Subaccount was _____%, and the
effective yield was _____% for the Return of Premium Death Benefit. For the
seven days ended December 31, 1998, the yield of the VIP Money Market Subaccount
was _____%, and the effective yield was _____% for the 5% Annually Compounding
Death Benefit or Annual Step-Up Death Benefit.
OTHER SUBACCOUNT YIELDS
PFL may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account (except the Money Market
Subaccount) for 30-day periods. The annualized yield of a subaccount refers to
income generated by the subaccount over a specific 30-day period. Because the
yield is annualized, the yield generated by a subaccount during the 30-day
period is assumed to be generated each 30-day period over a 12-month period. The
yield is computed by: (i) dividing the net investment income of the subaccount
less subaccount expenses for the period, by (ii) the maximum offering price per
unit on the last day of the period times the daily average number of units
outstanding for the period, compounding that yield for a 6-month period, and
(iii) multiplying that result by 2. Expenses attributable to the subaccount
include (i) the administrative charge and (ii) the mortality and expense risk
fee. The 30-day yield is calculated according to the following formula:
Yield = 2 * ((((NI - ES)/(U *x UV)) + 1)/6/ - 1)
-25-
<PAGE>
Where:
NI = Net investment income of the subaccount for the 30-day period
attributable to the subaccount's unit.
ES = Expenses of the subaccount for the 30-day period.
U = The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in the 30-day
period.
Because of the charges and deductions 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
policy. Surrender charges range from 6% to 0% of the amount of premium payments
withdrawn based on the number of years since the premium payment was made.
However, surrender charges will not be assessed after the tenth policy
year.
The yield on amounts held in the subaccounts of the 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. The types and quality of its investments and its operating expenses
affect a subaccount's actual yield.
TOTAL RETURNS
PFL 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 PFL
calculates on each business day based on the performance of the subaccount's
underlying portfolio, and the deductions for the mortality and expense risk fee
and the administrative charges. Total return calculations will reflect the
effect of surrender charges that may be applicable to a particular period. The
total return will then be calculated according to the following formula:
P (1 + T)/N/ = ERV
Where:
T = The average annual total return net of subaccount recurring
charges.
ERV = The ending redeemable value of the hypothetical account at the end of
the period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
OTHER PERFORMANCE DATA
PFL may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except that the
surrender charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula assuming that the surrender charge
percentage will be 0%.
CTR = (ERV / P) - 1
-26-
<PAGE>
Where:
CTR = The cumulative total return net of subaccount recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of
the period.
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
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 policy charges that were in effect at the
inception of the subaccounts.
PUBLISHED RATINGS
PFL may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of PFL and they should not be considered
as bearing on the investment performance of assets held in the separate account
or of the safety or riskiness of an investment in the separate account. Each
year the A.M. Best Company reviews the financial status of thousands of
insurers, culminating in the assignment of Best's ratings. These ratings reflect
their current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of PFL as
measured by Standard & Poor's Insurance Ratings Services, Moody's Investors
Service or Duff & Phelps Credit Rating Co. may be referred to in advertisements
or sales literature or in reports to owners. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability ratings
do not refer to an insurer's ability to meet non-policy obligations such as debt
or commercial paper obligations.
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the policies. These services include
issuance of the policies, maintenance of records concerning the policies, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
PFL. As presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, PFL will mail to all policy owners at
-27-
<PAGE>
their last known address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable law or
regulation. Policy owners will also receive confirmation of each financial
transaction and any other reports required by law or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and PFL does not anticipate discontinuing the offering of the
policies. However, PFL reserves the right to discontinue the offering of the
policies.
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the policies and may enter into agreements with broker-dealers for the
distribution of the policies. Prior to April 30, 1998, AEGON USA Securities,
Inc. (also an affiliate of PFL) was the principal underwriter. During 1998 and
1997, the amount paid to AEGON USA Securities, Inc. and/or the broker-dealers
for their services related to the Retirement Income Builder Variable Annuity
policies was $_________ and $2,337,939.76. No fees had been paid to AEGON USA
Securities, Inc. and/or the broker/dealers for their services during 1996 or
prior years.
OTHER PRODUCTS
PFL makes other variable annuity policies available that may also be funded
through the separate account. These variable annuity policies may have different
features, such as different investment choices or charges.
CUSTODY OF ASSETS
The assets of each of the subaccounts of the separate account are held by PFL.
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 PFL's
general account assets. PFL maintains records of all purchases and redemptions
of shares of the underlying funds held by each of the subaccounts. Additional
protection for the assets of the separate account is afforded by PFL's fidelity
bond, presently in the amount of $5,000,000, covering the acts of officers and
employees of PFL.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington D.C has provided legal advice
relating to certain matters under the federal securities laws applicable to the
issue and sale of the policies to PFL.
INDEPENDENT AUDITORS
The Financial Statements of PFL as of December 31, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, and the Financial
Statements of certain subaccounts of the PFL Retirement Builder Variable Annuity
Account (which comprises the Retirement Income Builder Variable Annuity) at
December 31, 1998 and for each of the two years for the period then ended,
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.
-28-
<PAGE>
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the prospectus or this Statement of Additional
Information. Statements contained in the prospectus and this Statement of
Additional Information concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of the interest of owners in the separate account will be affected
solely by the investment results of the selected subaccount(s). The Financial
Statements of PFL, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of PFL to meet
its obligations under the policies. They should not be considered as bearing on
the investment performance of the assets held in the separate account.
-29-
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of PFL Life Insurance
Company authorizing establishment of the Mutual Fund
Account. Note 1.
(2) Not Applicable.
(3) (a) Principal Distribution Agreement by and between PFL Life
Insurance Company on its own behalf and on the behalf of the
Mutual Fund Account, and AEGON USA Securities, Inc. Note 2.
(a)(1) Principal Underwriting Agreement by and between PFL Life
Insurance Company on its own behalf and on behalf of the
Mutual Fund Account, and AFSG Securities Corporation.
Note 5.
(a)(2) Termination of Principal Distribution Agreement by and
between PFL Life Insurance Company on its own behalf and
on the behalf of the Mutual Fund Account, and AEGON USA
Securities Inc. Note 6
(b) Form of Broker/Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker/Dealer.
Note 5.
(4) (a) Form of Policy for the Retirement Income Builder Variable
Annuity. Note 2
(b) Form of Policy Endorsements for the Retirement Income
Builder Variable Annuity. Note 6.
(c) Form of Policy Endorsement for the Retirement Income Builder
Variable Annuity. (GMIB) Note 7.
(d) Form of Policy Endorsement for the Retirement Income Builder
Variable Annuity (403(b)) Note 7.
(5) (a) Form of Application for the Retirement Income Builder
Variable Annuity. Note 3
(b) Form of Application for the First Union "Flexible Premium
Individual Deferred" Variable Annuity. Note 5.
(c) Form of Application for the Retirement Income Builder
Variable Annuity. Note 5.
(d) Form of Application for the Multi-Manager Retirement Income
Builder "Flexible Premium Individual Deferred Variable
Annuity." Note 6.
(6) (a) Articles of Incorporation of PFL Life Insurance Company.
Note 1.
(b) ByLaws of PFL Life Insurance Company. Note 1.
(7) Not Applicable.
(8) (a) Participation Agreement by and between PFL Life Insurance
Company and Fidelity Distributors Corporation and Addendum
thereto. Note 2
(b) Participation Agreement between Variable Insurance Products
Fund III, Fidelity Distributors Corporation (Underwriter),
and PFL Life Insurance Company (Depositor). Note 3
(c) Participation Agreement by and among AIM Variable Insurance
Funds, Inc., PFL Life Insurance Company, and AFSG
Securities Corporation. Note 6
(c)(1) Amendment No.1 to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., PFL Life Insurance Company,
AFSG Securities Corporation. Note 6.
(d) Form of Participation Agreement by and between PFL Life
Insurance Company and Evergreen Variable Trust. Note 5
(e) Amended Exhibit A and Exhibit B to Participation Agreement
by and between PFL Life Insurance Company, Federated
Insurance Series and Federated Securities Corp. Note 5
(f) Participation Agreement among MFS Variable Insurance Trust,
PFL Life Insurance Company and Massachusetts Financial
Services Company. Note 4
(f)(1) Addendum to Participation Agreement, dated as of November
24, 1997 by and among MFS Variable Insurance Trust,
Massachusetts Financial Services Company, and PFL Life
Insurance Company. Note 6.
(g) Participation Agreement among Oppenheimer Variable Account
Funds, Oppenheimer Funds, Inc. and PFL Life Insurance
Company. Note 4
(g)(1) Amendment to Participation Agreement, dated as of December
15, 1997 by and among Oppenheimer Variable Account Funds,
OppenheimerFunds, Inc., and PFL Life Insurance Company.
Note 6.
(h) Participation Agreement by and between Putnam Variable
Trust, Putnam Mutual Funds Corp. and PFL Life Insurance
Company. Note 6
(i) Addendum to Participation Agreement between Variable
Insurance Product Funds, Fidelity Distributors Corporation,
and PFL Life Insurance Company. Note 5.
(j) Amendment to Participation Agreement, dated as of April 15,
1997, between Dreyfus Variable Investment Fund, the Dreyfus
Socially Responsible Growth Fund, Inc., Dreyfus Life and
Annuity Index fund, Inc., (d/b/a Dreyfus Stock Index fund),
and, PFL Life Insurance Company. Note 6.
(k) Amendment No. 5 to Participation Agreement among WRL Series
Fund, Inc., Western Reserve Life Assurance Co. of Ohio, and
PFL Life Insurance Company. Note 7.
(9) Opinion and Consent of Counsel. Note 2
<PAGE>
(10) (a) Consent of Independent Auditors. Note 8
(b) Opinion and Consent of Actuary. Note 6
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calculations. Note 2
(14) Powers of Attorney. Note 1. (Patrick S. Baird, Craig D.
Vermie, William L. Busler, Douglas C. Kolsrud, Robert J.
Kontz) Note 2. Brendy K. Clancy. Note 6. Larry N.
Norman
------------------------
Note 1. Filed with one Initial filing of this Form N-4 Registration
Statement (File No. 333-7509) on July 3, 1996.
Note 2. Filed with Pre-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 333-7509) on December 6,
1996.
Note 3. Filed with Post-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 333-7509) on April 29,
1997.
Note 4. Filed with Post-Effective Amendment No. 2 to this form N-4
Registration Statement (File No. 333-7509) on December 23,
1997.
Note 5. Filed with Post-Effective Amendment No. 4 to this Form N-4
Registration Statement (File No. 333-7509) on April 30,
1998.
Note 6. Filed with Post Effective Amendment No. 5 to this Form N-4
Registration Statement (File No. 333-7509) on July 16,
1998.
Note 7. Filed herewith.
Note 8. To be filed by future Amendment.
<PAGE>
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Principal Positions
Name and and Offices with
Business Address Depositor
- ---------------- ---------
<S> <C>
William L. Busler Director, Chairman of the Board and
4333 Edgewood Road N.E. President
Cedar Rapids, Iowa 52499-0001
Patrick S. Baird Director, Senior Vice President and
4333 Edgewood Road N.E. Chief Operating Officer
Cedar Rapids, Iowa 52499-0001
Craig D. Vermie Director, Vice President, Secretary and
4333 Edgewood Road N.E. General Counsel
Cedar Rapids, Iowa 52499-0001
Douglas C. Kolsrud Director, Senior Vice President, Chief
4333 Edgewood Road N.E. Investment Officer and Corporate Actuary
Cedar Rapids, Iowa 52499-0001
Larry N. Norman Director and Executive Vice President
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-0001
Robert J. Kontz Vice President and
4333 Edgewood Road N.E. Corporate Controller
Cedar Rapids, Iowa 52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief
4333 Edgewood Road N.E. Financial Officer
Cedar Rapids, Iowa 52499-0001
</TABLE>
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advsiors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc. Realty Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX II Series Fund Massachusetts Various Mutual fund
IDEX Fund Massachusetts Various Mutual fund
IDEX Fund 3 Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold
the equity interest of other
entities.
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
AEGON Assignment Corporation Illinois 100% AEGON Financial Services Administrator of structured
Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
AEGON Special Markets Maryland 100% Monumental Life Ins. Co. Marketing
Group, Inc.
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Commonwealth General Delaware 100% AEGON USA Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc. holding company
Capital Real Estate Delaware 100% CGC Furniture and equiment lessor
Development Corporation
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Consultants, Inc. Illinois 100% Ampac Insurance TPA license-holder
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100%Unicom Administrative Provider of admin. servcies
Services, GmbH Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental Life
Ins. Co.
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Life Insurance company
Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
<PAGE>
Item 27. Number of Contract Owners
As of December 31, 1998, there were 3,975 Owners of the Policies.
Item 28. Indemnification
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
--------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
Item 29. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
The directors and officers of
AFSG Securities Corporation
are as follows:
<TABLE>
<S> <C>
Larry N. Norman Sarah J. Strange
Director and President Director and Vice President
Frank A. Camp Bob Warner
Director and Secretary Assistant Compliance Officer
Lisa Wachendorf Linda Gilmer
Vice President and Chief Treasurer/Controller
Compliance President
Debra C. Cubero Priscilla Hechler
Vice President Assistant Secretary and Assistant Vice President
Emily Bates Thomas Pierpan
Assistant Treasurer Assistant Secretary and Assistant Vice President
Clifton Flenniken Darin D. Smith
Assistant Treasurer Assistant Secretary and Assistant Vice President
Anne Spaes
Vice President
</TABLE>
- --------------------
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
AFSG Securities Corporation, the broker/dealer, received $4,917,718.82 from the
Registrant from May 1, 1998 through December 31, 1998, for its services in
distributing the Policies. AEGON USA Securities, Inc., its predecessor, received
$1,872,219.13 from the Registrant from January 1, 1998 through April 30, 1998,
for its services in distributing the Policies. No other commission or
compensation was received by the principal underwriter, directly or indirectly,
from the Registrant during the fiscal year.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor VA Separate Account, the PFL Retirement Builder Variable Annuity
Account, the PFL Life Variable Annuity Account A, the PFL Wright Variable
Annuity Account and the AUSA Endeavor Variable Annuity account. These accounts
are separate accounts of PFL Life Insurance Company or AUSA Life Insurance
Company, Inc. AFSG Securities Corporation also serves as principal underwriter
for Separate Account I, Separate Account II, Separate Account IV and Separate
Account V of Peoples Benefit Life Insurance Company, and for Separate Account B
and Separate Account C of AUSA Life Insurance Company, Inc.
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa
52499-0001.
<PAGE>
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Policy may be
accepted.
(b) Registrant undertakes that it will include either (i) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Policy application that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to PFL at the address or phone number
listed in the Prospectus.
(d) PFL Life Insurance Company hereby represents that the fees and charges
deducted under the policies, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by PFL Life Insurance Company.
Section 403(b) Representations
- ------------------------------
PFL represents that it is relying on a no-action letter dated November 28, 1988,
to the American Council of Life Insurance (Ref. No. IP-6-88), regarding Sections
22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in connection
with redeemability restrictions on Section 403(b) Policies, and that paragraphs
numbered (1) through (4) of that letter will be complied with.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 20/th/ day of
January, 1999.
PFL RETIREMENT BUILDER
VARIABLE ANNUITY ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
_______________________________*
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
Signatures Title Date
- ---------- ----- ----
* Director January ___, 1999
- -----------------------
Patrick S. Baird
/s/ Craig D. Vermie Director January 20, 1999
- -----------------------
Craig D. Vermie
* Director January ___, 1999
- -----------------------
William L. Busler (Principal Executive Officer)
* Director January ___, 1999
- -----------------------
Larry N. Norman
* Director January ___, 1999
- -----------------------
Douglas C. Kolsrud
* Vice President and January ___, 1999
- -----------------------
Robert J. Kontz Corporate Controller
* Treasurer January ___, 1999
- -----------------------
Brenda K. Clancy
* By Craig D. Vermie, attorney in fact.
<PAGE>
REGISTRATION NO.
333-7509
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
______________
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO. *
- ----------- ---------------------- ----------
(4)(c) Form of Policy Endorsement for the Retirement
Income Builder Variable Annuity. (GMIB)
(4)(d) Form of Policy Endorsement for the Retirement
Income Builder Variable Annuity. (403(b) Policy
Loan)
(8)(k) Amendment No. 5 to Participation Agreement among
WRL Series Fund, Inc., Western Reserve Life
Assurance Co. of Ohio, and PFL Life Insurance
Company.
__________________
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (4)(c)
--------------
FORM OF POLICY ENDORSEMENT FOR THE
RETIREMENT INCOME BUILDER VARIABLE ANNUITY
(GMIB)
<PAGE>
[LETTERHEAD OF PFL LIFE INSURANCE COMPANY]
GUARANTEED MINIMUM INCOME BENEFIT RIDER
This rider provides your variable annuity with a Minimum Annuitization Value
which can only be used with the Annuity Factors shown in Schedule I of this
rider. This Minimum Annuitization Value is guaranteed by Us, regardless of the
performance of the variable annuity's investments.
This rider is attached to and made part of your variable annuity policy as of
the Rider Date. This rider may only be terminated as provided herein. This rider
is subject to all of the provisions in the policy that do not conflict with the
provisions of this rider. The Rider Payment Options provide for variable annuity
payments. Subsequent payments may fluctuate with the investment performance of
Your annuity Subaccounts, but will never be less than the initial payment.
Policy Number: 123456
Rider Date: 07-15-1998 Last Date to Upgrade: 07-15-2037
Annual Growth Rate: 3.00% Guaranteed Minimum Income Benefit:
Rider Fee Percentage: 0.50% First Date to Elect Benefit: 07-15-2008
Rider Fee Waiver Threshold: 250% Last Date to Elect Benefit: 12-31-2047
Mortality and Expense Risk Fee and Administrative Charge after the Election
Date: 3.50%
<TABLE>
<CAPTION>
Rider Date Age Minimum Annuitization Value* Guaranteed Minimum Monthly
Payment**
---------- --- ---------------------------- --------------------------
<S> <C> <C> <C>
7/15/1998 35 $ 100,000.00 N/A
Election Date
7/15/2008 45 $ 134,391.64 $ 479.78
7/15/2009 46 $ 138,423.39 $ 501.09
7/15/2010 47 $ 142,576.09 $ 523.25
7/15/2011 48 $ 146,853.37 $ 547.76
7/15/2012 49 $ 151,258.97 $ 571.76
7/15/2013 50 $ 155,796.74 $ 598.26
7/15/2014 51 $ 160,470.64 $ 625.84
7/15/2015 52 $ 165,284.76 $ 656.18
7/15/2016 53 $ 170,243.31 $ 687.78
7/15/2017 54 $ 175,350.61 $ 720.69
</TABLE>
*Assumes no further payments, no premium tax, and no withdrawals. This amount
may only be used for annuitization with the Rider Payment Options provided in
this rider.
**Assumes the Minimum Annuitization Value shown is applied to a life with 10
year certain Rider Payment Option with monthly payments.
1
<PAGE>
DEFINITIONS
The following definitions used in this Rider are for reference only.
Annuitant:
The Annuitant is designated on the Policy Specifications Page. The variable
annuity payments are paid to the Annuitant (or surviving Joint Annuitant).
Annuity Factor:
A factor for the applicable Annuitant age, sex and Rider Payment Option shown in
Schedule I or Schedule II of this rider. For the Rider Payment Option chosen,
the Annuity Factor from Schedule I and the Minimum Annuitization Value will be
used to determine the applicable annuity payments. For Annuitants age 85 or
older at the time of annuitization, the age 85 Annuity Factor will be used for
Schedule I. Factors not shown are available from Us upon request. Schedule I and
Schedule II are based on the "1983 Table a" mortality table, improved to the
year 2000 with projection scale G.
Election Date:
A date that You elect to begin Guaranteed Minimum Income Benefit payments. The
Election Date must be within 30 days following a Policy Anniversary. The first
and last dates to elect a Rider Payment Option are shown on page one of this
rider.
Minimum Annuitization Value:
The amount we will use to determine the Guaranteed Minimum Income Benefit
payments.
Rider Date:
The date that this rider is added to the policy. This date may only be the issue
date of the policy or a policy anniversary date. This is also the Policy
Anniversary that You most recently elected to upgrade the Minimum Annuitization
Value, if applicable.
Supportable Payment:
The Supportable Payment is equal to the number of variable annuity units in the
selected Subaccounts multiplied by the variable annuity unit values in those
Subaccounts on the date the payment is made.
GUARANTEED MINIMUM INCOME BENEFIT
On the Election Date, you may use the Minimum Annuitization Value and the
applicable Annuity Factor to provide variable payments to the Annuitant. The
first variable payment is determined by multiplying each $1,000 of Minimum
Annuitization Value by the Annuity Factor on Schedule I. Each subsequent payment
will be calculated as described in the policy, using a 5% Assumed Investment
Return.
For subsequent payments, an annual Mortality and Expense Risk Fee and
Administrative Charge will be charged. This fee may be different than the
Mortality and Expense Risk Fee and Administrative Charge in effect prior to the
Election Date. It may also be different than the Mortality and Expense Risk Fee
and Administrative Charge for the settlement options shown in the policy.
The subsequent payments may fluctuate in accordance with the investment
performance of your annuity Subaccounts. However, such payments will never be
less than the initial payment.
MINIMUM ANNUITIZATION VALUE
The Minimum Annuitization Value is used to determine your Guaranteed Minimum
Income Benefit payments.
On the Rider Date, the Minimum Annuitization Value is the value of your policy.
Thereafter, based upon the effective Annual Growth Rate (shown on page one of
this rider), it will be the value of your policy on the Rider Date, plus any
additional payments made after the Rider Date, minus policy withdrawals
(adjusted as described below), minus any premium taxes.
Withdrawals:
In any policy year, the Minimum Annuitization Value will only be reduced by the
actual amount of a policy withdrawal as long as the withdrawal does not exceed a
maximum annual free amount. Withdrawals in excess of the maximum annual free
amount will reduce the Minimum Annuitization Value by an amount equal to (A)
divided by (B) multiplied by (C) where:
(A) is the amount of the excess withdrawal;
(B) is the value of your policy after the current policy year maximum
annual free amount has been withdrawn, but prior to the withdrawal of
the excess portion; and
(C) is the Minimum Annuitization Value after the current policy year
maximum annual free amount has been withdrawn, but prior to withdrawal
of the excess portion.
For each policy year, the maximum annual free amount is equal to the Minimum
Annuitization Value, as of the beginning of the policy year, multiplied by the
effective Annual Growth Rate as shown on page one of this rider. Withdrawals
during a policy year will reduce the available maximum annual free amount by the
amount of the withdrawal.
RIDER FEE
We will deduct a fee from the value of the policy on each Policy Anniversary and
on the termination date of this rider. The Rider Fee is the Minimum
Annuitization Value at the time the fee is deducted, multiplied by the Rider Fee
Percentage shown on the first page of this rider. The fee will be deducted from
each Subaccount in proportion to the amount of value of the policy in each
account. This fee will not be deducted after the Election Date.
2
<PAGE>
WAIVER OF RIDER FEE
If the value of the policy, on a particular Policy Anniversary, exceeds an
amount equal to the Rider Fee Waiver Threshold (shown on page one of this rider)
multiplied by the Minimum Annuitization Value, the Rider Fee will be waived for
that Policy Anniversary.
MINIMUM ANNUITIZATION VALUE UPGRADE
The owner may elect, in writing, to upgrade the Minimum Annuitization Value to
the value of the policy on a Policy Anniversary. This may be done within 30 days
immediately following any Policy Anniversary, and prior to the Last Date to
Upgrade shown on page one of this rider.
If an upgrade is elected, this rider will terminate and a new rider will be
issued with a new Rider Date, Election Date and its own guaranteed benefits. The
new annual Rider Fee Percentage may be different than this rider's, but it will
never be greater than 0.50%.
RIDER PAYMENT OPTIONS
The Minimum Annuitization Value and applicable Annuity Factors from Schedule I
may be applied to the following payment options:
Life Income - An election may be made for "No Period Certain" or "10 Years
Certain". In the event of the death of the person receiving payments prior
to the end of the chosen period certain, the remaining period certain
payments will be continued to the beneficiary.
Joint and Full Survivor - An election may be made for "No Period Certain"
or "10 Years Certain". Payments will be made as long as either the
Annuitant or Joint Annuitant is living. In the event of the death of both
the Annuitant and the Joint Annuitant prior to the end of the chosen period
certain, the remaining period certain payments will be continued to the
beneficiary.
GUARANTEED MINIMUM PAYMENT
On the Election Date, the owner will receive guaranteed minimum payments. The
annual Mortality and Expense Risk Fee and Administration Charge for these
payments is shown on page one of this rider.
The first payment is based on the Annuity Factors in Schedule I. We guarantee
that each subsequent payment will be equal to or greater than Your initial
payment.
During the first policy year following annuitization, each payment will be
stabilized to equal the initial payment. On each policy anniversary following
annuitization, the stabilized payment will be increased or decreased (but never
below the initial payment) and held level for that Policy Year. One each Policy
Anniversary following annuitization, the stabilized payment will equal the
greater of the initial payment or the Supportable payment at that time.
If the Supportable Payment (at any payment date) is greater than the stabilized
payment for that year, the excess will be used to purchase additional annuity
units as described below. If the Supportable Payment (at any payment date) is
less than the stabilized payment for that year, annuity units will be redeemed
as described below to fund the deficiency.
Purchase/Redemption of Annuity Units:
The number of annuity units purchased or redeemed is equal to the annuity
income purchased or redeemed, respectively, divided by the annuity unit
value for each respective Subaccount. Purchases and redemptions of annuity
income will be allocated to each Subaccount on a proportionate basis. The
amount of annuity income purchased or redeemed is the difference between
the Supportable Payment and the stabilized payment, times the attained age
nearest birthday annuity factors shown in Schedule II, divided by $1000.
The Company bears the risk that it will need to make payments if all annuity
units have been redeemed in an attempt to maintain the stabilized payment at the
initial payment level. In such an event, the Company will make all future
payments equal to the initial payment.
ASSIGNMENT
Payments made under this rider may not be pledged or assigned. Payments will
only be made to the Annuitant or Joint Annuitant named in the policy.
TERMINATION
This rider will be terminated upon the earliest of:
a. the Election Date;
b. 30 days after the Last Date to Elect Benefit shown on the first page of
this rider;
c. the date the policy terminates;
d. the date you elect to apply the value of the policy to annuitize this
policy; and
e. the date you elect to upgrade your Minimum Annuitization Value.
This rider cannot be terminated prior to the earliest of the above dates.
Signed for us at our home office.
/s/Craig D. Vermie /s/William L. Busler
Secretary President
3
<PAGE>
SCHEDULE 1 - ANNUITY FACTORS
The amounts shown in these tables are the guaranteed amounts for each $1,000 of
the policy proceeds. Higher current amounts may be available at the time of
settlement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- -------------------------- -------------------------------------------------------------------------------------
Monthly Annuity Factor Monthly Annuity
For Life With No Factor For Life With
Period Certain 10 Years Certain
-------------------------------------------------------------------------------------------
Age * Male Female Unisex Male Female Unisex
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70
51 3.93 3.60 3.77 3.90 3.59 3.75
52 4.00 3.65 3.83 3.97 3.64 3.81
53 4.07 3.71 3.90 4.04 3.70 3.87
54 4.15 3.77 3.97 4.11 3.75 3.94
55 4.23 3.83 4.04 4.19 3.82 4.01
56 4.32 3.90 4.11 4.27 3.88 4.08
57 4.41 3.97 4.19 4.35 3.95 4.15
58 4.50 4.05 4.28 4.44 4.02 4.24
59 4.61 4.13 4.37 4.53 4.10 4.32
60 4.72 4.21 4.47 4.63 4.18 4.41
61 4.84 4.30 4.57 4.74 4.26 4.51
62 4.96 4.40 4.68 4.85 4.35 4.61
63 5.10 4.50 4.80 4.97 4.45 4.71
64 5.24 4.61 4.93 5.09 4.55 4.83
65 5.40 4.73 5.06 5.22 4.66 4.95
66 5.56 4.85 5.21 5.36 4.77 5.07
67 5.74 4.99 5.36 5.50 4.89 5.20
68 5.93 5.13 5.53 5.65 5.02 5.34
69 6.13 5.29 5.71 5.80 5.15 5.49
70 6.34 5.45 5.90 5.96 5.30 5.64
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor
- --------------------------------------------------------------------------------------------------------------------
Age of Male Age of Female Annuitant *
----------------------------------------------------------------------------------------------
Annuitant * 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- --------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor with 10 Year Period Certain
- --------------------------------------------------------------------------------------------------------------------
Age of Male Age of Female Annuitant *
----------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
-------------------------------------------------------------------------------------------------------------------
50 $2.99 $3.05 $3.11 $3.18 $3.24 $3.31 $3.38
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.75 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.30 4.52 4.76 4.99
- --------------------------------------------------------------------------------------------------------------------
* Age nearest birthday
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual, semi-annual or quarterly Annuity Factor shall be the monthly
Annuity Factor shown multiplied by 11.80, 5.95 or 2.99 respectively.
- --------------------------------------------------------------------------------
Annuity Factors not shown in the above tables will be calculated on the same
basis as those shown and may be obtained from the Company.
<PAGE>
SCHEDULE II - ANNUITY FACTORS
The amounts shown in these tables are the Annuity Factors for each $1,000 of the
Minimum Annuitization Value and assume a 5% Assumed Investment Return.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------
Monthly Annuity Factor for Life Monthly Annuity Factor For Life
With No Period Certain With 10 Years Certain
----------------------------------------------------------------------------------------------------------
Age Male Female Unisex Male Female Unisex
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $5.14 $4.83 $4.99 $5.09 $4.80 $4.95
51 5.20 4.87 5.04 5.15 4.85 5.00
52 5.27 4.92 5.10 5.21 4.89 5.05
53 5.34 4.98 5.16 5.27 4.94 5.11
54 5.41 5.03 5.22 5.34 4.99 5.17
55 5.49 5.09 5.29 5.41 5.05 5.23
56 5.57 5.15 5.36 5.48 5.11 5.30
57 5.66 5.22 5.44 5.56 5.17 5.37
58 5.75 5.29 5.52 5.65 5.24 5.45
59 5.85 5.37 5.61 5.74 5.31 5.53
60 5.96 5.45 5.71 5.83 5.38 5.61
61 6.08 5.53 5.81 5.93 5.46 5.70
62 6.20 5.63 5.92 6.04 5.55 5.80
63 6.34 5.73 6.04 6.15 5.64 5.90
64 6.48 5.83 6.16 6.27 5.73 6.01
65 6.?4 5.95 6.30 6.39 5.84 6.12
66 6.81 6.07 6.44 6.52 5.94 6.24
67 6.99 6.21 6.60 6.66 6.06 6.37
68 7.18 6.35 6.77 6.80 6.18 6.50
69 7.39 6.51 6.95 6.94 6.31 6.64
70 7.61 6.68 7.14 7.09 6.45 6.78
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor For Joint and Full Survivor
- ---------------------------------------------------------------------------------------------------------------------------
Age of Male Age of Female Annuitant *
-------------------------------------------------------------------------------------------------------
Annuitant * 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.34 $4.38 $4.43 $4.48 $4.53 $4.59 $4.65
55 4.43 4.49 4.55 4.62 4.70 4.77 4.85
60 4.56 4.64 4.73 4.82 4.92 5.03 5.15
65 4.74 4.84 4.96 5.10 5.24 5.40 5.56
70 4.98 5.13 5.30 5.49 5.70 5.93 6.17
------------------------------------------------------------------------------------------------------------------------
Monthly Annuity Factor for Joint and Full Survivor with 10 Year Period Certain
------------------------------------------------------------------------------------------------------------------------
Age of Male Age of Female Annuitant *
-------------------------------------------------------------------------------------------------------
Annuitant* 15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Less Than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- ---------------------------------------------------------------------------------------------------------------------------
50 $4.34 $4.38 $4.43 $4.48 $4.53 $4.59 $4.65
55 4.43 4.49 4.55 4.62 4.70 4.77 4.85
60 4.56 4.64 4.72 4.82 4.92 5.03 5.14
65 4.73 4.84 5.96 5.09 5.24 5.39 5.55
70 4.97 5.12 5.29 5.48 5.69 5.91 6.14
- ---------------------------------------------------------------------------------------------------------------------------
* Age nearest birthday
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual, semi-annual or quarterly Annuity Factor shall be the monthly
Annuity Factor shown multiplied by 11.80, 5.95 or 2.99 respectively.
- --------------------------------------------------------------------------------
Annuity Factors not shown in the above tables will be calculated on the same
basis as those shown and may be obtained from the Company.
<PAGE>
EXHIBIT (4)(D)
--------------
FORM OF POLICY ENDORSEMENT FOR
THE RETIREMENT INCOME BUILDER VARIABLE ANNUITY
(403(b) LOAN)
<PAGE>
[LETTERHEAD OF PFL LIFE INSURANCE COMPANY APPEARS HERE]
(Hereafter called the Company, we, our or us)
AMENDATORY ENDORSEMENT
This Amendatory Endorsement is subject to all provisions of the policy to which
it is attached which are not in conflict with the provisions of this Amendatory
Endorsement. This Amendatory Endorsement may be used only with policies
purchased pursuant to a Tax Sheltered Annuity Plan under Section 403(b) of the
Internal Revenue Code that is not subject to the Employee Retirement Income
Security Act of 1974.
The following provisions are added to the policy:
SECTION 1 - POLICY LOANS
We will permit you to take a Policy Loan prior to the Annuity Commencement Date
once the policy has been force for at least 30 days. You can borrow up to the
available Loan Value as defined below. Upon your request for a Policy Loan, we
will send to you a loan agreement for your signature. You must elect the
Subaccount(s) and/or Fixed Account(s) and the proportions you wish to borrow
against. In the absence of an election, the loan will be made from each
Subaccount(s) and/or Fixed Account(s) in proportion to the portion of the Policy
Value (immediately prior to the loan) in each Subaccount(s) and/or Fixed
Account(s). When a loan is made, an amount equal to the loan will be withdrawn
from the applicable Subaccount(s) and/or Fixed Account(s) and transferred to the
loan reserve. The loan reserve is part of the Fixed Account to be used as
collateral for any Policy Loan. Amounts transferred to the loan reserve do not
participate in the investment experience of the Subaccount(s) from which they
were withdrawn, but will be credited with interest as provided in Section 2 of
this Amendatory Endorsement.
We have the right to postpone distributing the proceeds of a Policy Loan for up
to six months from the date the loan agreement is signed. Only one new loan
will be permitted per Policy Year. If you decide to take a Policy Loan, the
following provisions may be affected:
(1) Asset rebalancing;
(2) Transfers of interest;
(3) Systematic Payout Option (SPO) payments;
(4) Dollar cost Averaging; or
(5) Any other policy options which may conflict with loan processing.
The loan Value is an amount up to:
(1) 75% of the Policy Value when total indebtedness is less than or equal to
$10,000; or
(2) 50% of the Policy Value when total indebtedness is greater than $10,000 but
less than or equal to $50,000.
The minimum Policy Loan size is $2,000 (unless otherwise required by state law).
At each Policy Anniversary we will compare the amount of the outstanding Policy
Loan to the amount in the loan reserve. If the amount of the outstanding Policy
Loan (plus any unpaid interest) exceeds the amount in the loan reserve, we will
withdraw the difference from the Subaccount(s) and/or Fixed Account(s) in
proportion to the portion of the Policy Value in each Subaccount and/or Fixed
Account(s) and transfer it to the loan reserve. If the amount in the loan
reserve exceeds the amount of the outstanding loan, we will withdraw the
difference from the loan reserve and transfer it to the Subaccount(s) and/or
Fixed Account(s) in accordance with your current premium payment allocation.
However, we reserve the right to require the transfer to the Fixed Account if
the amount was transferred from the Fixed Account to establish the Policy Loan.
Your annuity policy is the sole security for all Policy Loans. You have sole
responsibility for requesting Policy Loans and making Policy Loan repayments
that comply with applicable tax requirements. Consult a competent tax adviser
before requesting a Policy Loan.
We will charge a fee of $50.00 at the time of each Policy Loan origination,
unless otherwise required by state law.
<PAGE>
SECTION 2 - LOAN INTEREST PROVISION
Policy Loans will bear interest at the fixed rate of 7.00% per year. While any
Policy Loan is outstanding, amounts in the loan reserve will earn interest at a
minimum guaranteed effective annual interest rate of 5%. We may declare higher
current interest rates from time to time. We may apply different current
interest rates to the loan reserve than other portions of the Fixed Account.
Interest will be added to the Policy Loan and charged the same rate of interest
as the principal portion of the Policy Loan.
SECTION 3 - INDEBTEDNESS - LIMITATION
Indebtedness is defined as the total of the Policy Loans and accrued interest.
The total Indebtedness will not be allowed to exceed $50,000. If the
indebtedness exceeds the Policy Value, we will mail notices to the last known
addresses of you and any assignee of record. If the Indebtedness is not paid
within 20 days after mailing of the notices, the policy will terminate without
value.
SECTION 4 - REPAYMENT OF INDEBTEDNESS
Principal and interest must be repaid in substantially level quarterly or
monthly payments over a 5-year period or, if the Policy Loan is used to acquire
your principal residence, a 10-, 15-, or 20-year period, but such an extended
period cannot go beyond your estimated retirement age.
Any outstanding indebtedness will automatically be deducted from any Death
Proceeds, the amount payable upon a Partial Withdrawal or surrender of the
policy, and the amount applied on the Annuity Commencement Date to provide any
annuity payments, unless the Indebtedness is repaid prior to the distribution of
Death proceeds, Partial Withdrawal, Surrender or application of an amount to
provide annuity payments on the Annuity Commencement Date.
Indebtedness may be repaid in full any time before the Annuity Commencement Date
of the policy and while the policy is in force. Any Policy Loan repayments will
be allocated to the Subaccount(s) and/or Fixed Account(s) pro rata in accordance
with your current premium allocations. If the scheduled principal and interest
payments are not received within 20 days after the installment's due date, the
entire amount of the outstanding Indebtedness as of the end of the 20-day grace
period will be reported to the Internal Revenue Service as a taxable
distribution. This deemed distribution may be subject to income tax and a
federal penalty tax and may cause the policy to fail to qualify under Section
403(b) of the Internal Revenue Code.
This Amendatory Endorsement takes effect and expires concurrently with the
Policy to which it is attached.
Signed for us at our home office.
/s/ Craig D. Vermie /s/ William L. Busler
SECRETARY PRESIDENT
<PAGE>
EXHIBIT (8)(k)
ADDENDUM NO. 5 TO PARTICIPATION AGREEMENT AMONG
WRL SERIES FUND, INC.,
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO, AND
PFL LIFE INSURANCE COMPANY
<PAGE>
ADDENDUM NO. 5 TO
PARTICIPATION AGREEMENT
AMONG
WRL SERIES FUND, INC.,
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO,
AND
PFL LIFE INSURANCE COMPANY
Amendment No. 5 to the Participation Agreement among WRL Series Fund,
Inc., Western Reserve Life Assurance Co. of Ohio, and PFL Life Insurance Company
dated July 1, 1992 ("Participation Agreement").
WHEREAS, PFL Life Insurance Company has recently established the PFL
Retirement Builder Variable Annuity Account, a separate account for purposes of
selling a variable annuity product funded by WRL Series Fund, Inc.
NOW, THEREFORE, IT IS HEREBY AGREED that PFL Life Insurance Company,
through its separate account, the PFL Retirement Builder Variable Annuity
Account, is authorized to acquire shares issued by WRL Series Fund, Inc.,
subject to the terms and conditions of the Participation Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be
executed in its name and on its behalf by its duly authorized representative as
of July 21, 1998.
PFL LIFE INSURANCE COMPANY WRL SERIES FUND, INC.
By its authorized officer By its authorized officer
By: /s/ Larry N. Norman By: /s/ Thomas E. Pierpan
---------------------------- --------------------------
Title: Executive Vice President Title: Vice President, Secretary and
------------------------- -------------------------
Associate General Counsel
Date: July 21, 1998 Date: July 21, 1998
------------------------- -------------------------
AUSA LIFE INSURANCE WESTERN RESERVE LIFE
COMPANY, INC. ASSURANCE CO. OF OHIO
By its authorized officer By its authorized officer
By: /s/ Colleen Tobiason By: /s/ Thomas E. Pierpan
---------------------------- --------------------------
Title: Vice President Title: Vice President, Assistant General
------------------------- -------------------------
Counsel and Associate Secretary
Date: July 21, 1998 Date: July 21, 1998
------------------------- -------------------------
1
<PAGE>
AMENDED
SCHEDULE A
Effective July 15, 1998
Account(s), Policy(ies) and Portfolio(s) Subject
to the Participation Agreement
------------------------------
Accounts: PFL Endeavor Variable Annuity Account
AUSA Endeavor Variable Annuity Account
Mutual Fund Account
PFL Life Variable Annuity Account A
PFL Retirement Builder Variable Annuity Account
Policies: PFL Endeavor Variable Annuity
PFL Endeavor ML Variable Annuity
PFL Endeavor Platinum Variable Annuity
AUSA Endeavor Variable Annuity
Atlas Portfolio Builder Variable Annuity
Flexible Premium Individual Deferred Variable Annuity
(Policy Form No. AV288-101-95-796;
marketing name - PFL Retirement Income
Builder II)
Portfolios: WRL Series Fund, Inc.
Growth Portfolio
Bond Portfolio
Money Market Portfolio
Global Portfolio
Strategic Total Return Portfolio
Emerging Growth Portfolio
Aggressive Growth Portfolio
Balanced Portfolio
Growth & Income Portfolio
C.A.S.E. Growth Portfolio
Value Equity Portfolio
Global Sector Portfolio
International Equity Portfolio
U.S. Equity Portfolio
Real Estate Securities Portfolio
2
