<PAGE>
As filed with the Securities and Exchange Commission on July 26, 1999
Registration No. 333 - 78743
811 - 07689
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
The One(R)Income Annuity(SM)
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---------
Pre-Effective Amendment No. 1
-----
Post-Effective Amendment No. ___
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 15
------
PFL RETIREMENT BUILDER VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
PFL LIFE INSURANCE COMPANY
(Name of Depositor)
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (319) 297-8468
Frank A. Camp, Esq.
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499-0001
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esq.
Sutherland Asbill and Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Approximate Date of Proposed Public Offering: As soon as practicable after the
- --------------------------------------------
effective date of the registration statement.
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Title of Securities Being Registered: Single Premium Immediate Variable Annuity
- ------------------------------------
Contracts
<PAGE>
THE ONE(R)
INCOME ANNUITY(SM)
Issued Through
PFL RETIREMENT BUILDER
VARIABLE ANNUITY ACCOUNT
By
PFL LIFE INSURANCE COMPANY
Prospectus
_____________________, 1999
This prospectus and the mutual fund The immediate annuity contract has
prospectus give you important fixed and variable payment options.
information about the contracts and There are nine portfolios listed
the mutual funds. Please read them below that you can you select from
carefully before invest and keep if you choose to receive variable
them for future reference. payments. You can choose any
combination of fixed and variable
If you would like more information payments. You bear the investment
about The One Income Annuity, a risk if you choose variable
fixed and variable single premium payments.
immediate annuity contract, you can
obtain a free copy of the Statement ONE GROUP(R)INVESTMENT TRUST:
of Additional Information (SAI) One Group(R) Investment Trust
dated ________________. Please call Bond Portfolio
us at (800) 544-3152 or write us One Group(R) Investment Trust
at: PFL Life Insurance Company, Government Bond Portfolio
Financial Markets Division, One Group(R) Investment Trust
Variable Annuity Department, 4333 Balanced Portfolio
Edgewood Road N.E., P.O. Box 3183, One Group(R) Investment Trust
Cedar Rapids, Iowa, 52406-3183. A Large Cap Growth Portfolio
registration statement, including One Group(R) Investment Trust
the SAI, has been filed with the Equity Index Portfolio
Securities and Exchange Commission One Group(R) Investment Trust
(SEC) and is incorporated herein by Diversified Equity Portfolio
reference. Information about the One Group(R) Investment Trust
separate account can be reviewed Mid Cap Growth Portfolio
and copied at the SEC's Public One Group(R) Investment Trust
Reference Room in Washington, D.C. Diversified Mid Cap Portfolio
You may obtain information about One Group(R) Investment Trust
the operation of the public Mid Cap Value Portfolio
reference room by calling the SEC
at 1-800-SEC-0330. The SEC also Please note that the contracts and
maintains a web site the underlying portfolios:
(http://www.sec.gov) that contains
the prospectus, the SAI, material . are not bank deposits or
incorporated by reference, and deposits of BANK ONE
other information. The table of CORPORATION;
contents of the SAI is included at
the end of this prospectus. . are not insured or guaranteed by
the Federal Deposit Insurance
Corporation or by any other
federal or state governmental
agency;
. are not endorsed by any bank or
government agency; are not
guaranteed to achieve their
goal; and involve investment
risk, including loss of premium.
The Securities and Exchange
Commission has not approved or
disapproved these securities, or
passed upon the adequacy of this
prospectus. Any representation to
the contrary is a criminal
offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF TERMS.................................... Annuity Payments..................................
Transfers, Assignments or Exchanges of Policies...
SUMMARY.............................................. Possible Tax Law Changes..........................
EXPENSE TABLE........................................ 7. SURRENDER VALUE
Surrenders........................................
EXAMPLES............................................. Surrender Value...................................
1. THE ANNUITY CONTRACT............................ 8. PERFORMANCE.......................................
2. ANNUITY PAYMENTS................................ 9. DEATH BENEFIT.....................................
Annuity Payment Dates...........................
Payments Under the Contract..................... 10. OTHER INFORMATION.................................
Fixed, Variable or Combination Payments......... PFL Life Insurance Company........................
Assumed Investment Rate (AIR)................... The Separate Account..............................
Payment Options................................. Voting Rights.....................................
Distributor of the Contracts......................
3. PURCHASE........................................ Non-participating Contract........................
Contract Issue Requirements..................... Variations in Contract Provisions.................
Premium Payment................................. Year 2000 Matters.................................
Allocation of Premium Payment................... IMSA..............................................
Variable Annuity Units.......................... Delay of Payments.................................
Legal Proceedings.................................
4. INVESTMENT CHOICES.............................. Financial Statements..............................
The Separate Account............................
Transfers....................................... TABLE OF CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION..............................
5. EXPENSES........................................
Separate Account Charge......................... APPENDIX A
Expenses of the Portfolios...................... Historical Performance Data............................
Premium Taxes...................................
Other Taxes..................................... APPENDIX B
Surrender Value................................. Additional Fund Information............................
Transfer Fee....................................
APPENDIX C
6. TAXES........................................... Illustrations of Annuity Payment Values................
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..............
</TABLE>
No one is authorized to give any information or to make any representations that
are not in this prospectus and the SAI (or any sales literature approved by
PFL). You should rely only on the information contained in these documents. The
contracts are not available in all states. This prospectus is not an offer
anywhere that would be unlawful.
2
<PAGE>
GLOSSARY OF TERMS
Annuitant and Secondary Annuitant-- Payee--The person or entity to whom
The person upon whose life the annuity payments are paid.
annuity payments are based. For
joint options, annuity payments are Payment Date--The date an annuity
based upon the lives of both the payment is paid to the payee. We
annuitant and secondary annuitant. may require evidence that any
Either the annuitant or the annuitant(s) and/or payee is/are
secondary annuitant generally must alive on the payment date.
be no older than 80 years of age on
the contract issue date. Separate Account--PFL Retirement
Builder Variable Annuity Account.
Annuity Payments--Payments made by
us to the payee pursuant to the Subaccount--The investment options
payment option chosen. Annuity or divisions of the separate
payments may be either fixed or account. Each subaccount invests in
variable or a combination of both. a different portfolio of the funds.
We may make additional subaccounts
Assumed Investment Return or AIR-- available in the future.
The annual effective rate shown in
the contract specifications section Successor Owner--The person named
of the contract that is used in the by the owner to whom ownership of
calculation of each variable the contract passes upon the
annuity payment. owner's death. If the owner is also
the annuitant, the annuitant's
Beneficiary(ies)--The person(s) who beneficiary is entitled to the
may receive death proceeds or death proceeds of the contract. If
guaranteed payments under this no person is named, the owner's
contract when there is no longer a estate shall be deemed the
living annuitant (or last annuitant successor owner.
for joint options).
Valuation Day--Each day the New
Contract Issue Date--The date the York Stock Exchange is open for
contract becomes effective. This trading. The determination of the
will be stated in the contract. variable annuity unit value is made
Generally, the date the initial at the end of each valuation day.
premium is allocated to the
separate account. Variable Annuity Unit--Variable
annuity payments are expressed in
Net Investment Factor--A unit of terms of variable annuity units,
measure used to reflect the change the value of which fluctuates in
in variable annuity unit values in relation to the selected
a subaccount from one valuation subaccounts.
period to the next valuation
period. Variable Annuity Payment
Calculation Date--The date, no more
Owner(s)--"You," "your," and than seven business days before
"yours." The person or entity named each payment date, when the amount
in the contract specifications of the variable annuity payment is
section who may, while any determined. If the New York Stock
annuitant is living, exercise all Exchange is closed on a variable
rights granted by the contract. The annuity payment calculation date,
annuitant must be the owner, if the we will determine the amount of
contract is a qualified contract. annuity income on the next day it
If there is a secondary annuitant, is open.
he or she may also be an owner
(except for a qualified contract,
where only one owner is permitted).
The secondary annuitant is never
required to be an owner.
3
<PAGE>
SUMMARY 4. INVESTMENT CHOICES
The sections in this summary You choose between fixed or
correspond to sections in this variable annuity payments, or a
prospectus, which discuss the combination of both. If you choose
topics in more detail. Words variable annuity payments you must
printed in italics in this also select one or more of the
prospectus are defined in the following portfolios described in
Glossary. the One Group(R) Investment Trust
prospectus:
1. THE ANNUITY CONTRACT
One Group(R) Investment Trust Bond
The Fixed and Variable Single Portfolio
Premium Immediate Annuity Contract One Group(R) Investment Trust
offered by PFL Life Insurance Government Bond Portfolio
Company (PFL, we, us or our) is a One Group(R) Investment Trust Balanced
contract between you, as the owner, Portfolio
and PFL, an insurance company. The One Group(R) Investment Trust Large
contract is intended to provide a Cap Growth Portfolio
stream of income for life or for a One Group(R) Investment Trust Equity
specific period of time you select. Index Portfolio
One Group(R) Investment Trust
2. ANNUITY PAYMENTS Diversified Equity Portfolio
One Group(R) Investment Trust Mid Cap
Annuity payments may be either Growth Portfolio
fixed, variable or a combination of One Group(R) Investment Trust
fixed and variable. We guarantee Diversified Mid Cap Portfolio
the amount of fixed annuity One Group(R) Investment Trust Mid Cap
payments. We do not, however, Value Portfolio
guarantee the amount of variable
annuity payments. Variable annuity Your variable annuity payments may
payment amounts are determined by go up or down with the investment
the investment performance of the performance of any of these
subaccounts you select. portfolios. You bear this
investment risk.
Annuity payments may be scheduled
for either monthly or quarterly You may transfer amounts within the
payments. Semiannual and annual various subaccounts. You may also
payments are available only with transfer amounts from variable to
our approval. fixed annuity payments at any time.
If you do, then the payment option
We recommend using electronic funds for the fixed annuity payments will
transfer (EFT) whenever possible. be a continuation of the payment
option currently applicable to
3. PURCHASE variable annuity payments.
Transfers from fixed to variable
You purchase this contract with a annuity payments are not permitted.
single premium. You cannot make We may charge a fee for excessive
additional premium payments. The transfers (we currently do not
minimum premium is $25,000, charge for transfers).
although we can accept a smaller
premium if we want. 5. EXPENSES
You may return your contract for a There is a separate account charge
refund within 10 days after you of 1.15% annually of average daily
receive it. The amount of the net assets if you allocate $50,000
refund will generally be the or more to variable annuity
premium plus or minus the payments; if you allocate less than
investment performance of the $50,000 to variable annuity
subaccounts to which your premium payments the separate account
was allocated, if any. charge is 1.35%. This charge will
not increase and does not apply to
We will generally pay the refund fixed annuity payments.
within 7 days after we receive
written notice of cancellation and Each portfolio has investment
the returned contract. The contract management and other fees charged
will then be deemed void. In some directly to it. In 1998, these
states you may have more than 10 ranged from 0.55% to 1.00% annually
days, or receive a refund of more of average daily net assets.
(or less) than the amount described
above. In some states, a charge for
applicable premium taxes ranging
from 0% to 3.5% is deducted from
the premium when paid.
4
<PAGE>
6. TAXES 9. DEATH BENEFIT
You are taxed on the part of your Some payment options provide a
annuity payment considered income. death benefit in the event the
Annuity payments from nonqualified annuitant dies after annuity
contracts may be considered partly payments begin or if an owner or
a return of your investment in the annuitant dies before annuity
contract so that part of each payments begin.
payment would not be taxable as
income. Annuity payments from 10. OTHER INFORMATION
qualified contracts are generally
considered as all taxable income. This section of the prospectus
contains information on:
7. SURRENDER VALUE
. PFL Life Insurance Company
You do not have access to your
money and cannot surrender any of . The Separate Account
your contract unless you select
either the Certain Only payment . Voting Rights
option or Life with Emergency
Cash(SM) payment option. No other . Distributor of the Contracts
payment option allows surrenders.
If you elect the Certain Only . Non-participating Contracts
payment option you may surrender
the present value of the remaining . Variations of Contract Provisions
payments. If you select the Life
with Emergency Cash(SM) payment . Year 2000 Matters
option, we will provide you with a
Life with Emergency Cash(SM) benefit . IMSA
schedule that will allow you to
determine how much is available to . Delay of Payments
surrender. For either option, the
amount you surrender must be at . Legal Proceedings
least 25% of the full surrender
value. . Financial Statements
Surrenders may have adverse tax Inquiries
consequences. You should consult
with your tax advisor before If you need more information,
requesting a surrender. please contact us at:
8. PERFORMANCE Administrative and Service Office
Financial Markets Division
The amount of your variable annuity Variable Annuity Department
payments will vary up or down PFL Life Insurance Company
depending upon the investment 4333 Edgewood Road N.E.
performance of the subaccounts you P.O. Box 3183
choose. We provide historical, or Cedar Rapids, IA 52406-3183
past, performance information for (800) 525-6205
the portfolios (adjusted to reflect
the separate account charge) in
Appendix A and in the Statement of
Additional Information. This data
is not intended to indicate future
performance.
5
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
EXPENSE TABLE
==================================================================================================================================
Separate Account Annual Expenses
Contract Owner Transaction Expenses (as a percentage of average net assets)
=============================================================== ==================================================================
<S> <C>
Sales Load charged to premium.......................... None Separate Account Charge:
-----------------------
Annual Contract Administration Charge.................. None Mortality and Expense Risk Charge.................... 1.20%
Transfer Fee (for first six transfers in any contract (This charge is 1.00% if you allocate $50,000 or
year) (1).............................................. None more to variable annuity payments)...................
Surrender Charge....................................... None Administration Charge................................ 0.15%
-----
There is no surrender charge with respect to Total................................................. 1.35%
variable annuity payments under the contract.
For an explanation of the surrender value, see "SURRENDER VALUE".
==================================================================================================================================
Portfolio Annual Expenses /(2)/
(as a percentage of average net assets and after expense reimbursements)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Portfolio
Management Other Annual
Portfolio Fees Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
Bond Portfolio/(3)/ /(4)/ 0.47% 0.28% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------------
Government Bond Portfolio/(3)/ 0.42% 0.33% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio 0.70% 0.30% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio 0.65% 0.28% 0.93%
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Index Portfolio/(3)/ 0.00% 0.55% 0.55%
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Portfolio/(3)/ /(4)/ 0.70% 0.25% 0.95%
- ----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio 0.65% 0.32% 0.97%
- ----------------------------------------------------------------------------------------------------------------------------------
Diversified Mid Cap Portfolio/(3)/ /(4)/ 0.73% 0.22% 0.95%
- ----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio/(3)/ /(4)/ 0.71% 0.24% 0.95%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ There is currently no charge for any transfers, although PFL reserves the
right to charge $15 for each transfer in excess of six per year.
/(2)/ The fee table information relating to the portfolios is for 1998 and was
provided to PFL by Nationwide Advisory Services, Inc., the administrator
for One Group Investment Trust, and PFL has not independently verified
such information. Expenses may be higher or lower than these 1998
expenses.
/(3)/ In the absence of management fee waiver, management fees, other expenses,
and total portfolio annual expenses, respectively, would be: Bond
Portfolio 0.60%, 0.28% and 0.88%; Government Bond Portfolio 0.45%, 0.33%
and 0.78%; Equity Index Portfolio 0.30%, 0.83% and 1.13%; Diversified
Equity Portfolio 0.74%, 0.25% and 0.99%; Diversified Mid Cap Portfolio
0.74%, 0.22% and 0.96%; Mid Cap Value Portfolio 0.74%, 0.24% and 0.98%.
/(4)/ Expenses shown are based on estimated expenses for the current fiscal
year.
6
<PAGE>
EXAMPLES
The following examples indicate the . there are no premium taxes;
expenses you would pay in various
situations, based on actual . there are no transfers;
portfolio expenses for 1998, and
the following assumptions: . the entire premium is
allocated to each subaccount;
. a $1,000 investment (and, and the annuitant is a 65 year
therefore, a 1.35% separate old male.
account charge);
(Any different assumption(s) would
. a 5.0% annual return on result in different expenses.)
assets;
. monthly payments;
. a 3.5% assumed investment
return;
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Single Life Annuity
Single Life Annuity 20 Year Certain Only with Emergency Cash(SM) and
(the contract cannot be Annuity and the contract the contract is surrendered
surrendered) is not surrendered
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year 3 Years 1 Year 3 Years 1 Year 3 Years
Subaccounts
- ------------------------------------------------------------------------------------------------------------------------------------
Bond Portfolio $20 $59 $20 $59 $20 $58
- ------------------------------------------------------------------------------------------------------------------------------------
Government Bond Portfolio $20 $59 $20 $59 $20 $58
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio $23 $65 $23 $65 $23 $65
- ------------------------------------------------------------------------------------------------------------------------------------
Large Cap Growth Portfolio $22 $64 $22 $64 $22 $63
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Index Portfolio $18 $53 $18 $53 $18 $53
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Equity Portfolio $22 $64 $22 $64 $22 $64
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Portfolio $23 $65 $23 $65 $22 $64
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Mid Cap Portfolio $22 $64 $22 $64 $22 $64
- ------------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Portfolio $22 $64 $22 $64 $22 $64
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above tables will assist you in The examples are not a
understanding the costs and representation of past or future
expenses of the contract and the expenses. Actual expenses may be
underlying funds that you will more or less than those shown.
bear, directly or indirectly. The
expense table assumes that your Financial Information. The
entire premium is allocated to the ---------------------
separate account; therefore, it subaccounts had not commenced
reflects expenses of the separate operations as of December 31, 1998,
account as well as the underlying therefore there is no condensed
portfolios. financial information to report as
of the date of this prospectus.
The tables do not reflect any
deductions for taxes. Any
applicable premium taxes are
deducted from the premium when you
buy the contract.
7
<PAGE>
1. THE ANNUITY CONTRACT We will not pay interest on amounts
represented by uncashed annuity
This prospectus describes The One payment checks if the postal or
Income Annuity. This is a single other delivery service is unable to
premium immediate annuity contract deliver checks to the payee's
offered by PFL Life Insurance address of record. Uncashed
Company. variable annuity payments will not
participate in the performance of
An annuity is a contract between the portfolios. The payee is
you, the owner, and an insurance responsible for keeping us informed
company (in this case PFL), where of their current address of record.
the insurance company promises to
pay you an income in the form of Fixed, Variable or Combination Payment
annuity payments. You choose the
frequency of these payments and the You allocate your premium between
first annuity payment date. fixed and variable payments under a
payment option when you buy the
You can use the contract to provide contract. You may choose all fixed,
periodic payments over your all variable or a combination of
lifetime or some other specific fixed and variable annuity
period of time you select. payments.
The contract is "fixed and Any portion of your premium
variable" because you can allocate allocated to a fixed payment option
your premium between fixed and will always remain allocated to
variable annuity payments. The fixed annuity payments. However,
amount of the fixed annuity you may transfer from variable
payments will not vary and are annuity payments to fixed annuity
guaranteed by PFL. The amount of payments at any time.
the variable annuity payments will
vary depending on the investment If you choose a combination of
performance of your investment fixed and variable annuity
choices. payments, a portion of your annuity
payments will be fixed and a
It is a "single premium" contract portion will vary according to the
because you purchase it with a investment experience of the
single premium. You cannot pay portfolios underlying the
additional premiums. subaccounts. We will guarantee the
dollar amount of any fixed portion
The contract is an "immediate" of each annuity payment; however,
contract because the annuity the amount of the variable annuity
payments must generally begin payments will depend upon the
within 30 days. investment experience of the
portfolios underlying the
2. ANNUITY PAYMENTS subaccounts and is not guaranteed.
Annuity Payment Dates Under certain joint and survivor
payment options, the annuity
We provide annuity payments to the payments decrease upon the death of
payee on each payment date. You the annuitant or secondary
select either a monthly or annuitant (as described for payment
quarterly payment frequency when options 5, 6, 8, and 9) whether
you purchase the contract. Payments they are fixed or variable.
will generally be made by
electronic funds transfer. Semi- Assumed Investment Return (AIR)
annual or annual payment
frequencies and other disbursement The assumed investment return you
options may be available, if we choose is used in the calculation
approve. The first payment date is of variable annuity payments.
typically 30 days after the
contract issue date. All subsequent IF:
payment dates will generally be on
the same day of the month as the . the performance of the
first payment date. applicable subaccounts after all
expenses is equal to the AIR on
Payments Under the Contract a modal basis;
We usually make payments within THEN:
seven days of the payment date or
receipt of all applicable written . the variable annuity payments will
notices and/or proofs of death. remain constant.
* * *
8
<PAGE>
IF: guaranteed years, if any. You
cannot change the payment option
. the performance of the and guarantee period after we issue
subaccounts after all expenses the contract. Please note that
exceeds the AIR on a modal generally you can only select one
basis; payment option. We currently offer
the options described below.
THEN:
The amount of variable annuity
. the variable annuity payments payments will depend on the
will increase. investment performance of the
portfolio(s) you select. The number
* * * of annuity payments may depend on
how long the annuitant or a
IF: secondary annuitant, if any, lives.
Therefore, the sum of annuity
. the performance of the payments may be less than the
subaccounts after all expenses is premium (except for option 10--Life
less than the AIR on a modal basis; Annuity with Premium Refund
Payments).
THEN:
. the variable annuity payments will 1. Certain Only Annuity. This
decrease. --------------------
option provides annuity payments
* * * for a guaranteed period (10-30
years). You choose the guaranteed
A "modal basis" refers to the period. If the annuitant dies prior
frequency of payments. For example, to the last guaranteed payment
for monthly payments to increase, date, we will either:
the performance of the subaccounts
must exceed the monthly equivalent . continue payments as they become
AIR; for quarterly payments to due; or
increase, the performance of the . pay the present value of the
subaccounts must exceed the remaining guaranteed payments
quarterly equivalent AIR. in a lump sum to the
beneficiary when we receive
You choose either a 3.5% AIR or a due proof of the annuitant's
5% AIR. death.
IF: No additional payments will be made
under this option after all the
. you choose a 5% AIR instead of a guaranteed payments have been made.
3.5% AIR;
If the lump sum death benefit is
THEN: chosen and the payments under this
option are variable, the present
. you will receive a higher value of the remaining guaranteed
initial payment; and payments is calculated as of the
date we receive written notice of
. payments will increase less the annuitant's death, using the
during periods of good AIR you chose when the contract was
investment performance (i.e., issued. If the payments under this
when investment performance option are fixed, the present value
exceeds the AIR) and decrease of the remaining guaranteed
more during periods of poor payments is calculated using
investment performance (i.e., interest rates (determined by PFL)
when investment performance is in effect on the date we receive
below the AIR). due proof of death.
* * * Under this option, you, as the
IF: owner, can make full or partial
surrenders from the contract prior
. you choose a 3.5% AIR instead of to the last guaranteed payment
a 5% AIR; date. Any surrender must be at
least 25% of the full surrender
THEN: value. A partial surrender will
reduce all future payments.
. you will receive a lower initial
payment; and See "SURRENDER VALUE."
. payments will increase more You should consult a tax advisor
during periods of good before requesting a full or partial
investment performance (i.e., surrender.
when investment performance
exceeds the AIR) and decrease 2. Single Life Annuity. This option
less during periods of poor -------------------
investment performance (i.e., provides annuity payments for the
when investment performance is annuitant's lifetime, no matter how
below the AIR). long that may be. The final payment
will be the payment made
See Appendix B for an illustration
of the difference in the two AIRs.
Payment Options
You select the payment option and
the number of
9
<PAGE>
immediately prior to the death of If the secondary annuitant dies
the annuitant. No additional before the annuitant, we will
payments will be made after the continue to make annuity payments
annuitant dies. as they are due, and the amount of
the annuity payments will not go
This option offers you the highest down due to the death.
level of annuity payments, due to
the risk that only one annuity No surrenders are permitted under
payment will be made if the this option.
annuitant dies before the second
payment date. 6. Joint and Last Survivor Life
Annuity. This option provides
No surrenders are permitted under annuity payments for the
this option. annuitant's and secondary
annuitant's lifetimes. Payments are
higher while both annuitants are
3. Single Life Annuity with Period living and decrease upon the death
------------------------------- of either the annuitant or the
Certain. This option provides secondary annuitant. The final
- ------- annuity payment will be the one
annuity payments for a guaranteed made immediately before the death
period (5 to 30 years) or for the of the last surviving annuitant. No
life of the annuitant, whichever is additional annuity payments will be
later. The final annuity payment made after the death of both
will be the later of either the annuitants.
last guaranteed payment or the
scheduled annuity payment Upon the first death, the amount of
immediately prior to the the fixed annuity payments will be
annuitant's death. If the annuitant reduced to a percent you select:
dies prior to the last guaranteed either 50%, 66.67% or 75%. For
payment date, we will make payments variable annuity payments, the
to the beneficiary when we receive number of variable annuity units
due proof of the annuitant's death. will also be reduced to 50%, 66.67%
No additional payments will be made or 75%.
if the annuitant dies after all
guaranteed payments have been made. No surrenders are permitted under
this option.
No surrenders are permitted under
this option. 7. 100% Joint and Survivor Life
----------------------------
4. 100% Joint and Survivor Life Annuity with Period Certain. This
---------------------------- ---------------------------
Annuity. This option provides option provides annuity payments
- ------- for a guaranteed period (5-30
annuity payments for the annuitant years) or for the annuitant's and
and the secondary annuitant's joint annuitant's lifetimes,
lifetimes. After the death of whichever is later. The final
either the annuitant or the annuity payment will be the later
secondary annuitant, we will of the last guaranteed payment or
continue to provide the full amount the annuity payment made
of annuity payments to the immediately prior to the last
survivor. Annuity payments stop surviving annuitant's death. No
when both the annuitant and the additional payments will be made if
secondary annuitant die. both annuitants die after all
guaranteed payments have been
made.
No surrenders are permitted under
this option. If both annuitants die prior to the
last guaranteed payment date, we
5. Joint and Survivor Life Annuity will continue to make guaranteed
------------------------------- payments to the beneficiary as they
with Reduced Annuity Payments to become due for the remainder of the
- -------------------------------- guaranteed period.
the Secondary Annuitant. This
- ----------------------- No surrenders are permitted under
option is similar to option 4 this option.
above, except that annuity payments
are higher while both the annuitant 8. Joint and Survivor Life Annuity
and the secondary annuitant are -------------------------------
living, and then are lower if the with Period Certain and Reduced
annuitant dies before the secondary -------------------------------
annuitant. The final annuity Annuity Payments to the Secondary
payment will be the one made ---------------------------------
immediately before the last Annuitant. This option is similar
surviving annuitant's death. No ---------
additional annuity payments will be to option 7 above, except that
made after the death of both annuity payments are higher while
annuitants. both the annuitant and the
secondary annuitant are living, and
If the annuitant dies before the then are lower if the annuitant
secondary annuitant, the amount of dies before the secondary annuitant
------ and after the
the fixed annuity payments will be
reduced to the percent you select:
either 50%, 66.67% or 75%. For
variable annuity payments, the
number of variable annuity units
- ------
will also be reduced to 50%, 66.67%
or 75%.
10
<PAGE>
guaranteed period. The final We will pay the premium refund
annuity payment will be the later benefit to the beneficiary if, at
of the last guaranteed payment or the date of the annuitant's death,
the annuity payment made the sum of all the annuity payments
immediately prior to the last made is less than the premium. The
surviving annuitant's death. No premium refund benefit will be the
additional payments will be made if premium less the sum of the
both annuitants die after all previously distributed variable and
guaranteed annuity payments have fixed annuity payments.
been made.
No surrenders are permitted under
If the annuitant dies before the this option.
secondary annuitant and after the
guaranteed period, the amount of 11. Single Life Annuity with
the fixed annuity payments will be ------------------------
reduced to the percent you select: Emergency Cash(SM). This option
either 50%, 66.67% or 75%. For ------------------
variable annuity payments, the provides annuity payments for the
number of variable annuity units annuitant's lifetime. You can only
will also be reduced to 50%, 66.67% receive variable payments under
or 75%. this option. With the Life with
Emergency Cash(SM) feature, you are
If the secondary annuitant dies able to surrender all or a portion
before the annuitant, we will of the Life with Emergency Cash(SM)
continue to make annuity payments benefit. The Life with Emergency
as they are due, and the amount of Cash(SM) benefit will continue
the annuity payments will not go through age 100 of the annuitant.
down due to the death.
No surrenders are permitted under The amount you surrender must be at
this option. least 25% of the Life with
Emergency Cash(SM) benefit. We will
9. Joint and Last Survivor Life provide you with a Life with
---------------------------- Emergency Cash(SM) benefit schedule
Annuity with Period Certain. This as a rider to the contract that
- --------------------------- will assist you in determining the
option provides annuity payments amount you have available to
for a guaranteed period (5-30 surrender.
years) or for the annuitant's and
secondary annuitant's lifetimes, The Life with Emergency Cash(SM)
whichever is later. Payments are benefit is also a death benefit
higher while both annuitants are that is paid upon the death of the
living and decrease after the annuitant.
guarantee period upon the death of
either the annuitant or the For qualified contracts the death
- ------ -- benefit ceases at the date the
secondary annuitant. The final annuitant reaches the IRS age
annuity payment will be the later limitation (determined at the
of the last guaranteed payment or contract issue date).
the annuity payment made
immediately prior to the last See "SURRENDER VALUE."
surviving annuitant's death. No
additional annuity payments will be You should consult a tax advisor
made after the death of both before requesting a full or partial
annuitants. surrender.
Upon the first death after the 12. Joint and Survivor Life Annuity
guaranteed period (or the end of -------------------------------
the guaranteed period if the first with Emergency Cash(SM). This option
death occurred prior thereto), the -------------------
amount of the fixed annuity provides annuity payments to the
- ------ annuitant and the secondary
payments will be reduced to a annuitant while both are living.
percent you select: either 50%, You can only receive variable
66.67% or 75%. For variable annuity payments under this option. After
payments, the number of variable the death of either the annuitant
------ or the secondary annuitant, we will
annuity units will also be reduced continue to provide the full amount
to 50%, 66.67% or 75%. of annuity payments to the
survivor. With the Life with
No surrenders are permitted under Emergency Cash(SM) feature, you are
this option. able to surrender all or a portion
of the Life with Emergency Cash(SM)
10. Life Annuity with Premium benefit. The Life with Emergency
------------------------- Cash(SM) benefit will continue
Refund Payment. This option through age 100 of the younger of
- -------------- the annuitant and the secondary
provides annuity payments for the annuitant.
annuitant's lifetime. The final
annuity payment will be either the
payment made immediately prior to
the annuitant's death or the
premium refund benefit.
11
<PAGE>
The amount you surrender must be at The minimum premium for a contract
least 25% of the Life with is $25,000. Amounts less than
Emergency Cash(SM) benefit. We will $25,000 may be accepted with
provide you with a Life with approval from our home office. You
Emergency Cash(SM) benefit schedule cannot make additional premium
as a rider to the contract that payments.
will assist you in determining the
amount you have available to You will allocate the premium to
surrender. variable, fixed, or to a
combination of variable and fixed
The Life with Emergency Cash(SM) payment options. We apply your
benefit is also a death benefit premium to the contract within two
that is paid upon the death of the business days after receipt (at the
last annuitant. We will provide a Administrative and Service Office)
Life with Emergency Cash(SM) benefit of the later of the premium and a
schedule as a rider to the properly completed order form.
contract.
If the order form is incomplete, we
For qualified contracts the death will request the necessary
benefit ceases at the date of the information. If the information is
IRS joint age limitation not provided within five days, we
(determined at the contract issue will return the premium unless we
date.) obtain your specific consent to let
us keep it until the order form is
See "SURRENDER VALUE." completed.
You should consult a tax advisor The date we credit the premium and
before requesting a full or partial issue the contract is called the
surrender. contract issue date. On the
contract issue date, we allocate
Other payment options may be made the premium (net of any premium tax
available. deduction) as you specify in the
order form.
PLEASE NOTE CAREFULLY THAT IF:
. you choose a Single Life You should make checks for premium
Annuity, 100% Joint and payments payable only to PFL Life
Survivor Life Annuity, Joint Insurance Company and send them to
and Survivor Life Annuity with the Administrative and Service
Reduced Annuity Payments to Office. Your check must be honored
the Secondary Annuitant, or in order for us to pay any
Joint and Last Survivor associated payments and benefits
Annuity; and due under the contract.
. the annuitant(s) dies before the Allocation of Premium Payment
due date of the second annuity
payment; We will invest the amount of your
premium that you allocate to the
THEN: subaccounts of the separate account
in the designated subaccount(s) on
. we may make only the one the contract issue date. You must
payment. allocate percentages that are whole
numbers, not fractions. Your
Please also note that the federal allocations must equal 100%.
income tax laws may limit your
payment options where the contract Variable Annuity Units
is used as a qualified contract.
Any portion of your premium
3. PURCHASE allocated to the subaccounts will
be used to purchase variable
Contract Issue Requirements annuity units. We will determine
the number of variable annuity
PFL will issue a contract only IF: units based upon:
. PFL receives all information . the premium reduced by any
needed to issue the contract; and premium taxes,
. PFL receives your entire premium . the annuitant's age and sex (and
payment. the age and sex of the secondary
annuitant, if any),
Premium Payment
. the payment option you choose,
. the frequency of payments you
choose,
. the AIR you choose,
12
<PAGE>
. the first payment date, and . a per share credit or
charge for any taxes
. the variable annuity unit value reserved for, which we
of the subaccount(s) you determine to have resulted
initially select. from the investment
operation of the
The number of variable annuity subaccount.
units allocated to each subaccount
will not change unless you transfer (b) is the net asset value of a
among the subaccounts, transfer portfolio share held in that
from variable to fixed annuity subaccount determined as of
payments or receive cash through a the end of the immediately
surrender (if allowed). However, if preceding valuation period;
you choose a joint and survivor and
payment option and benefits are
reduced due to the death of one of (c) is an amount representing the
the annuitants, the number of separate account charge (shown
variable annuity units will be in the contract specifications
reduced at that time. section of the contract).
We calculate the amount of your 4. INVESTMENT CHOICES
variable annuity payment on the
variable annuity payment The Separate Account
calculation date by taking the currently consists of nine
number of variable annuity units in subaccounts.
each subaccount and multiplying
them by the variable annuity unit The separate account currently consist
value of each subaccount. This
calculation is performed for each The Underlying Portfolios. The
subaccount, and the sum of the subaccounts invest in shares of the
subaccount calculations will equal nine portfolios of the One Group
the amount of your variable annuity Investment Trust. Banc One
payment. Investment Advisors Corporation, an
indirect subsidiary of Bank One
Corporation, provides investment
advice for all of the underlying
The variable annuity unit value in portfolios offered through this
a particular subaccount on any contract. The following subaccounts
valuation day is equal to: are currently offered:
. the variable annuity unit value One Group(R) Investment Trust Bond
for that subaccount on the Portfolio
immediately preceding valuation One Group(R) Investment Trust
day; multiplied by Government Portfolio
. the net investment factor for One Group(R) Investment Trust
that subaccount for the valuation Balanced Portfolio
period; multiplied by One Group(R) Investment Trust
. the daily factor for the valuation Large Cap Growth Portfolio
period. One Group(R) Investment Trust
Equity Index Portfolio
The daily factor for the valuation One Group(R) Investment Trust
period (the period of time Diversified Equity Portfolio
beginning at the close of business One Group(R) Investment Trust Mid Cap
each valuation day and ending at Growth Portfolio
the close of business on the next One Group(R)Investment Trust
valuation day) is a discount factor Diversified Mid Cap
that reflects the AIR. Please refer One Group(R) Investment Trust Mid
to the Statement of Additional Portfolio Cap Value Portfolio
Information.
The general public may not purchase
The net investment factor used to these underlying portfolios. The
calculate the variable annuity unit investment objectives and policies
value for each subaccount for the may be similar to other portfolios
valuation period is determined by and mutual funds managed by the
dividing (a) by (b) and subtracting same investment adviser or manager
(c) from the result, where: that are sold directly to the
public. You should not expect that
(a) is the net result of: the investment results of the other
portfolios and mutual funds will be
. the net asset value of a comparable to those of the
portfolio share held in underlying portfolios.
that subaccount determined
as of the end of the Detailed information about the
current valuation period, underlying portfolios may be found
plus in the current prospectus for the
One Group(R) Investment Trust. This
. the per share amount of includes a description of each
any dividend or capital portfolio's investment objectives,
gain distributions made by policies, and strategies.
the fund for shares held
in that subaccount if the
ex-dividend date occurs
during the valuation
period, plus or minus
13
<PAGE>
The prospectus is attached to this Transfers from variable to fixed
prospectus. You should read annuity payments may have tax
prospectus for the One Group(R) consequences. You should consult a
Investment Trust carefully before tax advisor before making a
you invest. transfer from variable to fixed
annuity payments.
The investment objectives and
policies of certain portfolios are You may not transfer from fixed to
similar to the investment variable annuity payments.
objectives and policies of other
portfolios that may be managed by Transfers are made using the
the same investment advisor or variable annuity unit values for
manager. The investment results of the end of the day when we receive
the portfolios, however, may differ your request (that is, at the end
from the results of such other of the valuation period during
portfolios. There can be no which we receive your request).
assurance, and no representation is
made, that the investment results You may transfer amounts among
of any of the portfolios will be subaccounts by telephoning us or by
comparable to the investment providing us with a notice you have
results of any other portfolio, signed or an electronic notice that
even if the other portfolio has the gives us the facts that we need.
same investment advisor or manager.
Investment allocation models are We reserve the right to impose
offered in connection with this transfer charges.
product at no charge. The models
may or may not achieve any desired The percent of the allocation in
goals or protect against a loss. each subaccount will change over
See the Statement of Additional time with its investment
Information for further information performance. You should
about the models. periodically review the allocations
in light of market conditions and
financial objectives.
See Appendix B for Additional Fund
Information. 5. EXPENSES
The following are all the charges
made under the contract.
Transfers
Separate Account Charge
You may transfer all or a part of
the value of variable annuity A daily charge is deducted from the
payments to fixed annuity payments assets of each subaccount for our
by telephoning us or providing us assumption of mortality and expense
with a notice you have signed or an risks, and our administration
electronic notice that gives us the expenses. If the amount you
facts that we need. If you transfer allocate to variable annuity
from variable annuity payments to payments is less than $50,000, a
fixed annuity payments, the fixed daily mortality and expense risk
annuity payments will be a charge will be deducted at an
continuation of the payment option effective annual rate of 1.20%;
under which the variable annuity otherwise, the mortality and
payments were being made, or a expense risk charge will be 1.00%.
continuation of the fixed payment
option that may already exist.
An administration expense charge
For example, if you received will also be deducted daily from
variable annuity payments for two the assets of each subaccount at an
years under a 10 Year Certain and effective annual rate of 0.15%. We
Life Option and elect to transfer guarantee that the mortality and
to fixed annuity payments, your expense risk and administrative
payment option would be an 8 Year charges will never increase.
Certain and Life Option. If your
variable payment option is Life The mortality risk arises from our
with Emergency Cash(SM), the fixed obligation to provide annuity
payment option will be Life only, income for your life (and the life
Life with Premium Refund or Life of the secondary annuitant, if any)
with Period Certain. The period no matter how long that might be.
certain cannot be greater than the The expense risk results from our
annuitant's remaining life obligation to cover the cost of
expectancy determined at the issuing and administering the
contract issue date. (Life with contracts, no matter how long we
Emergency Cash(SM) is only available may incur such cost or how large
with variable annuity payments.) that cost may be. The
14
<PAGE>
administration expense charge is 6. TAXES
for the costs of administering the
contracts. We may earn a profit NOTE: PFL has prepared the
from the separate account charge following information on federal
(and expect to do so). Any profit income taxes as a general
can be used for distribution discussion of the subject. It is
expenses or for any other purpose. not intended as tax advice to any
individual. You should consult your
own tax adviser about your own
Expenses of the Portfolios circumstances. PFL has included an
additional discussion regarding
The portfolios are charged taxes in the Statement of
management fees and incur operating Additional Information.
expenses. The effect of these fees
and expenses is reflected in the Annuity Policies in General
performance of the portfolios
underlying the subaccounts, and Deferred annuity policies are a way
therefore affects the variable of setting aside money for future
annuity unit value. needs like retirement. Congress
recognized how important saving for
Premium Taxes retirement is and provided special
rules in the Internal Revenue Code
Some states charge a premium tax for annuities.
based on the amount of your
premium. State premium taxes Simply stated, these rules provide
currently range from 0% to 3.5%. In that generally you will not be
addition, some counties, cities or taxed on the earnings, if any, on
towns may charge additional premium the money held in your annuity
taxes. If you live in a place that policy until you take the money
has premium taxes, any amount out. This is referred to as tax
needed to provide for the deferral. There are different rules
applicable premium taxes is as to how you will be taxed
deducted from your premium. We depending on how you take the money
allocate the remainder of your out and the type of policy -
premium to the subaccounts and/or qualified or nonqualified
to the purchase of fixed annuity (discussed below).
payments.
You will not be taxed on increases
Other Taxes in the value of your policy until a
distribution occurs - either as a
We reserve the right to charge for withdrawal or as annuity payments.
certain taxes (other than premium
taxes) that may be incurred due to When a non-natural person (e.g.,
the contracts or the separate corporation or certain other
account. Currently, we do not entities other than tax-qualified
charge for any other taxes. trusts) owns a nonqualified policy,
the policy will generally not be
Surrender Value treated as an annuity for tax
purposes.
There is no express or calculable
surrender charge for surrenders Qualified and Nonqualified Policies
from variable annuity payments
under the contract. Surrenders from If you purchase the policy under an
variable annuity payments are individual retirement annuity, a
generally not permitted, unless you pension plan, or specially
select the Certain Only or Life sponsored program, your policy is
With Emergency Cash payment option. referred to as a qualified policy.
For a discussion of surrender
value, see "SURRENDER VALUE". Qualified policies are issued in
connection with the following
Transfer Fee plans:
There is currently no charge for . Individual Retirement Annuity
transfers. We reserve the right to (IRA): A traditional IRA
charge $15 for each transfer over allows individuals to make
six per contract year (all contributions, which may be
transfers made simultaneously will deductible, to the Contract. A
be treated as a single request). Roth IRA also allows
individuals to make
contributions to the Contract,
but it does not allow a
deduction for contributions,
and distributions may be tax-
free if the owner meets
certain rules.
15
<PAGE>
. Tax-Sheltered Annuity (403(b)
Plan): A 403(b) Plan may be determining the amount includable
made available to employees of in the owner's income when a
certain public school systems taxable distributions occurs.
and tax-exempt organizations
and permits contributions to Withdrawals - Qualified Policies
the Contract on a pre-tax
basis. The above information describing
the taxation of nonqualified
. Corporate Pension and Profit- policies does not apply to
Sharing and H.R. 10 Plan: qualified policies. There are
Employers and self-employed special rules that govern with
individuals can establish respect to qualified policies.
pension or profit-sharing Generally, these rules restrict:
plans for their employees or
themselves and make . the amount that can be
contributions to the Contract contributed to the policy
on a pre-tax basis. during any year; and
. Deferred Compensation Plan . the time when amounts can be
(457 Plan): Certain paid from the policies.
governmental and tax-exempt
organizations can establish a In addition, a penalty tax may be
plan to defer compensation on assessed on amounts withdrawn from
behalf of their employees the policy prior to the date you
through contributions to the reach age 59 1/2, unless you meet
Contract. one of the exceptions to this rule.
You may also be required to begin
If you purchase the policy as an taking minimum distributions from
individual and not under an the policy by a certain rule. The
individual retirement annuity, terms of the plan may limit the
403(b) plan, 457 plan, or pension rights otherwise available to you
or profit sharing plan, your policy under the policies.
is referred to as a nonqualified
policy. We have provided more information
in the Statement of Additional
Withdrawals - Nonqualified Policies Information.
If you make a withdrawal from your You should consult your legal
policy before the annuity counsel or tax adviser if you are
commencement date, the Internal considering purchasing a policy for
Revenue Code treats that withdrawal use with any retirement plan.
as first coming from earnings and
then from your premium payments. Withdrawals - 403(b) Policies
When you make a withdrawal you are
taxed on the amount of the The Internal Revenue Code limits
withdrawal that is earnings. (The the withdrawal of premium payments
excess interest adjustment from certain 403(b) policies.
resulting from the withdrawal may Withdrawals can generally only be
affect the amount on which you are made when an owner:
taxed.) Different rules apply for
annuity payments. See "Annuity . reaches age 59 1/2;
Payments" below.
. leaves his/her job;
The Internal Revenue Code also
provides that withdrawn earnings . dies;
may be subject to a penalty. The
amount of the penalty is equal to . becomes disabled (as that term
10% of the amount that is is defined in the Internal
includable in income. Some Revenue Code); or
withdrawals will be exempt from the
penalty. They include any amounts: . in the case of hardship.
However, in the case of
. paid on or after the taxpayer hardship, the owner can only
reaches age 59 1/2; withdraw the premium payments
and not any earnings.
. paid after the taxpayer dies;
Diversification and Distribution
. paid if the taxpayer becomes Requirements
totally disabled (as that term
is defined in the Internal The Internal Revenue Code provides
Revenue Code); that the underlying investments for
a variable annuity must satisfy
. paid in a series of certain diversification
substantially equal payments requirements in order to be treated
made annually (or more as an annuity policy. The policy
frequently) under a lifetime must also meet certain distribution
annuity; requirements at the death of an
owner in order to be treated as an
. paid under an immediate annuity policy. These
annuity; or diversification and
. which come from premium
payments made prior to August
14, 1982.
All deferred non-qualified annuity
policies that are issued by PFL (or
its affiliates) to the same owner
during any calendar year are
treated as one annuity for purposes
of
16
<PAGE>
distribution requirements are in the contract" to each such
discussed in the Statement of option, for purposes of determining
Additional Information. PFL may the excludable amount of each
modify the policy to attempt to payment received under that option.
maintain favorable tax treatment. We advise you to consult a
competent tax adviser as to the
potential tax effects of allocating
Taxation of Death Benefit Proceeds amounts to any particular annuity
payment option.
Amounts may be distributed from the
policy because of the death of an If, after the annuity commencement
owner or the annuitant. Generally, date, annuity payments stop because
such amounts are includable in the an annuitant died, the excess (if
income of the recipient: any) of the "investment in the
contract" as of the annuity
. if distributed in a lump sum, commencement date over the
these amounts are taxed in the aggregate amount of annuity
same manner as a full payments received that was excluded
surrender; from gross income is generally
allowable as a deduction for your
. or if distributed under an last taxable year.
annuity payment option, these
amounts are taxed in the same Transfers, Assignments or Exchanges
manner as annuity payments. of Policies
For these purposes, the "investment A transfer of ownership or
in the contract" is not affected by assignment of a policy, the
the owner's or annuitant's death. designation of an annuitant or
That is, the "investment in the other beneficiary who is not also
contract" remains generally the the owner, the selection of certain
total premium payments, less annuity commencement dates, or a
amounts received, which were not change of annuitant, may result in
includable in gross income. certain income or gift tax
consequences to the owner that are
Annuity Payments beyond the scope of this
discussion. An owner contemplating
Although the tax consequences may any such transfer, assignment,
vary depending on the annuity selection, or change should contact
payment option you select, in a competent tax adviser in respect
general, for nonqualified and to the potential tax effects of
certain qualified policies, only a such a transaction.
portion of the annuity payments you
receive will be includable in your Possible Tax Law Changes
gross income.
Although the likelihood of
In general, the excludable portion legislative changes in uncertain,
of each annuity payment you receive there is always the possibility
will be determined as follows: that the tax treatment of the
policy could change by legislation
. Fixed payments - by dividing or otherwise. You should consult a
the "investment in the tax adviser with respect to
contract" on the annuity legislative developments and their
commencement date by the total effect on the policy.
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
17
<PAGE>
7. SURRENDER VALUE 8. PERFORMANCE
Surrenders Performance information for the
subaccounts may appear in reports
You may not surrender any portion and advertising. The performance
of a contract unless either the information is based on adjusted
Certain Only or Life with Emergency historical investment experience of
Cash(SM) payment option is the subaccounts and the underlying
selected. No other payment option portfolios and does not indicate or
allows surrenders. If you elect a represent future performance.
Certain Only payment option the
surrender value is the present Total returns of the subaccounts
value of the remaining payments. If may be advertised. Total returns
you select the Life with Emergency are based on the overall dollar or
Cash(SM) payment option, we will percentage change in value of a
provide you with a Life with hypothetical investment. Total
Emergency Cash(SM) benefit schedule return quotations reflect changes
that will allow you to determine in portfolio share price, the
how much is available to automatic reinvestment by the
surrender. separate account of all
distributions and the deduction of
If a partial surrender is made, it applicable annuity charges.
must be at least 25% of the full
surrender value and all future A cumulative total return reflects
payments will be reduced. performance over a stated period of
Surrenders may have adverse tax time. An average annual total
consequences. return reflects the hypothetical
annually compounded return that
You should consult with your tax would have produced the same
advisor before requesting a full or cumulative total return if the
partial surrender. performance had been constant over
the entire period. Because average
Surrender Value annual total returns tend to smooth
out variations in a subaccount's
There is no surrender charge returns, you should recognize that
applicable to variable annuity they are not the same as actual
payments under the contract. In the year-by-year results.
cases when the contract can be
surrendered (i.e., Certain Only or Some subaccounts may also advertise
Life with Emergency Cash(SM) yield. These measures reflect the
options) the determination of a income generated by an investment
surrender value depends on specific in the subaccount over a specified
individual circumstances such as period of time. This income is
the annuitant's age and sex, the annualized and shown as a
number of annuitants, the amount of percentage. Yields do not take into
the current payment (when the account capital gains or losses.
surrender is requested), and the
number of payments already made.
If you select a Certain Only
payment option with fixed and/or Appendix A contains performance
variable annuity payments you may information that you may find
surrender all or a portion of your useful. It is divided into various
contract. For fixed annuity parts, depending upon the type of
payments the surrender value is 98% performance information shown.
of the present value of the Future performance will vary and
remaining payments (using PFL's future results will not be the same
declared interest rates in effect as the results shown.
at the time of the surrender). For
variable annuity payments, the
surrender value is the present
value of future payments (which are
assumed to be equal to the most
recent payment) discounted at an
interest rate no greater than 4.5%
(if you have a 3.5% AIR) or no
greater than 6% (if you have a 5%
AIR).
If the Life with Emergency Cash(SM)
option is selected, please refer to
the Emergency Cash(SM) benefit
schedule in your contract rider for
the information you need to
determine your surrender value.
18
<PAGE>
9. DEATH BENEFIT 10. OTHER INFORMATION
If the owner dies before the first PFL Life Insurance Company
annuity payment, the premium (plus
or minus investment performance) PFL Life Insurance Company was
will be paid as a death benefit. incorporated under the laws of the
More information on how we pay it State of Iowa on April 19, 1961 as
is in the Statement of Additional NN Investors Life Insurance
Information. Company, Inc. It sells life and
health insurance and annuity
If an owner, who may or may not contracts. PFL is a wholly-owned
also be an annuitant, dies on or indirect subsidiary of AEGON USA,
after the annuity starting date, we Inc. All of the stock of AEGON USA,
will pay the remaining portion of Inc., is indirectly owned by AEGON
the annuity payments due under the N.V. of The Netherlands, the
contract, if any, in the same securities of which are publicly
manner and frequency (at least as traded. AEGON N.V., a holding
rapidly) as under the method of company, conducts its business
distribution used before such through subsidiary companies
owner's death. engaged primarily in the insurance
business. PFL is licensed in the
If the deceased owner's surviving District of Columbia, Guam, and in
spouse is the sole successor owner, all states except New York.
then on such owner's death such
surviving spouse may elect to All obligations arising under the
become the sole owner under the contracts, including the promise to
contract and to continue the make annuity payments, are general
contract as his or her own. corporate obligations of PFL.
If a non-natural person is named as The Separate Account
an owner, then the primary
annuitant, as defined in the Code, PFL established a separate account,
shall be treated as an owner solely called the PFL Retirement Builder
for the purposes of the Variable Annuity Account, under the
distribution at death rules. The laws of the State of Iowa on March
entire interest in the contract 29, 1996. The separate account
must be distributed upon the receives and currently invests the
annuitant's death, if the annuitant premium payments under the
dies prior to the first payment contracts that are allocated to it
date. for investment only in shares of
One Group Investment Trust.
If the deceased owner was also the Detailed information about the One
annuitant, then the annuitant's Group Investment Trust portfolios
beneficiary is entitled to the is contained in the prospectus that
proceeds described above in this is attached to this prospectus. You
section (unless the deceased should read the prospectus for each
owner's surviving spouse is the of the underlying portfolios of the
sole successor owner). If no person One Group Investment Trust before
is named as the beneficiary, the you invest.
owner's estate shall be deemed the
beneficiary. The separate account is registered
with the SEC as a unit investment
Note carefully. In instances trust under the Investment Company
where the owner's estate is deemed Act of 1940. However, the SEC does
to be the successor owner or not supervise the management, the
beneficiary, it may be necessary to investment practices, or the
open a probate estate in order to policies of the separate account or
exercise ownership rights to, or PFL. The obligations to pay the
receive death proceeds from, the benefits due under the contract are
contract. If no probate estate is PFL's responsibility.
opened because the owner has
precluded the opening of a probate The assets of the separate account
estate by means of a trust or other are held in PFL's name on behalf of
instrument, unless we have received the separate account and belong to
written notice of the trust as a PFL. However, those assets that
successor owner or beneficiary underlie the contracts are not
prior to the owner's death, that chargeable with liabilities arising
trust may not exercise ownership out of any other business PFL may
rights to, or receive death conduct.
proceeds from, the contract.
Information about the separate
In all events, distributions upon account can be reviewed and copied
the death of an owner will comply at the SEC's Public Reference Room
with section 72(s) of the Code. in Washington,
19
<PAGE>
D.C. You may obtain information Variations in Contract Provisions
about the operation of the public
reference room by calling the Certain provisions of the contracts
Commission at 1-800-SEC-0330. In may vary from the descriptions in
addition, the SEC maintains a web this prospectus in order to comply
site (http://www.sec.gov) that with different state laws. See your
contains other information contract for variations since any
regarding the separate account. such state variations will be
included in your contract or in
Voting Rights riders or endorsements attached to
your contract.
PFL will vote all shares of the
underlying portfolios in accordance Year 2000 Matters
with instructions we receive from
you and other owners that have We have in place a Year 2000
voting interests in the portfolios. Project Plan (the "Plan") to review
We will send you and other owners and analyze existing hardware and
written requests for instructions software systems, as well as voice
on how to vote those shares. When and data communications systems, to
we receive those instructions, we determine if they are Year 2000
will vote all of the shares in compliant. As of the date of this
proportion to those instructions. prospectus, all of our mission-
If, however, we determine that we critical systems are Year 2000
are permitted to vote the shares in compliant and ready. The Year 2000
our own right, we may do so. Project Plan is continuing as
scheduled, as we continue with the
Each person having a voting validation of our mission-critical
interest will receive proxy and non-mission-critical systems,
material, reports, and other including revalidation testing in
materials relating to the 1999. In addition, PFL has
appropriate portfolio. undertaken aggressive initiatives
to test all systems that interface
Distributor of the Contracts with any third parties and other
business partners. All of these
AFSG Securities Corporation is the steps are aimed at allowing current
principal underwriter of the operations to remain unaffected by
contracts. Like PFL, it is an the Year 2000 date change.
indirect wholly-owned subsidiary of
AEGON USA, Inc. It is located at As of the date of this prospectus,
4333 Edgewood Road N.E., Cedar we have identified and made
Rapids, IA 52499-0001. AFSG available what we believe are the
Securities Corporation is appropriate resources of hardware,
registered as a broker/dealer under people, and dollars, including the
the Securities Exchange Act of engagement of outside third
1934. It is a member of the parties, to ensure that the Plan
National Association of Securities will be completed.
Dealers, Inc. (NASD). It was
incorporated in Pennsylvania in Our actions under The Year 2000
1986. Project Plan are intended to
significantly reduce PFL's risk of
Commissions of up to 6% of premium a material business interruption
payments will be paid to based on the Year 2000 issues.
broker/dealers who sell the Resolving the Year 2000 computer
contracts under agreements with problem is complex and
AFSG Securities Corporation. These multifaceted. We cannot know
commissions are not deducted from conclusively whether a response
premium payments. In addition, plan is successful until the Year
certain production, persistency and 2000 arrives (or an earlier date if
managerial bonuses may be paid. PFL the systems or equipment address
may also pay compensation to banks Year 2000 data prior to the Year
and other financial institutions 2000). In spite of its efforts or
for their services in connection results, PFL's ability to function
with the sale and servicing of the unaffected to and through the Year
contracts. 2000 may be adversely affected by
actions, or failure to act, of
Non-participating Contract third parties beyond our knowledge
or control.
The contract does not participate
or share in the profits or surplus This statement is a Year 2000
earnings of PFL. No dividends are Readiness Disclosure pursuant to
payable on the contract. Section 3(9) of the Year 2000
Information and Readiness
Disclosure Act, 15 U.S.C. (S). 1
(1998).
See the prospectus for the One
Group Investment Trust for
information on its preparation for
Year 2000.
20
<PAGE>
Delay of Payments
PFL may be permitted to delay any
IMSA PFL is a member of the payments from the separate account
Insurance Marketplace Standards if:
Association (IMSA). IMSA members
subscribe to a set of ethical . the New York Stock Exchange is
standards involving the sales and closed other than for usual
service of individually sold life weekends or holidays or
insurance and annuities. As a trading on the Exchange is
member, we may use the IMSA logo otherwise restricted; or
and language in advertisements.
. 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 and within the subaccounts may
be deferred under these
circumstances.
Pursuant to the requirements of
certain state laws, we reserve the
right to defer fixed annuity
payments for up to six months.
If a check has been submitted as
the premium, we have the right to
defer any payments until the check
has been honored.
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 statutory-basis financial
statements of PFL are in the
Statement of Additional
Information. The subaccounts began
operations in 1999, and do not yet
have any financial history.
21
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT Records and Reports
OF ADDITIONAL INFORMATION Distribution of the Contracts
Other Products
Glossary of Terms Custody of Assets
The Contract--General Provisions Historical Performance Data
Federal Tax Matters Legal Matters
Investment Experience Independent Auditors
State Regulation of PFL Other Information
Administration Financial Statements
22
<PAGE>
APPENDIX A
HISTORICAL PERFORMANCE DATA
The following graphs show how your annuity payments can fluctuate based on past
investment performance (net of all charges) of the portfolios through December
31, 1998. The information presented is for periods prior to the inception date
of the subaccounts. PFL did not sell the contracts prior to the date of this
prospectus, and therefore, the graphs illustrate what annuity payments might
have been under a contract had one existed during the years shown.
The graphs are based on the adjusted historical performance of the portfolios,
which means that the 1.35% separate account charge and the actual net expenses
of each portfolio for the year ended December 31, 1998, are reflected in the
graph for each portfolio. The graphs do not reflect any premium tax charge.
Each graph shows the effect that the portfolio's investment performance would
have had on the value of an annuity unit and, thus, the value of an annuity
payment if a contract with an AIR of 3.5%, providing an initial monthly annuity
payment of $500.00, was purchased on the date the portfolio commenced
operations. Each graph assumes that the entire premium of the hypothetical
contract was allocated to the subaccount being illustrated. Annuity payments
increase for a given month if the performance of the portfolio underlying the
subaccounts, net of all charges, for that month is higher than the AIR, and
decreases for a given month if the performance of the portfolio underlying the
subaccounts, net of all charges, for that month is lower than the AIR. The
premium necessary for an initial monthly annuity payment of $500.00 will vary
depending on the age and sex of the annuitant (and secondary annuitant, if any),
the payment option and the first annuity payment date. For example, suppose that
a 65 year old male who lives in a state that does not charge a premium tax
wishes to purchase $500.00 of an initial monthly variable annuity payment
beginning on the contract issue date with a life only payment option. If there
is no secondary annuitant, no guarantee period and he chooses a 3.5% AIR, the
premium needed would be $86,784. If the purchaser were female, the premium
necessary would be $96,221. This is because females have a longer life
expectancy than males.
The monthly payments depicted in the graphs are not based on actual contracts.
They are based on adjusted historical performance results of the portfolios and
are not projections or indications of future results. PFL does not guarantee and
does not suggest that any subaccount or contract issued by PFL will generate
these or similar average monthly payments for any period of time. The graphs are
for illustration purposes only and do not represent future variable annuity
payments or future investment returns. Variable annuity payments under a real
contract may be more or less than those forming the basis for the monthly
payments shown in these graphs, if the actual returns of the portfolios selected
by you are different from the adjusted historical returns of the portfolios. It
is very likely that a portfolio's investment performance will fluctuate over
time; therefore, you can expect that your variable annuity payments will
fluctuate. The total amount of variable annuity payments ultimately received
will depend upon the payment option selected by you.
* * *
A-1
<PAGE>
BOND PORTFOLIO
["BOND PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--May 1997**
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 N/A N/A 1 Year 7.21%
- ------------------------------------------------------------------------------------------------------------
1995 N/A N/A 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 N/A N/A 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $524 N/A Since Inception 8.75%
- ------------------------------------------------------------------------------------------------------------
1998 $543 7.21%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this prospectus.
Historical returns for periods prior to that date are total returns for the Bond
Portfolio, adjusted to reflect the 1.35% separate account charge.
** The performance information and fund inception date reflect that the Bond
Portfolio inherited the financial history of the Pegasus Variable Bond
Fund.
A-2
<PAGE>
GOVERNMENT BOND PORTFOLIO
["GOVERNMENT BOND PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--August 1994
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $486 N/A 1 Year 5.89%
- ------------------------------------------------------------------------------------------------------------
1995 $540 15.14% 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 $529 1.31% 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $553 8.20% Since Inception 6.44%
- ------------------------------------------------------------------------------------------------------------
1998 $566 5.89%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Government Bond Portfolio, adjusted to reflect the 1.35%
separate account charge.
A-3
<PAGE>
BALANCED PORTFOLIO
["BALANCED PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--August 1994
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $484 N/A 1 Year 17.51%
- ------------------------------------------------------------------------------------------------------------
1995 $556 19.09% 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 $594 10.43% 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $696 21.28% Since Inception 14.79%
- ------------------------------------------------------------------------------------------------------------
1998 $790 17.51%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Balanced Portfolio, adjusted to reflect the 1.35% separate
account charge.
A-4
<PAGE>
LARGE CAP GROWTH PORTFOLIO
["LARGE CAP GROWTH PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--August 1994
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $ 493 N/A 1 Year 39.42%
- ------------------------------------------------------------------------------------------------------------
1995 $ 583 22.49% 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 $ 649 15.12% 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $ 816 30.20% Since Inception 23.71%
- ------------------------------------------------------------------------------------------------------------
1998 $1,099 39.42%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Large Cap Growth Portfolio, adjusted to reflect the 1.35%
separate account charge.
A-5
<PAGE>
EQUITY INDEX PORTFOLIO
["EQUITY INDEX MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--May 1998
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 N/A N/A 1 Year N/A
- ------------------------------------------------------------------------------------------------------------
1995 N/A N/A 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 N/A N/A 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 N/A N/A Since Inception 8.20%
- ------------------------------------------------------------------------------------------------------------
1998 $529 N/A
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Equity Index Portfolio, adjusted to reflect the 1.35%
separate account charge.
A-6
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO
["DIVERSIFIED EQUITY PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--March 1995**
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 N/A N/A 1 Year 11.59%
- ------------------------------------------------------------------------------------------------------------
1995 $567 22.49% 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 $642 17.23% 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $777 25.11% Since Inception 18.73%
- ------------------------------------------------------------------------------------------------------------
1998 $837 11.59%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Diversified Equity Portfolio, adjusted to reflect the
1.35% separate account charge.
** The performance information and fund inception date reflect that the
Diversified Equity Portfolio inherited the financial history of the Pegasus
Variable Growth and Value Fund.
A-7
<PAGE>
MID CAP GROWTH PORTFOLIO
["MID CAP GROWTH PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--August 1994
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $ 475 N/A 1 Year 36.99%
------------------------------------------------------------------------------------------------------------
1995 $ 562 22.42% 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 $ 620 14.13% 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $ 767 28.10% Since Inception 21.52%
- ------------------------------------------------------------------------------------------------------------
1998 $1,016 36.99%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Mid Cap Growth Portfolio, adjusted to reflect the 1.35%
separate account charge.
A-8
<PAGE>
DIVERSIFIED MID CAP PORTFOLIO
["DIVERSIFIED MID CAP PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--March 1995**
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 N/A N/A 1 Year 3.50%
- ------------------------------------------------------------------------------------------------------------
1995 $534 N/A 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 $634 22.87% 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $765 24.96% Since Inception 15.92%
- ------------------------------------------------------------------------------------------------------------
1998 $765 3.50%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Diversified Mid Cap Portfolio, adjusted to reflect the
1.35% separate account charge.
** The performance information and fund inception date reflect that the
Diversified Mid-Cap Portfolio inherited the financial history of the
Pegasus Variable Mid-Cap Opportunity Fund.
A-9
<PAGE>
MID CAP VALUE PORTFOLIO
["MID CAP VALUE PORTFOLIO MONTHLY PAYMENT CHART APPEARS HERE"]
Chart Specifications:
- --------------------
. 3.5% AIR
. $500 initial monthly annuity payment
. Fund inception date--May 1997**
<TABLE>
<CAPTION>
============================================================================================================
Monthly Payment Adjusted Adjusted Historical Average Annual
--------------- -------- ----------------------------------
Year Amounts at End of Historical Annual Total Return*
---- ----------------- ----------------- -------------
Years Total Return* (Periods Ended 12/31/1998)
----- ------------- --------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 N/A N/A 1 Year <4.61>%
- ------------------------------------------------------------------------------------------------------------
1995 N/A N/A 5 Years N/A
- ------------------------------------------------------------------------------------------------------------
1996 N/A N/A 10 Years N/A
- ------------------------------------------------------------------------------------------------------------
1997 $566 N/A Since Inception 6.22%
- ------------------------------------------------------------------------------------------------------------
1998 $522 <4.61>%
============================================================================================================
</TABLE>
* The subaccount had not commenced operations as of the date of this
prospectus. Historical returns for periods prior to that date are total
returns for the Mid Cap Value Portfolio, adjusted to reflect the 1.35%
separate account charge.
** The performance information and fund inception date reflect that the Mid
Cap Value Portfolio inherited the financial history of the Pegasus Variable
Intrinsic Value Fund.
A-10
<PAGE>
APPENDIX B
----------
ADDITIONAL FUND INFORMATION
Banc One Investment Advisors is the investment advisor for the underlying
portfolios and is a registered investment advisor under the Investment Advisors
Act of 1940. Banc One Investment Advisors is an indirect wholly-owned subsidiary
of Bank One Corporation. It makes the day-to-day investment decisions for the
portfolios and continuously reviews, supervises and administers each portfolio's
investment program. Banc One Investment Advisors performs its responsibilities
subject to the supervision of, and policies established by, the Trustees of One
Group Investment Trust. Banc One Investment Advisors has served as investment
advisor to the Trust since its inception. In addition, Banc One Investment
Advisors serves as investment advisor to other mutual funds and individual
corporate charitable, and retirement accounts. As of December 31, 1998, Banc One
Investment Advisors managed over $59 billion in assets. Banc One Investment
Advisors is entitled to a fee, which is calculated daily and paid monthly, of
the annual percentages of the average daily net assets of each portfolio.
There is no assurance that any of the portfolios will achieve its investment
objective.
The One Group Investment Trust prospectus should be read carefully before any
decision is made concerning the allocation of the premium to a particular
subaccount.
An investment in the separate account, or in any portfolio, is not insured or
guaranteed by the U.S. government or any government agency.
The investment objectives and policies of certain portfolios are similar to the
investment objectives and policies of other portfolios that may be managed by
Banc One Investment Advisors. The investment results of the portfolios, however,
may differ from the results of such other portfolios. There can be no assurance,
and no representation is made, that the investment results of any of the
portfolios will be comparable to the investment results of any other portfolio,
even if the other portfolio has the same investment advisor or manager.
Addition, Deletion, or Substitution of Investments. We cannot and do not
- --------------------------------------------------
guarantee that any of the subaccounts will always be available to receive
premium allocations or transfers. We retain the right, subject to any applicable
law, to make certain changes in the separate account and its investments. We
reserve the right to eliminate the shares of any portfolio held by a subaccount
and to substitute shares of another portfolio of the funds or of another
registered open-end management investment company for the shares of any
portfolio, if the shares of the portfolio are no longer available for investment
or, if in our judgment, investment in any portfolio would be inappropriate in
view of the purposes of the separate account. To the extent required by the 1940
Act, substitutions of shares attributable to an owner's interest in a subaccount
will not be made without prior notice to the owner and the prior approval of the
SEC. Nothing contained herein shall prevent the separate account from purchasing
other securities for other series or classes of variable annuity contracts or
from effecting an exchange between series or classes of variable annuity
contracts on the basis of requests made by owners.
New subaccounts may be established when, in our sole discretion, marketing, tax,
investment or other conditions warrant. Any new subaccounts may be made
available to existing owners on a basis to be determined by us. Each additional
subaccount will purchase shares in a mutual fund portfolio or other investment
vehicle. We may also eliminate one or more subaccounts if, in our sole
discretion, marketing, tax, investment or other conditions warrant such change.
In the event any subaccount is eliminated, we will notify owners and request a
reallocation of the amounts invested in the eliminated subaccount.
B-1
<PAGE>
In the event of any such substitution or change, we may, by appropriate
endorsement, make such changes in the contracts as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to be
in the best interests of persons having voting rights under the contracts, the
separate account may be:
. operated as a management company under the 1940 Act or any other form
permitted by law,
. deregistered under the 1940 Act in the event such registration is no longer
required, or
. combined with one or more other separate accounts.
To the extent permitted by applicable law, we also may
. transfer the assets of the separate account associated with the contracts
to another account or accounts,
. restrict or eliminate any voting rights of owners or other persons who have
voting rights as to the separate account,
. create new separate accounts,
. add new subaccounts to or remove existing subaccounts from the separate
account or combine subaccounts, or
. add new underlying funds, or substitute a new fund for an existing fund.
Resolving Material Conflicts. The One Group Investment Trust portfolios are
- ----------------------------
available to separate accounts offering variable annuity and variable life
products of other participating insurance companies, as well as to the separate
account and other separate accounts we establish. Although we do not anticipate
any disadvantages to this, there is a possibility that a material conflict may
arise between the interest of the separate account and one or more of the other
separate accounts investing in the One Group Investment Trust. A conflict may
occur due to a change in law affecting the operations of variable life insurance
and variable annuity separate accounts, differences in the voting instructions
we receive and instructions received by other companies, or some other reason.
In the event of a conflict, it is possible that the separate account might be
required to withdraw its investment in the underlying portfolios. In the event
of any conflict, we will take any steps necessary to protect owners, annuitants,
secondary annuitants and beneficiaries.
B-2
<PAGE>
APPENDIX C
ILLUSTRATIONS OF ANNUITY PAYMENT VALUES
The following graphs have been prepared to show how investment performance
affects your variable annuity payments over time. The graphs incorporate
hypothetical rates of return and PFL does not guarantee that you will earn these
returns for any one year or any sustained period of time. PFL did not sell
contracts prior to the date of this prospectus, and, therefore, the graphs
represent what annuity payments might have been under a contract had one existed
during the years shown. The graphs are for illustrative purposes only and do not
represent past or future investment returns.
Your variable annuity payment may be more or less than the income shown if the
actual returns of the subaccounts are different than those illustrated. Since it
is very likely that your investment returns will fluctuate over time, you can
expect that the amount of your annuity payment will also fluctuate. The total
amount of annuity payments ultimately received will, in addition to the
investment performance of the subaccounts, also depend on how long you live and
whether you choose a guarantee period option.
Another factor that determines the amount of your variable annuity payment is
the assumed investment return (AIR). Annuity payments will increase from one
variable annuity payment calculation date to the next if the performance of the
portfolio underlying the subaccounts, net of all charges, is greater than the
AIR and will decrease if the performance of the portfolio underlying the
subaccounts, net of all charges, is less than the AIR.
The "Hypothetical Illustration" graph below illustrates differences in monthly
variable annuity payments assuming different investment returns. The graph
assumes a single premium of $49,820; the entire premium was allocated to
variable annuity payments; the AIR is 3.5%; the payment option is Single Life
Annuity; a 80 year old male, and separate account charges of 1.35% and average
portfolio expenses of 0.87%. This results in the receipt of an initial annuity
payment in the amount of $500. The graph illustrates gross returns of 0.00%,
6.00%, and 10.00% (net returns after expenses are (2.22)%, 3.78%, and 7.78%,
respectively).
[INSERT HYPOTHETICAL ILLUSTRATION CHART HERE]
C-1
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
Monthly Payments Assuming Different Gross Portfolio Returns
===============================================================================================================================
Monthly Payment at the Gross Portfolio Returns*
End of Contract Year
<S> <C> <C> <C>
--------------------------------------------------------------------------
0.0% 6.0% 10.0%
===============================================================================================================================
Assumed First Monthly Payment $500 $500 $500
- -------------------------------------------------------------------------------------------------------------------------------
1 $472 $501 $521
- -------------------------------------------------------------------------------------------------------------------------------
2 $446 $503 $542
- -------------------------------------------------------------------------------------------------------------------------------
3 $422 $504 $565
- -------------------------------------------------------------------------------------------------------------------------------
4 $398 $505 $588
- -------------------------------------------------------------------------------------------------------------------------------
5 $376 $507 $612
- -------------------------------------------------------------------------------------------------------------------------------
6 $355 $508 $638
- -------------------------------------------------------------------------------------------------------------------------------
7 $336 $510 $664
- -------------------------------------------------------------------------------------------------------------------------------
8 $317 $511 $691
- -------------------------------------------------------------------------------------------------------------------------------
9 $300 $512 $720
- -------------------------------------------------------------------------------------------------------------------------------
10 $283 $514 $750
- -------------------------------------------------------------------------------------------------------------------------------
11 $268 $515 $781
- -------------------------------------------------------------------------------------------------------------------------------
12 $253 $516 $813
- -------------------------------------------------------------------------------------------------------------------------------
13 $239 $518 $847
- -------------------------------------------------------------------------------------------------------------------------------
14 $226 $519 $882
- -------------------------------------------------------------------------------------------------------------------------------
15 $213 $521 $918
- -------------------------------------------------------------------------------------------------------------------------------
16 $201 $522 $956
- -------------------------------------------------------------------------------------------------------------------------------
17 $190 $523 $996
- -------------------------------------------------------------------------------------------------------------------------------
18 $180 $525 $1,037
- -------------------------------------------------------------------------------------------------------------------------------
19 $170 $526 $1,080
- -------------------------------------------------------------------------------------------------------------------------------
20 $160 $528 $1,124
===============================================================================================================================
</TABLE>
* The corresponding net returns are (2.22)%, 3.78%, and 7.78%.
C-2
<PAGE>
The "Monthly Payment Amounts with Different AIRs" graph below illustrates the
differences in variable annuity payments between selecting the 3.5% and 5% AIR.
The graph assumes a single premium of $49,820; the entire premium was allocated
to variable annuity payments; the payment option is a single Life Annuity; 80
year old male; separate account charges of 1.35%; average portfolio expenses of
0.87%; and an annual return of the portfolios, after all expenses of 6%. Monthly
variable annuity payments are shown with the 3.5% AIR and the 5% AIR.
[INSERT MONTHLY PAYMENT AMOUNTS CHART HERE]
C-3
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
Monthly Payments Assuming Different AIRs
(Net Portfolio Return = 6%, Gross Portfolio Return=8.22%)
========================================================================================================
Monthly Payment at the End of Year AIR
<S> <C> <C>
---------------------------------------------------
3.5% 5%
========================================================================================================
Assumed First Monthly Payment $500 $547
--------------------------------------------------------------------------------------------------------
1 $512 $552
--------------------------------------------------------------------------------------------------------
2 $524 $557
--------------------------------------------------------------------------------------------------------
3 $537 $563
--------------------------------------------------------------------------------------------------------
4 $550 $568
--------------------------------------------------------------------------------------------------------
5 $563 $574
--------------------------------------------------------------------------------------------------------
6 $577 $579
--------------------------------------------------------------------------------------------------------
7 $591 $585
--------------------------------------------------------------------------------------------------------
8 $605 $590
--------------------------------------------------------------------------------------------------------
9 $620 $596
--------------------------------------------------------------------------------------------------------
10 $635 $601
--------------------------------------------------------------------------------------------------------
11 $650 $607
--------------------------------------------------------------------------------------------------------
12 $666 $613
--------------------------------------------------------------------------------------------------------
13 $682 $619
--------------------------------------------------------------------------------------------------------
14 $698 $625
--------------------------------------------------------------------------------------------------------
15 $715 $631
--------------------------------------------------------------------------------------------------------
16 $733 $637
--------------------------------------------------------------------------------------------------------
17 $750 $643
--------------------------------------------------------------------------------------------------------
18 $768 $649
--------------------------------------------------------------------------------------------------------
19 $787 $655
--------------------------------------------------------------------------------------------------------
20 $806 $661
========================================================================================================
</TABLE>
The annuity payment amounts shown reflect the deduction of all fees and
expenses. Actual fees and expenses under the contract may be higher or lower,
will vary from year to year, and will depend on how you allocate among the
portfolios. The separate account charge is assumed to be at an annual rate of
1.35% of the average daily net assets.
Upon request, we will furnish a customized illustration based on your
individual circumstances and choice of annuity options.
C-4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ONE INCOME ANNUITY
Issued through
PFL RETIREMENT BUILDER VARIABLE
ANNUITY ACCOUNT
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for The One Income Annuity Contract offered by PFL Life
Insurance Company. You may obtain a copy of the prospectus dated July 26, 1999,
by calling 1-800-544-3152, or by writing to the Administrative and Service
Office, Financial Markets Division-Variable Annuity Dept., 4333 Edgewood Road,
N.E., Cedar Rapids, Iowa 52499-0001. The prospectus sets forth information that
a prospective investor should know before investing in a contract. Terms used in
the current prospectus for the contract are incorporated in this Statement of
Additional Information.
This Statement of Additional Information is not a prospectus and should be read
only in conjunction with the prospectus for the contract and the PFL Retirement
Builder Variable Annuity Account.
Dated: July 26, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
GLOSSARY OF TERMS
THE CONTRACT--GENERAL PROVISIONS
Transfers
Delay of Transfers
Entire Contract
Assignment
Beneficiary
Change of Beneficiary
Incontestability
Misstatement of Age or Sex
Modification of Contract
Nonparticipating
Owner
Proof of Death
Proof of Survival
Death Before First Payment Date
Protection of Proceeds
Asset Allocation Models
FEDERAL TAX MATTERS
Tax Status of the Contract
Diversification Requirements
Owner Control
Required Distributions
Taxation of PFL
INVESTMENT EXPERIENCE
Annuity Unit Value and Annuity Payment Rates
STATE REGULATION OF PFL
ADMINISTRATION
RECORDS AND REPORTS
DISTRIBUTION OF THE CONTRACTS
OTHER PRODUCTS
CUSTODY OF ASSETS
HISTORICAL PERFORMANCE DATA
Subaccount Yields
Total Returns
Other Performance Data
Adjusted Hypothetical Performance Data
LEGAL MATTERS
INDEPENDENT AUDITORS
OTHER INFORMATION
FINANCIAL STATEMENTS
2
<PAGE>
GLOSSARY OF TERMS
Annuitant and Secondary Annuitant--The person upon whose life the annuity
payments are based. For joint options, annuity payments are based upon the lives
of both the annuitant and secondary annuitant. Either the annuitant or the
secondary annuitant generally must be no older than 80 years of age on the
contract issue date.
Annuity Payments--Payments made by us to the payee pursuant to the payment
option chosen. Annuity payments may be either fixed or variable or a combination
of both.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Assumed Investment Return or AIR--The annual effective rate shown in the
contract specifications section of the contract that is used in the calculation
of each variable annuity payment.
Beneficiary(ies)--The person(s) who may receive death proceeds or guaranteed
payments under this contract when there is no longer a living annuitant (or last
annuitant for joint options).
Contract Issue Date--The date the contract becomes effective. This will be
stated in the contract. Generally, the date the initial premium is allocated to
the separate account.
Net Investment Factor--A unit of measure used to reflect the change in variable
annuity unit values in a subaccount from one valuation period to the next
valuation period.
Owner(s)--"You," "your," and "yours." The person or entity named in the contract
specifications section who may, while any annuitant is living, exercise all
rights granted by the contract. The annuitant must be the owner, if the contract
is a qualified contract. If there is a secondary annuitant, he or she may also
be an owner (except for a qualified contract, where only one owner is
permitted). The secondary annuitant is never required to be an owner.
Payee--The person or entity to whom annuity payments are paid.
Payment Date--The date an annuity payment is paid to the payee. We may require
evidence that any annuitant(s) and/or payee is/are alive on the payment date.
Separate Account--PFL Retirement Builder Variable Annuity Account.
Subaccount--The investment options or divisions of the separate account. Each
subaccount invests in a different portfolio of the funds. We may make additional
subaccounts available in the future.
Successor Owner--The person named by the owner to whom ownership of the contract
passes upon the owner's death. If the owner is also the annuitant, the
annuitant's beneficiary is entitled to the death proceeds of the contract. If no
person is named, the owner's estate shall be deemed the successor owner.
Valuation Day--Each day the New York Stock Exchange is open for trading and any
other day when the Securities and Exchange Commission requires mutual funds or
unit investment trusts to be valued. The determination of the variable annuity
unit value is made at the end of each valuation day.
Variable Annuity Unit--Variable annuity payments are expressed in terms of
variable annuity units, the value of which fluctuates in relation to the
selected subaccounts.
Variable Annuity Payment Calculation Date--The date, no more than seven business
days before each payment date, when the amount of the variable annuity payment
is determined. If the New York Stock Exchange is closed on a variable annuity
payment calculation date, we will determine the amount of annuity income on the
next day it is open.
3
<PAGE>
In order to supplement the description in the prospectus, the following provides
additional information about PFL and the contract which may be of interest to a
prospective purchaser. Words printed in italics in this Statement of Additional
Information are defined in the Glossary of Terms, found on page 3.
THE CONTRACT--GENERAL PROVISIONS
Transfers
You may transfer amounts within the various subaccounts. You may also transfer
amounts from variable to fixed annuity payments at any time. If you do, then the
payment option for the fixed annuity payments will be a continuation of the
payment option currently applicable to variable annuity payments. Transfers from
fixed to variable annuity payments are not permitted. We may charge a fee for
excessive transfers (we currently do not charge for transfers) or decline to
accept excessive transfers.
Excessive trading activity can disrupt portfolio management strategy and
increase portfolio expenses, which are borne by everyone participating in the
portfolio regardless of their transfer activity.
In some cases, contracts may be sold to individuals who independently utilize
the services of a firm or individual engaged in market timing. Generally, market
timing services obtain authorization from contract owner(s) to make transfers
and exchanges among the subaccounts on the basis of perceived market trends.
Because the large transfers of assets associated with market timing services may
disrupt the management of the portfolios of the underlying funds, such
transactions may hurt contract owners not utilizing the market timing service.
Therefore, we may restrict or eliminate the right to make transfers among
subaccounts if such rights are executed by a market timing firm or similar third
party authorized to initiate transfers or exchange transactions on behalf of a
contract owner(s).
In modifying such rights, we may, among other things, decline to accept:
. transfer or exchange instructions of any agent acting under a power of
attorney on behalf of more than one contract owner, or
. transfer or exchange instructions of individual contract owners who have
executed pre-authorized transfer or exchange forms which are submitted by
market timing firms or other third parties on behalf of more than one
contract owner at the same time.
We will impose such restrictions only if we believe that doing so will prevent
harm to other contract owners.
Delay of Transfers
When you transfer amounts among the subaccounts, we will redeem shares of the
appropriate portfolios at their prices as of the end of the current valuation
period. Generally any subaccount you transfer to is credited at the same time.
However, we may wait to credit the amount to a new subaccount until a subaccount
you transfer from becomes liquid. This will happen only if (1) the subaccount
you transfer to invests in a portfolio that accrues dividends on a daily basis
and requires federal funds before accepting a purchase order, and (2) the
subaccount you transfer from is investing in an equity portfolio in an illiquid
position due to substantial redemptions or transfers that require it to sell
portfolio securities in order to make funds available. The subaccount you
transfer from will be liquid when it receives proceeds from sales of portfolio
securities, the purchase of new contracts, or otherwise. During any period that
we wait to credit a subaccount for this reason, the amount you transfer will be
uninvested. After seven days the transfer will be made even if the subaccount
you transfer from is not liquid.
Entire Contract
The entire contract is made up of the contract, and any riders, endorsements, or
application (including any application supplement or investment allocation
form). No change in or waiver of any provision of the contract is valid unless
the change or waiver is signed by the President or Secretary of PFL.
Assignment
The option to assign is only available for non-tax qualified annuities. Only you
may make an assignment of this contract. You must notify us in writing to assign
this contract. No change will apply to any action taken by us before the written
notice was received. We are not responsible for the validity or the effect of an
assignment.
4
<PAGE>
Beneficiary
The beneficiary is named in the contract specifications section of the contract
or in a subsequent endorsement. More than one beneficiary may be named. The
rights of any beneficiary will be subject to all the provisions of the contract.
You may impose other limitations with our consent.
If any primary or contingent beneficiary dies before the annuitant, that
beneficiary's interest in this contract ends with that beneficiary's death. Only
those beneficiaries living at the time of the annuitant's death will be eligible
to receive their share of the death benefits. In the event no contingent
beneficiaries have been named and all primary beneficiaries have died before the
death benefits become payable, the owner(s) will become the beneficiary(ies)
unless elected otherwise. If both primary and contingent beneficiaries have been
named, payment will be made to the named primary beneficiaries living at the
time the death proceeds become payable. If there is more than one beneficiary
and you failed to specify their interest, they will share equally. Payment will
be made to the named contingent beneficiary(ies) only if all primary
beneficiaries have died before the death benefits become payable. If any primary
beneficiary is alive at the time the death benefits become payable, but dies
before receiving their payment, their share will be paid to their estate.
Change of Beneficiary
You may change the beneficiary while the annuitant is living, unless an
irrevocable one has been named. Change is made by written notice. The change
takes effect on the date the written notice was signed, and the written notice
must have been postmarked on or before the date of the annuitant's death. No
change will apply to any annuity payment made before the written notice was
received. We may require return of the contract for endorsement before making a
change.
Incontestability
The contract is incontestable from the contract issue date.
Misstatement of Sex or Age
If the age or sex of any annuitant has been misstated, the annuity payments will
be those which the premium paid would have purchased for the correct age and
sex. Any underpayment made by us will be paid with the next annuity payment. Any
overpayment made by us will be deducted from future annuity payments. Any
underpayment or overpayment will include interest at 5% per year, from the date
of the incorrect payment to the date of the adjustment.
Modification of Contract
No change in the contract is valid unless made in writing.
Nonparticipating
Your contract is nonparticipating. This means we do not pay dividends on it.
Your contract will not share in our profits or surplus earnings.
Owner
You, the owner, are named in the contract specifications section. You may, while
any annuitant is living, exercise all rights granted by the contract. These
rights are subject to the rights of any assignee or living irrevocable
beneficiary. "Irrevocable" means that you have given up your right to change the
beneficiary named.
Unless we have been notified of a community or marital property interest in the
contract, we will rely on our good faith belief that no such interest exists and
will assume no responsibility for inquiry.
Proof of Death
Any beneficiary claiming an interest in the contract must provide us in writing
with due proof of death of the payee/annuitant and/or secondary annuitant (if
any). We will not be responsible for annuity payments made before we receive due
proof of death at the Administrative and Service Office.
5
<PAGE>
Proof of Survival
If annuity payments under the contract depend on a person being alive on a given
date, proof of survival may be required by us prior to making annuity payments.
Death Before First Payment Date
If any owner, who is an annuitant, dies before the first payment date, the
amount of the death proceeds is the premium plus or minus the investment
performance of the subaccounts. If any owner, who is not an annuitant, dies
before the first payment date, the successor owner may direct the owner's
interest in the contract to be distributed as follows:
. one cash lump sum to be distributed within five years of the deceased
owner's death; or
. annuitize the value of the annuity payments over the lifetime of the
successor owner with payments to begin within one year of the owner's
death; or
. annuitize the value of the annuity payments over a period that does not
exceed the life expectancy of the successor owner, as defined by the
Internal Revenue Code of 1986, as amended (Code), with payments to begin
within one year of the owner's death.
If the deceased owner was also an annuitant, the annuitant's beneficiary is
entitled to the benefit described above. If no person is named as the successor
owner, the owner's estate shall be deemed the successor owner.
Non-natural successor owners may only choose a lump sum distribution. For
qualified contracts, any option chosen must meet the requirements of the Code.
Protection of Proceeds
Unless you so direct by filing written notice with us, no beneficiary may assign
payments under the contract before the same are due. To the extent permitted by
law, no payments under the contract will be subject to the claims of creditors
of any beneficiary.
Asset Allocation Models
General. Rather than selecting individual portfolios (i.e., being "Self-
- -------
Directed") you can select one of four investment allocation models that are
listed on the Investment Allocation Form (which is part of the application). The
amount invested in each subaccount will vary depending on the model's particular
asset allocation percentages. The asset allocation percentages for each model
are shown on the Investment Allocation Form. The four investment allocation
models, listed in descending percentage of equity holdings, are:
. Growth Model
. Growth & Income Model
. Balanced Model
. Conservative Growth Model
The models are general asset mixes. They were developed by Banc One Investment
Advisors Corporation and may or may not be appropriate for you. Banc One
Investment Advisors Corporation serves as an investment advisor to the One Group
Investment Trust Portfolios for which it receives a fee. Banc One Investment
Advisors is not providing investment advice or any other service to you. There
is no guarantee that the models will achieve any desired results or
objectives.
The models should not be considered personal investment advice or serve as the
sole or primary basis for making investment decisions. You should consider
factors such as your age, goals and risk tolerance in selecting a model. You are
solely responsible for determining if a model is right for you.
Before selecting a model, please note:
. only one model can be used at a time;
. you cannot allocate premium to any other subaccount if you select a model;
. each model's allocation percentages may change (which terminates that
model);
. transfers you make between the various subaccounts will terminate your
model; and
. transfers from variable to fixed payments will be pro rata from the
applicable subaccounts.
6
<PAGE>
Rebalancing. Each model will be automatically rebalanced each year on the
- -----------
contract anniversary date. Rebalancing a model may involve transferring from
subaccounts with higher returns into subaccounts with relatively lower returns
in order to maintain the model's asset allocation percentages. Transfers made as
a result of automatic rebalancing are not counted against your 6 free transfers
(in the event transfer fees are imposed in the future). Automatic rebalancing
ends upon the termination of a model.
Termination. You can stop using (i.e., terminate) a model at any time by
- -----------
notifying us at our administrative and service office or by transferring amounts
between the various subaccounts.
A model will also terminate if you are notified that it will be replaced with a
"new" model with different asset allocation percentages. Before you can use the
"new" model, you must sign and return to us within 45 days after the date of the
notice, a consent form accepting the new asset allocation percentages. Absent
your timely affirmative consent, you will:
. keep your current asset allocation percentages;
. be considered "Self-Directed"; and
. not receive automatic rebalancing.
FEDERAL TAX MATTERS
Tax Status of the Contracts
The discussion in the prospectus assumes that the contracts qualify as "annuity
contracts" for federal income tax purposes under the Code.
Diversification Requirements. Section 817(h) of the Code provides that separate
- ----------------------------
account investments underlying a contract must be "adequately diversified" in
accordance with Treasury Department regulations in order for the contract to
qualify as an annuity contract under Section 72 of the Code. The separate
account, through each underlying fund, intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various subaccounts may be
invested. Although PFL does not have direct control over the underlying funds in
which the separate account invests, PFL believes that each fund will meet the
diversification requirements, and therefore, the contract will be treated as an
annuity contract under the Code.
Owner Control. In certain circumstances, owners of variable annuity contracts
- -------------
may be considered the owners, for federal income tax purposes, of the assets of
the separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of separate
account assets if the contract owner possessed incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. The
Treasury Department has also announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e., the
contract owner), rather than the insurance company, to be treated as the owner
of the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which policy-
holders may direct their investments to particular Sub-Accounts without being
treated as owners of the underlying assets."
The ownership rights under the contracts are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the contract owner has the choice of several subaccounts in which to
allocate the premium, and may be able to transfer among subaccounts more
frequently than in such rulings. In addition, the contract provides for more
subaccounts than did the variable contracts that were the subject of such
rulings. These differences could result in a contract owner being treated as the
owner of the assets of the separate account. In addition, PFL does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue. PFL therefore reserves the
right to modify the contract as necessary to attempt to prevent the contract
owner from being considered the owner of the separate account's assets.
Required Distributions. In order to be treated as an annuity contract for
- ----------------------
federal income tax purposes, section 72(s) of the Code requires any non-
qualified contract to provide that: (a) if any contract owner dies on or after
the Annuity Starting Date (as defined in the prospectus) but prior to the time
the entire interest in the contract has been distributed, the remaining portion
of such interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that contract owner's death; and (b)
if any contract owner dies prior to the Annuity Staring Date, the entire
interest in the contract will be distributed within five years after the date of
the contract owner's death. These requirements will be considered satisfied as
to any portion of the contract owner's interest that is payable to or for the
benefit of a "designated beneficiary," and that is distributed over the life of
such designated beneficiary or over a period not extending beyond the life
expectancy of that
7
<PAGE>
beneficiary, provided that such distributions begin within one year of that
contract owner's death. The "designated beneficiary" for these purposes is the
person who becomes the new owner of the contract upon a contract owner's death
and must be a natural person. However, if the contract owner's sole designated
beneficiary is the surviving spouse of the contract owner, the contract may be
continued with the surviving spouse as the new contract owner. The Code further
provides that if the contract owner is not an individual, the primary annuitant
shall be treated as the contract owner for purposes of making distributions that
are required to be made upon the death of the contract owner. (The primary
annuitant is the individual the events in the life of whom are of primary
importance in effecting the timing and amount of the payout under the contract.
If there is a change in the primary annuitant, such change shall be treated as
the death of the contract owner. The contract does not permit a change of the
annuitants, however.
Non-qualified contracts contain provisions that are intended to comply with the
requirements of Section 72(s) of the Code, although no regulations interpreting
these requirements have yet been issued. PFL will review such provisions and
modify them if necessary to assure that they comply with the requirements of
Code Section 72(s) when clarified by regulation or otherwise. Qualified
contracts are subject to similar provisions.
Taxation of PFL
PFL at present is taxed as a life insurance company under part I of Subchapter L
of the Code. The separate account is treated as part of PFL and, accordingly,
will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. We do not expect to incur any federal income tax
liability with respect to investment income and net capital gains arising from
the activities of the separate account retained as part of the reserves under
the contract. Based on this expectation, it is anticipated that no charges will
be made against the separate account for federal income taxes. If, in future
years, any federal income taxes are incurred by PFL with respect to the separate
account, we may make a charge to the separate account.
INVESTMENT EXPERIENCE
A "net investment factor" is used to determine the value of variable annuity
units and to determine the amount of annuity payments as follows:
Annuity Unit Value and Annuity Payment Rates
The amount of variable annuity payments will vary with variable annuity unit
values. Variable annuity unit values rise if the net investment performance of
the subaccount exceeds the assumed investment return. Conversely, variable
annuity unit values fall if the net investment performance of the subaccount is
less than the assumed rate. The value of a variable annuity unit in each
subaccount was established at $1.00 on the date operations began for that
subaccount. The value of a variable annuity unit on any subsequent business day
is equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that subaccount on the
immediately preceding business day;
(b) is the net investment factor for that subaccount for the valuation
period; and
(c) is the daily factor for the valuation period.
The daily factor for the valuation period is a discount factor that reflects the
assumed investment return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
The net investment factor for the contract used to calculate the value of a
variable annuity unit in each subaccount for the valuation period is determined
by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value of a fund share held in that subaccount
determined at the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the fund for shares held in that subaccount
if the ex-dividend date occurs during the valuation period; plus
or minus
(3) a per share charge or credit for any taxes reserved for, which we
determine to have resulted from the investment operations of the
subaccount;
8
<PAGE>
(b) is the net asset value of a fund share held in that subaccount
determined as of the end of the immediately preceding valuation
period; and
(c) is an amount representing the separate account charge as shown in the
specifications section of the contract.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable variable annuity unit values.
Illustrations of Calculations for Annuity Unit Value and Variable Annuity
-------------------------------------------------------------------------
Payments
--------
Formula and Illustration for Determining Annuity Unit Value in each Subaccount
Variable annuity unit value = V = A x B x C
Where: A = variable annuity unit value for the immediately preceding
valuation period.
B = net investment factor for the valuation period for which the
variable annuity unit value is being calculated.
C = a daily factor to neutralize the assumed investment return built
into the annuity tables used.
C = (1/(1+AIR)) (1/365) = 0.999905754 (3.5% AIR) OR 0.999866337 (5%
AIR)
For example, if the AIR is 5% and: A = $20 on the day prior to the
first payment
B = 1.01
C = 1/(1.05)(1/365) = 0.999866337
Then, the variable annuity unit value is equal to V = A x B x C
= $20 x 1.01 x .999866337
= 20.1973
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment = P = (D x E)/$1,000
Where: D = the contract value as of the contract issue date.
E = the annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the annuitant
according to the tables contained in the contract.
For example if: D = $100,000
E = 7.00
Then, the first monthly variable annuity payment is equal to P = (D x E)/$1,000
= ($100,000 x
7.00)/$1,000
= $700
Formula and Illustration for Determining the Number of Annuity Units Represented
by Each Monthly Variable Annuity Payment (assuming investment in only one
Subaccount)
Number of variable annuity units = U = P/V
Where: P = the dollar amount of the first monthly variable annuity
payment.
V = the variable annuity unit value for the valuation date on
which the first monthly payment is due.
For example if: P = $700
9
<PAGE>
V = 20.1973
Then, the variable annuity units is equal to U = P/V
= $700/20.1973
= 34.6581 units
Formula and Illustration for Determining a Future Monthly Variable Annuity
Payment (assuming investment in only one Subaccount)
Monthly variable annuity payment = P = U x V
Where: U = the variable annuity units
V = the variable annuity unit value for the valuation date on
which the future monthly payment is due.
For example if: U = 34.6581
V = 20.6970 (the variable annuity unit value increased since
issue)
Then, the amount of the monthly variable annuity payment = U x V
= 34.6581 x 20.6970
= $717.32
If the variable annuity unit value had actually decreased to V = 19.6970, the
resulting monthly variable annuity payment would = U x V
= 34.6581 x 19.6970
= $682.66
Illustration 4 assumes that no transfers or surrenders are made between
determining the number of variable annuity units and determining the future
monthly variable annuity payment; therefore, the number of variable annuity
units in Illustrations 3 and 4 are the same.
STATE REGULATION OF PFL
We are subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering our
operation for the preceding year and its financial condition as of the end of
such year. Regulation by the Division of Insurance includes periodic examination
to determine our contract liabilities and reserves so that the Division may
determine the items are correct. Our books and accounts are subject to review by
the Division of Insurance at all times and a full examination of its operations
is conducted periodically by the National Association of Insurance
Commissioners. In addition, we are subject to regulation under the insurance
laws of other jurisdictions in which we may operate.
ADMINISTRATION
We perform administrative services for the contracts. These services include
issuance of the contracts, maintenance of records concerning the contracts, and
certain valuation services.
RECORDS AND REPORTS
All records and accounts relating to the separate account will be maintained by
us. As presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, we will mail to all owners at their last known address
of record, at least annually, reports containing such information as may be
required under that Act or by any other applicable law or regulation. Owners
will also receive confirmation of each financial transaction and any other
reports required by law or regulation.
DISTRIBUTION OF THE CONTRACTS
The contracts are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the contracts
is continuous and we do not anticipate discontinuing the offering of the
contracts. However, we reserve the right to discontinue the offering of the
contracts.
10
<PAGE>
AFSG Securities Corporation, an affiliate of PFL, is the principal underwriter
of the contracts and may enter into agreements with broker-dealers for the
distribution of the contracts.
OTHER PRODUCTS
We make other variable annuity contracts available that may also be funded
through the separate account. These variable annuity contracts may have
different features, such as different investment options or charges.
CUSTODY OF ASSETS
The assets of each of the subaccounts of the separate account are held by us.
The assets of each of the subaccounts of the separate account are segregated and
held separate and apart from the assets of the other subaccounts and from our
general account assets. We maintain records of all purchases and redemptions of
shares of the underlying funds held by each of the subaccounts. Additional
protection for the assets of the separate account is afforded by our fidelity
bond, presently in the amount of $5,000,000, covering the acts of our officers
and employees.
HISTORICAL PERFORMANCE DATA
Subaccount Yields
We may from time to time advertise or disclose the current annualized yield of
one or more of the subaccounts of the separate account for 30-day periods. The
annualized yield of a subaccount refers to income generated by the subaccount
over a specific 30-day period. Because the yield is annualized, the yield
generated by a subaccount during the 30-day period is assumed to be generated
each 30-day period over a 12-month period. The yield is computed by: (i)
dividing the net investment income of the subaccount less subaccount expenses
for the period, by (ii) the maximum offering price per unit on the last day of
the period times the daily average number of units outstanding for the period,
compounding that yield for a 6-month period, and (iv) multiplying that result by
2. Expenses attributable to the subaccount include the separate account charge.
The 30-day yield is calculated according to the following formula:
Yield = 2 x ((((NI-ES)/(U x UV)) + 1)/6/-1)
Where:
NI = net investment income of the subaccount for the 30-day period attributable
to the subaccount's unit.
ES = expenses of the subaccount for the 30-day period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30-day period.
Because of the charges imposed by the separate account, the yield for a
subaccount of the separate account will be lower than the yield for its
corresponding portfolio. The yield calculations do not reflect the effect of any
premium taxes or surrender charges that may be applicable to a particular
contract.
The yield on amounts held in the subaccounts of the separate account normally
will fluctuate over time. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. A subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses.
Total Returns
We may from time to time also advertise or disclose total returns for one or
more of the subaccounts of the separate account for various periods of time. One
of the periods of time will include the period measured from the date the
subaccount commenced operations. When a subaccount has been in operation for 1,
5 and 10 years, respectively, the total return for these periods will be
provided. Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of return
that would equate an initial investment of $1,000 to the redemption value of
that investment as of the last day of each of the periods. The ending date for
each period for which total return quotations are provided will be for the most
recent month end practicable, considering the type and media of the
communication and will be stated in the communication.
11
<PAGE>
Total returns will be calculated using subaccount unit values which we calculate
on each business day based on the performance of the subaccount's underlying
portfolio, and the deduction for the separate account charge. Total return
calculations will reflect the effect of surrender charges that may be applicable
to a particular period. The total return will then be calculated according to
the following formula:
P (1 + T)/n/ = ERV
Where:
T = the average annual total return net of subaccount recurring charges.
ERV = the ending redeemable value of the hypothetical account at the end of the
period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Other Performance Data
We may from time to time also disclose average annual total returns in a non-
standard format in conjunction with the standard format described above.
We may from time to time also disclose cumulative total returns in conjunction
with the standard format described above. The cumulative returns will be
calculated using the following formula. The charges reflected in the cumulative
total returns include the actual total annual portfolio expenses of the
applicable fund and the separate account charge of 1.35%.
CTR = (ERV / P)-1
Where:
CTR = the cumulative total return net of subaccount recurring charges for the
period.
ERV = the ending redeemable value of the hypothetical investment at the end of
the period.
P = a hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
Adjusted Historical Performance Data
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date the separate account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the various portfolios and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
portfolios, with the level of contract charges that were in effect at the
inception of the subaccounts.
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the contracts has been provided to us by
Sutherland, Asbill & Brennan LLP, of Washington D.C.
INDEPENDENT AUDITORS
The statutory-basis financial statements and schedules of PFL as of December 31,
1998 and 1997, and for each of the three years in the period ended December 31,
1998, included in this Statement of Additional Information have been audited by
Ernst & Young LLP, Independent Auditors, Suite 3400, 801 Grand Avenue, Des
Moines, Iowa 50309.
12
<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
contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the registration statement, amendments and exhibits
thereto has been included in the prospectus or this Statement of Additional
Information. Statements contained in the prospectus and this Statement of
Additional Information concerning the content of the contracts and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The values of the interest of owners in the separate account will be affected
solely by the investment results of the selected subaccount(s). The statutory-
basis financial statements of PFL, which are included in this Statement of
Additional Information, should be considered only as bearing on PFL's ability to
meet its obligations under the contracts. They should not be considered as
bearing on the investment performance of the assets held in the separate
account.
13
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of PFL Life
Insurance Company authorizing establishment of the
Separate Account. Note 1
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between PFL
Life Insurance Company, on its own behalf and on
behalf of the Separate Account, and AFSG Securities
Corporation. Note 3
(b) Form of Broker/Dealer Supervision and Sales Agreement
by and between AFSG Securities Corporation and the
Broker/Dealer. Note 3
(4) (a) Form of the Contract for The One Income Annuity. Note
5
(5) (a) Form of Application for The One Income 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 among One Group
Investment Trust, Nationwide Advisory Services,
Nationwide Investors Services and PFL Life Insurance
Company. Note 7
(9) Opinion and Consent of Counsel. Note 6
(10) (a) Consent of Independent Auditors. Note 7
(10) (b) Opinion and Consent of Actuary. Note 6
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calculations. Note 8
(14) Powers of Attorney. (Patrick S. Baird, Craig D.
Vermie, William L. Busler, Douglas C. Kolsrud, Robert
J. Kontz) Note 1 (Brenda K. Clancy) Note 2 (Larry N.
Norman) Note 4
<PAGE>
Note 1. Incorporated herein by reference to the Initial filing of
Registrants Form N-4 Registration Statement (File No. 333-7509) on
July 3, 1996.
Note 2. Incorporated herein by reference to the Registrants filing of Pre-
Effective Amendment No. 1 to Form N-4 Registration Statement (File
No. 333-7509) on December 6, 1996.
Note 3. Incorporated herein by reference to the Registrant's filing of
Post-Effective Amendment No. 4 to Form N-4 Registration Statement
(File No. 333-7509) on April 30, 1998.
Note 4. Incorporated herein by reference to the Registrant's filing of
Post-Effective Amendment No. 5 to Form N-4 Registration Statement
(File No. 333-7509) on July 16, 1998.
Note 5. Incorporated herein by reference to the Registrant's filing of Pre-
Effective Amendment No. 1 to Form N-4 Registration Statement (File
No. 333-7509) on December 11, 1998.
Note 6. Filed with the Initial Form N-4 Registration Statement (File 333-
78743) on May 19, 1999.
Note 7. Filed herewith.
Note 8. To be filed by amendment.
<PAGE>
Item 25. Directors and Officers of the Depositor (PFL Life Insurance Company)
Name and Business Address Principal Positions and Offices with Depositor
------------------------- ----------------------------------------------
William L. Busler Director, Chairman of the Board and President
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Patrick S. Baird Director, Senior Vice President and Chief
4333 Edgewood Road, N.E. Officer Operating
Cedar Rapids, Iowa 52499-0001
Craig D. Vermie Director, Vice President, Secretary
4333 Edgewood Road, N.E. and General Counsel
Cedar Rapids, Iowa 52499-0001
Douglas C. Kolsrud Director, Senior Vice President,
4333 Edgewood Road, N.E. Chief Investment Officer and Corporate
Cedar Rapids, Iowa 52499-0001 Actuary
Larry N. Norman Director and Executive Vice President
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Robert J. Kontz Vice President and Corporate Controller
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Brenda K. Clancy Vice President, Treasurer and Chief Financial
4333 Edgewood Road, N.E. Officer
Cedar Rapids, Iowa 52499-0001
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- --------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
Monumental General Maryland 100% Monumental General Provides management
Administrators, Inc. Insurance Group, Inc. srvcs. to unaffiliated
third party administrator
Executive Management and Maryland 100% Monumental General Provides actuarial
Consultant Services, Inc. Administrators, Inc. consulting services
Monumental General Mass Maryland 100% Monumental General Marketing arm for
Marketing, Inc. Insurance Group, Inc. sale of mass marketed
insurance coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment
Advisors, Inc. advisor
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Real estate investment
Ins. Co , 13.11% PFL Life trust
Ins. Co. 4.86% Bankers
United Life Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Limited Partnership
Partnership Advisors 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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
Services, Inc. advisor
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding Company
company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Insurance
Company of America Ins. Co.
Life Investors Alliance, LLC Delaware 100% LIICA Purchases, own, and hold
the equity interest of other
entities
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Insurance
Ins. Co.
AEGON Financial Services Minnesota 100% PFL Life Insurance 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 Administrator of structured
Services Group settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Insurance
Co. of Ohio Ins. Co.
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment
Management, Inc. Assurance Co. of Ohio advisor
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency Ohio 100% ISI Insurance Insurance agency
of Ohio, Inc. Agency Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Texas 100% ISI Insurance Insurance agency
of Texas, Inc. Agency Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Insurance Agency
of Massachusetts, Inc. Agency Inc.
Monumental Life Insurance Co. Maryland 100% First AUSA Life Insurance
Ins. Co.
AEGON Special Markets Maryland 100% Monumental Life Marketing
Group, Inc. Ins. Co.
Monumental General Casualty Co. Maryland 100% First AUSA Life Insurance
Ins. Co.
United Financial Services, Inc. Maryland 100% First AUSA Life General agency
Ins. Co.
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Insurance
Ins. Co.
The Whitestone Corporation Maryland 100% First AUSA Life Insurance agency
Ins. Co.
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Ins. Co.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins.
cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security
Life Insurance Company
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
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, Illinois 100% Ampac Insurance TPA license-holder
Inc. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment
Agency, Inc. lessor
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
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.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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, Inc. Group, Inc. services
Unicom Administrative Germany 100%Unicom Administrative Provider of admin.
Services, GmbH Services, Inc. services
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
Insurance Co.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
Item 27. Number of Contract Owners
As of December 31, 1998, there were no Contract owners.
Item 28. Indemnification
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code
also specifies producers for determining when indemnification payments can
be made.
Insofar as indemnification for liabilities arising under the Securities Act
of 933 may be permitted to directors, officers and controlling persons of
the Depositor pursuant to the foregoing provisions, or otherwise, the
Depositor has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Depositor of expenses incurred or paid by a director, officer or
controlling person in connection with the securities being registered), the
Depositor will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
The directors and officers of AFSG Securities Corporation are as follows:
Larry N. Norman Sarah J. Strange
Director and President Director and Vice President
Frank A. Camp Bob Warner
Director and Secretary Assistant Compliance Office
Lisa Wachendorf Linda Gilmer
Vice President and Treasurer/Controller
Chief Compliance Officer
Priscilla Hechler
Debra C. Cubero Assistant Vice President anistant Secretary
Vice President
Emily Bates Thomas Pierpan
Assistant Treasurer Assistant Vice President anistant Secretary
Clifton Flenniken Darin D. Smith
Assistant Treasurer Assistant Vice President anistant Secretary
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
<PAGE>
Commissions and Other Compensation Received by Principal Underwriter.
---------------------------------------------------------------------
AFSG Securities Corporation, the broker/dealer, received $0 from the
Registrant for the year ending December 31, 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.
Item 31. Management Services.
All management Contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment
to this registration statement as frequently as necessary to
ensure that the audited financial statements in the registration
statement are never more than 16 months old for so long as
Premiums under the Contract may be accepted.
(b) Registrant undertakes that it will include either (i) a postcard
or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement
of Additional Information or (ii) a space in the Policy
application that an applicant can check to request a Statement of
Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral request to
PFL at the address or phone number listed in the Prospectus.
(d) PFL Life Insurance Company hereby represents that the fees and
charges deducted under the contracts, in the aggregate, are
reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by PFL Life
Insurance Company.
<PAGE>
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 19th day of
------
July, 1999.
PFL RETIREMENT BUILDER
VARIABLE ANNUITY ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler *
--------------------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Patrick S. Baird * Director July 19/th/ , 1999
- ------------------------ ------
Patrick S. Baird
/s/ Craig D. Vermie Director July 19/th/ , 1999
- ------------------------ ------
Craig D. Vermie
/s/ William L. Busler * Director July 19/th/ , 1999
- ------------------------ ------
William L. Busler (Principal Executive Officer)
/s/ Larry N. Norman * Director July 19/th/ , 1999
- ------------------------ ------
Larry N. Norman
/s/ Douglas C. Kolsrud * Director July 19/th/ , 1999
- ------------------------ ------
Douglas C. Kolsrud
/s/ Robert J. Kontz * Vice President and July 19/th/ , 1999
- ------------------------ ------
Robert J. Kontz Corporate Controller
/s/ Brenda K. Clancy * Treasurer July 19/th/ , 1999
- ------------------------ ------
Brenda K. Clancy
* By Craig D. Vermie, attorney in-fact.
<PAGE>
REGISTRATION NO.
333-78743
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
THE ONE INCOME ANNUITY
_______________
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. Description of Exhibit Page No.*
- ----------- ---------------------- ---------
(8)(a) Participation Agreement
(10)(a) Consent of Independent Auditors
- ------------------------------------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (8)(a)
--------------
PARTICIPATION AGREEMENT
<PAGE>
EXHIBIT 8A
FUND PARTICIPATION AGREEMENT
----------------------------
This Fund Participation Agreement (the "Agreement"), dated as of the
1st day of August, 1999, is made by and among American General Annuity Insurance
Company ("Company"), One Group(R) Investment Trust (the "Trust"), the Trust's
investment advisor, Banc One Investment Advisors Corporation (the "Adviser"),
the Trust's administrator, Nationwide Advisory Services, Inc. (the
"Administrator"), and the Trust's transfer agent, Nationwide Investors Services,
Inc. (the "Transfer Agent").
WHEREAS, the Trust engages in business as an open-end
management investment company and is available to act as the
investment vehicle for separate accounts established by insurance
companies for individual and group life insurance policies and
annuity contracts with variable accumulation and/or pay-out
provisions (hereinafter referred to individually and/or
collectively as "Variable Insurance Products");
WHEREAS, insurance companies desiring to utilize the Trust
as an investment vehicle under their Variable Insurance Products
are required to enter into participation agreements with the
Trust and the Administrator (the "Participating Insurance
Companies");
WHEREAS, shares of the Trust are divided into several series
of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of
which may be made available for Variable Insurance Products of
Participating Insurance Companies;
WHEREAS, the Trust intends to offer shares of the series set
forth on Schedule B (each such series hereinafter referred to as
a "Portfolio") as may be amended from time to time by mutual
agreement of the parties hereto under this Agreement to the
accounts of the Company specified on Schedule A (hereinafter
referred to individually as an "Account"; collectively, the
"Accounts")
WHEREAS, the Trust has obtained an order from the Securities
and Exchange Commission, granting the Trust exemptions from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and
held by Variable Insurance Product separate accounts of both
affiliated and unaffiliated insurance companies (hereinafter the
"Shared Funding Exemptive Order");
WHEREAS, the Trust is registered as an open-end management
investment company under the 1940 Act and its shares are
registered under the Securities Act of 1933, as amended
(hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended,
and any applicable state securities laws;
WHEREAS, the Adviser is the investment adviser of the
Portfolios of the Trust;
WHEREAS, the Company has registered certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance
laws and regulations, the Company intends to purchase shares in
the Portfolios on behalf of each Account to fund certain of the
aforesaid Variable Insurance Products and the Trust is authorized
to sell such shares to each such Account at net asset value.
1
<PAGE>
Article 1
The Contracts
-------------
1. The Company represents that it has established each of the Accounts
specified on Schedule A as a separate account under Texas law, and has
registered each such Account as a unit investment trust under the 1940 Act
to serve as an investment vehicle for variable annuity contracts and/ or
variable life contracts offered by the Company (the "Contracts"). The
Contracts provide for the allocation of net amounts received by the Company
to separate divisions of the Account for investment in the shares of the
Portfolios. Selection of a particular division is made by the Contract
owner who may change such selection from time to time in accordance with
the terms of the applicable Contract. The Company agrees to make every
reasonable effort to market its Contracts. In marketing its Contracts, the
Company will comply with all applicable state or Federal laws.
Article 2
Trust Shares
------------
2.1 The Trust agrees to make available for purchase by the Company
shares of the Portfolios and shall execute orders placed for each Account
on a daily basis at the net asset value next computed after receipt by the
Trust or its designee of such order. For purposes of this Section 2.1, the
Company shall be the designee of the Trust for receipt of such orders from
the Account and receipt by such designee shall constitute receipt by the
Trust; provided that the Trust receives notice of such order by 10:00 a.m.
Eastern Time on the next following Business Day. Notwithstanding the
foregoing, the Company shall use its best efforts to provide the Trust with
notice of such orders by 9:30 a.m. Eastern Time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Securities and Exchange
Commission, as set forth in the Trust's prospectus and statement of
additional information. Notwithstanding the foregoing, the Board of
Trustees of the Trust (hereinafter the "Board") may refuse to permit the
Trust to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio .
2.2. The Trust agrees that shares of the Trust will be sold only to
Participating Insurance Companies for their Variable Insurance Products
and, in the Trust's discretion, to qualified pension and retirement plans.
No shares of any Portfolio will be sold to the general public.
2.3. The Trust and the Transfer Agent agree to redeem for cash, on
the Company's request, any full or fractional shares of the Trust held by
the Company, executing such requests on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the
request for redemption. For purposes of this Section 2.3, the Company shall
be the designee of the Trust for receipt of requests for redemption from
each Account and receipt by such designee shall constitute receipt by the
Trust; provided that the Transfer Agent receives notice of such request for
redemption on the next following Business Day in accordance with the timing
rules described in Section 2.1.
2.4. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Trust shall be made in
accordance with the provisions of such prospectus. The Accounts of the
Company, under which amounts may be invested in the Trust are listed on
Schedule A attached hereto and incorporated herein by reference, as such
Schedule A may be amended from time to time by mutual written agreement of
all of the parties hereto. The Company will give the Trust and the Adviser
concurrent written notice of its intention to make available in the future,
as a funding vehicle under the Contracts, any other investment company.
2.5. The Company will place separate orders to purchase or redeem
shares of each Portfolio. Each order shall describe the net amount of
shares and dollar amount of each Portfolio to be purchased or redeemed. In
the event of net purchases, the Company shall pay for Portfolio shares on
the next Business Day after an order to purchase Portfolio shares is made
in accordance with the provisions of Section 2.1 hereof. Payment
2
<PAGE>
shall be in federal funds transmitted by wire. In the event of net
redemptions, the Portfolio shall pay the redemption proceeds in federal
funds transmitted by wire on the next Business Day after an order to redeem
Portfolio shares is made in accordance with the provisions of Section 2.3
hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
Portfolio securities or otherwise incur substantial additional costs, and
if the Portfolio has determined to settle redemption transactions for all
shareholders on a delayed basis, proceeds shall be wired to the Company
within seven (7) days and the Portfolio shall notify in writing the person
designated by the Company as the recipient for such notice of such delay by
3:00 p.m.Eastern Time on the same Business Day that the Company transmits
the redemption order to the Portfolio.
2.6. Issuance and transfer of the Trust's shares will be by book
entry only. Share certificates will not be issued to the Company or any
Account. Shares ordered from the Trust will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
2.7. The Administrator shall use its best efforts to furnish same day
notice by 5:00 p.m. Eastern Time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Trust's shares. The Company hereby elects to receive all
such dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such
dividends and capital gain distributions in cash. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends
and distributions.
2.8. The Administrator shall make the net asset value per share of
each Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. Eastern Time. In the event that the Administrator is unable to
meet the 6:30 p.m. time stated immediately above, then the Administrator
shall provide the Company with additional time to notify the Administrator
of purchase or redemption orders pursuant to Sections 2.1 and 2.3,
respectively, above. Such additional time shall be equal to the additional
time that the Administrator takes to make the net asset values available to
the Company; provided, however, that notification must be made by 10:00
a.m. Eastern Time on the Business Day such order is to be executed,
regardless of when net asset value is made available.
2.9. If the Administrator provides materially incorrect share net asset
value information through no fault of the Company, the Company shall be entitled
to an adjustment with respect to the Trust shares purchased or redeemed to
reflect the correct net asset value per share as subsequently determined by the
Administrator. The determination of the materiality of any net asset value
pricing error shall be based on the Trust's policy for correction of pricing
errors (the "Pricing Policy"). The correction of any such errors shall be made
at the Company level pursuant to the Pricing Policy. Any material error in the
calculation or reporting of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to the Company.
Article 3
Prospectuses, Reports to Shareholders and Proxy Statements, Voting
------------------------------------------------------------------
3.1 The Trust shall provide the Company with as many printed copies
of the Trust's current prospectus as the Company may reasonably request.
The Administrator will provide the Company with a copy of the statement of
additional information suitable for duplication. If requested by the
Company, in lieu of providing printed copies, the Trust shall provide
camera-ready film or computer diskettes containing the Trust's prospectus
and statement of additional information in order for the Company once each
year (or more frequently if the prospectus and/or statement of additional
information for the Trust is amended during the year) to have the
prospectus for the Contracts and the Trust's prospectus printed together in
one document or separately. The Company may elect to print the Trust's
prospectus and/or its statement of additional information in combination
with other investment companies' prospectuses and statements of additional
information.
3.2(a). Except as otherwise provided in this Section 3.2, all expenses
of preparing, setting in type and printing and distributing Trust
prospectuses and statements of additional information shall be the expense
of
3
<PAGE>
the Company. For prospectuses and statements of additional information
provided by the Company to its existing owners of Contracts in order to
update disclosure as required by the 1933 Act and/or the 1940 Act, the cost
of setting in type, printing and distributing shall be borne by the Trust.
If the Company chooses to receive camera-ready film or computer diskettes
in lieu of receiving printed copies of the Trust's prospectus and/or
statement of additional information, the Trust shall bear the cost of
typesetting to provide the Trust's prospectus and/or statement of
additional information to the Company in the format in which the Trust is
accustomed to formatting prospectuses and statements of additional
information, respectively, and the Company shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses
and/or statements of additional information. In such event, the Trust will
reimburse the Company in an amount equal to the product of x and y where x
is the number of such prospectuses distributed to owners of the Contracts,
and y is the Trust's per unit cost of printing the Trust's prospectuses.
The same procedures shall be followed with respect to the Trust's statement
of additional information. The Trust shall not pay any costs of
typesetting, printing and distributing the Trust's prospectus and/or
statement of additional information to prospective Contract owners.
3.2(b). The Trust, at the Company's expense, shall provide the Company
with copies of Annual and Semi-Annual Reports (the "Reports") in such
quantity as the Company shall reasonably require for distributing to
Contract owners. The Trust, at its expense, shall provide the Contract
owners designated by the Company with copies of its proxy statements and
other communications to shareholders (except for prospectuses and
statements of additional information, and which are covered in Section
3.2(a) above, and Reports). The Trust shall not pay any costs of
distributing proxy-related materials, Reports, and other communications to
prospective Contract owners.
3.2(c).The Company agrees to provide the Trust or its designee with
such information as may be reasonably requested by the Trust to assure that
the Trust's expenses do not include the cost of typesetting, printing or
distributing any of the foregoing documents other than those actually
distributed to existing Contract owners.
3.2(d). The Trust shall pay no fee or other compensation to the
Company under this Agreement, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Trust may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Trust in
writing.
3.2(e). All expenses, including expenses to be borne by the Trust
pursuant to Section 3.2 hereof, incident to performance by the Trust under
this Agreement shall be paid by the Trust. The Trust shall see to it that
all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent deemed advisable by
the Trust, in accordance with applicable state laws prior to their sale.
The Trust shall bear the expenses for the cost of registration and
qualification of the Trust's shares.
3.3. The Trust's statement of additional information shall be
obtainable from the Trust, the Administrator, the Company or such other
person as the Trust may designate.
3.4. If and to the extent required by law, the Company shall with
respect to proxy material distributed by the Trust to Contract owners
designated by the Company to whom voting privileges are required to be
extended:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions
received from Contract owners; and
(iii) vote Trust shares for which no instructions have been
received in the same proportion as Trust shares of such Portfolio
for which instructions have been received, so long as and to the
extent that the Securities and Exchange Commission continues to
interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to
vote Trust shares held in any segregated asset account in its own
right, to the extent permitted by law.
4
<PAGE>
Article 4
Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to
the Trust, the Adviser or their designee, drafts of the separate accounts
prospectuses and statements of additional information and each piece of
sales literature or other promotional material prepared by the Company or
any person contracting with the Company to prepare such material in which
the Trust, the Adviser or the Administrator is described, at least ten
Business Days prior to its use. No such material shall be used if the
Trust, the Adviser, the Administrator or their designee reasonably objects
to such use within ten Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the Company
to prepare sales literature or other promotional material shall give any
information or make any representations or statements on behalf of the
Trust or concerning the Trust in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or Trust prospectus, as such registration statement or Trust
prospectus may be amended or supplemented from time to time, or in reports
to shareholders or proxy statements for the Trust, or in sales literature
or other promotional material approved by the Trust or its designee, except
with the permission of the Trust or its designee.
4.3. The Adviser shall furnish, or shall cause to be furnished, to
the Company or its designee, each piece of sales literature or other
promotional material prepared by the Trust in which the Company or its
Accounts, are described at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably
objects to such use within ten Business Days after receipt of such
material.
4.4. Neither the Trust, the Administrator, the Transfer Agent, nor
the Adviser shall give any information or make any representations on
behalf of the Company or concerning the Company, each Account, or the
Contracts, other than the information or representations contained in a
registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from
time to time, or in published reports or solicitations for voting
instruction for each Account which are in the public domain or approved by
the Company for distribution to Contract owners, or in sales literature or
other promotional material approved by the Company or its designee, except
with the permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Trust or its shares, promptly after the filing of such
document with the Securities and Exchange Commission or other regulatory
authorities.
4.6. The Company will provide to the Trust, upon the Trust's request,
at least one complete copy of all registration statements, prospectuses,
statements of additional information, reports, solicitations for voting
instructions, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and all
amendments to any of the above, that relate to the investment in an Account
or Contract, contemporaneously with the filing of such documents with the
Securities and Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article 4, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use
in, a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape, display, signs or billboards,
motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers
or the public, including brochures, circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), and educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
5
<PAGE>
4.8 The Company and its agents shall make no representations
concerning the Trust except those contained in the then-current prospectus
and Statement of Additional Information of the Trust and in current printed
sales literature of the Trust.
Article 5
Administrative Services to Contract owners
------------------------------------------
5. Administrative services to Contract owners shall be the
responsibility of the Company and shall not be the responsibility of the
Trust or the Administrator. The Trust and the Administrator recognize that
the Company will be the sole shareholder of Trust shares issued pursuant to
the Contracts.
Article 6
Representations and Warranties
------------------------------
6.1. The Trust represents that it believes, in good faith, that the
Trust is currently qualified as a regulated investment companies under
Subchapter M of the Internal Revenue Code of 1986,as amended (the "Code")
and that it will make every effort to maintain such qualification of the
Trust and that it will notify the Company immediately upon having a
reasonable basis for believing that a Fund has ceased to so qualify or that
it might not so qualify in the future.
6.2. The Company represents that it believes, in good faith, that the
Contracts will at all times be treated as annuity contracts under
applicable provisions of the Code, and that it will make every effort to
maintain such treatment and that it will notify the Trust immediately upon
having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
6.3. The Trust represents that it believes, in good faith, that the
Funds will at all times comply with the diversification requirements set
forth in Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code, and that it will make every effort to maintain
the Trust's' compliance with such diversification requirements, and that it
will notify the Company immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that a Fund might not so
qualify in the future.
6.4. The Company represents and warrants that the interests of the
Contracts are or will be registered unless exempt and that it will maintain
such registration under the 1933 Act and the regulations thereunder to the
extent required by the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws and
regulations. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under the Texas
Insurance Code and the regulations thereunder and has registered or, prior
to any issuance or sale of the Contracts, will maintain the registration of
each Account as a unit investment trust in accordance with and to the
extent required by the provisions of the 1940 Act and the regulations
thereunder, unless exempt therefrom, to serve as a segregated investment
account for the Contracts. The Company shall amend its registration
statement for its contracts under the 1933 Act and the 1940 Act from time
to time as required in order to effect the continuous offering of its
Contracts.
6.5. The Company represents that it believes, in good faith, that the
Variable Account is a "segregated asset account" and that interests in the
Variable Account are offered exclusively through the purchase of a
"variable contract," within the meaning of such terms under Section 1.8170-
5(f) (2) of the regulations under the Code, and that it will make every
effort to continue to meet such definitional requirements, and that it will
notify the Trust immediately upon having a reasonable basis for believing
that such requirements have ceased to be met or that they might not be met
in the future.
6.6. The Trust represents and warrants that it is and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Trust in an amount no less than the minimal coverage
as required currently by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated
6
<PAGE>
from time to time. Such bond shall include coverage for larceny and
embezzlement and shall be issued by a relevant bonding company.
6.7. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other entities dealing with
the money or securities of the Trust are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the
benefit of the Trust, in an amount not less than five million dollars
($5,000,000). Such bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
6.9. The Trust represents that to the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act,
the Trust undertakes to have a majority of the disinterested members of the
Board, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
6.10. The Administrator and Transfer Agent each represents and
warrants that it complies with all applicable federal and state laws and
regulations and that it will perform its obligations for the Trust and the
Company in compliance with the laws and regulations of its state of
domicile and any applicable state and federal laws and regulations.
6.11. The Trust shall provide the Company within ten (10) business
days after the end of each calendar quarter a letter from the appropriate
officer of the Trust certifying to the continued accuracy of the
representations contained in Sections 6.1, 6.3, and 6.6.
Article 7
Statements and Reports
----------------------
7.1 The Administrator or its designee shall provide the Company
within five (5) business days after the end of each month a monthly
statement of account confirming all transactions made during that month in
the Account.
7.2 The Trust and Administrator agree to provide the Company no
later than March 1 of each year with the investment advisory and other
expenses of the Trust incurred during the Trust's most recently completed
fiscal year, to permit the Company to fulfill its prospectus disclosure
obligations under the SEC's variable annuity fee table requirements.
Article 8
Potential Conflicts
-------------------
8.1. The Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract
owners of all separate accounts investing in the Trust. An irreconcilable
material conflict may arise for a variety of reasons, including: (a) an
action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
8.2. The Company will report in writing any potential or existing
material irreconcilable conflict of which it is aware to the Administrator.
Upon receipt of such report, the Administrator shall report the potential
or existing material irreconcilable conflict to the Board. The
Administrator shall also report to the Board on a quarterly basis whether
the Company has reported any potential or existing material irreconcilable
conflicts during the previous calendar quarter. The Company will assist the
Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary
7
<PAGE>
for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded.
8.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested trustees), take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the
separate accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to)
another Portfolio of the Trust, or submitting the question whether such
segregation should be implemented to a vote of all affected Contract owners
and, as appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance policy owners, or variable contract
owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Contract owners the
option of making such a change; and (2) establishing a new registered
management investment company or managed separate account. No charge or
penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a
Board determination of an irreconcilable material conflict and the cost of
such remedial action, and these responsibilities will be carried out with a
view only to the interests of Contract owners.
8.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw the
affected Account's investment in the Trust and terminate this Agreement
with respect to such Account (at the Company's expense); provided, however
that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by
a majority of the disinterested members of the Board. No charge or penalty
will be imposed as a result of such withdrawal. The Company agrees that it
bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view
only to the interests of Contract owners.
8.5. For purposes of Sections 8.3 through 8.4 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Trust be required to establish a new
funding medium for the Contracts. The Company shall not be required by
Section 8.3 through 8.4 to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract
owners materially adversely affected by the irreconcilable material
conflict.
8.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with respect
to mixed or shared funding (as defined in the Shared Funding Exemptive
Order) on terms and conditions materially different from those contained in
the Shared Funding Exemptive Order, then the Trust and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable.
8.7. Each of the Company and the Adviser shall at least annually
submit to the Board such reports, materials or data as the Board may
reasonably request so that the Board may fully carry out the obligations
imposed upon them by the provisions hereof and in the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted
more frequently if deemed appropriate by the Board. Without limiting the
generality of the foregoing or the Company's obligations under Section 8.2,
the Company shall provide a written report to the Board no later than
January 15th of each year indicating whether any material irreconcilable
conflicts have arisen during the prior fiscal year of the Trust. All
reports received by the Board of potential or existing conflicts, and all
Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies of a conflict, and determining
whether any proposed action adequately remedies a conflict, shall be
properly recorded in the minutes of the Board or other appropriate records,
and such minutes or other records shall be made available to the Securities
and Exchange Commission upon request.
8
<PAGE>
Article 9
Indemnification
---------------
9.1. Indemnification By The Company
------------------------------
9.1 (a). The Company agrees to indemnify and hold harmless the Trust,
the Administrator, the Transfer Agent, the Adviser, and each member of their
respective Boards and officers and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 9.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained
in the registration statement or prospectus for the
Contracts or contained in the Contracts or sales literature
for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or
on behalf of the Trust for use in the registration statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Trust
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature of the Trust not supplied by the Company, or
persons under its control and other than statements or
representations authorized by the Trust) or unlawful conduct
of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Trust shares;
or
(iii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact contained in
a registration statement, prospectus, or sales literature of
the Trust or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Trust by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company; as limited
by and in accordance with the provisions of Section 7.1(b)
and 7.1(c) hereof.
9.1 (b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
9.1 (c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
9
<PAGE>
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at as own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
Indemnified Party named in the action. After notice from the Company to such
Indemnified Party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company shall not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof
other than reasonable costs of investigation.
9.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust shares or the Contracts or the operation of
the Trust.
9.2. Indemnification by Administrator
--------------------------------
9.2(a). The Administrator agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 9.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Administrator) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Trust (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Trust or
the Administrator by or on behalf of the Company, the Adviser,
the Transfer Agent, Counsel for the Trust, the independent
public accountant to the Trust, or any person or entity that
is not acting as agent for or controlled by the Administrator
for use in the registration statement or prospectus for the
Trust or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Administrator;
(iii) arise as A result of any failure by the Administrator to
provide the services and furnish the materials under the terms
of this Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Administrator in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Administrator; as
limited by and in accordance with the provisions of Section
9.2(b) and 9.2(c) hereof.
9.2(b). The Administrator shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such
10
<PAGE>
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
9.2(c). The Administrator shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Administrator in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Administrator
of any such claim shall not relieve the Administrator from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Administrator will be
entitled to participate, at its own expense, in the defense thereof. The
Administrator also shall be entitled to assume the defense thereof, with counsel
satisfactory to the Indemnified Party named in the action. After notice from the
Administrator to such Indemnified Party of the Administrator's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Administrator will
not be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
9.2(d). The Company agrees promptly to notify the Administrator of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account in which the Portfolios are made available.
9.3. Indemnification by the Adviser
------------------------------
9.3(a). The Adviser agrees to indemnify and hold harmless the Company
and its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 9.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Trust (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Adviser or
the Trust by or on behalf of the Company, the Administrator,
the Transfer Agent, Counsel for the Trust, the independent
public accountant to the Trust, or any person or entity that is
not acting as agent for or controlled by the Adviser for use in
the registration statement or prospectus for the Trust or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or
Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Adviser; or
(iii) arise as a result of any failure by the Adviser to
provide the services and furnish the materials under the terms
of this Agreement; or
11
<PAGE>
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser; as limited by and in
accordance with the provisions of Section 9.3(b) and 9.3(c)
hereof.
9.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
9.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Adviser to such Indemnified Party of
the Adviser's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Adviser will not be liable to such Indemnified Party under this Agreement
for any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other then reasonable costs
of investigation.
9.3(d). The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of each Account, or the
sale or acquisition of shares of the Trust.
9.4. Indemnification by the Trust
----------------------------
9.4(a). The Trust agrees to indemnify and hold harmless the Company and
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 9.4) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished the Trust by
or on behalf of the Adviser, the Company, the Transfer Agent, or the
Administrator for use in the registration statement or prospectus for the Trust
or in sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by or on
behalf of the Trust; or
(iii) arise as a result of any failure by the Trust to provide
the services and furnish the materials under the terms of this
Agreement; or
12
<PAGE>
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Trust; as limited by and in
accordance with the provisions of Section 9.4(b) and 9.4(c)
hereof.
9.4(b). The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
9.4(c). The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Trust of any
such claim shall not relieve the Trust from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. The Trust also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Trust to such Indemnified Party of
the Trust's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Trust will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other then reasonable costs
of investigation.
9.4(d). The Company agrees to promptly notify the Trust of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of each Account, or the
sale or acquisition of shares of the Trust.
9.5. Indemnification by Transfer Agent
9.5(a). The Transfer Agent agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.5)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Transfer Agent) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Trust or the Transfer Agent by or on behalf of the Company, the
Adviser, the Administrator, Counsel for the Trust, the independent
public accountant to the Trust, or any person or entity that is not
acting as agent for or controlled by the Transfer Agent for use in the
registration statement or prospectus for the Trust or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Transfer Agent;
or
13
<PAGE>
(iii) arise as a result of any failure by the Transfer Agent to
provide the services and furnish the materials under the terms
of this Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Transfer Agent in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Transfer Agent; as
limited by and in accordance with the provisions of Section
9.5(b) and 9.5(c) hereof.
9.5(b). The Transfer Agent shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
9.5(c). The Transfer Agent shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Transfer Agent in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Transfer Agent
of any such claim shall not relieve the Transfer Agent from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Transfer Agent will be
entitled to participate, at its own expense, in the defense thereof. The
Transfer Agent also shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnified Party named in the action. After notice
from the Transfer Agent to such Indemnified Party of the Transfer Agent's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Transfer
Agent will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
9.5(d). The Company agrees promptly to notify the Transfer Agent of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account in which the Portfolios are made available.
Article 10
Applicable Law
--------------
10.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Massachusetts.
10.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
Article 11
Termination
-----------
11.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason upon six-months
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the
Trust, the Adviser, the Transfer Agent and the Administrator with
respect to any Portfolio based upon the Company's determination that
shares of such Portfolio are not reasonably available to meet the
requirements of the Contracts. Reasonable advance notice of election to
terminate shall be furnished by the Company, said termination to be
effective ten (10)
14
<PAGE>
days after receipt of notice unless the Trust makes available a sufficient
number of shares to reasonably meet the requirements of the Account within said
ten (10) day period; or
(c) termination by the Company upon written notice to the Trust, the
Adviser, the Transfer Agent and the Administrator with respect to any Portfolio
in the event any of the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment medium of the Contracts issued
or to be issued by the Company. The terminating party shall give prompt notice
to the other parties of its decision to terminate; or
(d) termination by the Company upon written notice to the Trust, the
Adviser and the Administrator with respect to any Portfolio in the event that
such portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision; or
(e) termination by the Company upon written notice to the Trust, the
Adviser, the Transfer Agent and the Administrator with respect to any Portfolio
in the event that such Portfolio fails to meet the diversification requirements
specified in Section 6.3 hereof; or
(f) termination by either the Trust, the Adviser, the Transfer Agent or
the Administrator by written notice to the Company, if either one or more of the
Trust, the Adviser, the Transfer Agent, or the Administrator, shall determine,
in its or their sole judgment exercised in good faith, that the Company and/or
their affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity, provided that the
Trust, the Adviser, the Transfer Agent or the Administrator will give the
Company sixty (60) days' advance written notice of such determination of its
intent to terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other changes in
circumstances since the giving of such notice, the determination of the Trust,
the Adviser, the Transfer Agent or the Administrator shall continue to apply on
the 60th day since giving of such notice, then such 60th day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the Trust, the
Adviser, the Transfer Agent and the Administrator, if the Company shall
determine, in its sole judgment exercised in good faith, that either the Trust,
the Adviser, the Transfer Agent or the Administrator has suffered a material
adverse change in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material adverse
publicity, provided that the Company will give the Trust, the Adviser, the
Transfer Agent and the Administrator sixty (60) days' advance written notice of
such determination of its intent to terminate this Agreement, and provided
further that after consideration of the actions taken by the Trust, the Adviser,
the Transfer Agent or the Administrator and any other changes in circumstances
since the giving of such notice, the determination of the Company shall continue
to apply on the 60th day since giving of such notice, then such 60th day shall
be the effective date of termination; or
(h) termination by the Trust, the Adviser, the Transfer Agent or the
Administrator by written notice to the Company, if the Company gives the Trust,
the Adviser, the Transfer Agent and the Administrator the written notice
specified in Section 2.4 hereof and at the time such notice was given there was
no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 11.1(h) shall be
effective sixty (60) days after the notice specified in Section 2.4 was given;
or
(i) termination by any party upon the other party's breach of any
representation in Article 6 or a any material provision of this Agreement, which
breach has not been cured to the satisfaction of the terminating party within
ten (10) days after written notice of such breach is delivered to the Trust or
the Company, as the case may be; or
(j) termination by the Trust, the Adviser, the Transfer Agent or
Administrator by written notice to the Company in the event an Account or
Contract is not registered (unless exempt from registration) or sold in
accordance with applicable federal or state law or regulation, or the Company
fails to provide pass-through voting privileges as specified in Section 3.4.
15
<PAGE>
11.2 Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the Trust shall at the option of the Company, continue to make
available additional shares of the Trust pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Trust shares is proscribed by law, regulation or applicable
regulatory body, or unless the Trust determines that liquidation of the Trust
following termination of this Agreement is in the best interests of the Trust
and its shareholders. Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to direct reallocation of investments in
the Trust, redemption of investments in the Trust and/or investment in the Trust
upon the making of additional purchase payments under the Existing Contracts.
The parties agree that this Section 11.2 shall not apply to any terminations
under Article 8 and the effect of such Article 8 terminations shall be governed
by Article 8 of this Agreement.
11.3. The Company shall not redeem Trust shares attributable to the
Contracts (as distinct from Trust shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust, the Adviser and the
Administrator the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Trust and the Adviser) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Trust or the Adviser 30 days notice of its intention to do so.
Article 12
Notices
-------
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
One Group Investment Trust
Three Nationwide Plaza
Columbus, Ohio 43215
Attn: James F. Laird, Jr.
If to the Administrator:
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
Attn: Karen Tackett, Director Strategic Development
If to the Transfer Agent:
Nationwide Investors Services, Inc.
Three Nationwide Plaza
Columbus, Ohio 43215
Attn.: Karen Tackett
16
<PAGE>
If to the Adviser:
Banc One Investment Advisors Corporation
1111 Polaris Parkway, Suite B2
Columbus, Ohio 43271-0211
Attn: Mark A. Beeson
If to the Company:
American General Annuity Insurance Company
2929 Allen Parkway
Houston, Texas ________
Attn: _________________
Article 13
Miscellaneous
-------------
13.1. All persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Trust. Each of the
Company, the Adviser, the Transfer Agent and the Administrator acknowledges and
agrees that, as provided by the Trust's Amended and Restated Declaration of
Trust, the shareholders, trustees, officers, employees and other agents of the
Trust and the Portfolios shall not personally be bound by or liable for matters
set forth hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder. The Trust's Amended and
Restated Declaration of Trust is on file with the Secretary of State of
Massachusetts.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities (and
other parties hereto) reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may, with advance written notice to
the other parties hereto, assign this Agreement or any rights or obligations
hereunder to any affiliate of or
17
<PAGE>
company under common control with the Adviser if such assignee is duly licensed
and registered to perform the obligations of the Adviser under this Agreement.
13.9. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee upon request, copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any
event within 90 days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory), as
soon as practical and in any event within 45 days following such period;
(c) any financial statement, proxy statement, notice
stockholders and/or policyholders, as soon as or report of the Company sent
to practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports the Company filed with the Securities and Exchange Commission or
any state insurance regulator, as soon as practical after the filing
thereof; and
(e) any other public report submitted to the Company by
independent accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as practical after
the receipt thereof.
13.10 The names "One Group(R) Investment Trust" and `Trustees of One
Group(R) Investment Trust" refer respectively to the Trust created and the
Trustees, as trustees but not individually or personally, acting from time to
time under a Declaration of Trust dated June 7, 1993 to which reference is
hereby made and a copy of which is on file at the office of the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of `One
Group Investment Trust' entered into in the name or on behalf thereof by any of
the Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any series of Shares of the Trust must look solely
to the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
[SIGNATURE PAGES FOLLOW]
18
<PAGE>
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
By:_________________________________________
Title:______________________________________
ONE GROUP INVESTMENT TRUST
By:_________________________________________
Title: _____________________________________
BANC ONE INVESTMENT ADVISORS CORPORATION
By:_________________________________________
Title: _____________________________________
NATIONWIDE ADVISORY SERVICES, INC.
By:_________________________________________
Title: _____________________________________
NATIONWIDE INVESTORS SERVICES, INC.
By:_________________________________________
Title: _____________________________________
19
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
-------------------------------
<TABLE>
<CAPTION>
Name of Separate Account and Date Established Form Numbers
by Board of Directors Funded by Separate Account
- -------------------------------------------------------------------------------
<S> <C>
A.G. Separate Account A Contract Form Nos:
------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Schedule B
----------
Portfolios of the Trust
- -----------------------
One Group Investment Trust Bond Portfolio
One Group Investment Trust Government Bond Portfolio
One Group Investment Trust Balanced Portfolio
One Group Investment Trust Large Cap Growth Portfolio
One Group Investment Trust Equity Index Portfolio
One Group Investment Trust Diversified Equity Portfolio
One Group Investment Trust Mid Cap Growth Portfolio
One Group Investment Trust Diversified Mid Cap Portfolio
One Group Investment Trust Mid Cap Value Portfolio
21
<PAGE>
Exhibit (10)(a)
---------------
Consent of Independent Auditors
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information and to the use of our report dated
February 19, 1999 with respect to the statutory-basis financial statements and
schedules of PFL Life Insurance Company, included in Pre-Effective Amendment No.
1 to the Registration Statement (Form N-4 No. 333-78743) and related Prospectus
of The One Income Annuity.
/s/ Ernst & Young LLP
Des Moines, Iowa
July 19, 1999
